<PAGE> 1
As filed with the Securities and Exchange Commission on August 9, 1996
Registration Nos. 33-11371
811-4982
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
==================================
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
---------
Post-Effective Amendment No. 26 [x]
---------
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 28 [x]
-------------
(Check Appropriate box or boxes)
==================================
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 October 11, 1996 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.
==================================
<PAGE> 2
HEARTLAND GROUP, INC.
FORM N-1A
CROSS-REFERENCE SHEET
TO POST-EFFECTIVE AMENDMENT NO. 26
<TABLE>
<CAPTION>
Form N-1A
Item No. Prospectus Heading
- --------- ------------------
<S> <C> <C>
PART A
1. Cover Page . . . . . . . . . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . . . . . . . . . Fund Expenses
3. Condensed Financial
Information . . . . . . . . . . . . . . . . . Financial Highlights
4. General Description of
Registrant . . . . . . . . . . . . . . . . . . . . Description of Fund Shares; Investment Objectives and Policies
5. Management of the Fund . . . . . . . . . . . . . . The Fund and the Heartland Organization; How to Buy Shares;
Net Asset Value Calculation; Portfolio Transactions
5A. Management's Discussion
of Fund Performance . . . . . . . . . . . . . Not applicable. See Annual Report
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; How to Redeem
Shares
8. Redemption or Repurchase . . . . . . . . . . . . . How to Redeem Shares
9. Pending Legal Proceedings . . . . . . . . . . . . None
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PART B
<S> <C> <C>
10. Cover Page . . . . . . . . . . . . . . . . . . . . Cover Page
11. Table of Contents . . . . . . . . . . . . . . . . Cover Page
12. General Information and
History . . . . . . . . . . . . . . . . . . . . . Introduction to the Heartland Funds
13. Investment Objectives and
Policies . . . . . . . . . . . . . . . . . . . . . Investment Objective and Policies; Investment Restrictions;
Appendix A - Securities Ratings
14. Management of the Fund . . . . . . . . . . . . . . Management
15. Control Persons and Principal
Holders of Securities . . . . . . . . . . . . . . Control Persons and Principal Holders of Securities
16. Investment Advisory and
Other Services . . . . . . . . . . . . . . . . . . The Investment Advisor
17. Brokerage Allocation . . . . . . . . . . . . . . . Portfolio Transactions
18. Capital Stock and Other
Securities . . . . . . . . . . . . . . . . . . . . Description of Shares
19. Purchase, Redemption and
Pricing of Securities
Being Offered . . . . . . . . . . . . . . . . . Determination of Net Asset Value Per Share
20. Tax Status . . . . . . . . . . . . . . . . . . . . Tax Status
21. Underwriters . . . . . . . . . . . . . . . . . . . Distribution of Shares
22. Calculation of Performance
Data . . . . . . . . . . . . . . . . . . . . . . . Performance Information
23. Financial Statements . . . . . . . . . . . . . . . Financial Statements
</TABLE>
-3-
<PAGE> 4
HEARTLAND SMALL CAP CONTRARIAN FUND
HEARTLAND VALUE FUND
HEARTLAND MID CAP VALUE FUND
HEARTLAND LARGE CAP VALUE FUND
HEARTLAND VALUE PLUS FUND
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
Prospectus
October _______, 1996
The Heartland Small Cap Contrarian Fund, the Heartland Value Fund Fund, the
Heartland Mid Cap Value Fund, the Heartland Large Cap Value Fund, the Heartland
Value Plus Fund, and the Heartland U.S. Government Securities Fund
(collectively, the "Funds") are separate mutual fund portfolios of Heartland
Group, Inc. ("Heartland"). This Prospectus contains information you should
know about the Funds before you invest. Please keep it for reference. A
Statement of Additional Information for the Funds (dated October _____, 1996)
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.
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 SMALL CAP CONTRARIAN FUND'S investment objective is maximum long-term
growth. The Fund seeks to achieve its objective through aggressive, yet
flexible, value investing in small company stocks.
HEARTLAND VALUE FUND'S investment objective is long-term capital appreciation.
The Fund seeks to achieve its objective through investment in small company
stocks selected on a value basis. The Value Fund closed to new investors
effective July 1, 1995.
HEARTLAND MID CAP VALUE FUND'S investment objective is long-term capital
appreciation. The Fund seeks to achieve its objective through value investing
in mid-cap stocks, those of companies with market capitalizations between $500
million and $2.5 billion.
HEARTLAND LARGE CAP VALUE FUND'S investment objective is long-term capital
appreciation. The Fund seeks to achieve its objective through value investing
in large cap stocks, those of companies with market capitalizations over $1
billion.
HEARTLAND VALUE PLUS FUND'S investment objectives are capital appreciation and
current income. The Fund seeks to achieve its objectives primarily through
investment in income-producing equity securities of smaller companies selected
on a value basis, and the Fund may also invest in debt securities.
HEARTLAND U.S. GOVERNMENT SECURITIES FUND'S investment objectives are a high
level of current income, liquidity and safety of principal.
2
<PAGE> 6
<TABLE>
<S> <C>
TABLE OF CONTENTS
Fund Expenses 4
Financial Highlights 5
Investment Objectives and Policies 9
How to Buy Shares 21
How to Redeem Shares 23
Shareholder Services 27
Dividends, Capital Gains Distributions and Taxes 30
The Funds and the Heartland Organization 31
The Distribution Plan 33
Net Asset Value Calculation 33
Description of Fund Shares 33
Portfolio Transactions 34
Performance Information 35
</TABLE>
3
<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>
SMALL CAP MID CAP LARGE CAP VALUE U.S.
CONTRARIAN VALUE VALUE VALUE PLUS GOVERNMENT
FUND FUND FUND FUND FUND SECURITIES FUND
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales load on purchases None None None None None None
Sales load on reinvested dividends None None None None None None
Exchange fees None None None None None None
Redemption fees 1 None None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management fees 2 (after fee
waivers) .75% .75% .75% .75% .70% .50%
Rule 12b-1 fees .25% .25% .25% .25% .25% .25%
Other expenses 3 .44% .29% .45% .45% .59% .32%
TOTAL FUND OPERATING EXPENSES 1.44% 1.29% 1.45% 1.45% 1.54% 1.07%
</TABLE>
(1) The Agent charges a wire fee for the return of redemption proceeds
requested by wire transfer. The fee is currently $10.00. Shares of the Funds
purchased between February 12, 1993 and June 1, 1994 subject to a contingent
deferred sales charge remain subject to such charge upon redemption of the
shares. See "HOW TO REDEEM SHARES."
(2) The management fee shown in the table applicable to the U.S. Government
Securities Fund gives effect to the voluntary waiver by Heartland Advisors of
0.15 of 1% of the management fee. Without such waiver, the Management fees and
Total Fund Operating Expenses would have been .65% and 1.22% of average net
assets, respectively. Heartland Advisors expects to continue the waiver for
the current fiscal year; however, it may reinstate an additional portion or all
of the fee at any time.
(3) Other expenses set forth in the table for the Small Cap Contrarian, Mid
Cap Value and Large Cap Value Funds are based on management's estimates for the
current fiscal year.
4
<PAGE> 8
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming:
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
SMALL CAP VALUE FUND MID CAP LARGE CAP VALUE U.S. GOVERNMENT
CONTRARIAN FUND VALUE FUND VALUE FUND PLUS FUND SECURITIES FUND
<S> <C> <C> <C> <C> <C> <C>
One year $15 $ 13 $15 $15 $ 16 $ 11
Three years $46 $ 41 $46 $46 $ 49 $ 34
Five years N/A $ 71 N/A N/A $ 84 $ 59
Ten years N/A $156 N/A N/A $183 $131
</TABLE>
The purpose of this expense information is to assist in understanding the
various costs and expenses an investor will bear directly or indirectly in each
of the Funds. More detailed information concerning these expenses is set forth
in the sections of this Prospectus entitled "How To Buy Shares," "The
Distribution Plan" and "The Funds and the Heartland Organization." THE ABOVE
EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The following Financial Highlights table has been examined by Arthur Andersen
LLP, independent public accountants, whose reports on the financial statements
of the Value, Value Plus and U.S. Government Securities Funds for the fiscal
year ended December 31, 1995 and the Small Cap Contrarian Fund for the period
from April 27, 1995 through December 31, 1995, are included in the Funds'
Annual Report to Shareholders for such periods, and incorporated by reference
into the Statement of Additional Information. The table should be read in
conjunction with the audited financial statements and related notes appearing
in the Funds' Annual Report. Additional information about the Funds'
performance is contained in the Annual Report, which may be obtained without
charge by writing or calling Heartland Advisors. Financial information is not
available for the Mid Cap Value and Large Cap Value Funds as their shares are
being offered for the first time in this Prospectus.
5
<PAGE> 9
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
INCOME FROM INVESTMENT
OPERATIONS LESS DISTRIBUTIONS
Net Realized Total from Dividends Distributions Total
Fiscal Net Asset Net and Investment from Net from Capital Distributions
Year Value, Investment Unrealized Operations Investment Gains
Ended Beginning Income Gain/(Loss) Income
December of Period (Loss) on Securities
HEARTLAND SMALL CAP CONTRARIAN FUND
<S> <C> <C> <C> <C> <C> <C> <C>
4/27/95(1)
to $10.00 $0.03 $2.05 $2.08 $(0.03) $(0.26) $(0.29)
12/31/95
HEARTLAND VALUE FUND
1986 $13.46 $ 0.08 $ 1.39 $ 1.47 $(0.02) $(0.90) $(0.92)
1987 14.01 0.06 (1.16) (1.10) (0.14) (1.03) (1.17)
1988 11.74 0.13 3.04 3.17 (0.13) (0.43) (0.56)
1989 14.35 0.13 0.81 0.94 (0.13) (1.34) (1.47)
1990 13.82 0.02 (2.38) (2.36) (0.02) (0.12) (0.14)
1991 11.32 (0.08) 5.66 5.58 - (0.84) (0.84)
1992 16.06 (0.09) 6.91 6.82 - (2.47) (2.47)
1993 20.41 (0.12) 3.95 3.83 - (1.02) (1.02)
1994 23.22 (0.09) 0.47 0.38 - (0.88) (0.88)
1995 22.72 0.13 6.63 6.76 (0.13) (1.40) (1.53)
HEARTLAND VALUE PLUS FUND
10/26/93(1)
to
12/31/93 $10.00 $ 0.07 $ 0.45 $ 0.52 $(0.07) $ - $(0.07)
1994 $10.45 0.41 (0.92) (0.51) (0.41) - (0.41)
1995 $ 9.53 0.41 1.89 2.30 (0.41) (0.25) (0.66)
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
4/9/87(1) to
12/31/87 $ 9.55 $ 0.50 $(0.33) $ 0.17 $(0.50) $ - $(0.50)
1988 9.22 0.76 (0.18) 0.58 (0.76) - (0.76)
1989 9.04 0.77 0.21 0.98 (0.77) - (0.77)
1990 9.25 0.73 0.14 0.87 (0.73) - (0.73)
1991 9.39 0.69 0.83 1.52 (0.69) (0.25) (0.94)
1992 9.97 0.66 0.30 0.96 (0.66) (0.34) (1.00)
1993 9.93 0.56 1.18 1.74 (0.56) (0.61) (1.17)
1994 10.50 0.59 (1.59) (1.00) (0.59) - (0.59)
1995 8.91 0.60 1.05 1.65 (0.60) - (0.60)
</TABLE>
6
<PAGE> 10
<TABLE>
<CAPTION>
RATIOS AND SUPPLEMENTAL DATA
Net Asset Total Return Net Assets, Ratio of Net Ratio of Net
Value, End of End of Period Expenss to Investment Portfolio
Period Average Net Income/(Loss) Turnover
Assets to Average Net Ratio
Assets
HEARTLAND SMALL CAP CONTRARIAN FUND
<S> <C> <C> <C> <C> <C>
$11.79 20.8 % (4) $ 85,548,571 1.44%(3) 1.01 %(3) 45%
HEARTLAND VALUE FUND
$14.01 11.0 % (2) $ 28,146,987 1.66% 0.71 % 89%
11.74 (8.4)% (2) 27,536,584 1.51% 0.43 % 78%
14.35 27.1 % 28,499,177 1.71% 0.85 % 50%
13.82 6.6 % 30,797,831 1.65% 0.86 % 88%
11.32 (17.1)% 19,942,598 1.74% 0.14 % 76%
16.06 49.4 % 29,879,996 1.69% (0.54)% 79%
20.41 42.5 % 48,391,112 1.48% (0.49)% 76%
23.22 18.8 % 186,518,201 1.51% (0.71)% 51%
22.72 1.7 % 339,364,388 1.39% (0.52)% 35%
27.95 29.8 % 1,190,926,008 1.29% 0.61 % 31%
HEARTLAND VALUE PLUS FUND
$10.45 5.2 % (4) $ 5,810,983 1.30%(3) 6.52 %(3) 6%
9.53 (4.9)% 9,884,142 1.80% 4.39 % 127%
11.17 24.4 % 19,122,694 1.54% 3.90 % 150%
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
$ 9.22 1.9 % (2) $ 12,610,076 1.04%(3) 7.16 %(3) 64%
9.04 6.4 % 12,414,180 0.95%(5) 8.25 % 136%
9.25 11.3 % 11,594,574 0.89%(5) 8.45 % 142%
9.39 10.0 % 16,423,750 0.86%(5) 7.98 % 127%
9.97 17.0 % 29,101,367 0.92%(5) 7.06 % 185%
9.93 10.1 % 28,377,978 0.92%(5) 6.71 % 149%
10.50 17.8 % 66,788,763 1.06%(5) 5.09 % 200%
8.91 (9.6)% 64,807,074 1.07%(5) 6.30 % 95%
9.96 19.0 % 66,260,798 1.07%(5) 6.31 % 97%
</TABLE>
(1) Commencement of operations
(2) Unaudited
(3) Annualized
(4) Not Annualized
7
<PAGE> 11
(5) Heartland Advisors voluntarily waived the management fee in its entirety
from May 7, 1988 through November 30, 1990. Effective December 1, 1990,
Heartland Advisors partially reinstated a portion of the fee at the rate of .25
of 1% of average net assets and, effective January 20, 1992 and January 1, 1993,
respectively, reinstated additional portions of the fee resulting in a rate of
.35 of 1% and .50 of 1% of average daily net assets, respectively.
* Contingent deferred and initial sales charges in effect for the Funds prior to
June 1, 1994 are not reflected in Total Return as set forth in the table.
8
<PAGE> 12
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES. The investment objectives of each of the Funds are
fundamental and may not be changed without shareholder approval. The investment
policies of the Funds, unless otherwise specified, are not fundamental
policies, and therefore may be changed by the affirmative vote of a majority of
the directors of Heartland. In view of the risks inherent in all investments in
securities, there is no assurance that the investment objectives of the Funds
will be achieved.
The SMALL CAP CONTRARIAN FUND'S investment objective is maximum long-term
growth. The Fund seeks to take advantage of both rising and, to a lesser
degree, declining markets.
The VALUE FUND seeks long-term capital appreciation through value investing in
small companies.
The MID CAP VALUE FUND seeks long-term capital appreciation through value
investing in mid-size companies.
The LARGE CAP VALUE FUND seeks long-term capital appreciation through value
investing in large companies.
The VALUE PLUS FUND'S investment objectives are capital appreciation and
current income. In pursuit of its objectives, the Fund seeks a yield that
exceeds the yield of securities comprising the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500").
The U.S. GOVERNMENT SECURITIES FUND'S investment objectives are a high level of
current income, liquidity and safety of principal.
HEARTLAND'S VALUE CRITERIA FOR INVESTING IN STOCKS
In selecting equity securities for the Small Cap Contrarian, Value, Mid Cap
Value, Large Cap Value and Value Plus Funds, Heartland Advisors considers
whether the security is undervalued relative to a set of factors, including:
- price/earnings ratio - management capabilities
- market price to book value - undervalued assets
- price/cash flow ratio - potential for favorable developments
- earnings growth - insider and institutional ownership
- long-term debt/capital - technical analysis
WHAT IS MEANT BY MARKET CAP?
"Market Cap" (market capitalization) is a measure of the value of a company's
equity as determined by multiplying the company's current stock price by the
number of shares it has outstanding. While every equity investment involves
some degree of risk, in general, companies with larger market capitalizations
tend to be more established and their securities may have greater liquidity and
may be subject to lower volatility than those of smaller companies.
Investments in equity securities of companies with smaller market
capitalizations may involve a higher degree of risk than investments in the
general equity markets. However, Heartland Advisors believes that the relative
lack of attention from investment analysts and institutional
9
<PAGE> 13
investors to small and mid-cap companies may result in opportunitites to
purchase the securities of those companies at attractive valuations. In
general, the prices of small and mid-cap companies may be more volatile than
those of larger companies, the securities of smaller companies may have less
market liquidity, and smaller companies may be more likely to be adversely
affected by poor economic or market conditions.
It is anticipated that certain of the portfolio securities held by the Small
Cap Contrarian Fund, the Value Fund and, to a more limited extent, the Mid Cap
Value Fund may not be widely traded and that a Fund's position in such
securities may be substantial in relation to the market for such securities.
Accordingly, it may be difficult at times for the Fund to dispose of such
securities at prevailing market prices in order to meet redemptions or other
cash needs.
SMALL CAP CONTRARIAN FUND
The Small Cap Contrarian Fund seeks to achieve maximum long-term growth by
aggressive, yet flexible, value investing in smaller companies that are
attractively priced. The Fund seeks to take advantage of both rising and, to a
lesser degree, declining markets. Under normal market conditions, at least 65%
of the Fund's total assets will be invested in equity securities of smaller
companies with market capitalizations of less than $500 million.
The Small Cap Contrarian Fund takes an aggressive investment approach and may
be appropriate for investors who seek potentially high long-term returns, have
an investment horizon of at least three years, and are willing to accept
certain risks, including risks of short selling, futures and options, foreign
securities, leverage and potentially significant short-term fluctuations in the
Fund's share price. See "Other Investment Policies, Practices and Risk Factors
of the Funds."
The Fund focuses its investments primarily on equity securities of smaller
companies whose potential values generally have been overlooked by other
investors. Such companies include attractively priced, viable businesses that
have not yet been discovered or become popular, previously unpopular companies
having appreciation potential due to changed circumstances, companies that have
declined in value and no longer command an investor following, and previously
popular companies temporarily out of favor due to short-term factors. Heartland
Advisors will consider the factors listed under "Heartland's Value Criteria for
Investing in Stocks" when selecting companies for the Fund's portfolio. As of
March 31, 1996, the median market capitalization of the companies in which the
Fund had a long position was approximately $44 million, with a weighted average
market capitalization of about $164 million.
Equity securities in which the Fund may invest include common stock,
convertible debt, preferred stock, warrants or other securities exchangeable
for shares of common stock, and other equity securities, including real estate
investment trusts. The Small Cap Contrarian Fund may invest up to, but less
than, 35% of its total assets in debt securities, including lower-quality,
high-yielding debt securities. The Fund may buy debt securities of all types
and qualities issued by both domestic and foreign issuers. For information
regarding the risks associated with investing in lower-quality securities, see
"Investment Quality."
As a matter of fundamental policy, the Small Cap Contrarian Fund will not
purchase the securities of any issuer if, as a result: (i) with respect to 75%
of the Fund's total assets, more than 5% of its total assets would be invested
in such issuer or the Fund would own more than 10% of the outstanding voting
securities of such issuer; or (ii) more than 25% of its assets would be
concentrated in any one industry. These limitations do not apply to U.S.
government securities.
10
<PAGE> 14
The aggressive investment techniques in which the Small Cap Contrarian Fund may
engage may entail risks not encountered by the average mutual fund. Some
techniques, such as short sales, the use of put and call options and futures,
investments in foreign securities, leverage and short-term trading, may be
considered speculative and may also result in higher operating expenses. See
"Other Investment Policies and Practices of the Funds."
VALUE FUND
Effective July 1, 1995, the Value Fund closed to new investors. Investors who
were shareholders of the Value Fund on July 1, 1995, certain employee benefit
plans and certain financial advisers and planners may continue to add to an
existing account or open new accounts. See "How to Buy Shares." The Fund may
resume sales to new investors at some future date, but it has no present
intention to do so.
To achieve long-term capital appreciation, the Value Fund invests primarily in
equity securities of small companies with market capitalizations of less than
$300 million selected on a value basis. The Value Fund will invest at least 65%
of its total assets in equity securities of value companies as determined by
Heartland Advisors in accordance with the factors listed above.
While the Value Fund may invest in securities of companies with market
capitalizations in excess of $300 million, a majority of the Fund's investments
will be in stocks with smaller market capitalizations. As of March 31, 1996,
the median market capitalization of the companies in the Value Fund's portfolio
was approximately $59 million, with a weighted average market capitalization
for the Fund's portfolio of approximately $211 million. The Value Fund may also
invest in convertible securities and debt securities rated B or above, and
warrants, each up to 5% of the Fund's net assets.
As a matter of fundamental policy, the Value Fund will not purchase the
securities of any company if, as a result: (i) it would own more than 10% of
the outstanding voting securities of such company; (ii) such holdings would
amount to more than 5% of the Value Fund's total assets; or (iii) more than 25%
of its assets would be concentrated in any one industry. These limitations do
not apply to U.S. government securities. The Value Fund may, from time to time
purchase securities issued by broker-dealers that sell or distribute its shares
or that execute portfolio brokerage transactions for the Value Fund; provided
that any such purchases will only be made in accordance with the limitations
imposed on such purchases by the Securities and Exchange Commission. The Value
Fund will not invest in securities issued by Heartland Advisors or any
affiliate of Heartland Advisors.
MID CAP VALUE FUND
The Mid Cap Value Fund seeks to achieve long-term capital appreciation through
investing in mid-size companies that are attractively priced. Under normal
market conditions, the Fund will invest at least 65% of its total assets in
equity securities of companies with market capitalizations between $500 million
and $2.5 billion selected on a value basis. Heartland Advisors' value criteria
for investing in stocks are discussed above. In addition, Heartland Advisors
will consider a relatively higher dividend yield as a favorable factor in
selecting equity securities for the Mid Cap Value Fund.
Equity securities in which the Fund may invest include common stock, preferred
stock, convertible debt, warrants or other securities exchangeable for
shares of common stock, and other
11
<PAGE> 15
equity securities, including real estate investment trusts. The Mid Cap Value
Fund may also invest up to 35% of its total assets in debt securities,
including up to 15% of its total assets which may be invested in non-investment
grade debt securities, provided the Fund may not invest in securities rated
below B, or judged by Heartland Advisors to be of comparable quality, at the
time of purchase. For information regarding non-investment grade securities,
see "Investment Quality."
As a matter of fundamental policy, the Mid Cap Value Fund will not purchase the
securities of any issuer if, as a result: (i) with respect to 75% of the
Fund's total assets, more than 5% of its total assets would be invested in such
issuer or the Fund would own more than 10% of the outstanding voting securities
of such issuer; or (ii) more than 25% of its assets would be concentrated in
any one industry. These limitations do not apply to U.S. government
securities.
LARGE CAP VALUE FUND
The Large Cap Value Fund seeks to achieve long-term capital appreciation by
investing in attractively priced companies with market capitalizations over $1
billion. Under normal market conditions, the Fund will invest at least 65% of
its total assets in equity securities of companies with market capitalizations
in excess of $1 billion selected on a value basis. Heartland Advisors' value
parameters for investing in stocks are discussed above. While the Fund will
also invest in securities that do not produce income, Heartland Advisors
generally will look for securities with relatively higher dividend yields when
selecting securities it considers undervalued for the Large Cap Value Fund.
Equity securities in which the Fund may invest include common stock, preferred
stock, convertible debt, warrants or other securities exchangeable for shares
of common stock, and other equity securities, including real estate investment
trusts. The Large Cap Value Fund may also invest up to 35% of its total assets
in debt securities, including up to 15% of its total assets which may be
invested in non-investment grade debt securities, provided the Fund may not
invest in securities rated below B, or judged by Heartland Advisors to be of
comparable quality, at the time of purchase. For information regarding
non-investment grade securities, see "Investment Quality."
As a matter of fundamental policy, the Large Cap Value Fund will not purchase
the securities of any issuer if, as a result: (i) with respect to 75% of the
Fund's total assets, more than 5% of its total assets would be invested in such
issuer or the Fund would own more than 10% of the outstanding voting securities
of such issuer; or (ii) more than 25% of its assets would be concentrated in
any one industry. These limitations do not apply to U.S. government
securities.
VALUE PLUS FUND
To achieve its objectives, the Value Plus Fund primarily invests in
income-producing equity securities of smaller companies, those with market
capitalizations of less than $750 million. The Fund seeks a yield that is
greater than the yield of the S&P 500. The Fund expects to realize income from
dividends earned on equity investments and interest earned on debt securities.
12
<PAGE> 16
Under normal market conditions, the Value Plus Fund will invest at least
65% of its total assets in equity securities of value companies selected by
Heartland Advisors in accordance with the factors listed under "Heartland's
Value Criteria for Investing in Stocks" above.
Equity securities in which the Fund may invest include common stock,
convertible debt, preferred stock, warrants or other securities exchangeable
for shares of common stock, and other equity securities, including real estate
investment trusts. Heartland Advisors attempts to reduce the volatility of the
Fund relative to the S&P 500 through the income-producing features of the Fund;
however, there is no assurance the Fund will achieve this goal.
The Value Plus Fund may invest up to 35% of its total assets in debt
securities, including up to 25% of its assets in non-investment grade debt
securities, provided that the Fund may not invest in securities rated below B,
or judged by Heartland Advisors to be of comparable quality, at the time of
purchase. See "Investment Quality." While Heartland Advisors will look to the
conversion feature of convertible debt securities and consider them as "equity
securities," those securities will be subject to the above 25% limitation on
investments in non-investment grade securities.
As a matter of fundamental policy, the Value Plus Fund will not purchase the
securities of any issuer if, as a result: (i) the Fund would own more than 10%
of the outstanding voting securities of such issuer; (ii) with respect to 75%
of the Fund's total assets, more than 5% of its total assets would be invested
in such issuer; (iii) with respect to its total portfolio, more than 10% of the
total assets would be invested in such issuer; or (iv) more than 25% of its
assets would be concentrated in any one industry. These limitations do not
apply to U.S. government securities.
U.S. GOVERNMENT SECURITIES FUND
As a fundamental policy, the U.S. Government Securities Fund will invest at
least 65% of its total assets in obligations issued or guaranteed by the U.S.
government or by its agencies or instrumentalities. The government obligations
in which the Fund may invest may be either direct obligations of the Treasury
or securities issued or guaranteed by government agencies or instrumentalities.
Of the obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, some are backed by the full faith and credit of the U.S.
government and others are backed only by the rights of the issuer to borrow
from the U.S. Treasury (such as Federal Home Loan Bank bonds and Federal
National Mortgage Association securities). Investments in this latter category
of obligations are subject to risk based on the creditworthiness of the issuing
agency or instrumentality, and there is no assurance that the U.S. government
will provide financial support for such agencies or instrumentalities.
Heartland Advisors buys and sells securities after considering economic
conditions, liquidity factors and interest rate trends. Heartland Advisors
also considers certain factors, including sector rotation, security selection
and maturity management in its value-based investment process for the Fund.
Increases in interest rates may decrease the value of the U.S. Government
Securities Fund's
13
<PAGE> 17
portfolio and decreases in interest rates may increase the value of its
portfolio. The U.S. Government Securities Fund's return will also vary from
time to time depending on fluctuation in market interest rates. The average
maturity within the portfolio will be shifted in response to anticipated
changes in interest rates. The average maturity will be shortened when
Heartland Advisors expects interest rates to rise, and will be lengthened when
lower rates are anticipated.
The U.S. Government Securities Fund may invest up to 35% of its total assets in
corporate debt securities and convertible debt securities, including investment
of up to 25% of its total assets in non-investment grade debt securities and
convertible debt securities, provided that the Fund may not invest in
securities rated below B by Moody's Investors Service, Inc. ("Moody's"), or
Standard & Poor's Corporation ("S&P"), or unrated securities judged by
Heartland Advisors to be of comparable quality, at the time of purchase. See
"Investment Quality."
INVESTMENT QUALITY
INVESTMENT GRADE SECURITIES. Investment grade debt securities in which the
Funds may invest are considered by Heartland Advisors to include securities
rated at the time of purchase within the four highest rating categories
assigned by Moody's or S&P, or securities which are unrated, provided that such
securities are judged by Heartland Advisors, at the time of purchase, to be of
comparable quality to securities rated within such four highest categories.
Securities rated in the fourth highest rating category are more sensitive to
economic changes than are securities rated in a higher category and such
securities have speculative characteristics.
HIGH YIELD SECURITIES. Non-investment grade securities (commonly known as "junk
bonds") in which the Funds may invest may be regarded, on balance, as
predominantly speculative with respect to the capacity to pay interest and
repay principal in accordance with the terms of the obligation. While such
bonds typically offer higher rates of return, they involve greater risk,
including greater risk of default and loss of principal. The prices of these
lower rated bonds may be less sensitive to interest rate changes than higher
rated bonds, but more sensitive to adverse economic changes. Periods of
economic uncertainty and change may cause market price volatility in these
higher yielding bonds and corresponding volatility in the Fund's net asset
value. Furthermore, higher yielding bonds may contain redemption or call
provisions which, if exercised during a declining interest rate environment,
may require the Fund to replace the security with a lower yielding security,
resulting in a decreased return to the Fund. Finally, the secondary trading
market for higher yielding bonds may not be as active as for lower yielding
bonds. As a result, it may be difficult to accurately assess the value of such
bonds (and therefore the respective Fund's securities portfolio), and the
Fund's ability to dispose of such bonds may be limited. For a more detailed
discussion of the risks associated with investing in lower rated securities,
see "Investment Policies and Methods - Non-Investment Grade Securities" in the
Statement of Additional Information. Debt securities rated B, the lowest
category in which the Value, Mid Cap Value, Large Cap Value, Value Plus and
U.S. Government Securities Funds may invest, are regarded by S&P as having a
greater vulnerability to default but having the ability, at the time they are
rated, to meet scheduled interest and principal payments. Moody's notes that
the assurance of interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be small. The Small Cap
Contrarian Fund may invest in debt securities rated as low as the lowest rating
category assigned by Moody's or S&P, which securities may be even more
speculative than B rated debt. A description of the ratings assigned by Moody's
and S&P is contained in the Statement of Additional Information.
ASSET COMPOSITION
14
<PAGE> 18
The following table provides a summary of the Value Plus Fund's and U.S.
Government Securities Fund's respective debt holdings as rated by Moody's or,
in the case of unrated securities, as determined by Heartland Advisors. These
figures are dollar-weighted averages of month-end portfolio holdings during the
year ended December 31, 1995, presented as a percentage of total portfolio
holdings. For the period since inception through December 31, 1995, the Small
Cap Contrarian Fund was not invested in long-term debt securities. These
percentages are historical and are not necessarily indicative of the quality of
current or future Fund holdings, which may vary.
<TABLE>
<CAPTION>
MOODY'S RATING VALUE PLUS U.S. GOVERNMENT SECURITIES
OR EQUIVALENT FUND AVERAGE FUND AVERAGE
<S> <C> <C>
Aaa 0% 71.7%
Aa 0% 0%
A 0% 0%
Baa 5.2% 2.9%
Ba 5.3% 17.6%
B 16.0% 1.6%
</TABLE>
The dollar-weighted average of debt securities included in these figures and
not rated by Moody's amounted to 8.7% and 1.3% of the Value Plus Fund's and
U.S. Government Securities Fund's total portfolios, respectively. This may
include securities rated by other nationally recognized rating organizations,
as well as unrated securities. Unrated securities are not necessarily lower
quality securities. Please refer to the Statement of Additional Information for
a more complete discussion of these ratings.
OTHER INVESTMENT POLICIES, PRACTICES AND RISK FACTORS OF THE FUNDS
In addition to the investments described above for each Fund, the Funds may
invest in securities and employ investment techniques that may present special
risks as described below. Although there is no uniform definition of
"derivative securities," certain instruments in which the Funds may invest may
be considered derivative because the value of the instrument fluctuates
depending upon the value of another security, index, reference interest rate,
or currency. These instruments may include options, futures, options on
futures, forward foreign currency contracts, indexed securities, and certain
stripped obligations and mortgage-backed securities. A more complete discussion
of the Funds' securities and investment techniques and their associated risks,
as well as further investment restrictions to which the Funds may be subject,
is contained in the Statement of Additional Information.
OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Each Fund may
engage in transactions in options, futures contracts, and options on futures
contracts to hedge protectively against anticipated declines in the market
value of its portfolio securities, or against increases in the market values of
securities it intends to purchase, or to manage exposure to changing interest
rates or, with respect to each Fund other than the U.S. Government Securities
Fund, as a hedge against changes in prevailing levels of currency exchange
rates. The Funds will not use these instruments for speculation. Some options
and futures strategies, including selling futures, buying puts and writing
calls, tend to hedge a Fund's investments against price fluctuations. Other
strategies, including buying futures, writing puts, and buying calls, tend to
increase market exposure. Options and futures may be combined with each other
or with forward contracts in order to adjust the risk and return
characteristics of the Fund's overall strategy.
15
<PAGE> 19
The Value, Mid Cap Value, Large Cap Value, Value Plus and U.S. Government
Securities Funds each may write covered call options and purchase put options
that are traded on recognized U.S. exchanges with respect to specific
securities and enter into closing transactions with respect to such options.
The Value and Value Plus Funds also may sell covered call options and purchase
put options on foreign currencies and on stock indices composed of securities
of the same general character as each Fund's portfolio and may enter into
closing transactions with respect to such options. The Mid Cap Value and Large
Cap Value Funds may also purchase call options on any type of security related
to their respective investments.
The Value, Value Plus and U.S. Government Securities Funds each may purchase
and sell futures contracts, including interest rate futures, index futures and,
with respect to the Value Fund and the Value Plus Fund, currency futures, that
are traded on a recognized U.S. exchange, board of trade or similar entity, or
quoted on an automated quotation system. Each of those Funds may also write
covered call options and purchase put options on futures contracts and enter
into closing transactions with respect to such options. The Mid Cap Value and
Large Cap Value Funds each may buy and sell exchange-traded futures and options
on futures based on any type of security, index or currency related to its
investments, including futures and options on futures traded on foreign
exchanges.
The Small Cap Contrarian Fund may buy and sell options and futures, including
purchasing and writing put and call options and options on futures, based on
any type of security, index, or currency related to its investments, including
options and futures traded on foreign exchanges and options not traded on
exchanges. Over-the-counter options generally involve greater credit and
liquidity risks than exchange-traded options.
Each Fund will limit its use of these hedging instruments so that: (i) no more
than 5% of the Fund's total assets would be committed to initial margin
deposits or premiums on futures contracts; (ii) no more than 25% of the Fund's
net assets would be subject to futures contracts; (iii) no more than 5% of the
Fund's total assets would be committed to premiums paid for options; and (iv)
no more than 25% of the Fund's total assets would be subject to options. Each
of these limitations applies immediately after a purchase. A subsequent change
in the applicable percentage resulting from market fluctuations does not
require elimination of any security, option or future from the portfolio.
Consequently, a Fund's 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 a Fund's total return. A
Fund's potential losses from the use of futures extend beyond its initial
investment in such contracts. Each Fund could also experience losses if the
prices of its options or futures positions were poorly correlated with its
other investments, or if it was unable to close out its positions due to
disruptions in the market or lack of liquidity. Options and futures traded on
foreign exchanges in which the Small Cap Contrarian, Mid Cap Value and Large
Cap Value Funds may invest generally are not regulated by U.S. authorities, and
may offer less liquidity and less protection to the Fund if the other party to
the contract defaults.
SHORT SALES. If the Small Cap Contrarian Fund anticipates that the price of a
security will decline, it may sell the security short (sell a security which
the Fund does not then own for delivery at a future date) and borrow the same
security from a broker or other institution to complete the sale.
16
<PAGE> 20
The Fund may make a profit or loss depending upon whether the market price of
the security decreases or increases between the date of the short sale and the
date on which the Fund must replace the borrowed security. The Fund will
maintain a segregated account with cash or liquid assets to cover its open
short positions.
The Small Cap Contrarian, Value, Mid Cap Value, Large Cap Value and Value Plus
Funds may each engage in "short sales against the box," a less aggressive short
selling technique which involves selling a security that the Fund owns (or has
an unconditional right to purchase) for delivery at a specified date in the
future, to hedge protectively against anticipated declines in the market
price of its portfolio's securities or to defer an unrealized gain. If the
value of the securities sold short increases prior to the scheduled delivery
date, the Fund loses the opportunity to participate in the gain. Those Funds
may also engage in short sales of securities of an issuer ("acquiror") that has
publicly announced a proposed or a pending transaction in which a portfolio
security of the Fund will be converted into securities of the acquiror. Each
Fund will maintain a segregated collateral account with its custodian to cover
open short positions in acquiror securities. If the value of an acquiror's
security sold short were to increase relative to the segregated collateral, the
Fund would lose the opportunity to participate in the appreciation and may also
be required to purchase additional shares of the shorted security to close out
the position or settle the position in cash.
The Small Cap Contrarian Fund will not sell short securities whose underlying
value exceeds 25% of its total assets and the Fund will limit short sales,
other than short sales against the box or of acquiror securities, of any one
issuer's securities to 2% of the Fund's total assets and to 2% of any one class
of the issuer's securities. The Value, Mid Cap Value, Large Cap Value and Value
Plus Funds will each limit short sales against the box and of acquiror
securities so that: (i) no more than 5% of its total assets would be subject to
open short positions; and (ii) no more than 10% of the Fund's net assets would
be held as collateral for such positions.
FOREIGN SECURITIES. The Value and Value Plus Funds may invest up to 15% of
their respective assets directly in the securities of foreign issuers. The
Small Cap Contrarian, Mid Cap Value and Large Cap Value Funds may invest up to
25% of their respective assets in foreign securities or, with respect to the
Small Cap Contrarian Fund, in any one currency. Each Fund other than the U.S.
Government Securities Fund may also invest in foreign securities in domestic
markets through depository receipts and securities of foreign issuers that are
traded on a registered American stock exchange or the NASDAQ National Market
System without regard to the above limitations. While investment in foreign
securities is intended to reduce risk by providing further diversification,
such investments involve certain risks in addition to the credit and market
risks normally associated with domestic securities. Such risks include: adverse
political and economic developments or social instability; the imposition of
foreign withholding taxes or exchange controls; expropriation or
nationalization; currency blockage (which could prevent cash from being brought
back to the United States); the impact of exchange rate and foreign currency
fluctuations on the market value of foreign securities; more limited
availability of public information regarding security issuers; the degree of
governmental supervision regarding securities markets; different accounting,
auditing and financial standards; difficulties in enforcing legal rights; and
the potential for less liquidity and more volatility of foreign securities
markets.
Brokerage commissions, fees for custodial services, and other costs relating to
foreign investments generally are greater than in the U.S. Such markets may
have different clearance and settlement procedures, and in certain markets
there have been times when settlements have been unable to keep pace with the
volume of securities transactions, making it difficult to settle certain
17
<PAGE> 21
transactions. Inability to sell a portfolio security due to settlement problems
could result either in a loss to the Fund if the value of the portfolio
security subsequently declined, or, if the Fund had entered into a contract to
sell the security, could result in possible claims against the Fund.
FOREIGN CURRENCY TRANSACTIONS. Foreign securities are subject to currency risk,
that is, the risk that the U.S. dollar value of these securities may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations. To manage this risk and facilitate the
purchase and sale of foreign securities, each Fund other than the U.S.
Government Securities Fund may engage in foreign currency transactions
involving the purchase and sale of forward foreign currency exchange
contracts (agreements to exchange one currency for another at a future date),
or they may engage in transactions in options on foreign currencies, currency
futures contracts, or options on currency futures contracts. Although foreign
currency transactions will be used to protect such Funds from adverse currency
movements, they involve the risk that anticipated currency movements will not
be accurately predicted and a Fund's total return could be adversely affected
as a result.
MORTGAGE-BACKED SECURITIES. The U.S. Government Securities Fund may invest a
substantial portion of its assets in mortgage-backed securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities. These
securities represent interests in pools of mortgages, and may include stripped
mortgage-backed securities. Mortgage-backed securities may be guaranteed by the
issuing governmental agency and, as is the case with GNMA certificates, may
also be backed by the full faith and credit of the U.S. government. In general,
most mortgage-backed securities pass through to the holders of the securities
the monthly interest and principal payments made by the borrowers on the
underlying mortgage loans, after deduction of servicing fees. Collateralized
Mortgage Obligations ("CMOs") issued or guaranteed by the U.S. government, its
agencies or instrumentalities are hybrid mortgage-related instruments typically
collateralized by portfolios of mortgage-backed securities. CMOs may be
structured into multiple classes, with each class bearing a different effective
maturity and entitled to a different schedule for payments of principal and
interest, including prepayments. Mortgage-backed securities are subject to
prepayment risk, that is, the possibility that prepayments on the underlying
mortgages will cause the principal and interest on the mortgage-backed
securities to be paid prior to their maturities, and the value of these
securities may be significantly affected by changes in interest rates.
Prepayments during a period of declining interest rates may result in the Fund
having to invest the unanticipated proceeds in lower-yielding securities.
During periods of rising interest rates, prepayments may occur at a slower rate
than anticipated, resulting in volatility in the value of the mortgage-backed
security due to changes in its estimated average life.
ZERO COUPON BONDS AND STRIPPED SECURITIES. Each Fund other than the Value Fund
may invest in zero coupon bonds, which do not pay current interest, but are
purchased at a discount from their face value with principal and accrued
interest paid at maturity. Those Funds may also invest in stripped obligations,
which are the separate income or principal components of a debt instrument,
issued by the U.S. government or its agencies and instrumentalities. The market
value of zero coupon bonds and stripped obligations may be subject to greater
volatility in response to changes in interest rates than other debt securities.
INDEXED SECURITIES. Each Fund other than the Value Fund may invest in indexed
securities whose value is linked to currencies, interest rates, commodities,
indices, or other financial indicators. Most indexed securities are short to
intermediate term fixed-income securities whose values at maturity, or interest
rates, rise or fall according to the change in one or more specified underlying
instruments. Indexed securities may be positively or negatively indexed (i.e.,
their value may
18
<PAGE> 22
increase or decrease if the underlying instrument appreciates)
and may have return characteristics similar to direct investments in the
underlying instrument or to one or more options on the underlying instrument.
Indexed securities may be more volatile than the underlying instrument itself
and the market for indexed securities may be thinner than the market for
securities in general, which can adversely affect the availability of market
quotations and the prices at which indexed securities are sold.
REAL ESTATE INVESTMENT TRUSTS. The Small Cap Contrarian, Mid Cap Value, Large
Cap Value, and Value Plus Funds may invest up to 10% of their respective total
assets in real estate investment trusts ("REITs"). REITs are subject to
volatility from risks associated with investments in real estate and
investments dependent on income from real estate, such as fluctuating demand
for real estate and sensitivity to adverse economic conditions. In addition,
the failure of a REIT in which the Fund has invested to continue to qualify as
a REIT for tax purposes would have an adverse impact on the value of the Fund's
investment.
LENDING PORTFOLIO SECURITIES. Each Fund may lend its portfolio securities to
institutional investors or broker-dealers to a maximum of 30% of its assets,
where such loans are callable at any time and are continuously secured by
collateral consisting of cash or liquid assets at least equal to the value of
the security loaned. The collateral received by a Fund will be invested in
short-term debt instruments. The respective Fund receives amounts equal to
earned income for having made the loans. The respective Fund is the beneficial
owner of the loaned securities in that any gain or loss in the market price
during the loan period inures to the Fund. Thus, when the loan is terminated,
the value of the securities may be more or less than their value at the
beginning of the loan. In determining whether to lend its portfolio securities,
each Fund takes into account the creditworthiness of the borrower since the
Fund could experience costs and delays in recovering loaned securities or
exercising its rights to the collateral in the event of bankruptcy of the
borrower. Each Fund may pay a fee to placing brokers in connection with loans
of its portfolio securities.
REPURCHASE AGREEMENTS. Each Fund other than the Value Fund may enter into
repurchase agreements with banks and broker-dealers, under which the Fund
purchases securities and agrees to sell them back at a specified time and
price. The difference between the amount the Fund pays for the securities and
the amount it receives upon resale is accrued as interest and reflected in its
net income. In the event of a bankruptcy or default of certain sellers of
repurchase agreements, the Fund could experience costs and delays in
liquidating the underlying security, which is held as collateral, and the Fund
might incur a loss if the value of the collateral held declines during this
period. In determining whether to enter into a repurchase agreement, the
respective Fund will take into account the creditworthiness of the
counterparty. Those Funds will use repurchase agreements as a means of making
short-term investments, and will invest in repurchase agreements of a duration
of seven days or less in an amount not exceeding 25% of their respective net
assets. Each Fund's ability to invest in repurchase agreements that mature in
more than seven days is subject to an investment restriction that limits
investment in "illiquid" securities, including such repurchase agreements, to
10% of net assets.
REVERSE REPURCHASE AGREEMENTS. The Small Cap Contrarian, Mid Cap Value and
Large Cap Value Funds may enter into reverse repurchase agreements with banks
and broker-dealers, under which the Fund sells a portfolio security to such
party in return for cash and the Fund agrees to repurchase the instrument at a
particular price and time. While a reverse repurchase agreement is outstanding,
the Fund will maintain appropriate liquid assets in a segregated custodial
account to cover its obligations under the agreement. To the extent that the
value of the security the Fund
19
<PAGE> 23
agrees to repurchase declines, the Fund may experience a loss. Reverse
repurchase transactions may increase fluctuations in the market value of the
Fund's assets and may be viewed as a form of leverage. In determining whether
to enter into a reverse repurchase agreement, the Fund will take into account
the creditworthiness of the counterparty.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. Each Fund other than the Value
Fund may purchase and sell securities on a "when-issued" and "delayed delivery"
basis, i.e., obligate themselves to purchase or sell securities with delivery
and payment to occur at a later date in order to secure what is considered to
be an advantageous price and yield at the time of entering into the
obligation. The market value of a security may increase or decrease between the
time that the Fund makes its commitment and the time the security is delivered.
Each Fund will make such commitments only with the intention of actually
acquiring the securities, but may sell the securities before settlement date if
it is deemed advisable for investment reasons. At the time a Fund makes a
commitment to purchase an obligation, it will record the transaction and
reflect the value of the obligation in determining its net asset value. The
custodian will maintain on a daily basis a separate account consisting of cash
or liquid securities with a value at least equal to the amount of the Fund's
commitments to purchase when-issued obligations. There are no limitations on
the percentage of the Fund's assets which may be invested in such securities;
however, it is not expected that at any one time more than 25% of its assets
would be so invested.
SHORT-TERM INVESTMENTS. Each Fund may invest a portion of its portfolio in
liquid reserves to meet its cash flow requirements. Under normal conditions,
none of the Funds anticipates that such reserves will exceed 15% of its assets.
Such reserves may be increased to enable a Fund to take advantage of buying
opportunities or may be increased up to 100% of a Fund's assets for temporary
defensive purposes. Such reserves will be invested in money market instruments,
including certificates of deposit, commercial paper, short-term corporate debt
securities, and U.S. government securities.
BORROWINGS AND LEVERAGE. As a fundamental policy, the Value, Mid Cap Value,
Large Cap Value, Value Plus and U.S. Government Securities Funds will not
borrow money or property except for temporary or emergency purposes. If one of
those Funds ever should borrow money, it would only borrow from banks and in an
amount not exceeding 10% of the market value of its total assets (not including
the amount borrowed). None of those Funds will pledge more than 15% of its net
assets to secure such borrowings. In the event one of such Funds' borrowings
exceeds 5% of the market value of its total assets, the Fund will not invest in
any additional portfolio securities until its borrowings are reduced to below
5% of its total assets. For purposes of these restrictions, collateral
arrangements for premium and margin payments in connection with a Fund's
hedging activities are not deemed to be a pledge of assets.
The Small Cap Contrarian Fund may borrow from banks up to one-third of its
total assets, and may pledge its assets in connection with such borrowings. If
the Small Cap Contrarian Fund makes additional investments while borrowings are
outstanding, this may be construed as a form of leverage. This leverage may
exaggerate changes in the Small Cap Contrarian Fund's share value and the gains
and losses on the Fund's investments. Leverage also creates interest expenses
that may exceed the return on investments made with the borrowings.
ILLIQUID INVESTMENTS. Under the supervision of, and pursuant to the guidelines
adopted by, the Board of Directors, Heartland Advisors determines which of a
Fund's investments are classified as illiquid. The absence of a trading market
can make it difficult to ascertain a market value for illiquid investments.
Disposing of illiquid investments may involve time-consuming negotiation
20
<PAGE> 24
and legal expenses, and it may be difficult or impossible for a Fund to sell
such an investment promptly at an acceptable price. None of the Funds may
invest more than 10% of their respective net assets in illiquid investments.
PORTFOLIO TURNOVER. The Value Fund, Mid Cap Value, Large Cap Value and Value
Plus Funds will not trade portfolio securities for short-term profits, but when
circumstances warrant, securities may be sold without regard to their holding
period. During the fiscal years ended December 31, 1995 and 1994, the portfolio
turnover rates for the Value Fund were 31% and 35%, respectively, for the Value
Plus Fund were 150% and 127%, respectively, and for the U.S. Government
Securities Fund were 97% and 95%, respectively. The portfolio turnover rate for
the Small Cap Contrarian Fund for the period from April 27, 1995 (commencement
of operations) to December 31, 1995 was 45%. Annual portfolio turnover rates
for the Mid Cap Value and Large Cap Value Funds are expected to be less than
100%. A high turnover rate may increase transaction costs and may affect taxes
paid by shareholders to the extent short-term gains are distributed.
HOW TO BUY SHARES
SHARE PRICE
The 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: BY OVERNIGHT MAIL TO:
Firstar Trust Company Firstar Trust Company
Mutual Fund Services, 3rd Floor Mutual Fund Services, 3rd Floor
P.O. Box 701 615 East Michigan Street
Milwaukee, WI 53201-0701 Milwaukee, WI 53202
To Open an Account:
Complete and sign the Account Application. Make your check payable to either
Heartland Small Cap Contrarian Fund, Heartland Value Fund, Heartland Mid Cap
Value Fund, Heartland Large Cap Value Fund, Heartland Value Plus Fund or
Heartland U.S. Government Securities Fund and mail to one of the addresses
above.
If you are investing through a tax-sheltered retirement plan, such as an IRA,
you will need to use a special application.
To Add to an Account:
Make your check payable to the Fund you are invested in, indicate your Fund
account number on your check, and mail to one of the addresses above. You may
also include an "Additional Investment Form" from a prior account statement
with your check.
______________________________________________________________________________
21
<PAGE> 25
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:
Unless you have elected not to have this privilege on the Account Application,
you may call to exchange from another Heartland fund account with the same
registration, including name, address and taxpayer ID. See "Shareholder
Services-Exchange Privilege."
______________________________________________________________________________
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.
22
<PAGE> 26
To Add to an Account:
You may purchase shares through a broker-dealer or financial institution which
must promptly forward the order, together with payment, to the Agent. The
broker-dealer or financial institution may charge a fee for such services.
CONDITIONS OF YOUR PURCHASE.
MINIMUM INVESTMENTS. The minimum initial investment for each Fund is $1,000,
except in the case of retirement plan investors and investors who elect to
invest through the automatic investment plan (see "SHAREHOLDER SERVICES"). The
minimum additional investment, except for reinvestments of distributions and
investments under the automatic investment plan, is $100.
PURCHASES THROUGH SERVICE PROVIDERS. If you purchase shares through a program
of services offered or administered by a broker-dealer, financial institution,
or other service provider, you should read the program materials provided by
the service provider, including information relating to fees, in conjunction
with this Prospectus. Certain features of a Fund may not be available or may be
modified in connection with the program of services provided. When shares are
purchased this way, the service provider, rather than its customer, may be the
shareholder of record of the shares. Certain service providers may receive
compensation from the Funds or Heartland Advisors for providing such services.
OTHER CONDITIONS. All purchases must be made in U.S. dollars and checks must be
drawn on U.S. banks. Cash will not be accepted for the purchase of shares. If a
check fails to clear, the purchase to which the check relates will be cancelled
and the prospective investor will be liable for any losses or fees incurred by
the Funds or the Funds' Agent, including without limitation a $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.
VALUE FUND CLOSED TO NEW INVESTORS
Effective July 1, 1995, the Value Fund closed to new investors, except as
described below. Investors who held shares of the Value Fund, either in their
own name or through a service provider, on July 1, 1995, may continue to add to
an existing account or may open a new Value Fund account (i) through the
purchase of additional Value Fund shares, (ii) through the reinvestment of
dividends and cash distributions on any Value Fund shares owned, and (iii)
through exchanges from other Heartland Fund accounts or a Portico Money Market
Fund account. Shareholders of other Heartland Funds who are not also
shareholders of the Value Fund will not be able to exchange into the Value
Fund. New accounts which a Value Fund investor may open include accounts where
the shareholder is the owner, a joint owner, or a custodian for a minor child.
Employee benefit plans that became shareholders before the July 1, 1995 closing
date may continue to purchase Fund shares in the course of their normal
operations. Employee benefit plans that purchase shares through Heartland
Advisors, or through a program of services offered or administered by a service
provider that had an existing service agreement with the Value Fund or
Heartland Advisors on July 1, 1995, may also purchase Value Fund shares after
the closing date. Financial advisers or planners with at least $3 million of
clients' assets invested in the Value Fund
23
<PAGE> 27
as of July 1, 1995 may also continue to purchase shares of the Fund on behalf
of new or existing clients. The discussion elsewhere in this Prospectus
regarding the purchase of shares of the Value Fund is qualified by this
limitation. The Value Fund may resume sales to new investors at some future
date, but it has no present intention to do so.
HOW TO REDEEM SHARES
Shareholders may have any or all of their shares redeemed as described below on
any day the Funds are open for business at the next determined net asset value
(see "Net Asset Value Calculation"). Shares of the Funds purchased between
February 12, 1993 and June 1, 1994 subject to a contingent deferred sales
charge remain subject to such charge upon redemption of shares.
BY TELEPHONE:
1-800-432-7856 You may redeem by calling Heartland Advisors,
or unless you elected not to have this privilege
(414) 289-7000 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, Send a written request specifying the name of
Mutual Fund Services the Mutual Fund, the number of shares to be
3rd Floor redeemed, your name, account number, and any
P.O. Box 701 additional documents listed below that apply
Milwaukee, WI 53201-0701 to your particular account. The Agent cannot
accept requests submitted by fax or requests
BY OVERNIGHT specifying a particular date for redemption or
DELIVERY TO: other special conditions. A signature
Firstar Trust Company guarantee is required for certain
Mutual Fund Services redemptions, including written redemptions
615 E. Michigan St., 3rd Fl. over $25,000. For further information, see
Milwaukee, WI 53202 "Signature Guarantees."
______________________________________________________________________________
TYPE OF REGISTRATION REQUIREMENTS
Individual, Joint Tenants, Letter of instruction signed by all persons
Sole Proprietorship, authorized to sign for the account, exactly
Custodial, General Partners, as it is registered, accompanied by
signature guarantee(s) if required.
Corporations, Associations Letter of instruction accompanied by a
corporate resolution. The letter must be
signed by at least one individual authorized
(via corporate resolution) to act
24
<PAGE> 28
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.)
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.
===============================================================================
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 of a domestic stock exchange;
25
<PAGE> 29
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.
CONTINGENT DEFERRED SALES CHARGE
The following information regarding redemptions of shares subject to contingent
deferred sales charges applies only to shares of the Funds that were purchased
between February 12, 1993 and June 1, 1994 subject to a contingent deferred
sales charge and does not apply to shares of the Funds purchased on or after
June 1, 1994.
REDEMPTION PRICE. Shares of the Value Fund, Value Plus Fund and U.S. Government
Securities Fund that were purchased between February 12, 1993 and June 1, 1994,
and are redeemed within three years of purchase may be subject to a contingent
deferred sales charge at the rates set forth below. The charge will be assessed
on an amount equal to the lesser of the cost of the shares being redeemed or
their net asset value at the time of redemption. Accordingly, no sales charge
will be imposed on increases in net asset value above the initial purchase
price. In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.
The amount of the contingent deferred sales charge, if any, will vary depending
on the number of years from the time of payment for the purchase of the shares
until the time of redemption of such shares. The following table sets forth
rates of the contingent deferred sales charge for the Funds:
CONTINGENT DEFERRED
26
<PAGE> 30
<TABLE>
<CAPTION>
SALES CHARGE AS A %
YEAR SINCE PURCHASE OF DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
<S> <C>
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
</TABLE>
In determining whether a contingent deferred sales charge is applicable to a
redemption, the calculation will be made in the manner that results in the
lowest possible rate being charged. Therefore, it will be assumed that the
redemption is first of shares purchased prior to the adoption of a contingent
deferred sales charge, then of shares held for over three years or shares
acquired pursuant to reinvestment of dividends or distributions and then of
shares held longest during the three-year period. The charge will not be
applied to dollar amounts representing an increase in the net asset value since
the time of purchase.
AN EXAMPLE. Assume an investor purchased one hundred shares at $10 per share
(at a cost of $1,000), and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares through dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to the charge because of dividend reinvestment. With
respect to the remaining 40 shares, the charge is applied only to the original
cost of $10 per share and not to the increase in net asset value of $2 per
share. Therefore, $400 of the $600 redemption proceeds will be charged at a
rate of 2.0% (the applicable rate in the second year after purchase).
REDEMPTIONS AT NET ASSET VALUE. The contingent deferred sales charge is waived
with respect to the following limited classes of redemptions: (i) redemptions
following the death or disability (as defined in the Internal Revenue Code of
1986) of a shareholder if the Fund is notified of the death or disability at
the time redemption is requested and such request is made within one year after
such death or disability; (ii) redemptions in connection with retirement plan
distributions (a) resulting from the death or disability of the employee or the
tax-free return of an excess contribution or (b) to the extent that the
redemption represents a minimum required distribution to a shareholder who has
attained the age at which distributions are required to commence; (iii)
redemptions by current or retired directors and officers of Heartland and
Heartland Advisors, full-time employees of Heartland Advisors and retirement
plans for such employees, and registered representatives of broker-dealers who
have signed dealer agreements with Heartland Advisors for their personal
accounts; (iv) redemptions by managed accounts of Heartland Advisors or an
affiliated company or redemptions by companies affiliated with Heartland; (v)
redemptions by any tax-exempt employee benefit plan for which continuation of
its investment in a Fund would be improper under applicable law or regulation,
subject to the Fund's right to require an opinion of counsel to that effect;
and (vi) redemptions by registered investment companies or their shareholders
resulting from reorganization transactions with a Fund. The term "employee"
includes an employee's spouse (including the surviving spouse of a deceased
employee) and children under 21 and retired employees. The contingent deferred
sales charge is also waived in limited circumstances in conjunction with
certain shareholder services. (See "Shareholder Services.") The shareholder
must certify to the Fund, at the time of redemption, that certain
qualifications are met and that the shareholder is entitled to waiver of the
contingent deferred sales charge. The waiver will be granted subject to
confirmation of the investor's entitlement.
27
<PAGE> 31
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.
TAX-SHELTERED RETIREMENT PLANS. Shares of each Fund are available for purchase
in connection with the following tax-sheltered retirement plans: (i) Keogh
Plans (H.R. 10) for self-employed individuals; (ii) Qualified Corporate Pension
and Profit-Sharing Plans for employees; (iii) Individual Retirement Accounts
and Simplified Employee Pension Plans for individuals and employers; and (iv)
403(b) Plans for employees of most non-profit organizations.
The minimum initial retirement plan investment in any Fund is $500 ($250 in the
case of a spousal IRA). Firstar Trust Company, as the trustee of the Individual
Retirement Account plan, charges a $12.50 annual maintenance fee with a $25
maximum for multiple accounts with the same social security number (subject to
change by the trustee) for each Individual Retirement Account. For other
tax-sheltered retirement plans, the individual investor must employ a
self-directed plan. Detailed information concerning these plans and copies of
plans are available from Heartland Advisors. This information should be read
carefully and consultation with an attorney or tax advisor may be advisable.
AUTOMATIC INVESTMENT PLAN. The automatic investment plan of each Fund offers a
simple way to maintain a regular investment program. By completing the
automatic investment portion of the account application attached to this
Prospectus, you may arrange automatic transfers (minimum $50 per transaction)
from your checking 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
confirmations of your transactions from the Agent and your regular bank account
statement will show the debit transaction each month.
28
<PAGE> 32
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.
Exchanges of Shares Subject to a Contingent Deferred Sales Charge. Shares of
the Funds that were purchased between February 12, 1993 and June 1, 1994
subject to a contingent deferred sales charge that are exchanged for shares of
any other Heartland fund or shares of the Portico Money Market Fund will remain
subject to the contingent deferred sales charge schedule of the original
shares, payable upon ultimate redemption of the new shares. For purposes of
computing the sales charge payable upon redemption of the new shares, the
holding period for the original shares is added to the holding period of the
new shares.
29
<PAGE> 33
Tax and Other Considerations. An exchange between funds is treated as a sale
for federal income tax purposes and, depending upon the circumstances, a short
or long-term capital gain or loss may be realized. If you have questions as to
the tax consequences of an exchange, you should consult your tax advisor. The
exchange privilege may be modified or terminated at any time upon 60 days prior
written notice. Although an investor may make up to four exchanges in any
calendar year, Heartland reserves the right to limit the number of exchanges
beyond that.
REINVESTMENT PRIVILEGE. If you redeem shares of the Funds that were purchased
between February 12, 1993 and June 1, 1994 subject to a contingent deferred
sales charge, and then reinvest all or part of the redemption proceeds in any
Heartland Fund, you will receive a pro rata credit from Heartland Advisors
based on the amount of any contingent deferred sales charge paid relative to
the number of shares reinvested. In order to exercise the reinvestment
privilege, you must send written notice of your reinvestment to the Fund or the
Agent not more than 30 days after the shares are redeemed. Redemption proceeds
will be reinvested on the basis of net asset value of the shares in effect
immediately after receipt of the written request and the shares will continue
to be subject to the contingent deferred sales charge as if redemption had not
occurred. Any capital gains tax incurred on redemption of shares of a Fund is
not altered by the subsequent exercise of this privilege. If redemption
resulted in a loss and reinvestment is made in shares of a Fund, the loss will
not be recognized.
DIVIDENDS, CAPITAL GAINS, DISTRIBUTIONS AND TAXES
DIVIDENDS. Substantially all of the Small Cap Contrarian Fund's, Value Fund's,
Mid Cap Value Fund's, and Large Cap Value Fund's net investment income will be
paid to shareholders annually as a dividend. With respect to the Value Plus
Fund, dividends will be paid to shareholders quarterly. In the U.S. Government
Securities Fund, dividends will be declared daily and paid monthly. Dividends
may be taken in cash or additional shares at net asset value. Dividends and
capital gain distributions will be automatically reinvested in additional
shares of the same Fund or another Fund, unless a shareholder has 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. Distributions from a Fund's income and
short-term capital gains are taxed as dividends, and long-term capital gain
distributions are taxed as long-term capital gains. Distributions of long-term
capital gains will be taxable to the investor as long-term capital gains
regardless of the length of time shares have been held. A portion of each
Fund's dividends may qualify for the dividends received deduction for
corporations. The Funds' distributions are taxable when they are paid, whether
a shareholder takes them in cash or reinvests them in additional shares, except
that distributions declared in December and paid in January are taxable as if
paid on December 31. The federal income tax status of all distributions will be
reported to shareholders annually.
30
<PAGE> 34
"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 Wisconsin Tax Free and Nebraska Tax Free Funds, two additional series
of Heartland, and also provides investment management services for individuals,
and institutional accounts, such as pension funds and profit-sharing plans. As
of March 31, 1996, Heartland Advisors had approximately $2.2 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
31
<PAGE> 35
costs; insurance premiums; expenses of maintaining the Fund's legal
existence and of shareholder meetings; expenses of preparation and distribution
to existing shareholders of reports, proxies and prospectuses; and fees and
expenses of membership in industry organizations.
For the period since its inception on April 27, 1995 to December 31, 1995, the
Small Cap Contrarian Fund paid advisory fees of $172,583, or approximately an
annual rate of 0.75 of 1% of the Fund's average daily net assets. For the
fiscal year ended December 31, 1995, the Value Fund paid advisory fees of
$6,452,487, or approximately 0.75 of 1% of average daily net assets during
that year. The Mid Cap Value Fund and Large Cap Value Fund each pay Heartland
Advisors an annual fee for advisory services at the rate of 0.75 of 1% of the
respective average daily net assets of the Fund. While the advisory fees paid
by these Funds are larger than the fees paid by most mutual funds, the Board of
Directors believes they are consistent with the fees paid by many funds with
similar investment characteristics and objectives. For the fiscal year ended
December 31, 1995, the Value Plus Fund paid advisory fees of $102,311 or
approximately 0.70 of 1% of the Fund's average daily net assets.
For the fiscal year ended December 31, 1995, the U.S. Government Securities
Fund paid advisory fees of $325,124, or approximately .50 of 1% of average net
assets. Heartland Advisors voluntarily waived a portion of its fee during that
year; had no fee waiver been in effect, the U.S. Government Securities Fund
would have paid $422,661 in advisory fees, or 0.65 of 1% of average net assets
for the year. At present, Heartland Advisors is voluntarily waiving 0.15 of 1%
of its investment advisory fee for the U.S. Government Securities Fund,
resulting in a currently effective annual rate of 0.5 of 1% of average daily
net assets. Heartland Advisors may reinstate an additional portion or all of
the fee at any time.
PORTFOLIO MANAGERS. William J. Nasgovitz serves as portfolio manager for the
Value Fund and has managed or co-managed the Fund since commencement of its
operations. Mr. Nasgovitz also serves as portfolio manager for the Small Cap
Contrarian Fund and as co-manager of the Value Plus Fund, and has managed or
co-managed those Funds since commencement of their respective operations. Mr.
Nasgovitz has been President and a Director of Heartland Advisors and Heartland
since 1982 and was Senior Vice President-Investments with Dain Bosworth
Incorporated from 1988 to June of 1992.
Michael A. Berry serves as portfolio manager for the Mid Cap Value Fund and has
managed the Fund since its inception. Prior to joining Heartland Advisors in
July, 1996, Mr. Berry had been the portfolio manager of the Kemper-Dreman Small
Cap Value Fund, a Managing Director of Dreman Value Advisors, Inc. and Equity
Strategist for Zurich Kemper Investments since September, 1995. Mr. Berry had
been associated with Dreman Value Advisors' predecessor since 1984 and also
served as a Professor in Finance at James Madison University and at the
University of Virginia.
James P. Holmes, CFA, serves as portfolio manager for the Large Cap Value Fund
and has managed the Fund since its inception. Prior to joining Heartland
Advisors in July, 1996, Mr. Holmes had been a Managing Director of Dreman Value
Advisors, Inc. and its predecessor since 1986, with responsibility for
portfolio management of institutional accounts.
Ronald B. Saba, CFA, serves as co-portfolio manager of the Value Plus Fund with
Mr. Nasgovitz, and has been in that position since August, 1996. Mr. Saba has
been with Heartland Advisors as Vice President/Research and a portfolio manager
for advisory clients since March, 1994. Prior to
32
<PAGE> 36
joining Heartland Advisors, Mr. Saba was a Portfolio Manager and Senior Analyst
with Household Commercial Financial Services.
Patrick J. Retzer and Douglas S. Rogers, CFA, serve as co-portfolio managers of
the U.S. Government Securities Fund. Mr. Retzer has managed or co-managed the
Fund since October of 1988 and has been Vice President and Treasurer of
Heartland Advisors and Heartland since 1987, a Director of Heartland Advisors
since 1988 and a Director of Heartland since 1993. Mr. Rogers has co-managed
the Fund since May 1, 1996. Prior to joining Heartland Advisors in October
1995, Mr. Rogers was with Sit Investment Fixed Income Advisors, Inc., where he
was a member of the Fixed Income Policy Committee and responsible for taxable
bond portfolio management.
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.
Foreign securities are valued on the basis of quotations from the primary
market in which they are traded, and are translated from the local currency
into U.S. dollars using current exchange rates. Fluctuations in the value of
such currencies in relation to the U.S. dollar may affect the net asset
33
<PAGE> 37
value of Fund shares even if there has not been any change in the foreign
currency denominated values of such securities.
DESCRIPTION OF FUND SHARES
Heartland is a diversified open-end management investment company registered
under the Investment Company Act of 1940, which was organized in 1986 as a
Maryland corporation. The authorized common stock of Heartland consists of one
billion shares, $0.001 par value per share. Heartland is a series company,
which means the Board of Directors may establish additional series, and may
increase or decrease the number of shares in each series. The Funds are each a
separate diversified mutual fund series of Heartland. Currently, the Heartland
family of funds consists of the following series:
<TABLE>
<CAPTION>
COMMENCED AUTHORIZED
FUND OPERATIONS SHARES
<S> <C> <C>
Small Cap Contrarian Fund 4/27/95 100,000,000
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 4/9/87 100,000,000
Wisconsin Tax Free Fund 4/3/92 100,000,000
Nebraska Tax Free Fund 9/27/93 100,000,000
</TABLE>
Each share has one vote, and when issued and paid for in accordance with the
terms of the offering will be fully paid and non-assessable. On matters
affecting an individual Heartland fund (such as approval of advisory contracts
and changes in fundamental policy of a fund) a separate vote of the shares of
that fund is required. Shares of a fund are not entitled to vote on any matter
not affecting that fund. All shares of each Heartland fund vote together in the
election of Directors at each meeting of shareholders at which directors are to
be elected and on other matters as provided by law, or Heartland's Articles of
Incorporation or Bylaws. Heartland's Bylaws do not require that meetings of
shareholders be held annually. However, special meetings of shareholders may be
called for purposes such as electing or removing directors, changing
fundamental policies or approving investment advisory contracts.
Shares of stock are redeemable at net asset value, less any applicable
contingent deferred sales charge, at the option of the shareholder. Shares have
no preemptive, cumulative voting, subscription or conversion rights and are
freely transferable. Shares can be issued as full shares or fractions of
shares. A fraction of a share has the same kind of rights and privileges as a
full share on a pro rata basis. Shareholder inquiries should be directed to the
Funds at the address shown on the back cover of the Prospectus.
PORTFOLIO TRANSACTIONS
As provided in its Investment Advisory Agreement, Heartland Advisors is
responsible for each Fund's portfolio decisions and the placing of portfolio
transactions. Purchase and sale orders for a Fund's portfolio securities may be
effected through brokers who charge a commission for their services, although
it is expected that transactions in debt securities will generally be conducted
with dealers acting as principals. In executing such transactions, Heartland
Advisors seeks to
34
<PAGE> 38
obtain the best net results for each Fund, taking into account such factors as
price (including the brokerage commission or dealer spread), size of order,
competitive commissions on similar transactions, difficulty of execution and
operational facilities of the firm involved and the firm's risk in positioning
a block of securities. While Heartland Advisors seeks reasonably competitive
rates, it does not necessarily pay the lowest commission or spreads available.
Transactions in smaller companies in which the Value Fund and the Small Cap
Contrarian Fund invest may involve specialized services on the part of the
broker and thereby entail higher commissions or spreads than would be paid in
transactions involving more widely traded securities.
The Funds will not deal with Heartland Advisors in any transaction in which
Heartland Advisors acts as a principal. However, Heartland Advisors may serve
as broker to a Fund in over-the-counter transactions conducted on an agency
basis. Pursuant to plans adopted by Heartland's Board of Directors for each of
the Funds under, and subject to, the provisions of Rule 10f-3 under the
Investment Company Act of 1940, the Funds may purchase securities in an
offering from an underwriter which is a member of an underwriting syndicate of
which Heartland Advisors is also a member. The plans and Rule 10f-3 limit the
securities that may be so purchased, the time and manner of purchase, the
underwriting discount and amount of purchase, and require a review by the Board
of Directors of any such transactions at least quarterly.
Heartland Advisors may serve as a broker for any Heartland fund; however, in
order for Heartland Advisors to effect any portfolio transactions for the
funds, the commissions, fees or other remuneration received by Heartland
Advisors must be reasonable and fair compared to, and will not ordinarily be
larger than, the commissions, fees or other remuneration paid to other brokers
in connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange or on NASDAQ during a comparable
period of time.
Allocation of transactions, including their frequency, to various dealers is
determined by Heartland Advisors in its best judgment and in a manner deemed
fair and reasonable to shareholders. The primary consideration is prompt and
efficient execution of orders in an effective manner at the most favorable
price. Subject to this primary consideration, Heartland Advisors may also
consider 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.
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. Prior to June 1, 1994, shares of the Funds had been sold
subject to a contingent deferred sales charge and prior to February 12, 1993,
shares of the Value and U.S. Government
35
<PAGE> 39
Securities Funds had been sold subject to an initial sales charge, neither of
which are reflected in the total return figures, rather the figures reflect the
current no-load sales structure. Performance information should be considered
in light of the particular Fund's investment objectives and policies,
characteristics and quality of its portfolio securities and the market
conditions during the applicable period, and should not be considered as a
representation of what may be achieved in the future. Further information is
contained in the Statement of Additional Information.
Each Fund may, from time to time, compare its performance to other mutual funds
with similar investment objectives and to the industry as a whole, as quoted by
ranking services and publications, such as Lipper Analytical Services, Inc.,
Morningstar, Inc., CDA Technologies, Forbes, Fortune, Money and Business Week.
These rating services and magazines rank the performance of the Funds against
all funds over specified periods and in specified categories. In general, the
Small Cap Contrarian Fund and the Value Fund would appear in the Small Company
Growth or Capital Appreciation categories, the Mid Cap Value Fund would appear
in the General Equity category, and the Large Cap Value Fund would appear in
the General Equity category. The Value Plus Fund would appear in the Equity
Income category and the U.S. Government Securities Fund would appear in the
Fixed Income or U.S. Government Bond categories. Each Fund may also compare
its performance to recognized stock and bond market indices, including the S&P
500, the Standard & Poor's Mid-Cap Index, the Russell 2000 Stock Index, the
Lehman Intermediate and Long-Term Corporate Bond Indices, and the Lehman
Intermediate and Long-Term Government Bond Indices.
36
<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
38
<PAGE> 41
HEARTLAND SMALL CAP CONTRARIAN FUND
HEARTLAND VALUE FUND
HEARTLAND MID CAP VALUE FUND
HEARTLAND LARGE CAP VALUE FUND
HEARTLAND VALUE PLUS FUND
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
Each Fund's address is 790 North Milwaukee Street, Milwaukee, Wisconsin
53202, and its telephone number is 414-289-7000 or 1-800-432-7856.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus dated October ___, 1996. 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 OCTOBER ___, 1996.
<PAGE> 42
INTRODUCTION TO THE FUNDS
The Heartland family of funds consists of separate series of Heartland
Group, Inc. ("Heartland"), a Maryland corporation registered as a diversified
open-end management investment company. This Statement of Additional
Information relates only to the Heartland Small Cap Contrarian Fund, the
Heartland Value Fund, the Heartland Mid Cap Value Fund, the Heartland Large Cap
Value Fund, the Heartland Value Plus Fund, and the Heartland U.S. Government
Securities Fund, (the "Small Cap Contrarian Fund," the "Value Fund," the "Mid
Cap Value Fund," the "Large Cap Value Fund," the "Value Plus Fund," and the
"U.S. Government Securities Fund," respectively, collectively referred to
herein as the "Funds"), each of which is a diversified Fund with distinct
investment objectives and programs. A separate Prospectus and related
Statement of Additional Information for the other Heartland funds are available
from Heartland Advisors.
INVESTMENT POLICIES AND METHODS
GENERAL
The following information supplements the discussion of each Fund's
investment objectives and policies discussed in the Prospectus. Unless
otherwise specified, the investment policies and restrictions of each Fund are
not fundamental policies and are therefore subject to change by the Board of
Directors of Heartland without shareholder approval. However, shareholders
will be notified prior to a material change in any such policy or restriction.
The fundamental policies of a Fund may not be changed without the approval of
at least a majority of the outstanding shares of the Fund or, if it is less,
67% of the shares represented at a meeting of shareholders of the Fund at which
the holders of 50% or more of the shares are represented.
OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
WRITING COVERED CALL OPTIONS. Each Fund may write covered call options on
its portfolio securities and enter into closing transactions with respect to
such options. In addition, the Small Cap Contrarian Fund may write covered
call options on any type of security related to its investments, including
options traded on foreign exchanges. In writing covered call options, each
Fund expects to generate additional premium income which should serve to
enhance the Fund's total return and reduce the effect of any decline in the
market price of the security involved in the option.
A call option gives the holder (buyer) the right to purchase a specified
security at a stated price (the exercise price) at any time before a specified
date (the expiration date). The term "covered" call option means that the Fund
will own the securities subject to the option or have an unconditional right
to purchase the same underlying security at a price equal to or less than the
exercise price of the "covered" option, or will establish and 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
2
<PAGE> 43
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.
WRITING COVERED PUT OPTIONS. The Small Cap Contrarian Fund may write
covered put options on any type of security related to its investments,
including options traded on foreign exchanges, and may purchase options to
close out options previously written by the Fund. As the writer (seller)
of a put option, the Fund has the obligation to buy from the purchaser the
underlying security at the exercise price during the option period. In return
for receipt of the premium, the Fund assumes the obligation to pay the exercise
price for the option's underlying security if the other party to the option
chooses to exercise it. The operation of put options in other respects,
including their related risks and rewards, is substantially identical to that
of call options.
The Fund will write put options only on a covered basis, which means that
the Fund will maintain a segregated account consisting of cash, 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. The Fund may seek to
terminate its position in a put option it writes before exercise by closing out
the option in the secondary market at its current price. If the secondary
market is not liquid for a put option the Fund has written, however, the Fund
must continue to be prepared to pay the exercise price while the option is
outstanding, regardless of price changes, and must continue to segregate assets
to cover its position.
If the price of the underlying security rises, a put writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received for writing the put because it did not own the
underlying security and therefore would not benefit from the appreciation in
price. If the price of the underlying security falls, the put writer would
expect to suffer a loss, which loss could be substantial. However, the loss
should be less than the loss experienced if the Fund had purchased the
underlying security directly because the premium received for writing the
option will mitigate the effects of the decline.
PURCHASING PUT OPTIONS. Each Fund may purchase put options with respect
to its portfolio securities. In addition, the Small Cap Contrarian Fund may
purchase put options on any type of security related to its investments,
including options traded on foreign exchanges. As the holder of a put option,
the Fund has the right to sell the underlying security at the exercise price at
any time during the option period. A Fund may enter into closing transactions
with respect to such options, exercise them or permit them to expire. A Fund
may purchase a put option on an underlying security owned by the Fund as a
defensive technique in order to 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
3
<PAGE> 44
put option and any transaction costs would reduce any gain otherwise
available for distribution when the security is eventually sold.
The premium paid by a Fund when purchasing a put option will be recorded
as an asset of the Fund. This asset will be adjusted daily to the option's
current market value, which will be the latest sale price at the time at which
the net asset value per share of the Fund is computed (close of regular trading
on the New York Stock Exchange), or, in the absence of such sale, the
latest bid price. This asset will be extinguished upon expiration of the
option, the selling (writing) of an identical option in a closing transaction,
or the delivery of the underlying security upon the exercise of the option.
PURCHASING CALL OPTIONS. The Small Cap Contrarian Fund, the Mid Cap Value
Fund, and the Large Cap Fund may purchase call options on any type of security
related to their respective investments, including options traded on foreign
exchanges. As the holder of a call option, a 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. The Value Fund, the Mid Cap Value Fund, the Large Cap
Value Fund, and the Value Plus Fund may sell covered call options and purchase
put options on stock indices composed of securities of the same general
character as each Fund's portfolio and may enter into closing transactions with
respect to such options. The Small Cap Contrarian Fund may buy and sell
options based on any type of index related to its investments. Options on
indices would be used in a manner similar to the use of options on securities;
however, upon the exercise of an index option, settlement occurs in cash rather
than by delivery of an underlying security, with the exercising option holder
receiving the difference between the closing level of the index upon which the
option is based and the exercise price of the option.
OPTIONS ON FUTURES CONTRACTS. The Value Fund, the Value Plus Fund, and
the U.S. Government Securities Fund may each write covered call options and
purchase put options on futures contracts and enter into closing transactions
with respect to such options. The Small Cap Contrarian Fund, the Mid Cap Value
Fund, and the Large Cap Value Fund may buy and sell options on futures based on
any type of security, index, or currency related to their respective
investments. 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. In addition, the Small Cap Contrarian Fund, the
Mid Cap Value Fund, and the Large Cap Value Fund may purchase and sell futures
contracts based on any type of security, index, or currency related to their
respective investments, including futures traded on foreign exchanges. Each
Fund will engage in transactions in futures contracts solely for bona fide
hedging purposes.
When a Fund purchases a futures contract, it agrees to purchase a
specified underlying instrument at a specified future date. When a Fund sells
a futures contract, it agrees to sell the underlying instrument at a specified
future date. The price at which the purchase and sale will take place is fixed
when the Fund enters into the contract. The purchaser or seller of a futures
contract is not required to deliver or pay for the underlying instrument unless
the contract is held until the delivery date. However, upon entering into a
futures contract, and to maintain an open position in futures contracts, a Fund
would be required to deposit "initial
4
<PAGE> 45
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. If a Fund closes
out an open futures contract by entering into an offsetting futures contract,
and the offsetting purchase price is less than the original sale price, a Fund
realizes a gain; if it is more, a Fund realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The transaction
costs must also be included in these calculations. There can be no assurance,
however, that a Fund will be able to enter into an offsetting transaction with
respect to a particular futures contract at a particular time. If a Fund is
not able to enter into an offsetting transaction, the Fund will continue to be
required to maintain the margin deposits on the futures contract.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase a Fund's exposure to positive and negative
price fluctuations in the underlying instrument, much as if it had purchased
the underlying instrument directly. When a Fund sells a futures contract, by
contrast, the value of its futures position will tend to move in a direction
contrary to the market. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter options ("OTC options," i.e.,
options not traded on exchanges) in which the Small Cap Contrarian Fund may
invest generally are established through negotiation with the other party to
the option contract. While this type of arrangement allows the Fund greater
flexibility to tailor an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed by the
clearing organization of the exchanges where they are traded. The risk of
illiquidity is also greater with OTC options, since these options generally can
be closed out only by negotiation with the other party to the option. The
Small Cap Contrarian Fund will generally consider OTC options to be illiquid.
In determining whether to enter into an OTC option transaction, the Small Cap
Contrarian Fund will take into account the creditworthiness of the other party
to the contract.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS
Each Fund will engage in transactions in futures contracts and options
thereon only for bona fide hedging and risk management purposes, in each case
in accordance with the rules and regulations of the Commodity Futures Trading
Commission, and not for speculation.
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%
5
<PAGE> 46
limitation. The Value Fund and the U.S. Government Securities Fund will
also be subject to their fundamental investment restrictions regarding
commodities, futures, and options discussed herein.
In addition to the above limitations, the Small Cap Contrarian Fund, the
Mid Cap Value Fund, the Large Cap Value Fund, and the Value Plus Fund will not:
(a) purchase or sell futures and options on futures or enter into closing
transactions with respect thereto if, as a result thereof, the then current
aggregate futures market prices and financial instruments required to be
delivered under open futures contract sales plus the then current aggregate
purchase price of financial instruments required to be purchased under open
futures contract purchases would exceed 25% of the respective Fund's net assets
(taken at market value at the time of entering into the contract and excluding
the amount by which any of its options on futures are in-the-money); (b) the
aggregate value of all premiums paid for put and call options purchased by the
Fund would exceed 5% of the Fund's total assets (less the amount by which any
such positions are in-the-money); or (c) the aggregate market value of all
portfolio securities covering put and call options written by the Fund would
exceed 25% of the Fund's total assets. The above limitations on the Small Cap
Contrarian Fund's, the Mid Cap Value Fund's, the Large Cap Value Fund's, and
the Value Plus Fund's investments in futures contracts and options and the
respective Fund's policies regarding futures contracts and options discussed
elsewhere in this Statement of Additional Information are not fundamental
policies of the Funds and may be changed by Heartland's Board of Directors as
permitted by applicable regulatory authority.
COMBINED POSITIONS. The Funds may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, a Fund may purchase a put option and write a call
option on the same underlying instrument in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call
option at one exercise price and buying a call option at a lower price, in
order to reduce the risks of the written call option in the event of a
substantial price increase. Because combined positions involve multiple
trades, they may result in higher transaction costs and may be more difficult
to open and close out.
RISKS IN OPTIONS AND FUTURES TRANSACTIONS
Options and futures can be highly volatile investments and involve certain
risks. A decision of whether, when, and how to hedge involves skill and
judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior, or market or interest rate trends.
Successful hedging strategies require the ability to predict future movements
in securities prices, interest rates, and other economic factors. There can be
no assurance that price movements in hedging vehicles and in the underlying
instruments will be directly correlated. Options and futures prices are
affected by such factors as current and anticipated short-term interest rates,
changes in volatility of the underlying instrument, and the time remaining
until expiration of the contract, which may not affect prices of the underlying
instruments the same way. Imperfect correlation may also result from different
levels of demand in the options and futures markets and the markets for the
underlying instruments, from structural differences in how options and futures
and securities are traded, or from imposition of daily price fluctuation limits
or trading halts by an exchange. If price changes in a Fund's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are
not offset by gains in other investments.
Because there are a limited number of types of exchange-traded options and
futures contracts, it is likely that the standardized contracts available will
not match a Fund's current or anticipated investments exactly. The Fund may
invest in options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures positions
will not track the performance of the Fund's other investments. The Funds may
purchase or sell options and futures contracts with a greater or lesser value
than the securities it wishes to hedge or intends to purchase in order to
attempt to compensate for differences in volatility between the contract and
the securities, although this may not be successful in all cases.
6
<PAGE> 47
Because of the low margin deposits required, futures trading involves a
high degree of leverage. A relatively small price movement in futures
contracts could result in an immediate and substantial gain or loss to a Fund.
Therefore, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract by the Fund.
There can be no assurance that a liquid secondary market will exist for
any particular options or futures contracts at any particular time. On
volatile trading days when the price fluctuation limit is reached or a trading
halt is imposed, it may be impossible for a Fund to enter into new positions or
close out existing positions. If the secondary market for a futures contract
is not liquid because of price fluctuation limits or otherwise, it could
prevent prompt liquidation of unfavorable positions and potentially require a
Fund to continue to hold the position until delivery or expiration regardless
of changes in its value. As a result, a Fund's access to other assets held to
cover its options or futures positions could also be impaired.
As discussed above, OTC options in which the Small Cap Contrarian Fund may
invest are subject to risks in addition to the risks related to exchange-traded
options. The Small Cap Contrarian Fund currently intends to treat the value of
any OTC option it purchases as illiquid for the purposes of its investment
limitations. Similarly, for any OTC option it writes, the Fund will treat as
illiquid the value of the option's underlying instrument; however, if the Fund
has a guaranteed right to close out the option with a primary U.S. government
securities dealer, only the maximum price of the closing transaction less the
amount the option is in-the-money will be considered illiquid. The Small Cap
Contrarian Fund may also buy and sell options and futures based on any type of
security, index, or currency related to its investments, including options and
futures traded on foreign exchanges. Investments in foreign securities are
subject to additional risks as described below.
FOREIGN INVESTMENTS
The Value Fund and the Value Plus Fund may invest up to 15% of their
respective assets directly in the securities of foreign issuers. The Small Cap
Contrarian Fund, the Mid Cap Value Fund, and the Large Cap Value Fund may
invest up to 25% of their respective assets in foreign securities and options
on futures and futures, and, with respect to the Small Cap Contrarian Fund, any
options, traded on foreign exchanges. The value of securities denominated in
or indexed to foreign currencies, and of dividends and interest from such
securities, can change significantly when foreign currencies strengthen or
weaken relative to the U.S. dollar. Foreign securities markets generally have
lower trading volume and less liquidity than U.S. markets, and prices on some
foreign markets can be highly volatile. Many foreign countries lack uniform
accounting and disclosure standards comparable to those applicable to U.S.
companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage commissions,
and custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It also may be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse
to the interests of U.S. investors, including the possibility of expropriation
or nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that Heartland Advisors will be
able to anticipate these political events or counter their effects.
7
<PAGE> 48
The considerations noted above generally are intensified for investments
in developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities. The above considerations may also be
intensified for investments and equity securities of foreign smaller companies
in which the Funds may invest. Equity securities of foreign companies with
smaller market capitalizations may involve a higher degree of risk than
investments in the general foreign equity markets and such securities may be
subject to even greater price volatility and may have less market liquidity
than equity securities of foreign issuers with larger market capitalizations.
The Small Cap Contrarian Fund, the Value Fund, the Mid Cap Value Fund, the
Large Cap Value Fund, and the Value Plus Fund each may invest in foreign
securities that impose restrictions on transfer within the U.S. or to U.S.
persons. Although securities subject to transfer restrictions may be
marketable abroad, they may be less liquid than foreign securities of the same
class that are not subject to such restrictions.
American Depository Receipts and Global Depository Receipts ("ADRs" and
"GDRs") are certificates evidencing ownership of shares of a foreign-based
issuer held by a bank or similar financial institution as depository. Designed
for use in U.S. and global securities markets, respectively, ADRs and GDRs are
alternatives to the direct purchase of the underlying securities in their
national markets and currencies. The limitations as to a respective Fund's
investments in foreign securities do not apply to investments in ADRs and
GDRs or to securities of foreign issuers that are traded on a registered U.S.
stock exchange or the NASDAQ National Market System.
FOREIGN CURRENCY TRANSACTIONS
FORWARD FOREIGN CURRENCY CONTRACTS. To manage the currency risk
accompanying investments in foreign securities and to facilitate the purchase
and sale of foreign securities, the Small Cap Contrarian Fund, the Value Fund,
the Mid Cap Value Fund, the Large Cap Value Fund, and the Value Plus Fund may
engage in foreign currency transactions on a spot (cash) basis at the spot rate
prevailing in the foreign currency exchange market or through entering into
contracts to purchase or sell foreign currencies at a future date ("forward
foreign currency" contracts or "forward" contracts).
A forward foreign currency contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set
at the time of the contract. These contracts are principally traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement and no commissions are charged at any stage for trades.
When a Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in" the U.S. dollar
price of the security. By entering into a forward contract for the purchase or
sale, for a fixed amount of U.S. dollars, of the amount of foreign currency
involved in the underlying security transaction, the Fund will be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during
the period between the date the security is purchased or sold and the date on
which payment is made or received. This technique is sometimes referred to as
a "settlement hedge" or "transaction hedge." Heartland Advisors may enter into
settlement hedges in the normal course of managing a Fund's foreign
investments.
When Heartland Advisors believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, it may enter
into a forward contract to sell for a fixed amount of U.S. dollars, the amount
of the foreign currency approximating the value of some or all of the
respective Fund's portfolio securities denominated in such foreign currency.
Such a hedge, sometimes referred to as a "position hedge," would tend to offset
both positive and negative currency fluctuations, but would not offset changes
in security values caused by other factors. The Value Fund, the Mid Cap Value
Fund, the Large Cap Value Fund, and the Value Plus Fund will not enter into
such forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Fund to deliver an amount of
foreign
8
<PAGE> 49
currency in excess of the value of the respective Fund's securities or other
assets denominated in that currency. The Small Cap Contrarian Fund could also
hedge a position by selling another currency expected to perform similarly to
the currency in which the Fund's securities are denominated. This type of
hedge, sometimes referred to as a "proxy hedge," could offer advantages in
terms of cost, yield or efficiency, but generally would not hedge currency
exposure as effectively as a simple hedge into U.S. dollars. Proxy hedges may
result in losses if the currency used to hedge does not perform similarly to
the currency in which the hedged securities are denominated.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult and the successful execution of
a short-term hedging strategy is highly uncertain. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the longer-term investment decisions made with regard to overall
diversification strategies. However, Heartland Advisors believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of a Fund will be served.
At the maturity of a forward contract, a Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to purchase, on
the same maturity date, the same amount of the foreign currency.
If a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If a Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline during the period between the
Fund's entering into a forward contract for the sale of a foreign currency and
the date it enters into an offsetting contract for the purchase of the foreign
currency, the Fund will realize a gain to the extent the price of the currency
it has agreed to sell exceeds the price of the currency it has agreed to
purchase. Should forward prices increase, the Fund will suffer a loss to the
extent that the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
It is impossible to forecast with precision the market value of securities
at the expiration of a forward contract. Accordingly, it may be necessary for
a Fund to purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver and if a decision
is made to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security if its market value
exceeds the amount of foreign currency the Fund is obligated to deliver.
The Small Cap Contrarian Fund's, the Value Fund's, the Mid Cap Value
Fund's, the Large Cap Value Fund's, and the Value Plus Fund's dealings in
forward foreign currency exchange contracts will be limited to the
transactions described above. Of course, the Funds are not required to enter
into such transactions with regard to their foreign currency-denominated
securities and will not do so unless deemed appropriate by Heartland Advisors.
This method of hedging against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which one can achieve at some future point in
time. Additionally, although such contracts tend to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time, they
tend to limit any potential gain which might result should the value of such
currency increase. Successful use of forward currency contracts will depend on
Heartland Advisors' skill in analyzing and predicting currency values. Forward
contracts may substantially change a Fund's investment exposure to changes in
currency exchange rates, and could result in losses to the Fund if currencies
do not perform as Heartland Advisors anticipates. For example, if a currency's
value rose at a time when Heartland Advisors had hedged a Fund by selling that
currency in
9
<PAGE> 50
exchange for U.S. dollars, the Fund would be unable to participate in the
currency's appreciation. If Heartland Advisors hedges a currency exposure for
the Small Cap Contrarian Fund through proxy hedges, the Fund could realize
currency losses from the hedge and the security position at the same time if
the two currencies do not move in tandem. Similarly, if Heartland Advisors
increases a Fund's exposure to a foreign currency, and that currency's value
declines, the Fund will realize a loss. There is no assurance that Heartland
Advisors' use of forward currency contracts will be advantageous to a Fund or
that it will hedge at an appropriate time.
Although each of the Small Cap Contrarian Fund, the Value Fund, the Mid
Cap Value Fund, the Large Cap Value Fund, and the Value Plus Fund values its
assets daily in terms of U.S. dollars, it does not intend to convert its
holdings of foreign currencies into U.S. dollars on a daily basis. It will do
so from time to time and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to a Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. The policies described in this section regarding
forward foreign currency contracts and the respective Fund's policies regarding
foreign currency transactions discussed elsewhere in this Statement of
Additional Information are not fundamental policies of the Funds and may be
changed by Heartland's Board of Directors as permitted by applicable regulatory
authority.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward foreign currency contracts, except that they
are traded on exchanges (and have margin requirements) and are standardized as
to contract size and delivery date. Most currency futures contracts call for
payment or delivery in U.S. dollars. The underlying instrument of a currency
option may be a foreign currency, which generally is purchased or delivered in
exchange for U.S. dollars, or may be a futures contract. The purchaser of a
currency call obtains the right to purchase the underlying currency, and the
purchaser of a currency put obtains the right to sell the underlying currency.
The uses and risks of currency options and futures are similar to options
and futures relating to securities or indices, as discussed above. Each of the
Small Cap Contrarian Fund, the Value Fund, the Mid Cap Value Fund, the Large
Cap Value Fund, and the Value Plus Fund may purchase and sell currency futures
and may purchase and write currency options to increase or decrease its
exposure to different foreign currencies. The Small Cap Contrarian Fund, the
Value Fund, the Mid Cap Value Fund, the Large Cap Value Fund, and the Value
Plus Fund may also purchase and write currency options in conjunction with each
other or with currency futures or forward contracts. Currency futures and
options values can be expected to correlate with exchange rates, but may not
reflect other factors that affect the value of the respective Fund's
investments. A currency hedge, for example, should protect a Yen-denominated
security from a decline in the Yen, but will not protect the respective Fund
against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of the respective Fund's
foreign-denominated investments changes in response to many factors other than
exchange rates, it may not be possible to match the amount of currency options
and futures to the value of the respective Fund's investments exactly over
time.
FEDERAL TAX TREATMENT OF OPTIONS, FUTURES CONTRACTS, AND FORWARD FOREIGN
EXCHANGE CONTRACTS
The Funds may enter into certain option, futures, and, with respect to the
Small Cap Contrarian Fund, the Value Fund, the Mid Cap Value Fund, the Large
Cap Value Fund, and the Value Plus Fund, forward foreign exchange contracts
which will be treated as Section 1256 contracts or straddles under the Internal
Revenue Code.
Transactions which are considered Section 1256 contracts will be
considered to have been closed at the end of a Fund's fiscal year and any gains
or losses will be recognized for tax purposes at that time. Such gains or
losses and gains or losses from the normal closing or settlement of such
transactions will be characterized as 60% long-term capital gain or loss and
40% short-term capital gain or loss regardless of the holding period
10
<PAGE> 51
of the instrument. The Fund will be required to distribute net gains on such
transactions to shareholders even though it may not have closed the transaction
and received cash to pay such distribution.
Options, futures, and forward foreign exchange contracts which offset a
foreign dollar denominated bond or currency position may be considered
straddles for tax purposes in which case a loss on any position in a straddle
will be subject to deferral to the extent of unrealized gain in an offsetting
position.
In order for a Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income (i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or currencies). Pending tax regulations could limit the extent that
net gains realized from options, futures, or foreign forward exchange contracts
on currencies are qualifying income for purposes of the 90% requirement. In
addition, gains realized on the sale or other disposition of securities,
including options, futures, or foreign forward exchange contracts on securities
or securities indices and, in some cases, currencies, held for less than three
months, must be limited to less than 30% of the Fund's annual gross income. In
order to avoid realizing excessive gains on securities or currencies held less
than three months, the Fund may be required to defer the closing out of
options, futures, or foreign forward exchange contracts beyond the time when it
would otherwise be advantageous to do so. It is anticipated that unrealized
gains on Section 1256 options, futures, and foreign forward exchange contracts,
which have been open for less than three months, as of the end of the Fund's
fiscal year and which are recognized for tax purposes, will not be considered
gains on securities or currencies held less than three months for purposes of
the 30% test.
NON-INVESTMENT GRADE SECURITIES
Non-investment grade debt securities (those rated below the four highest
categories by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P") or, if unrated, judged by Heartland Advisors to be of
comparable quality, commonly known as "junk bonds") are regarded, on balance,
as predominantly speculative with respect to the capacity of the issuer to pay
interest and repay principal in accordance with the terms of the obligation.
While such securities typically offer higher rates of return than investment
grade securities, they also involve greater risk, including greater risk of
default. An economic downturn could severely disrupt the market for such high
yield securities and adversely affect their value and the ability of the
issuers to repay principal and interest. The rate of incidence of default of
non-investment grade securities is likely to increase during times of economic
downturns and extended periods of increased interest rates. Yields on
non-investment grade securities will fluctuate over time, and are generally
more volatile than yields on investment grade securities.
The secondary trading market for non-investment grade securities may be
less well-established than for investment grade securities, and such securities
may therefore be only thinly traded. As a result, there may be no readily
ascertainable market value for such securities, in which case it will be more
difficult for the Funds to value accurately the securities, and consequently
the investment portfolio. Under such circumstances, the subjective judgment of
the Board of Directors will play a greater role in the valuation.
Additionally, adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may decrease the values and liquidities of
non-investment grade securities, especially in a thinly traded market.
The Value Fund, the Value Plus Fund and the U.S. Government Securities
Fund will not invest in securities that are rated below the fifth or sixth
rating categories by Moody's or S&P (Ba and B for Moody's and BB and B for S&P)
or, if unrated, judged comparable by Heartland Advisors. Securities rated in
the higher of those categories have less near-term vulnerability to default
than other speculative issues, however they face major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely interest and
principal payments. However, business and financial alternatives available to
obligors of such securities can generally be identified which could assist them
in satisfying their debt service requirements. Securities rated in the lower
of these two categories are considered highly speculative. While the issuers
of such securities currently must be meeting debt service requirements in
11
<PAGE> 52
order to achieve this rating, adverse business, financial, or economic
conditions likely could impair the issuer's capacity or willingness to pay
interest and repay principal.
The Small Cap Contrarian Fund may invest in debt securities rated as low
as the lowest rating category assigned by Moody's or S&P (C for Moody's and D
for S&P). Debt securities rated below B may be even more speculative than B
rated bonds and may either be currently vulnerable to default or may be in
default. A detailed description of the characteristics associated with the
various debt credit ratings established by Moody's and S&P is set forth in
Appendix A to this Statement of Additional Information.
While rating categories help identify credit risks associated with debt
securities, they do not evaluate the market value risk of non-investment grade
securities. Additionally, the credit rating agencies may fail to promptly
change the credit ratings to reflect subsequent events. Accordingly,
Heartland's Board of Directors and Heartland Advisors continuously monitor the
issuers of non-investment grade securities held in each Fund's portfolio.
Since the risk of default is higher for non-investment grade debt securities,
Heartland Advisors' research and credit analysis are an especially important
part of managing securities of this type held by a Fund. In considering
investments for the Fund, Heartland Advisors will attempt to identify those
issuers of non-investment grade securities whose financial condition is
adequate to meet future obligations, has improved, or is expected to improve in
the future. Heartland Advisors' analysis focuses on relative values based on
such factors as interest or dividend coverage, asset coverage, earnings
prospects, and the experience and managerial strength of the issuer.
A Fund may choose, at its expense or in conjunction with others, to pursue
litigation or otherwise to exercise its rights as a security holder to seek to
protect the interests of security holders if it determines this to be in the
best interests of the Fund's shareholders.
INDEXED SECURITIES
The Small Cap Contrarian Fund, the Mid Cap Value Fund, the Large Cap Value
Fund, the Value Plus Fund, and the U.S. Government Securities Fund may purchase
securities whose prices are indexed to the prices of other securities,
securities indices, currencies, precious metals or other commodities, or other
financial indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined by
reference to a specific instrument or statistic. For example, certain debt
securities in which the Funds may invest may include securities whose interest
rates are determined by reference to one or more specific financial indicators,
such as LIBOR, resulting in a security whose interest payments tend to rise
and fall together with the financial indicator. Gold-indexed securities, for
example, typically provide for a maturity value that depends on the price of
gold, resulting in a security whose price tends to rise and fall together with
gold prices. Currency-indexed securities typically are short-term to
intermediate-term debt securities whose maturity values or interest rates are
determined by reference to the values of one or more specified foreign
currencies, and may offer higher yields than U.S. dollar-denominated securities
of equivalent issuers. Currency-indexed securities may also have prices that
depend on the values of a number of different foreign currencies relative to
each other. Indexed securities may be positively or negatively indexed; that
is, their maturity value may increase when the specified underlying
instrument's value increases, resulting in a security that performs similarly
to the underlying instrument, or their maturity value may decline when the
underlying instrument increases, resulting in a security whose price
characteristics are similar to a put on the underlying instrument.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
government agencies.
12
<PAGE> 53
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.
RESTRICTED SECURITIES
Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is
required, a Fund may be obligated to pay all or part of the registration
expense and a considerable period may elapse between the time it decides to
seek registration and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Fund might obtain a less favorable price
than prevailed when it decided to seek registration of the security. The Small
Cap Contrarian, Mid Cap Value, and Large Cap Value 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.
VALUE FUND - DEBT SECURITIES
The Value Fund may invest up to 5% of its net assets in debt securities
rated at least B by Moody's or S&P, or, if unrated, judged comparable by
Heartland Advisors. See "Non-Investment Grade Securities" above. Debt
securities in which the Value Fund may invest include corporate debt
securities, securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and money market instruments, such as
certificates of deposit and commercial paper.
U.S. GOVERNMENT SECURITIES FUND - MORTGAGE-BACKED SECURITIES
Depending on market conditions, the U.S. Government Securities Fund may
invest a substantial portion of its assets in mortgage-backed securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities. These
are debt securities that represent interests in pools of mortgages, and may
include stripped mortgage-backed obligations. Mortgage-backed securities in
which the Fund may invest, may be guaranteed by the issuing governmental agency
and, therefore, subject to risk based on the credit-worthiness of the issuing
agency or instrumentality. One type of mortgage-backed security in which the
Fund may invest are Government National Mortgage Association ("GNMA")
Certificates of the modified pass-through type, which represent interests in
pools of mortgages insured by the Federal Housing Administration ("FHA") or the
Farmers Home Administration ("FMHA") or guaranteed by the Veterans
Administration ("VA"). GNMA guarantees the timely payment of monthly
installments of principal and interest on such Certificates. The GNMA
guarantees are backed by the full faith and credit of the U.S. Government.
The average life of a mortgage-backed security is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will generally result in the return of the greater part of the
principal invested long before the maturity of the mortgage in the pool.
Foreclosures impose limited risk to principal investments to the extent of the
governmental agency or GNMA guarantee.
As prepayment rates of individual mortgage pools will vary widely, it is
not possible to accurately predict the average life of a particular issue of
mortgage-backed securities. However, historical statistics may be used as an
indicator of the expected average life of the security. To the extent the U.S.
Government Securities Fund buys mortgage-backed securities at a premium,
mortgage foreclosures and prepayments of principal by
13
<PAGE> 54
mortgagors may result in some loss of the Fund's principal investment to
the extent of the premium paid. To avoid loss of this premium and of any gain
in value of its mortgage-backed securities resulting from a decrease in
interest rates generally, the U.S. Government Fund may sell such securities
that are trading at a substantial premium.
Collateralized Mortgage Obligations ("CMOs") issued by the U.S.
Government, its agencies or instrumentalities are hybrid mortgage-related
instruments typically collateralized by whole loan mortgages, mortgage
pass-through securities, or stripped mortgage-backed securities. Typically,
CMOs use cash flows of long-maturity, monthly pay collateral to create multiple
classes with different effective maturities or expected average lives. In
general, investors in traditional pass-through securities would receive a pro
rata distribution of any principal and interest, whereas with a CMO, principal
and interest payments are typically paid monthly according to the schedule for
payments of principal and interest, including prepayments, established for the
class ("tranche") of the CMO.
SMALL CAP CONTRARIAN FUND - SHORT SALES
The Small Cap Contrarian Fund may seek to hedge investments or realize
additional gains through short sales. Short sales are transactions in which
the Fund sells a security it does not own in anticipation of a decline in the
market value of that security. To complete such a transaction, the Fund must
borrow the security to make delivery to the buyer. The Fund then is obligated
to replace the security borrowed by purchasing it at the market price at or
prior to the time of replacement. The price at such time may be more or less
than the price at which the security was sold by the Fund. Until the security
is replaced, the Fund is required to repay the lender any dividends or interest
that accrued during the period of the loan. To borrow the security, the Fund
also may be required to pay a premium, which would increase the cost of the
security sold. The net proceeds of the short sale will be retained by the
broker (or by the Fund's custodian), to the extent necessary to meet margin
requirements, until the short position is closed out. The Fund may also incur
transaction costs in effecting short sales.
The Fund will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on which
the Fund replaces the borrowed security. The Fund will realize a gain if the
security declines in price between those dates. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of the premium,
dividends, interest or expenses a Fund may be required to pay in connection
with a short sale.
Whenever the Small Cap Contrarian Fund engages in a short sale, it will
maintain a segregated collateral account with its custodian consisting of an
amount of cash or liquid assets equal to the difference between (a) the market
value of the securities sold short at the time they were sold short and (b) any
cash or U.S. government securities required to be deposited as collateral with
the broker in connection with the short sale (not including the proceeds from
the short sale). The Fund will maintain the account on a daily basis so that
the amount deposited with the custodian plus the amount deposited with the
broker as collateral will equal the current market value of the securities sold
short; provided, that at no time will the amount segregated in the account plus
the amount deposited with the broker be less than the market value of the
securities at the time they were sold short.
SMALL CAP CONTRARIAN FUND - LEVERAGE
The Small Cap Contrarian Fund may borrow from banks up to one-third of its
total assets, and may pledge its assets in connection with such borrowings. If
the Small Cap Contrarian Fund makes additional investments while borrowings are
outstanding, this may be construed as a form of leverage. Leveraging the Small
Cap Contrarian Fund may create an opportunity for increased net income;
however, it may also give rise to special risk considerations. For example,
leveraging may exaggerate changes in the net asset value of the Fund's shares
and in the gains and losses on the Fund's investments. Leveraging will create
interest expenses for the Fund that may exceed the return on investments made
with the borrowings. To the extent the income derived
14
<PAGE> 55
from securities purchased with borrowed funds exceeds the Fund's costs of
borrowing, the Fund's net income may be greater than if leveraging were not
used. Conversely, if the income from the investments made with the borrowed
funds is not sufficient to cover the cost of leveraging, the net income of the
Fund will be less than if leveraging were not used and the value of the Fund's
shares may be adversely affected. Reverse repurchase agreements that are not
fully collateralized create leverage, a speculative factor, and will be
considered as borrowings for purposes of the Fund's investment limitations.
PORTFOLIO TURNOVER
Portfolio turnover for each Fund is the ratio of the lesser of annual
purchases or sales of portfolio securities by the Fund to the average monthly
value of portfolio securities owned by the Fund, not including securities
maturing in less than twelve months. A 100% portfolio turnover rate would
occur, for example, if the lesser of the value of purchases or sales of a
Fund's portfolio securities for a particular year were equal to the average
monthly value of the portfolio securities owned by the Fund during the year.
For the fiscal years ended December 31, 1995 and 1994, the portfolio turnover
rates for the Value Fund were 31% and 35%, respectively, for the Value Plus
Fund were 150% and 127%, respectively, and for the U.S. Government Securities
Fund were 97% and 95%, respectively. The turnover rate for the Value Plus Fund
was relatively high in 1995, in part due to a somewhat defensive reallocation
of assets in the portfolio from common stock investments to convertible bonds
and cash and cash equivalents. The Fund took losses in several stocks where
the fundamentals had deteriorated and realized profits in many of its equity
positions that had experienced significant appreciation. In addition to normal
portfolio activity, the Fund had several companies in the portfolio that were
the subject of takeovers during 1995, thereby increasing portfolio turnover.
The portfolio turnover rate for the Small Cap Contrarian Fund for the period
from April 27, 1995 (commencement of operations) to December 31, 1995 was 45%.
Annual portfolio turnover for the Small Cap Contrarian Fund is expected to be
less than 200%. It is expected that the annual portfolio turnover for the Mid
Cap Value Fund and the Large Cap Value Fund will not exceed 100%
INVESTMENT RESTRICTIONS
Each Fund has adopted investment restrictions and fundamental policies
which cannot be changed without the approval of the holders of the lesser of
(i) a majority of the outstanding shares of the Fund or (ii) 67% of the shares
represented at a meeting of shareholders at which the holders of 50% or more of
the outstanding shares of the Fund are represented. Operating policies are
subject to change by the Board of Directors without shareholder approval.
However, no 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.
SMALL CAP CONTRARIAN FUND
The fundamental investment restrictions and policies of the Small Cap
Contrarian Fund provide that such Fund may not:
(1) With respect to 75% of the Fund total assets, invest more than 5% of
the fair market value of its assets in securities of any one issuer, other than
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
(2) Invest in a company to get control or manage it or, with respect to
75% of the Fund's total assets, purchase more than 10% of the outstanding
voting securities of an issuer;
15
<PAGE> 56
(3) Invest more than 25% of its total assets, based on current market
value at the time of purchase, in securities of issuers in any single industry;
provided that there shall be no limitation on the purchase of securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities.
(4) Buy or sell real estate or oil and gas interests or leases, but this
shall not prevent the Fund from investing in securities secured by real estate
or real estate interests or issued by companies, including real estate
investment trusts, that invest in real estate or real estate interests or whose
business involves the purchase or sale of real estate.
(5) Borrow money or property, except from banks for temporary purposes or
in connection with otherwise permissible leverage activities, and then only in
an amount not in excess of one-third of the value of the Fund's total assets.
For purposes of this restriction, collateralized reverse repurchase agreements
are not deemed to be borrowings.
(6) Mortgage, hypothecate, or pledge any of its assets as security for any
of its obligations, except as required for otherwise permissible borrowings
(including reverse repurchase agreements), short sales, futures, options and
other hedging activities.
(7) Make loans, except that it may: (i) acquire publicly distributed
bonds, debentures, notes and other debt securities; (ii) lend portfolio
securities provided that no such loan may be made if as a result the aggregate
of such loans would exceed one-third of the value of the Fund's total assets;
and (iii) enter into repurchase agreements.
(8) Underwrite the securities of other issuers, although it may invest in
companies that engage in such businesses if it does so in accordance with
policies established by Heartland's Board of Directors, and except where it
might technically be deemed to be an underwriter for purposes of the Securities
Act of 1933 upon the disposition of certain securities.
(9) Purchase a security if, as a result, more than 10% of the value of the
Fund's total assets would be invested in: (a) securities that are not readily
marketable or that would require registration under the Securities Act of 1933,
as amended, upon disposition; and (b) repurchase agreements which do not
provide for payment within 7 days.
(10) Issue senior securities, as defined in the Investment Company Act of
1940 (the "1940 Act"), except that this restriction shall not be deemed to
prohibit the Fund from making any otherwise permissible borrowings, mortgages
or pledges, or entering into permissible reverse repurchase agreements, or
hedging activities.
(11) Invest in commodities, but the Fund may purchase or sell futures
contracts, options on futures, and options.
In accordance with the following non-fundamental policies, which may be
changed without shareholder approval, the Mid Cap Value Fund and the Large Cap
Value Fund each may not:
(1) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(2) Invest in securities of other investment companies except as permitted
by the 1940 Act or as part of a merger, consolidation, acquisition of assets,
or similar reorganization transaction.
(3) Purchase warrants (other than those that have been acquired in units
or attached to other securities), except that the Fund may purchase warrants
which, when valued at lower of cost or market, do not exceed 5% of the value of
the Fund's net assets; included within the 5%, but not in excess of 2% of the
Fund's net assets, may be warrants which are not listed on the New York or
American Stock Exchanges.
16
<PAGE> 57
(4) Purchase or retain the securities of any issuer if the officers,
directors, advisors or managers of the Fund owning beneficially more than 0.5%
of the securities of such issuer together own beneficially 5% of such
securities; provided no officer or director shall be deemed to own beneficially
securities held in other accounts managed by such person or held in employee or
similar plans for which such person acts as trustee.
(5) Purchase securities on margin or effect short sales of securities,
except that the Fund may obtain short-term credit necessary for the clearance
of purchases and sales of its portfolio securities, and except as required in
connection with permissible options, futures, short selling and leverage
activities as described elsewhere in the Prospectus and Statement of Additional
Information.
(6) Invest more than 10% of its total assets in real estate investment
trusts.
For the Small Cap Contrarian Fund's limitations on futures and options
transactions, see "Investment Policies and Methods - Limitations on Futures and
Options Transactions."
VALUE FUND AND U.S. GOVERNMENT SECURITIES FUND
The fundamental investment restrictions and policies of the Value Fund and
the U.S. Government Securities Fund provide that such Funds may not:
(1) Invest more than 5% of the fair market value of its assets in
securities of any one issuer except for United States government agency
securities and securities backed by the United States Government, its agencies
or instrumentalities, which may be purchased without limitation. For the
purposes of this limitation, the Funds will regard the entity which has the
ultimate responsibility for payment of principal and interest as the issuer.
(2) Purchase more than 10% of the outstanding voting securities of an
issuer, or invest in a company to get control or manage it.
(3) Invest more than 25% of its total assets, based on current market
value at the time of purchase, in securities of issuers in any single industry;
provided that there shall be no limitation on the purchase of securities issued
or guaranteed by the United States government, its agencies or
instrumentalities.
(4) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(5) Invest in securities of other investment companies except as they may
be acquired as part of a merger, consolidation, reorganization or acquisition
of assets.
(6) Buy or sell real estate, real estate investment trusts, or oil and gas
interests, but this shall not prevent the Funds from investing in securities of
companies whose business involves the purchase or sale of real estate, except
that the U.S. Government Securities Fund will not invest in real estate limited
partnerships.
(7) Borrow money or property except for temporary or emergency purposes.
If a Fund ever should borrow money it would only borrow from banks and in an
amount not exceeding 10% of the market value of its total assets (not including
the amount borrowed). Neither Fund will pledge more than 15% of its net assets
to secure such borrowings. In the event a Fund's borrowing exceeds 5% of the
market value of its total assets the Fund will not invest in any additional
portfolio securities until its borrowings are reduced to below 5% of its total
assets. For purposes of these restrictions, collateral arrangements for
premium and margin payments in connection with a Fund's hedging activities are
not to be deemed to be a pledge of assets.
17
<PAGE> 58
(8) Make loans, except that it may (i) acquire publicly distributed bonds,
debentures, notes and other debt securities and (ii) lend portfolio securities
provided that no such loan may be made if as a result the aggregate of such
loans would exceed 30% of the value of the Fund's total assets.
(9) Underwrite the securities of other issuers except where it might
technically be deemed to be an underwriter for purposes of the Securities Act
of 1933 upon the disposition of certain securities.
(10) Except with respect to investments in repurchase agreements by the U.
S. Government Securities Fund, purchase securities with legal or contractual
restrictions on resale.
(11) Issue senior securities.
(12) Purchase securities on margin or effect short sales of securities,
except that the Value Fund may sell securities short where it either: (a) holds
a long position in the same security which equals or exceeds the number of
shares sold short; or (b) holds a long position in a security with respect to
which there has been a public announcement of a proposed transaction that would
result in the conversion of the securities so held into an equal or greater
number of shares of the securities sold short; provided that the Value Fund may
not effect any such short sale of securities if, as a result thereof, the
aggregate value of all of its open short positions would exceed 5% of the Value
Fund's total assets, or if more than 10% of the Value Fund's net assets would
be held as collateral for such short positions.
(13) Buy or sell commodities or commodity contracts or enter into an
interest rate futures contract or an option thereon, except that a Fund may
purchase or sell futures and options on futures and enter into closing
transactions with respect thereto unless, as a result thereof: (a) the then
current aggregate futures market prices and financial instruments required to
be delivered under open futures contract sales plus the then current aggregate
purchase price of financial instruments required to be purchased under open
futures contract purchases would exceed 25% of the Fund's net assets (taken at
market value at the time of entering into the contract and excluding the amount
by which any of its options on futures are in-the-money); and (b) more than 5%
of the Fund's total assets (taken at market value at the time of entering into
the contract and excluding the amount by which any of its options on futures
are in-the-money) would be committed to initial margin and premiums paid on
such futures contracts.
(14) Write, purchase or sell puts, calls, straddles, spreads or any
combination thereof, except that a Fund may write covered call options and
purchase put options on portfolio securities or securities indexes and enter
into closing transactions with respect to such options, and, subject to
restriction (13) above, a Fund may write covered call options and purchase put
options on futures contracts and enter into closing transactions with respect
to such options on futures, unless, as a result of any of the foregoing
transactions: (a) the aggregate market value of all portfolio securities
covering call options written by the Fund would exceed 25% of the Fund's total
assets; or (b) the aggregate value of all premiums paid for put options
purchased by the Fund would exceed 5% of the Fund's total assets (less the
amount by which any such positions are in-the-money), excluding puts purchased
on closing transactions.
(15) Invest in illiquid securities, except that the U.S. Government
Securities Fund may invest up to 10% of its net assets in illiquid securities,
including investments in repurchase agreements which mature in more than seven
days.
(16) Purchase warrants, except that the Value Fund may purchase warrants
which, when valued at lower of cost or market, do not exceed 5% of the value of
the Fund's net assets; included within the 5%, but not in excess of 2% of the
Fund's net assets, may be warrants which are not listed on the New York or
American Stock Exchanges.
(17) With respect to the U.S. Government Securities Fund, purchase or
retain the securities of any issuer if the officers, directors, advisors or
managers of the fund owning beneficially more than one and one-half
18
<PAGE> 59
of one percent of the securities of such issuer together own beneficially 5%
of such securities; provided no officer or director shall be deemed to own
beneficially securities held in other accounts managed by such person or held
in employee or similar plans for which such person acts as trustee.
MID CAP VALUE FUND AND LARGE CAP VALUE FUND
The fundamental investment restrictions and policies of the Mid Cap Value
Fund and the Large Cap Value Fund provide that each such Fund may not:
(1) With respect to 75% of its total assets, invest more than 5% of the
fair market value of its assets in securities of any one issuer, other than
securities issued or guaranteed by the U.S. government, its agencies, or
instrumentalities;
(2) Invest in a company to get control or manage it or, with respect to
75% of its total assets, purchase more than 10% of the outstanding voting
securities of an issuer;
(3) Invest more than 25% of its total assets, based on current market
value at the time of purchase, in securities of issuers in any single industry;
provided that there shall be no limitation on the purchase of securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities.
(4) Buy or sell real estate or oil and gas interests or leases, but this
shall not prevent the Fund from investing in securities secured by real estate
or real estate interests or issued by companies, including real estate
investment trusts, that invest in real estate or real estate interests or whose
business involves the purchase or sale of real estate.
(5) Borrow money or property except for temporary or emergency purposes.
If the Fund ever should borrow money it would only borrow from banks and in an
amount not exceeding 10% of the market value of its total assets (not including
the amount borrowed). No Fund will pledge more than 15% of its net assets to
secure such borrowings. In the event the Fund's borrowing exceeds 5% of the
market value of its total assets the Fund will not invest in any additional
portfolio securities until its borrowings are reduced to below 5% of its total
assets. For purposes of these restrictions, collateral arrangements for
premium and margin payments in connection with the Fund's hedging activities
are not to be deemed to be a pledge of assets.
(6) Mortgage, hypothecate, or pledge any of its assets as security for any
of its obligations, except as required for otherwise permissible borrowings
(including reverse repurchase agreements), short sales, futures, options, and
other hedging activities.
(7) Make loans, except that it may: (i) acquire publicly distributed
bonds, debentures, notes, and other debt securities; (ii) lend portfolio
securities provided that no such loan may be made if as a result the aggregate
of such loans would exceed one-third of the value of the Fund's total assets;
and (iii) enter into repurchase agreements.
(8) Underwrite the securities of other issuers, although it may invest in
companies that engage in such businesses if it does so in accordance with
policies established by Heartland's Board of Directors, and except where it
might technically be deemed to be an underwriter for purposes of the Securities
Act of 1933 upon the disposition of certain securities.
(9) Purchase a security if, as a result, more than 10% of the value of the
Fund's total assets would be invested in: (a) securities that are not readily
marketable or that would require registration under the Securities Act of 1933,
as amended, upon disposition; and (b) repurchase agreements which do not
provide for payment within 7 days.
19
<PAGE> 60
(10) Issue senior securities, as defined in the 1940 Act, except that
this restriction shall not be deemed to prohibit the Fund from making any
otherwise permissible borrowings, mortgages or pledges, or entering into
permissible reverse repurchase agreements, or hedging activities.
(11) Invest in commodities, but the Fund may purchase or sell futures
contracts, options on futures, and options.
In accordance with the following non-fundamental policies, which may be
changed without shareholder approval, the Mid Cap Value Fund and the Large Cap
Value Fund each may not:
(1) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(2) Invest in securities of other investment companies except as permitted
by the 1940 Act or as part of a merger, consolidation, acquisition of assets,
or similar reorganization transaction.
(3) Purchase warrants (other than those that have been acquired in units
or attached to other securities), except that the Fund may purchase warrants
which, when valued at lower of cost or market, do not exceed 5% of the value of
the Fund's net assets; included within the 5%, but not in excess of 2% of the
Fund's net assets, may be warrants which are not listed on the New York or
American Stock Exchanges.
(4) Purchase or retain the securities of any issuer if the officers,
directors, advisors or managers of the Fund owning beneficially more than 0.5%
of the securities of such issuer together own beneficially 5% of such
securities; provided no officer or director shall be deemed to own beneficially
securities held in other accounts managed by such person or held in employee or
similar plans for which such person acts as trustee.
(5) Purchase securities on margin or effect short sales of securities,
except that the Fund may obtain short-term credit necessary for the clearance
of purchases and sales of its portfolio securities, and except as required in
connection with permissible options, futures, short selling and leverage
activities as described elsewhere in the Prospectus and Statement of Additional
Information.
(6) Invest more than 10% of its total assets in real estate investment
trusts.
For the Mid Cap Value Fund's and Large Cap Value Fund's limitations on
futures and options transactions, see "Investment Policies and Methods -
Limitations on Futures and Options Transactions."
VALUE PLUS FUND
The fundamental investment restrictions and policies of the Value Plus
Fund provide that such Fund may not:
(1) With respect to 75% of the Fund's total assets, invest more than 5% of
the fair market value of its assets in securities of any one issuer, other than
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
(2) Invest more than 10% of the fair market value of its total assets in
securities of any one issuer, other than securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities;
(3) Purchase more than 10% of the outstanding voting securities of an
issuer, or invest in a company to get control or manage it.
20
<PAGE> 61
(4) Invest more than 25% of its total assets, based on current market
value at the time of purchase, in securities of issuers in any single industry;
provided that there shall be no limitation on the purchase of securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities.
(5) Buy or sell real estate 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.
(6) Borrow money or property except for temporary or emergency purposes.
If the Fund ever should borrow money it would only borrow from banks and in an
amount not exceeding 10% of the market value of its total assets (not including
the amount borrowed). The Fund will not pledge more than 15% of its net assets
to secure such borrowings. In the event the Fund's borrowing exceeds 5% of the
market value of its total assets the Fund will not invest in any additional
portfolio securities until its borrowings are reduced to below 5% of its total
assets. For purposes of these restrictions, collateral arrangements for
premium and margin payments in connection with the Fund's hedging activities
are not to be deemed to be a pledge of assets.
(7) Make loans, except that it may: (i) acquire publicly distributed
bonds, debentures, notes and other debt securities; (ii) lend portfolio
securities provided that no such loan may be made if as a result the aggregate
of such loans would exceed 30% of the value of the Fund's total assets; and
(iii) enter into repurchase agreements.
(8) Underwrite the securities of other issuers except where it might
technically be deemed to be an underwriter for purposes of the Securities Act
of 1933 upon the disposition of certain securities.
(9) Purchase a security if, as a result, more than 10% of the value of the
Fund's total assets would be invested in: (a) securities with legal or
contractual restrictions on resale (other than investments in repurchase
agreements); (b) securities for which market quotations are not readily
available; and (c) repurchase agreements which do not provide for payment
within 7 days.
(10) Issue senior securities.
(11) Invest in commodities, but the Fund may invest in futures contracts,
options on futures, and options.
In accordance with the following non-fundamental policies, which may be
changed without shareholder approval, the Value Plus Fund may not:
(1) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(2) Invest in securities of other investment companies except as they may
be acquired as part of a merger, consolidation, reorganization or acquisition
of assets.
(3) Purchase warrants, except that the Fund may purchase warrants which,
when valued at lower of cost or market, do not exceed 5% of the value of the
Fund's net assets; included within the 5%, but not in excess of 2% of the
Fund's net assets, may be warrants which are not listed on the New York or
American Stock Exchanges.
(4) Purchase or retain the securities of any issuer if the officers,
directors, advisors or managers of the Fund owning beneficially more than 0.5%
of the securities of such issuer together own beneficially 5% of such
securities; provided no officer or director shall be deemed to own beneficially
securities held in other accounts managed by such person or held in employee or
similar plans for which such person acts as trustee.
21
<PAGE> 62
(5) Purchase securities on margin or effect short sales of securities,
except as required in connection with permissible options and futures
activities as described elsewhere in the Prospectus and Statement of Additional
Information and except that the Fund may sell securities short where it either:
(a) holds a long position in the same security which equals or exceeds the
number of shares sold short; or (b) holds a long position in a security with
respect to which there has been a public announcement of a proposed transaction
that would result in the conversion of the securities so held into an equal or
greater number of shares of the securities sold short; provided that the Fund
may not effect any such short sale of securities if, as a result thereof, the
aggregate value of all of its open short positions would exceed 5% of the
Fund's total assets, or if more than 10% of the Fund's net assets would be held
as collateral for such short positions.
(6) Invest more than 10% of its total assets in real estate investment
trusts.
For the Value Plus Fund's 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.
Principal Occupation
Name and Address Position with Heartland During Past Five Years
- ---------------- ----------------------- ----------------------
William J. Nasgovitz President and Director* President and
790 North Milwaukee Street Director Heartland
Milwaukee, WI 53201 Advisors, Inc., since
1982; Senior 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
3726 North Lake Drive business consultant
Milwaukee, WI 53211 since 1984; prior
thereto, Chairman and
a Director, Marine
Corporation (a bank
holding company) and
Marine Bank, N.A.
Hugh F. Denison Vice President Vice President,
790 North Milwaukee Street Heartland Advisors,
Milwaukee, WI 53201 Inc. since 1988;
Director, Heartland
Advisors, Inc., 1988
through 1996.
Jon D. Hammes Director President, Great
Suite 115 Lakes Partners, since
325 North Corporate Drive 1991; prior thereto,
Brookfield, WI 53045 Managing Partner,
Trammel, Crow Co.
22
<PAGE> 63
Principal Occupation
Name and Address Position with Heartland During Past Five Years
- ---------------- ----------------------- ----------------------
Patrick J. Retzer Vice President, Vice President and
790 North Milwaukee Street Treasurer and Treasurer, Heartland
Milwaukee, WI 53201 Director* Advisors, Inc. since
1987; Director of
Heartland Advisors,
Inc. since 1988.
A. Gary Shilling Director President, A. Gary
500 Morris Avenue Shilling & Company,
Springfield, NJ 07081-1020 Inc. (economic
consultants and
investment advisors),
since 1978.
Linda F. Stephenson Director President and Chief
100 East Wisconsin Avenue Executive Officer,
Milwaukee, WI 53202 Zigman Joseph
Stephenson (a public
relations and
marketing
communications firm)
since 1989.
Lois Schmatzhagen Secretary Secretary, Heartland
790 North Milwaukee Street Advisors, Inc. since
Milwaukee, WI 53201 1988.
- ---------------
*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, 1995:
<TABLE>
<CAPTION>
AGGREGATE ESTIMATED ACTUAL TOTAL COMPENSATION
COMPENSATION FROM PENSION OR BENEFITS UPON FROM HEARTLAND AND
DIRECTOR HEARTLAND RETIREMENT BENEFITS RETIREMENT FUND COMPLEX
- ------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Willard H. Davidson $3,500 None None $3,500
Jon D. Hammes $2,000 None None $2,000
A. Gary Shilling $3,000 None None $3,000
Linda F. Stephenson $3,500 None None $3,500
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of July 15, 1996, the Directors and officers of Heartland Group, Inc.
as a group (8 persons) owned less than 1% of the outstanding shares of the
Value Fund, the Value Plus Fund, the U.S. Government Securities Fund, and the
Small Cap Contrarian Fund. As of such date, no person was known to management
to own, beneficially or of record, 5% or more, of the outstanding shares of any
of the Funds, except that Charles Schwab & Co., Inc., ATTN: Mutual Funds, 101
Montgomery Street, San Francisco, CA 94104-4122 held of record 10,077,708
shares (or 21.0%) of the Value Fund, 413,098 shares (or 18.6%) of the Value
Plus Fund and 4,823,628 shares (or 29.7%) of the Small Cap Contrarian Fund.
23
<PAGE> 64
THE INVESTMENT ADVISOR
Each Fund is managed by Heartland Advisors, pursuant to an Investment
Advisory Agreement with respect to the Value Fund and a separate Investment
Advisory Agreement with respect to the Small Cap Contrarian Fund, the Mid Cap
Value Fund, the Large Cap Value Fund, the Value Plus Fund, and the U.S.
Government Securities Fund (the "Agreements"). The Agreements, with respect to
the Small Cap Contrarian Fund, the Value Plus Fund, the U.S. Government
Securities Fund, and the Value Fund, were most recently approved by the Board
of Directors, including a majority of the Directors who are not Interested
Persons of the Fund or of Heartland Advisors, on July 27, 1995. The
Agreements, with respect to the Mid Cap Value Fund and the Large Cap Value
Fund, were approved by the Board of Directors on July 31, 1996.
Heartland Advisors is controlled by William J. Nasgovitz, a Director and
the President of Heartland, by virtue of his ownership of a majority of its
outstanding capital stock. In addition to serving as investment advisor,
Heartland Advisors also serves as the distributor for the shares of each Fund.
Heartland Advisors, founded in 1982, serves as the investment adviser for the
Heartland Wisconsin Tax Free and Nebraska Tax Free Funds, two additional series
of Heartland, and also provides investment management services for individuals,
and institutional accounts, such as pension funds and profit-sharing plans. As
of March 31, 1996, Heartland Advisors had approximately $2.2 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 Agreements and pays all salaries, fees, and expenses of the officers
and directors of Heartland who are affiliated with Heartland Advisors. Each
Fund bears all its other expenses including, but not limited to, necessary
office space, telephone and other communications facilities and personnel
competent to perform administrative, clerical and shareholder relations
functions; a pro rata portion of salary, fees, and expenses (including legal
fees) of those directors, officers, and employees of Heartland who are not
officers, directors, or employees of Heartland Advisors; interest expenses;
fees and expenses of the Custodian, Agent, and Dividend Disbursing Agent; taxes
and governmental fees; brokerage commissions and other expenses incurred in
acquiring or disposing of portfolio securities, expenses of registering and
qualifying shares for sale with the Securities and Exchange Commission and with
various state securities commissions; accounting and legal costs; insurance
premiums; expenses of maintaining the Fund's legal existence and of
shareholder meetings; expenses of preparation and distribution to existing
shareholders of reports, proxies, and prospectuses; and fees and expenses of
membership in industry organizations.
Each of the Small Cap Contrarian Fund, the Value Fund, the Mid Cap Value
Fund, and the Large Cap Value Fund pays Heartland Advisors an annual fee for
its services at the rate of 0.75 of 1% of the respective Fund's average daily
net assets. While the advisory fee is larger than the fee paid by most mutual
funds, it is consistent with the fee paid by funds with investment
characteristics and objectives similar to that of the referenced Funds. The
Value Plus Fund pays Heartland Advisors an annual fee for its advisory services
at the rate of 0.70 of 1% of the Fund's average daily net assets. The advisory
fee for the U.S. Government Securities Fund is 0.65 of 1% of the first $100
million of the Fund's average daily net assets, 0.50 of 1% of the next $400
million of assets, and 0.40 of 1% on assets in excess of $500 million. The
advisory fees for the Funds are payable in monthly installments.
24
<PAGE> 65
For the fiscal years ended December 31, 1993, 1994, and 1995, the Value
Fund paid advisory fees of $990,902, $1,985,370, and $6,452,487, respectively.
For the period from April 27, 1995 (commencement of operations) to December 31,
1995, the Small Cap Contrarian Fund paid advisory fees of $172,583. For the
fiscal years ended December 31, 1994 and 1995, the Value Plus Fund paid
advisory fees of $63,697 and $102,311, respectively, and for the period from
October 26, 1993 (commencement of operations) to December 31, 1993, the Value
Plus Fund paid advisory fees of $3,186. For the years ended December 31, 1993,
1994, and 1995, the U.S. Government Securities Fund paid advisory fees of
$232,062, $361,242, and $325,124, respectively. During those periods, advisory
fees provided under the U.S. Government Securities Fund's Agreement totaled
$316,429, $469,614, and $422,661, respectively, but Heartland Advisors
voluntarily waived $84,367, $108,372, and $97,537, of the fees during those
respective periods.
The Agreements provide that Heartland Advisors' fee will be reduced, or
Heartland Advisors will reimburse a Fund (up to the amount of its fee), by an
amount necessary to prevent the total expenses of a Fund (excluding taxes,
interests, brokerage commissions or transactions costs, distribution fees and
extraordinary expenses) from exceeding limits applicable to the Fund in any
state in which its shares are then qualified for sale. Presently the most
restrictive expense ratio limitation imposed by any state is 2-1/2% of the
first $30 million of a Fund's average net assets, 2% of the next $70 million
and 1-1/2% of the remaining assets. For the purposes of these tests, average
net assets will be computed in the same manner as average daily net assets are
computed in determining the investment advisory fee. Such reimbursements would
be made monthly, subject to annual adjustment.
Each of the Agreements will continue in effect from year to year, as long
as it is approved at least annually by the Board of Directors or by a vote of
the outstanding voting securities of the appropriate Fund and in either case by
a majority of the Directors who are not parties to the Agreement or interested
persons of any such party. Each Agreement terminates automatically if it
is assigned and may be terminated without penalty by either party on not more
than 60 nor less than 30 days' notice. Each Agreement provides that neither
Heartland Advisors nor its personnel shall be liable for any error of judgment
or mistake of law or for any loss arising out of any investment or for any act
or omission in the execution and management of the Fund, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of its obligations and duties under the
Agreement.
PERFORMANCE INFORMATION
From time to time the Funds may advertise their "yield" and "total
return." Yield is based on historical earnings and total return is based on
historical distributions; neither is intended to indicate future performance.
The "yield" of a Fund refers to the income generated by an investment in that
Fund over a one-month period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during the month is assumed to be generated
each month over a twelve-month period and is shown as a percentage of the
investment. "Total return" of the Funds refers to the annual average return
for 1, 5, and 10-year periods (or the portion thereof during which a Fund has
been in existence). Total return is the change in redemption value of shares
purchased with an initial $1,000 investment, assuming the reinvestment of
dividends and capital gain distributions and the redemption of the shares at
the end of the period. Prior to June 1, 1994, shares of the Funds had been
sold subject to a contingent deferred sales charge and prior to February 12,
1993, shares of the Value and U.S. Government Securities Funds had been sold
subject to an initial sales charge, neither of which is reflected in the total
return figures, rather the figures reflect the current no-load sales structure.
Performance information should be considered in light of the particular
Fund's investment objectives and policies, characteristics and quality of its
portfolio securities, and the market conditions during the applicable period,
and should not be considered as a representation of what may be achieved in the
future. Investors should consider these factors and possible differences in
the methods used in calculating performance
25
<PAGE> 66
information when comparing a Fund's performance to performance figures
published for other investment vehicles.
Average annual total return is computed by finding the average annual
compounded rates of return over the 1, 5, and 10-year periods (or the portion
thereof during which a Fund has been in existence) ended on the date of the
respective Fund's balance sheet that would equate the initial amount invested
to the ending redeemable value, according to the following formula:
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.
The average annual total return for the Value Fund for the one-year,
five-year, and ten-year periods ended December 31, 1995, the average annual
total return for the U.S. Government Securities Fund for the one-year and
five-year periods ended December 31, 1995 and for the period from April 9, 1987
(commencement of operations) to June 30, 1995, the average annual total return
for the Value Plus Fund for the one-year period ended December 31, 1995 and for
the period from October 26, 1993 (commencement of operations) to December 31,
1995, and the non-annualized total return for the Small Cap Contrarian Fund for
the period from April 27, 1995 (commencement of operations) to December 31,
1995 are as follows:
<TABLE>
<CAPTION>
10 Years
or, if Less,
From
Commencement
1 Year 5 Years of Operations
------ ------- -------------
<S> <C> <C> <C>
Heartland Value Fund ....................... 29.80% 27.25% 14.30%
Heartland Small Cap Contrarian Fund ........ N/A N/A 20.82%
Heartland Value Plus Fund .................. 24.39% N/A 10.55%
Heartland U.S. Government Securities Fund .. 19.00% 10.28% 9.26%
</TABLE>
Yield quotations are based on a 30-day (or one-month) period, and are
computed by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
a-b 6
YIELD=2 [(----- +1) -1]
cd
26
<PAGE> 67
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.
Since the Value Fund's, the Mid Cap Value Fund's, and the Large Cap Value
Fund's investment objective is long-term capital appreciation, these Funds will
typically not calculate or advertise their yield. Similarly, the Small Cap
Contrarian Fund will not typically calculate its yield. The yield for the
Value Plus Fund for the thirty days commencing December 1, 1995 was 4.59%. The
yield for the U.S. Government Securities Fund for the thirty days commencing
December 1, 1995 was 6.05%. When advertising yield, a Fund will not advertise
a one-month or a 30-day period which ends more than 45 days before the date on
which the advertisement is published.
DETERMINATION OF NET ASSET VALUE PER SHARE
Each Fund's shares are sold at their next determined net asset value per
share. Each Fund determines the net asset value per share by subtracting the
Fund's liabilities (including accrued expenses and dividends payable) from the
Fund's total assets (the value of the securities a Fund holds plus cash or
other assets, including interest accrued but not yet received) and dividing the
result by the total number of shares outstanding.
The next determined net asset value per share will be calculated as of the
close of regular trading on the New York Stock Exchange at least once every
weekday, Monday through Friday, except on (i) customary national business
holidays which result in the closing of the New York Stock Exchange which are
New Year's Day, Washington's Birthday, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving, and Christmas; (ii) days when no security is
tendered for redemption and no customer order is received; or (iii) days when
changes in the value of the investment company's portfolio securities do not
affect the current net asset value of the Fund's redeemable securities.
Portfolio securities which are traded on stock exchanges are valued at the last
sale price as of the close of business on the day the securities are being
valued, or, lacking any sales, at the mean between closing bid and asked
prices. Each over-the-counter security for which the last sale price on the day
of valuation is available from NASDAQ and falls within the range of the latest
bid and asked quotations is valued at that price. All other securities traded
in the over-the-counter market are valued at the most recent bid prices as
obtained from one or more dealers that make markets in the securities.
Portfolio securities which are traded both in the over-the-counter market and
on a stock exchange are valued according to the broadest and most
representative market.
Foreign securities are valued at the last sale price in the principal
market where they are traded, or, if last sale prices are unavailable, at the
last bid price available prior to the time the Fund's net asset value is
determined. Foreign securities prices may be furnished by quotation services
who express the value of securities in their local currency. Heartland
Advisors translates the value of foreign securities from the local currency
into U.S. dollars at current exchange rates. Any changes in the value of
forward contracts due to exchange rate fluctuations are included in the
determination of net asset value. Because foreign securities markets may close
prior to the time a Fund determines its net asset value, events affecting the
value of portfolio securities occurring between the time securities prices are
determined and the time the Fund calculates its net asset value may not be
reflected in the Fund's calculation.
27
<PAGE> 68
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.
For the fiscal year ended December 31, 1995, Heartland Advisors received
contingent deferred sales charges with respect to redemptions of shares of the
Value Fund, the Value Plus Fund, and the U.S. Government Securities Fund in
the amounts of $205,943, $12,134, and $82,882, respectively. For the fiscal
year ended December 31, 1994, Heartland Advisors received contingent deferred
sales charges with respect to redemptions of shares of the Value Fund, the Value
Plus Fund, and the U.S. Government Securities Fund in the amounts of $239,548,
$13,392, and $118,949, respectively. For the fiscal year ended December 31,
1993, Heartland Advisors received contingent deferred sales charges with respect
to redemptions of shares of the Value Fund and U.S. Government Securities Fund
in the amounts of $139,549 and $14,060, respectively. For the period from
October 26, 1993 through December 31, 1993, Heartland Advisors received
contingent deferred sales charges with respect to redemptions of shares of the
Value Plus Fund in the amount of $69.
DISTRIBUTION PLAN
Each Fund has adopted a Distribution Plan, which is described in the
Prospectus (see "The Distribution Plan"). Under each Plan, Heartland Advisors
provides the Directors for their review promptly after the end of each quarter
a written report setting forth all amounts expended under the Plan, including
all amounts paid to dealers as distribution or service fees. In approving the
Plan in accordance with the requirements of Rule 12b-1, the Directors
considered various factors, including the amount of the distribution fee. The
Directors determined that there is a reasonable likelihood that the Plan of
each respective Fund will benefit the Fund and the shareholders of the Fund.
Each Plan may be terminated by vote of a majority of the Directors who are
not interested persons, or by vote of a majority of the outstanding voting
securities of the Fund. Any change in the Plan that would materially increase
the distribution cost to the Fund requires shareholder approval; otherwise, it
may be amended by the Directors, including a majority of the Directors who are
not interested persons, by vote cast in person at a meeting called for the
purpose of voting upon such amendment. So long as a Distribution Plan is in
effect, the selection or nomination of the Directors who are not interested
persons is committed to the discretion of such Directors.
The Distribution Plan of a Fund may be terminated by the Directors at any
time on 60 days written notice without payment of any penalty by Heartland
Advisors, by vote of a majority of the outstanding voting securities of the
Fund, or by vote of a majority of the Directors who are not interested persons.
28
<PAGE> 69
Each Distribution Plan will continue in effect for successive one-year
periods, if not sooner terminated in accordance with its terms, provided that
each such continuance is specifically approved by the vote of the Directors,
including a majority of the Directors who are not interested persons.
During the fiscal year ended December 31, 1995, the Value Fund paid
$2,150,829 under its Plan, of which $2,107,107 was spent on compensation to
dealers, financial institutions, and other service providers, and $43,722 was
spent on printing and mailing prospectuses and sales literature to other than
current shareholders. During the period from April 27, 1995 (commencement of
operations) to December 31, 1995, the Small Cap Contrarian Fund paid $57,402
under its Plan, of which $57,387 was spent on compensation to dealers,
financial institutions, and other service providers and $15 was spent on
printing and mailing prospectuses and sales literature to other than current
shareholders. During the fiscal year ended December 31, 1995, the Value Plus
Fund paid $36,684 under its Plan, of which $35,239 was spent on compensation to
dealers, financial institutions, and other service providers, and $1,445 was
spent on printing and mailing prospectuses and sales literature to other than
current shareholders. During the fiscal year ended December 31, 1995, the U.S.
Government Securities Fund paid $162,562 under its Plan, of which $158,549 was
spent on compensation to dealers, financial institutions, and other service
providers, and $4,013 was spent on printing and mailing prospectuses and sales
literature to other than current shareholders.
TAX STATUS
The information in this section supplements that in the Prospectus (see
"Dividends, Capital Gains Distributions And Taxes").
Each series of a series company, such as Heartland is treated as a single
entity for federal income tax purposes, so that the net realized capital gains
and losses of one series are not combined with those of another series in the
same company.
Gain or loss on the sale of securities held by a Fund for more than one
year will generally be long-term capital gain or loss. Gain or loss on the
sale of securities held for one year or less will be short-term capital gain or
loss.
If a shareholder exchanges shares of one Fund for shares of another Fund,
the shareholder will recognize gain or loss for federal income tax purposes.
That gain or loss will be measured by the difference between the shareholder's
basis in the shares exchanged and the value of the shares acquired.
It is possible that each Fund's income dividends may, to the extent such
dividends consist of interest from obligations of the U.S. Government and
certain of its agencies and instrumentalities, be exempt from all state and
local income taxes. Each Fund intends to advise shareholders of the proportion
of its dividends which consist of such interest. Shareholders are urged to
consult their tax advisers regarding the possible exclusion of such portion of
their dividends for state and local income tax purposes.
DESCRIPTION OF SHARES
In the interest of economy and convenience, certificates representing
shares purchased are not ordinarily issued. However, such purchases are
confirmed to the investor and credited to their accounts on the books
maintained by Firstar Trust Company (the "Agent"), Milwaukee, Wisconsin. The
investor will have the same rights of ownership with respect to such shares as
if certificates had been issued. Investors may receive a certificate
representing whole shares by specifically requesting one by letter to the
Agent. If a stock certificate is requested, it will not be sent for at least
14 days. The Directors require payment of any lost instrument bond premiums or
federal and state taxes due in connection 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.
29
<PAGE> 70
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 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
30
<PAGE> 71
with Heartland Advisors are also subject to such fiduciary standards as may
be imposed upon Heartland Advisors by applicable law.
During the fiscal year ended December 31, 1993, the Value Fund and the
U.S. Government Securities Fund paid $589,478 and $8,607, respectively, in
aggregate brokerage commissions on portfolio transactions. Of such brokerage
commissions, $198,964 and $0, respectively, were paid to Heartland Advisors.
For the period from October 26, 1993 (commencement of operations) to December
31, 1993, the Value Plus Fund paid a total of $5,914 in aggregate brokerage
commissions on portfolio transactions, of which $3,587 were paid to Heartland
Advisors.
During the fiscal year ended December 31, 1994, the aggregate brokerage
commissions on portfolio transactions paid by the Funds were as follows: the
Value Fund paid $833,464; the Value Plus Fund paid $36,958; and the U.S.
Government Securities Fund paid $10,751. Of such brokerage commissions,
amounts paid to Heartland Advisors as broker were: $235,899 for the Value
Fund; $12,195 for the Value Plus Fund; and $0 for the U.S. Government
Securities Fund.
During the fiscal year ended December 31, 1995, the aggregate brokerage
commissions paid by the Funds, and the total dollar value of portfolio
transactions on which a brokerage commission was paid, were as follows: the
Value Fund paid $2,619,410 on portfolio transactions of $375,284,546; the Value
Plus Fund paid $140,980 on portfolio transactions of $34,582,469; and the U.S.
Government Securities Fund paid $676 on portfolio transactions of $812,098. Of
such brokerage commissions, amounts paid to Heartland Advisors as broker were:
$438,094 in commissions (or 16.7% of total commissions) on $76,901,148 of
transactions (or 20.5% of total transactions) for the Value Fund; $29,768 in
commissions (or 21.1% of total commissions) on $8,665,208 of transactions (or
25.1% of total transactions) for the Value Plus Fund; and $0 for the U.S.
Government Securities Fund. For the period from April 27, 1995 (commencement
of operations) to December 31, 1995, the Small Cap Contrarian Fund paid
aggregate brokerage commissions of $246,960 on portfolio transactions of
$40,048,920. Of such brokerage commissions, amounts paid to Heartland Advisors
as broker by the Fund were $43,741 (or 17.7% of total commissions) on
$2,151,093 of portfolio transactions (or 5.4% of total transactions). Heartland
Advisors effected multiple purchases of a New York Stock Exchange listed
security with a low dollar value as broker for the Fund, which resulted in a
higher percentage of brokerage commissions paid to Heartland Advisors than the
relative dollar value of portfolio transactions effected by Heartland Advisors
for the period. Such transactions were effected in accordance with the
procedures adopted by the Board with respect to commissions paid to Heartland
Advisors.
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. During
the fiscal year ended December 31, 1995, the Value Fund paid $38,996 in
brokerage commissions (or 1.5% of total commissions paid) to Stifel for
effecting $5,930,376 of transactions, or approximately 1.6% of the dollar value
of portfolio transactions for which a brokerage commission was paid.
During the fiscal year ended December 31, 1995, the Value Plus Fund paid $1,050
in brokerage commissions (or 0.7% of total commissions paid) to Stifel for
effecting $1,175,390 of transactions, or approximately 3.4% of the dollar value
of portfolio transactions for which a brokerage commission was paid.
The portfolio holdings of the Funds may include the securities of certain
publicly traded brokerage firms. At December 31, 1995, the Value Fund held
222,704 shares, with a market value of $807,302, of Kinnard Investments, Inc.,
the parent corporation of John G. Kinnard and Company, Incorporated, which was
among the Fund's regular brokers or dealers for 1995 as defined in Rule 10b-1
under the Investment Company Act of 1940.
31
<PAGE> 72
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Firstar Trust Company acts as Custodian of each Fund's investments, and
acts as Transfer and Dividend Disbursing Agent (the "Custodian" and the
"Agent", respectively). Its address is Mutual Funds Services, 3rd Floor, P.O.
Box 701, Milwaukee, Wisconsin 53201-0701.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Quarles & Brady serves as legal counsel for the Funds. Arthur Andersen
LLP, independent public accountants, are auditors of the Funds.
FINANCIAL STATEMENTS
The financial statements, related notes and related reports of Arthur
Andersen LLP, independent public accountants, contained in the Annual Report to
Shareholders of the Value Fund, Small Cap Contrarian Fund, Value Plus Fund and
U.S. Government Securities Fund as of December 31, 1995 and for the fiscal year
or period then ended, are hereby incorporated by reference. Copies of the
Annual Report may be obtained without charge by writing to Heartland Advisors,
Inc., 790 North Milwaukee Street, Milwaukee, Wisconsin 53202, or by calling
1-800-432-7856 or (414) 289-7000.
32
<PAGE> 73
APPENDIX A
SECURITIES RATINGS
GENERAL
A rating of a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are general
and are not absolute standards as to the creditworthiness of an issuer.
Consequently, Heartland Advisors believes that the quality of debt securities
in which the Funds invest should be continuously reviewed and that individual
analysts give different weightings to the various factors involved in credit
analysis. A rating is not a recommendation to purchase, sell or hold a
security, because it does not take into account market value or suitability for
a particular investor. When a security has received a rating from more than
one service, each rating should be evaluated independently. Ratings are based
on current information furnished by the issuer or obtained by the rating
services from other sources which they consider reliable. Ratings may be
changed, suspended or withdrawn as a result of changes in or unavailability of
such information, or for other reasons.
The following is a description of the characteristics of bond ratings used
by Moody's Investors Service, Inc. and Standard & Poor's Corporation.
RATINGS BY MOODY'S
Aaa -- Bonds which are rated in category Aaa are judged to be of the best
quality and carry the smallest degree of investment risk. Interest payments
are protected by a large or by an exceptionally stable margin, and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa -- Bonds which are rated in category Aa are judged to be of high
quality by all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuations of protective elements may be of greater amplitude or there may be
other elements present which make the long term risks appear somewhat larger
than in Aaa securities.
A -- Bonds which are rated in category A are judged to possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unrealizable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact may have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during other good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
A-1
<PAGE> 74
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers "1", "2" and "3" to the Aa through B
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
RATINGS BY STANDARD & POOR'S
AAA -- This is the highest rating category assigned by Standard & Poor's
to a debt obligation and indicates an extremely strong capacity to pay interest
and repay principal.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major 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.
B -- Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC -- Debt rated CCC has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The CCC
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
A-2
<PAGE> 75
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Standard & Poor's ratings, from AA to CCC, may be modified by the addition
of a plus or minus sign to show relative standing within the major categories.
A-3
<PAGE> 76
TABLE OF CONTENTS
Page
----
<TABLE>
<S> <C>
INTRODUCTION TO THE FUNDS 2
INVESTMENT POLICIES AND METHODS 2
INVESTMENT RESTRICTIONS 15
MANAGEMENT 22
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES 23
THE INVESTMENT ADVISOR 24
PERFORMANCE INFORMATION 25
DETERMINATION OF NET ASSET VALUE PER SHARE 27
DISTRIBUTION OF SHARES 28
DISTRIBUTION PLAN 28
TAX STATUS 29
DESCRIPTION OF SHARES 29
PORTFOLIO TRANSACTIONS 30
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT 32
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS 32
FINANCIAL STATEMENTS 32
</TABLE>
Heartland Small Cap Contrarian Fund
Heartland Value Fund
Heartland Mid Cap Value Fund
Heartland Large Cap Value Fund
Heartland Value Plus Fund
Heartland U.S. Government Securities Fund
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Investment Advisor And Distributor
Heartland Advisors, Inc.
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Custodian, Transfer And Dividend Disbursing Agent
Firstar Trust Company
Mutual Funds Services, Third Floor
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
Counsel
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Auditor
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
<PAGE> 77
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 and the
Large Cap Value 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 June 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 13,594
Heartland Value Fund 72,504
Heartland Mid Cap Value Fund 0
Heartland Large Cap Value Fund 0
Heartland Value Plus Fund 2,085
Heartland U.S. Government Securities Fund 3,190
Heartland Wisconsin Tax Free Fund 3,639
Heartland Nebraska Tax Free Fund 552
</TABLE>
<PAGE> 78
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
C-2
<PAGE> 79
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.
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.
C-3
<PAGE> 80
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.
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 January 31, 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:
C-4
<PAGE> 81
<TABLE>
<CAPTION>
Position
With Heartland
Name Advisors, Inc. Other
- ---- ------------------------ -----
<S> <C> <C>
William J. President and Director President and
Nasgovitz Director, Heartland
Group, Inc.
Patrick J. Director and Vice Vice President,
Retzer President, Treasurer Treasurer, and
Director, Heartland
Group, Inc.
Hugh F. Vice President Director, Heartland
Denison Group, Inc.
Mitchell L. Chief Operating Officer Communications
Kohls Manager, GE Medical
Systems (General
Electric) (8/88 to 6/95)
Kenneth J. Chief Financial Officer None
Della
Lorraine J. Vice President and Attorney, Quarles &
Koeper General Counsel and Brady (9/92 to 7/95)
Director
Lois J. Secretary Secretary, Heartland
Schmatzhagen Group, Inc.
</TABLE>
Item 29. Principal Underwriters
(a) Heartland Advisors, Inc. acts as the Distributor of
each of the Heartland funds shares. Heartland
Advisors, Inc. does not act as the principal
underwriter or distributor for any open-end mutual
funds other than the Heartland funds.
(b) See response to item 28(a) above.
(c) Not applicable.
C-5
<PAGE> 82
Item 30. Location of Accounts and Records
(a) Heartland Group, Inc.
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
(b) Firstar Trust Company
Mutual Funds Services, Third Floor
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
(c) Firstar National Bank-Milwaukee
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Item 31. Management Services
Not applicable
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.
C-6
<PAGE> 83
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 9th day of August, 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 9th day of
August, 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
Director, Vice President and Treasurer (Chief Financial and
/s/ Patrick J. Retzer Accounting Officer)
----------------------------------------
PATRICK J. RETZER
Director
/s/ Hugh F. Denison
----------------------------------------
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-7
<PAGE> 84
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Numbered
Number Description Page
- ------- ----------- --------
<S> <C> <C>
1(a) Articles of Incorporation*
(b) Articles Supplementary to Articles of Incorporation as filed with Maryland Department of
Assessments and Taxation to create the series known as the Heartland Wisconsin Tax Free Fund*
(c) Articles Supplementary to Articles of Incorporation as filed with Maryland Department of
Assessments and Taxation to create two series known as Heartland Nebraska Tax Free Fund and
Heartland Value Plus Fund, respectively*
(d) Articles Supplementary to Articles of Incorporation as filed with Maryland Department of
Assessments and Taxation to redesignate the name of the Heartland U.S. Government Fund to the
Heartland U.S. Government Securities Fund*
(e) Articles Supplementary to Articles of
Incorporation as filed with Maryland
Department of Assessments and Taxation
to create the series known as the
Heartland Small Cap Contrarian Fund*
(f) 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 Mid Cap Value Fund and the
Heartland Large Cap Value Fund*
2 Amended and Restated By-Laws*
4(a) Form of specimen security for Heartland Wisconsin Tax Free Fund*
(b) Form of specimen security for Heartland Value Fund*
(c) Form of specimen security for Heartland U.S. Government Fund*
5(a) Investment Advisory Agreement for Heartland Value Fund*
5(b) Investment Advisory Agreement for Heartland U.S. Government, Wisconsin Tax Free, Nebraska Tax Free,
Value Plus, Small
</TABLE>
C-8
<PAGE> 85
<TABLE>
<S> <C> <C>
Cap Contrarian, Mid Cap Value and Large Cap Value Funds
6(a)(i) Distribution Agreement between Heartland Group, Inc. and Heartland Advisors, Inc.
(a)(ii) Amendment No. 1 to Distribution Agreement between Heartland Group, Inc. and Heartland Advisors,
Inc.
(b) Form of Selected Dealer Agreements*
(c) Form of Selling Agreement for Banks*
8(a) Custodian Agreement*
(b) Transfer Agent/Dividend Disbursing Agent Agreement*
9(a) Heartland Group, Inc.'s Rule 10f-3 Plan*
(b) Heartland Value Fund, Inc.'s Rule 10f-3 Plan*
10 Opinion of Quarles & Brady*
11(a) Consent of Arthur Andersen LLP*
(b) Consent of Quarles & Brady*
(c) Rule 438 Consent of Linda F. Stephenson*
13 Subscription Agreements*
14(a) Form of Model Retirement Plans*
(b) Form of Heartland Funds Individual 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
(c) Form of Related Distribution Agreement for Rule 12b-1 Plan*
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*
</TABLE>
C-9
<PAGE> 86
<TABLE>
<S> <C>
(c) Schedules for Computation of Performance Information for the Heartland Nebraska Tax Free Fund*
(d) Schedules for Computation of Performance Information for the Heartland Value Plus Fund*
(e) Schedules for Computation Performance Information for the Heartland Small Cap Contrarian Fund*
17 Financial Data Schedules (See Exhibit 27)
27.1 Financial Data Schedule for the Heartland Value Fund
27.2 Financial Data Schedule for the Heartland U.S.
Government Securities Fund
27.5 Financial Data Schedule for the Heartland
Value Plus Fund
27.6 Financial Data Schedule for the Heartland Small
Cap Contrarian Fund
</TABLE>
__________________
*Previously filed and incorporated herein by reference.
C-10
<PAGE> 1
EXHIBIT 5(b)
INVESTMENT ADVISORY AGREEMENT
BETWEEN
HEARTLAND GROUP, INC.
AND
HEARTLAND ADVISORS, INC.
INVESTMENT ADVISORY AGREEMENT, made as of the 12th day of January, 1987,
by and between Heartland Group, Inc. (the "Fund"), a Maryland corporation, and
Heartland Advisors, Inc. (formerly known as Milwaukee Asset Management, Inc.)
(the "Advisor"), a Wisconsin corporation.
WITNESSETH:
WHEREAS, the Fund is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act
of 1940, as amended (the "1940 Act"), and its shares of common stock are
registered under the federal Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS, the Advisor is engaged in the business of rendering investment
supervisory services and is registered as an investment advisor under the
Investment Advisors Act of 1940, as amended; and
WHEREAS, the Fund is authorized to issue shares in separate series with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund desires the Advisor to render investment supervisory
services to the Fund in the manner and on the terms and conditions hereinafter
set forth with respect to the Fund's investment activities relating to assets
of the Fund allocated to each series of its common stock identified on Schedule
A attached hereto, as modified from time to time by the mutual consent of the
parties hereto (the "Series");
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. DUTIES AND RESPONSIBILITIES OF ADVISOR.
A. INVESTMENT ADVISORY SERVICES. The Advisor shall act as investment
adviser with respect to, and shall supervise and direct the investments of, the
Fund relating to Fund assets allocated to any Series in accordance with each
such Series' investment objectives, programs and restrictions as provided in
such Series' Prospectus, as amended from time to time, and such other
limitations as the Fund may impose by notice in writing to the Advisor. The
Advisor shall obtain and evaluate such information relating to the economy,
industries, businesses, securities markets and securities as it may deem
necessary or useful in the discharge of its obligations hereunder and shall
formulate and implement a continuing program for the management of the assets
and resources allocated to each Series in a manner consistent with their
respective investment objectives. In furtherance of this duty, the Advisor, as
agent and attorney-in-fact with respect to the Fund, is authorized, in its
discretion and without prior consultation with the Fund, to:
(i) buy, sell, exchange, convert, lend, and otherwise trade in
any stocks, bonds, and other securities or assets, including any
and all securities described in the current Prospectus of the
relevant Series and all hedging instruments described therein as
applicable to each Series;
(ii) borrow on behalf of and in the name of the Fund, but only
for the purposes and to the extent applicable to the relevant
Series as described in its then current Prospectus; and
<PAGE> 2
(iii) place orders and negotiate the commissions (if any) for
the execution of transactions in securities with or through such
brokers, dealers, underwriters or issuers as the Advisor may
select.
B. FINANCIAL, ACCOUNTING, AND ADMINISTRATIVE SERVICES. The Advisor
shall maintain the corporate existence and corporate records of the Fund;
maintain the registrations and qualifications of the shares of each Series
under Federal and state law; monitor the financial, accounting, and
administrative functions of each Series; maintain liaison with the
various agents employed by the Fund (including the Fund's transfer agent,
custodian, independent accountants and legal counsel) and assist in the
coordination of their activities on behalf of the Fund.
C. REPORTS TO FUND. The Advisor shall furnish to or place at the
disposal of the Fund such information, reports, evaluations, analyses and
opinions as the Fund may, at any time or from time to time, reasonably request
or as the Advisor may deem helpful to the Fund.
D. REPORTS AND OTHER COMMUNICATIONS TO FUND SHAREHOLDERS. The Advisor
shall assist the Fund in developing all general shareholder communications,
including regular shareholder reports.
E. FUND PERSONNEL. The Advisor agrees to permit individuals who are
either officers or employees of the Advisor to serve (if duly elected or
appointed) as officers, directors, members of any committee of directors,
members of any advisory board, or members of any other committee of the Fund,
without remuneration from or other cost to the Fund.
F. PERSONNEL, OFFICE SPACE, AND FACILITIES OF ADVISOR. The Advisor
at its own expense shall furnish or provide and pay the cost of such office
space, office equipment, office personnel, and office services as it requires
in the performance of its investment advisory and other obligations under this
Agreement.
2. ALLOCATION OF EXPENSES.
A. EXPENSES PAID BY ADVISOR.
(1) SALARIES AND FEES OF OFFICERS. The Advisor shall pay all
salaries, expenses, and fees of the officers and directors of the Fund
who are affiliated with the Advisor.
(2) ASSUMPTION OF FUND EXPENSES BY ADVISOR. The payment or
assumption by the Advisor of any expense of the Fund or of any Series
that the Advisor is not required by this Agreement to pay or assume shall
not obligate the Advisor to pay or assume the same or any similar expense
of the Fund or of such Series on any subsequent occasion.
B. EXPENSES PAID BY FUND. The Fund or relevant Series shall bear all
expenses of its organization, operations, and business not specifically assumed
or agreed to be paid by the Advisor as provided in this Agreement. In
particular, but without limiting the generality of the foregoing, the Fund or
appropriate Series shall pay:
(1) CUSTODY AND ACCOUNTING SERVICES. All expenses of the transfer,
receipt, safekeeping, servicing and accounting for each Series' cash,
securities, and other property, including all charges of depositories,
custodians, and other agents, if any;
(2) SHAREHOLDER SERVICING. All expenses of maintaining and
servicing shareholder accounts, including all charges of the Fund's
transfer, shareholder recordkeeping, dividend disbursing, redemption, and
other agents, if any;
(3) SHAREHOLDER COMMUNICATIONS. All expenses of preparing, setting
in type, printing, and distributing reports and other communications to
shareholders;
(4) SHAREHOLDER MEETINGS. All expenses incidental to holding
meetings of shareholders, including the printing of notices and proxy
material, and proxy solicitation therefor;
(5) PROSPECTUSES. All expenses of preparing, setting in type, and
printing of annual or more frequent revisions of each Series' Prospectus
and of mailing them to shareholders;
<PAGE> 3
(6) PRICING. All expenses of computing the net asset value per
share for each Series, including the cost of any equipment or services
used for obtaining price quotations;
(7) COMMUNICATION EQUIPMENT. All charges for equipment or
services used for communication between the Advisor or the Fund and the
custodian, transfer agent or any other agent selected by the Fund;
(8) LEGAL AND ACCOUNTING FEES AND EXPENSES. All charges for
services and expenses of the Fund's legal counsel and independent
auditors;
(9) DIRECTORS' FEES AND EXPENSES. All compensation of directors,
other than those affiliated with the Advisor, and all expenses incurred
in connection with their service;
(10) FEDERAL REGISTRATION FEES. All fees and expenses of
registering and maintaining the registration of the Fund under the 1940
Act and the registration of the shares of each Series under the 1933 Act,
including all fees and expenses incurred in connection with the
preparation, setting in type, printing, and filing of any registration
statement and Prospectus under the 1933 Act or the 1940 Act, and any
amendments or supplements that may be made from time to time;
(11) STATE REGISTRATION FEES. All fees and expenses of qualifying
and maintaining qualification of the Fund and of the shares of each
Series for sale under securities laws of various states or jurisdictions,
and of registration and qualification of the Fund or any Series under all
other laws applicable to the Fund, such Series or their business
activities;
(12) ISSUE AND REDEMPTION OF SHARES OF A SERIES. All expenses
incurred in connection with the issue, redemption, and transfer of shares
of any Series, including the expense of confirming all share
transactions, and of preparing and transmitting stock certificates
representing such shares;
(13) BONDING AND INSURANCE. All expenses of bond, liability, and
other insurance coverage required by law or deemed advisable by the
Fund's Board of Directors;
(14) BROKERAGE COMMISSIONS. All brokers' commissions and other
charges incident to the purchase, sale, or lending of the portfolio
securities of any Series;
(15) TAXES. All taxes or governmental fees payable by or with
respect of the Fund or any Series to federal, state, or other
governmental agencies, domestic or foreign, including stamp or other
transfer taxes;
(16) TRADE ASSOCIATION FEES. All fees, dues, and other expenses
incurred in connection with the Fund's membership in any trade
association or other investment organization; and
(17) NONRECURRING AND EXTRAORDINARY EXPENSES. Such nonrecurring
expenses as may arise, including the costs of actions, suits, or
proceedings to which the Fund is a party and the expenses the Fund may
incur as a result of its legal obligation to provide indemnification to
its officers, directors, and agents.
3. ADVISORY FEES. The Fund shall pay the Advisor a fee computed as
described below, based on the value of the net assets of each Series.
A. FEE RATE. The fee applicable to any Series shall be mutually
determined between the parties and set forth in Schedule A, subject to the
approval of the shareholders of the Series and compliance with any other
requirements under the 1940 Act.
B. METHOD OF COMPUTATION. The fee shall be accrued for each calendar
day and the sum of the daily fee accruals shall be paid monthly to the Advisor
on the first business day of the next succeeding calendar month. The daily fee
accruals will be computed by multiplying the fraction of one over the number of
calendar days in the year by the applicable annual rate described in
Schedule A, and multiplying this product by the net assets of the relevant
Series as determined in accordance with the Series' Prospectus as of the close
of business on the previous business day on which the Fund was open for
business.
<PAGE> 4
C. EXPENSE LIMITATION. To the extent that the aggregate expenses of
every character incurred by a Series in any fiscal year, including but not
limited to fees of the Advisor computed as hereinabove set forth, but excluding
interest, taxes, brokerage, and other expenditures which are capitalized in
accordance with generally accepted accounting principles and extraordinary
expenses, shall exceed the limit prescribed by any state ("State Expense
Limit") in which that Series' shares are qualified for sale, such excess amount
shall be the liability of the Advisor to pay in the manner specified below. To
determine the Advisor's liability for the expenses of any Series, the expenses
of the Series shall be annualized monthly as of the last day of the month. If
the annualized expenses for any month exceed the State Expense Limit, the
payment of the advisory fee for such month (if there be any) shall be reduced
by such excess ("Excess Amount") and in the event the Excess Amount exceeds the
amount due as the advisory fee, the Advisor shall remit to the Series the
difference between the Excess Amount and the amount due as the advisory fee;
provided, however, that an adjustment shall be made on or before the last day
of the first month of the next succeeding fiscal year if the aggregate expenses
for the fiscal year do not exceed the State Expense Limit.
D. PRORATION OF FEE. If this Agreement becomes effective or terminates
before the end of any month with respect to any Series, the fee for the period
from the effective date to the end of such month or from the beginning of such
month to the date of termination, as the case may be, shall be prorated
according to the proportion which such period bears to the full month in which
such effectiveness or termination occurs.
4. BROKERAGE.
Subject to the approval of the Board of Directors of the Fund, the
Advisor, in carrying out its duties under Paragraph 1.A, may cause a Series to
pay a broker-dealer which furnishes brokerage or research services as such
services are defined under Section 28(e) of the Securities Exchange Act of
1934, as amended (the "1934 Act") a higher commission than that which might be
charged by another broker-dealer which does not furnish brokerage or research
services or which furnishes brokerage or research services deemed to be of
lesser value, if such commission is deemed reasonable in relation to the
brokerage and research services provided by the broker-dealer, viewed in terms
of either that particular transaction or the overall responsibilities of the
Advisor with respect to the accounts as to which it exercises investment
discretion (as such term is defined under Section 3(a)(35) of the 1934 Act). A
Series may allocate brokerage transactions through the Advisor or its
affiliates on the terms and subject to the conditions described in the Series'
then current Prospectus.
5. ADVISOR'S USE OF THE SERVICES OF OTHERS.
The Advisor may (at its cost except as contemplated by Paragraph 4 of
this Agreement) employ, retain or otherwise avail itself of the services or
facilities of other persons or organizations for the purpose of providing it,
the Fund or any Series with such statistical and other factual information,
such advice regarding economic factors and trends, such advice as to occasional
transactions in specific securities or such other information, advice or
assistance as it may deem necessary, appropriate or convenient for the
discharge of its obligations hereunder or otherwise helpful to the Fund or a
Series, or in the discharge of its overall responsibilities with respect to the
other accounts which it serves as investment adviser.
6. OWNERSHIP OF RECORDS.
All records required to be maintained and preserved by the Fund
pursuant to the provisions of rules or regulations of the Securities and
Exchange Commission under Section 31(a) of the 1940 Act and maintained and
preserved by the Advisor on behalf of the Fund are the property of the Fund and
will be surrendered by the Advisor promptly on request by the Fund.
7. REPORTS TO ADVISOR.
The Fund shall furnish or otherwise make available to the Advisor such
prospectuses, financial statements, proxy statements, reports, and other
information relating to the business and affairs of the Fund as the Advisor
may, at any time or from time to time, reasonably require in order to discharge
its obligations under this Agreement.
8. SERVICES TO OTHER CLIENTS.
<PAGE> 5
Nothing herein contained shall limit the freedom of the Advisor or any
affiliated person to render investment supervisory and corporate administrative
services to other investment companies, to act as investment advisor or
investment counselor to other persons, firms or corporations, or to engage in
other business activities.
9. LIMITATION OF LIABILITY OF ADVISOR.
Neither the Advisor, nor any of its officers, directors, or employees,
nor any person performing executive, administrative, trading, or other
functions for the Fund or any Series (at the direction or request of the
Advisor) or the Advisor in connection with the Advisor's discharge of its
obligations undertaken or reasonably assumed with respect to this Agreement,
shall be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund or a Series in connection with the matters to which this
Agreement relates, except for loss resulting from willful misfeasance, bad
faith, or gross negligence in the performance of its duties on behalf of the
Fund or from reckless disregard by the Advisor or any such person of the
duties of the Advisor under this Agreement.
10. TERM OF AGREEMENT.
The term of this Agreement shall begin on the date first above written
(and with respect to any Series on the date indicated in Schedule A), and
unless sooner terminated as hereinafter provided, this Agreement shall be
submitted for approval by shareholders of each Series at the first meeting of
shareholders of such Series occurring after said effective date. The Agreement,
if approved at that meeting by a majority of the shares of the relevant Series,
will continue in effect from year to year as it pertains to such Series,
subject to the termination provisions and all other terms and conditions
hereof, so long as: (i) such continuation shall be specifically approved at
least annually by the Board of Directors of the Fund or by vote of a majority
of the outstanding voting securities of such Series and, concurrently with such
approval by the Board of Directors or prior to such approval by the holders of
the outstanding voting securities of such Series, as the case may be, by the
vote, cast in person at a meeting called for the purpose of voting on such
approval, of a majority of the Directors of the Fund who are not parties to
this Agreement or interested persons of any such party; and (ii) the Advisor
shall not have notified the Fund, in writing, at least 60 days prior to
December 31, 1987 or prior to December 31 of any year thereafter, that it does
not desire such continuation. The Advisor shall furnish to the Fund, promptly
upon its request, such information as may reasonably be necessary to evaluate
the terms of this Agreement or any extension, renewal or amendment hereof.
11. AMENDMENT AND ASSIGNMENT OF AGREEMENT.
This Agreement may not be amended or assigned either as it pertains
generally to all of the Series or as it pertains to any particular Series
without the affirmative vote of a majority of the outstanding voting securities
of each Series affected by such amendment, and this Agreement shall
automatically and immediately terminate in the event of its assignment.
12. TERMINATION OF AGREEMENT.
This Agreement may be terminated by any party hereto either as it
pertains generally to all of the Series or as it pertains to any particular
Series, without the payment of any penalty, upon 60 days' prior notice in
writing to the other party; provided, that in the case of termination by the
Fund such action shall have been authorized by resolution of a majority of the
directors of the Fund who are not parties to this Agreement or interested
persons of any such party, or by vote of a majority of the outstanding voting
securities of each Schedule A Series affected by such termination.
<PAGE> 6
13. MISCELLANEOUS.
A. CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
B. INTERPRETATION. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles of Incorporation
or By-Laws, or any applicable statutory or regulatory requirement to which it
is subject or by which it is bound, or to relieve or deprive the Board of
Directors of the Fund of its responsibility for and control of the conduct of
the affairs of the Fund and of each Series.
C. DEFINITIONS. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to such term
or provision of the 1940 Act and to interpretations thereof, if any, by the
United States courts or, in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Securities and Exchange
Commission validly issued pursuant to the 1940 Act. Specifically, the
terms "vote of a majority of the outstanding voting securities," "interested
person," "assignment," and "affiliated person," as used in Paragraphs 2, 8, 10,
11, and 12 hereof, shall have the meanings assigned to them by Section 2(a) of
the 1940 Act. In addition, where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is relaxed by a rule, regulation
or order of the Securities and Exchange Commission, whether of special or of
general application, such provision shall be deemed to incorporate the effect
of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective corporate seals to be hereunto affixed, as of the day and year first
above written.
Attest: HEARTLAND GROUP, INC.
/s/ L. Schmatzhagen
____________________________ By: /s/ William J. Nasgovitz
Lois Schmatzhagen, Secretary William J. Nasgovitz, President
Attest: MILWAUKEE ASSET MANAGEMENT, INC.
/s/ L. Schmatzhagen
____________________________ By: /s/ William J. Nasgovitz
Lois Schmatzhagen, Secretary William J. Nasgovitz, President
<PAGE> 7
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.
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.
3. Heartland Nebraska Tax Free Fund
a. Effective upon effectiveness of Post-Effective
Amendment No. 14 to the Fund's SEC Registration Statement on
Form N-1A (or such subsequent post-effective amendment which
first becomes effective with respect to this Series).
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.
4. Heartland Value & Income Fund
a. Effective upon effectiveness of Post-Effective
Amendment No. 15 to the Fund's SEC Registration Statement on
Form N-1A (or such subsequent post-effective amendment which
first becomes effective with respect to this Series).
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.
5. Heartland Small Cap Contrarian Fund
a. Effective upon effectiveness of Post-Effective
Amendment No. 18 to the Fund's SEC Registration Statement on
Form N-1A (or such subsequent post-effective amendment which
first becomes effective with respect to this Series).
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.
<PAGE> 8
6. Heartland Mid Cap Value Fund
a. Effective upon effectiveness of Post-Effective
Amendment No. 25 to the Fund's SEC Registration Statement on
Form N-1A (or such subsequent post-effective amendment which
first becomes effective with respect to this Series).
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 Large Cap Value Fund
a. Effective upon effectiveness of Post-Effective
Amendment No. 25 to the Fund's SEC Registration Statement on
Form N-1A (or such subsequent post-effective amendment which
first becomes effective with respect to this Series).
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.
<PAGE> 1
EXHIBIT 6(a)(i)
DISTRIBUTION AGREEMENT
AGREEMENT made this 12th day of March, 1992, between HEARTLAND GROUP,
INC., a Maryland corporation (the "Fund"), and HEARTLAND ADVISORS, INC., a
Wisconsin corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as a diversified open-end management investment
company and it is in the interest of the Fund to offer its shares for sale
continuously;
WHEREAS, the Fund's shares of common stock, $.001 par value per share
("Common Stock"), are issuable in such series as designated from time to time
by the Board of Directors of the Fund;
WHEREAS, each series of Common Stock designated by the Board of Directors
and continually offered for sale to the public by the Fund is registered under
a registration statement filed with the Securities and Exchange Commission (the
"SEC") pursuant to the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
respect to the continuous offering of shares of such series of the Fund's
Common Stock as agreed to from time to time between the Fund and the
Distributor and as identified on Schedule A, as amended from time to time by
the mutual consent of the Fund and the Distributor (shares of the series of the
Fund's Common Stock identified on Schedule A will be referred to herein as the
"Shares").
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor.
The Fund hereby appoints the Distributor its exclusive agent to sell and
to arrange for the sale of the Shares, including both issued and treasury
shares, on the terms and for the period set forth in this Agreement, and the
Distributor hereby accepts such appointment and agrees to act hereunder. It is
understood, however, that purchases of the Shares may be made directly through
the Fund's transfer and dividend disbursing agent in the manner set forth in
the Prospectus.
Section 2. Services and Duties of the Distributor.
(a) The Distributor agrees to sell, as agent for the Fund, from time to
time during the term of this Agreement, the Shares (whether unissued or
treasury shares, in the Fund's sole discretion) upon the terms described in the
Prospectus. As used in this Agreement, the term "Prospectus" shall mean each
and every prospectus relating to the Shares which is included as part of the
Fund's Registration Statement, as the same may be amended or supplemented from
time to time, and the term "Registration Statement" shall mean the Registration
Statement most recently filed by the Fund with the SEC and effective under the
1933 Act and the 1940 Act, as such Registration Statement may be amended by any
amendments thereto as then in effect.
(b) Upon effectiveness of this Agreement, the Distributor will hold itself
available to receive orders, satisfactory to the Distributor, for the purchase
of Shares and will accept such orders on behalf of the Fund as of the time of
receipt of such orders and will transmit such orders as are so accepted to the
Fund's transfer and dividend disbursing agent as promptly as practicable.
Purchase orders shall be deemed effective at the time and in the manner set
forth in the Prospectus.
(c) The Distributor in its discretion may sell Shares to such registered
and qualified retail dealers as it may select. In making agreements with such
dealers, the Distributor shall act only as principal and not as agent for the
Fund.
<PAGE> 2
(d) The offering price of the Shares shall be the net asset value (as
defined in the Articles of Incorporation of the Fund and determined as set
forth in the Prospectus) per share of the particular series next determined
following receipt of an order, plus the applicable sales charge, if any,
determined as set forth in the Prospectus. The Fund shall furnish the
Distributor, with all possible promptness, an advice of each computation of net
asset value.
Section 3. Compensation of the Distributor.
The above-mentioned sales charge shall constitute the entire compensation
of the Distributor, except as the Distributor may also be compensated through
payments under the Fund's Distribution Plan and Agreement adopted pursuant to
Rule 12b-1 under the 1940 Act. Out of such sales charge, the Distributor may
allow such concessions or reallowances to dealers as it may from time to time
determine.
Section 4. Duties of the Fund.
(a) The Fund agrees to sell Shares so long as it has such Shares available
for sale; and to deliver, or cause the Fund's transfer and dividend disbursing
agent to deliver, certificates for such Shares registered in such names and
amounts as the Distributor has requested in writing, as promptly as practicable
after receipt by the Fund of the net asset value thereof and written request of
the Distributor therefor.
(b) The Fund shall keep the Distributor fully informed with regard to its
affairs and shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Shares of , and
this shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent accountants and such
reasonable number of copies of its most current Prospectus and annual and
interim reports as the Distributor may request and shall cooperate fully in the
efforts of the Distributor to sell and arrange for the sale of the Fund's
Shares and in the performance of the Distributor under this Agreement.
(c) The Fund shall take, from time to time, all necessary action to fix
the number of authorized Shares and such steps, including payment of the
related filing fee, as may be necessary to register the same under the 1933 Act
to the end that there will be available for sale such number of Shares as the
Distributor may be expected to sell. The Fund agrees to file from time to time
such amendments, reports and other documents as may be necessary in order that
there may be no untrue statement of a material fact in a Registration Statement
or Prospectus, or necessary in order that there may be no omission to state a
material fact in the Registration Statement or Prospectus which omission would
make the statements therein misleading.
(d) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of the Shares for sale under the
securities laws of such states as the Distributor and the Fund may approve,
and, if necessary or appropriate in connection therewith, to qualify and
maintain the qualification of the Fund as a broker or dealer in such states;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Common Stock in
any state from the terms set forth in the Registration Statement and
Prospectus, to qualify as a foreign corporation in any state or to consent to
service of process in any state other than with respect to claims arising out
of the offering of the Shares. The Distributor shall furnish such information
and other material relating to its affairs and activities as may be required by
the Fund in connection with such qualifications.
Section 5. Expenses.
(a) The Fund shall bear all costs and expenses of the continuous offering
of the Shares in connection with: (i) fees and disbursements of its counsel
and independent accountants, (ii) the preparation, filing and printing of any
registration statements and/or prospectuses required by and under the federal
securities laws, (iii) the preparation and mailing of annual and interim
reports, prospectuses and proxy materials to
<PAGE> 3
shareholders and (iv) the qualifications of shares of Common Stock for sale and
of the Fund as a broker or dealer under the securities laws of such states or
other jurisdictions as selected by the
Fund and the Distributor pursuant to Section 4(d) hereof and the cost and
expenses payable to each such state for continuing qualification therein.
(b) The Distributor shall bear (i) the costs and expenses of preparing,
printing and distributing any materials not prepared by the Fund and other
materials used by the Distributor in connection with its offering of the Shares
for sale to the public, including the additional cost of printing copies of the
Prospectus, and of annual and interim reports to shareholders other than copies
thereof required for distribution to shareholders or for filing with any
federal securities authorities, (ii) any expenses of advertising incurred by
the Distributor in connection with such offering and (iii) the expenses of
registration or qualification of the Distributor as a dealer or broker under
federal or state laws and the expenses of continuing such registration or
qualification.
Section 6. Indemnification.
(a) The Distributor agrees to indemnify and hold harmless the Fund and
each of its present or former directors, officers, employees, representatives
and each person, if any, who controls or previously controlled the Fund within
the meaning of Section 15 of the 1933 Act against any and all losses,
liabilities, damages, claims or expenses (including the reasonable costs of
investigating or defending any alleged loss, liability, damage, claims or
expense and reasonable legal counsel fees incurred in connection therewith) to
which the Fund or any such person may become subject under the 1933 Act, under
any other statute, at common law, or otherwise, arising out of the acquisition
of any Shares by any person which (i) may be based upon any wrongful act by the
Distributor or any of the Distributor's directors, officers, employees or
representatives, or (ii) may be based upon any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, shareholder report or other information covering Shares filed or
made public by the Fund or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such statement or omission was made in reliance upon information furnished to
the Fund by the Distributor. In no case (i) is the Distributor's indemnity in
favor of the Fund, or any person indemnified to be deemed to protect the Fund
or such indemnified person against any liability to which the Fund or such
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of his duties or by reason of his
reckless disregard of his obligations and duties under this Agreement or (ii)
is the Distributor to be liable under its indemnity agreement contained in this
Paragraph with respect to any claim made against the Fund or any person
indemnified unless the Fund or such person, as the case may be, shall have
notified the Distributor in writing of the claim within a reasonable time after
the summons or other first written notification giving information of the
nature of the claim shall have been served upon the Fund or upon such person
(or after the Fund or such person shall have received notice to such service on
any designated agent). However, failure to notify the Distributor of any such
claim shall not relieve the Distributor from any liability which the
Distributor may have to the Fund or any person against whom such action is
brought otherwise than on account of the Distributor's indemnity agreement
contained in this Paragraph.
The Distributor shall be entitled to participate, at its own expense, in
the defense, or, if the Distributor so elects, to assume the defense of any
suit brought to enforce any such claim, but, if the Distributor elects to
assume the defense, such defense shall be conducted by legal counsel chosen by
the Distributor and satisfactory to the Fund, to the persons indemnified
defendant or defendants, in the suit. In the event that the Distributor elects
to assume the defense of any such suit and retain such legal counsel, the Fund,
the persons indemnified defendant or defendants in the suit, shall bear the
fees and expenses of any additional legal counsel retained by them. If the
Distributor does not elect to assume the defense of any such suit, the
Distributor will reimburse the Fund and the persons indemnified defendant or
defendants in such suit for the reasonable fees and expenses of any legal
counsel retained by them. The Distributor agrees promptly to notify the Fund
of the commencement of any litigation of proceedings against it or any of its
officers, employees or representatives in connection with the issue or sale of
any Shares.
(b) The Fund agrees to indemnify and hold harmless the Distributor and
each of its present or former directors, officers, employees, representatives
and each person, if any, who controls or previously
<PAGE> 4
controlled the Distributor within the meaning of Section 15 of the 1933 Act
against any and all losses, liabilities, damages, claims or expenses (including
the reasonable costs of investigating or defending any alleged loss, liability,
damage, claim or expense and reasonable legal counsel fees incurred in
connection therewith) to which the Distributor or any such person may become
subject under the 1933 Act, under any other statute, at common law, or
otherwise, arising out of the acquisition of any Shares by any person which
(i) may be based upon any wrongful act by the Fund or any of the Fund's
directors, officers, employees or representatives, or (ii) may be based upon
any untrue statement or alleged untrue statement of a material fact contained
in a registration statement, prospectus, shareholder report or other
information covering Shares filed or made public by the Fund or any amendment
thereof or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading unless such statement or omission was made in
reliance upon information furnished to the Fund by the Distributor. In no case
(i) is the Fund's indemnity in favor of the Distributor, or any person
indemnified to be deemed to protect the Distributor or such indemnified person
against any liability to which the Distributor or such person would otherwise
be subject by reason of willful misfeasance, bad faith, or gross negligence in
the performance of his duties or by reason of his reckless disregard of his
obligations and duties under this Agreement, or (ii) is the Fund to be liable
under its indemnity agreement contained in this Paragraph with respect to any
claim made against the Distributor, or person indemnified unless the
Distributor, or such person, as the case may be, shall have notified the Fund
in writing of the claim within a reasonable time after the summons or other
first written notification giving information of the nature of the claim shall
have been served upon the Distributor or upon such person (or after the
Distributor or such person shall have received notice of such service on any
designated agent). However, failure to notify the Fund of any such claim shall
not relieve the Fund from any liability which the Fund may have to the
Distributor or any person against whom such action is brought other than on
account of the Fund's indemnity agreement contained in this Paragraph.
The Fund shall be entitled to participate, at its own expense, in the
defense, or, if the Fund so elects, to assume the defense of any suit brought
to enforce any such claim, but if the Fund elects to assume the defense, such
defense shall be conducted by legal counsel chosen by the Fund and satisfactory
to the Distributor, to the persons indemnified defendant or defendants, in the
suit. In the event that the Fund elects to assume the defense of any such suit
and retain such legal counsel, the Distributor, the persons indemnified
defendant or defendants in the suit, shall bear the fees and expenses of any
additional legal counsel retained by them. If the Fund does not elect to
assume the defense of any such suit, the Fund will reimburse the Distributor
and the person indemnified defendant or defendants in such suit for the
reasonable fees and expenses of any legal counsel retained by them. The Fund
agrees promptly to notify the Distributor of the commencement of any litigation
or proceedings against it or any of its directors, officers, employees or
representatives in connection with the issue or sale of any Shares.
Section 7. Compliance with Securities Laws.
The Fund represents that it is registered as a diversified open-end
management investment company under the 1940 Act, and agrees that it will
comply with all of the provisions of the 1940 Act and of the rules and
regulations thereunder. The Fund and the Distributor each agree to comply with
all of the applicable terms and provisions of the 1940 Act, the 1933 Act and,
subject to the provisions of Section 4(d), all applicable state "Blue Sky"
laws. The Distributor agrees to comply with all of the applicable terms and
provisions of the Securities Exchange Act of 1934.
Section 8. Term of Agreement; Termination.
This Agreement shall become effective concurrent with SEC effectiveness of
the Funds new series known as The Heartland Wisconsin Tax Free Fund, and shall
continue in effect for a period more than two years from the date hereof only
so long as such continuance is specifically approved at least annually in
conformity with the requirements of the 1940 Act.
This Agreement shall terminate automatically in the event of its
assignment (as defined by the 1940 Act). In addition, this Agreement may be
terminated by either party either in its entirety or with respect to any one or
more of the series of Shares at any time, without penalty, on sixty days'
written notice to the other party, unless a shorter period shall be mutually
agreed upon.
<PAGE> 5
Section 9. Notices.
Any notice required to be given pursuant to this Agreement shall be deemed
duly given if delivered or mailed by registered mail, postage prepaid, (1) to
the Distributor at 790 North Milwaukee Street, Milwaukee, Wisconsin 53202,
Attention: President, with a copy to Quarles & Brady, 411 East Wisconsin
Avenue, Milwaukee, Wisconsin 53202, Attention: Conrad G. Goodkind, Esq. or (2)
to the Fund at 790 North Milwaukee Street, Milwaukee, Wisconsin 53202,
Attention: President, with a copy to Quarles & Brady, 411 East Wisconsin
Avenue, Milwaukee, Wisconsin 53202, Attention: Conrad G. Goodkind, Esq.
Section 10. Governing Law.
This Agreement shall be governed and construed in accordance with the laws
of the State of Wisconsin.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
HEARTLAND ADVISORS, INC. HEARTLAND GROUP, INC.
("Distributor") ("Fund")
By:/s/ William J. Nasgovtiz By: /s/ William J. Nasgovitz
William J. Nasgovitz, William J. Nasgovitz,
President President
Attest: /s/ Lois J. Schmatzhagen Attest: /s/ Lois J. Schmatzhagen
Lois J. Schmatzhagen, Lois J. Schmatzhagen,
Secretary Secretary
<PAGE> 6
SCHEDULE A
This Distribution Agreement shall extend to and include only the following
series of Heartland Group, Inc.'s Common Stock.
1. Heartland Value Fund.
2. Heartland U.S. Government Fund.
3. Heartland Wisconsin Tax Free Fund, upon its effectiveness
with the Securities and Exchange Commission.
4. Heartland Nebraska Tax Free Fund, upon its effectiveness with
the Securities and Exchange Commission.
5. Heartland Value & Income Fund, upon its effectiveness with
the Securities and Exchange Commission.
6. Heartland Small Cap Contrarian Fund, upon its effectiveness
with the Securities and Exchange Commission.
7. Heartland Mid Cap Value Fund, upon its effectiveness with the
Securities and Exchange Commission.
8. Heartland Large Cap Value Fund, upon its effectiveness with the
Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 6(a)(ii)
AMENDMENT NO. 1 TO DISTRIBUTION AGREEMENT
THIS AMENDMENT is made and entered into as of this 17th day of December,
1992 by and between HEARTLAND GROUP, INC., a Maryland corporation (the "Fund"),
and HEARTLAND ADVISORS, INC., a Wisconsin corporation (the "Distributor").
WHEREAS, the Fund and the Distributor have entered into that certain
Distribution Agreement dated as of March 12, 1992 (the "Distribution
Agreement"); and
WHEREAS, the Fund has filed a Post-Effective Amendment to its SEC
Registration Statement on Form N-1A (the "Amendment") which, among other
things, eliminates the front-end sales charge and related dealer concessions
applicable to sales of shares of the Heartland Value Fund and Heartland U.S.
Government Fund series of the Fund and institutes, in lieu thereof, a
contingent deferred sales charge structure for these two series; and
WHEREAS, this new structure will change the manner in which the
Distributor will be compensated for certain of its services under the
Distribution Agreement and the Fund and the Distributor wish to amend the
Distribution Agreement as necessary to reflect their agreement with respect to
the new manner in which the Distributor will be compensated for those services;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree that
Section 3 of the Distribution Agreement shall be amended effective as of the
date hereof so that it reads in its entirety as follows:
Section 3. Compensation of the Distributor.
The entire compensation of the Distributor for its
provision of services pursuant to this Agreement shall consist
of: (a) any front-end sales charge paid by an investor in connection
with his purchase of shares of a series of the Fund pursuant to the
provisions of a then current prospectus relating to such series; and
(b) any contingent deferred sales charge paid by a shareholder of the
Fund upon his redemption of Fund shares of any series as provided in a
prospectus relating to such series; provided that the Distributor may
also be compensated through payments under the Fund's Distribution Plan
and Agreement adopted pursuant to Rule 12b-1 under the 1940 Act. Out
of any such front-end sales charges received by the Distributor, the
Distributor may allow such concessions or reallowances to dealers as it
may from time to time determine and as set forth in the then current
prospectus relating to the relevant series of the Fund. The
Distributor may also pay commissions out of its own funds to dealers in
connection with their effectuation of sales of shares of the Fund in
such amounts and pursuant to such terms and conditions as the
Distributor may from time to determine.
Except as defined otherwise herein, capitalized terms used in this
Amendment shall have the meanings given to them in the Distribution Agreement.
Except as expressly set forth herein, the Distribution Agreement shall remain
in full force and effect, unaffected by this Amendment.
IN WITNESS WHEREOF, each of the parties hereto have each caused this
Amendment to be executed by its duly authorized officer as of the day and year
first written above.
HEARTLAND ADVISORS, INC. HEARTLAND ADVISORS, INC.
By: /s/ William J. Nasgovitz By: /s/ William J. Nasgovitz
William J. Nasgovitz, President William J. Nasgovitz, President
Attest: /s/ Lois J. Schmatzhagen Attest: /s/ Lois J. Schmatzhagen
Lois J. Schmatzhagen, Secretary Lois J. Schmatzhagen, Secretary
<PAGE> 1
EXHIBIT 15(b)
HEARTLAND GROUP, INC.
AMENDED AND RESTATED RULE 12B-1 PLAN
(AS OF OCTOBER 25, 1995)
Heartland Group, Inc. ("Heartland"), a Maryland Corporation and open-end
management investment company registered under the Investment Company Act of
1940, as amended, is authorized to issue shares in separate series with each
such series representing interests in a separate portfolio of securities and
other assets. This Plan shall be effective with respect to each series of
Heartland listed on Schedule A hereto, as modified from time to time by
Heartland's Board of Directors, with such series referred to herein as the
"Fund."
1. PAYMENTS BY THE FUND TO PROMOTE THE SALE OF THE FUND'S SHARES
(a) The Fund will pay the Distributor of the Fund's shares a
fee of up to 0.25% per annum of the Fund's average daily net
assets. The Distributor may pay a portion of this fee, not to
exceed 0.25% per annum of the Fund's average daily net assets, to
any securities dealer, financial institution or any other Person,
including the Distributor with respect to shares for which it is
the broker-dealer of record, (the "Recipient") who renders
assistance in distributing or promoting the sale of the Fund's
shares pursuant to a written agreement (the "Related Agreement").
To the extent such fee is not paid to such persons, the Distributor
may use the fee for its expenses of distribution of the Fund's
Shares. Payment of the distribution fee shall be made quarterly
within 30 days after the close of the quarter for which the fee is
payable upon the Distributor forwarding the Fund the written report
required by Section 2 of this plan; provided that the aggregate
payments by the Fund under this plan in any month to the
Distributor and all Recipients shall not exceed 0.25% of the Fund's
average net assets for that quarter; and provided further that no
fee shall be paid in excess of the distribution expenses verified
in a written report and submitted by the Distributor to the board
of directors as required under Section 2 of this plan.
(b) No Related Agreement shall be entered into and no payments
shall be made pursuant to any Related Agreement, unless such
Related Agreement is in writing and has first been delivered to and
approved by a vote of a majority of the board of directors of
Heartland, and of a majority of the members of the board of
directors of Heartland who are not Interested Persons of Heartland
and have no direct or indirect financial interest in the operation
of the plan or in any Related Agreement (the "Disinterested
Directors"), cast in person at a meeting called for the purpose of
voting on such Related Agreement.
(c) Any Related Agreement shall describe the services to be
performed by the Recipient and shall specify the amount of, or the
method for determining, compensation to the Recipient.
(d) No Related Agreement may be entered into unless it
provides that it may be terminated at any time, without the payment
of any penalty, by vote of a majority of the Disinterested
Directors or by vote of a majority of the outstanding voting
securities of the Fund on not more than 60 days' written notice to
the other party to the Related Agreement and that the Related
Agreement shall automatically terminate in the event of its
assignment as defined in the Investment Company Act of 1940.
(e) Any Related Agreement shall continue in effect for a
period of more than one year from the date of its execution or
adoption only if it provides that such continuance is specifically
approved at least annually by a vote of a majority of the board of
directors of the Fund, and of the Disinterested Directors, cast in
person at a meeting called for the purpose of voting on such
Related Agreement.
2. QUARTERLY REPORTS
<PAGE> 2
The Distributor shall provide to the board of directors, and the
board of directors shall review, at least quarterly, a written
report of all amounts expended pursuant to this plan. This report
shall include the identity of the recipient of each payment and the
purpose for which the amounts were expended and such other
information as the board of directors may reasonably request.
3. EFFECTIVE DATE AND DURATION OF THE PLAN
This plan shall become effective immediately upon approval by both
(a) the vote of a majority of the board of directors of Heartland,
and of the Disinterested Directors, cast in person at a meeting
called for the purpose of voting on the approval of the plan and
(b) the vote of a majority of the outstanding voting securities of
the Fund. This plan shall continue in effect for a period of one
year from its effective date unless terminated pursuant to its
terms. Thereafter, this plan shall continue from year to year,
provided that such continuance is approved at least annually by a
vote of a majority of the board of directors of Heartland, and of
the Disinterested Directors, cast in person at a meeting called for
the purpose of voting on such continuance. This plan may be
terminated at any time by the vote of (a) a majority of the board
of directors, (b) a majority of the Disinterested Directors or (c)
a majority of the outstanding voting securities of the Funds.
4. SELECTION OF DISINTERESTED DIRECTORS
During the period in which this plan is effective, the selection
and nomination of those directors of Heartland who are
Disinterested Directors of Heartland shall be committed to the
discretion of the Disinterested Directors.
5. AMENDMENTS
All material amendments of this plan shall be in writing and shall
be approved by a vote of a majority of the board of directors of
Heartland, and of the Disinterested Directors, cast in person at a
meting called for the purpose of voting on such amendment. This
plan may not be amended to increase materially the amount to be
spent by the Fund hereunder without approval by a majority of the
outstanding voting securities of the Fund.
<PAGE> 3
SCHEDULE A
Heartland Group, Inc.'s Rule 12b-1 Plan shall be effective with respect to
each series of Heartland listed below. Each listed series being referred to in
the Plan as the "Fund."
1. Heartland U.S. Government Fund
2. Heartland Value & Income Fund
3. Heartland Value Fund
4. Heartland Small Cap Contrarian Fund
5. Heartland Mid Cap Value Fund, upon (i) effectiveness of Post-Effective
Amendment No. 25 to Heartland's Registration Statement on Form N-1A
(or such use subsequent post-effective amendment which first becomes
effective with respect to this series); and (ii) the vote of a
majority of the outstanding voting securities of the series.
6. Heartland Large Cap Value Fund, upon (i) effectiveness of
Post-Effective Amendment No. 25 to Heartland's Registration Statement
on Form N-1A (or such subsequent post-effective amendment which first
becomes effective with respect to this series); and (ii) the vote of a
majority of the outstanding voting securities of the series.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Annual
Report to shareholders for the period ended December 31, 1995 and is qualified
in its entirety by reference to such report.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> HEARTLAND VALUE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1,035,457,100
<INVESTMENTS-AT-VALUE> 1,185,466,845
<RECEIVABLES> 10,454,591
<ASSETS-OTHER> 223,038
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,196,144,474
<PAYABLE-FOR-SECURITIES> 4,748,210
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 470,256
<TOTAL-LIABILITIES> 5,218,466
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,040,912,208
<SHARES-COMMON-STOCK> 42,613,011
<SHARES-COMMON-PRIOR> 14,936,596
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 150,013,800
<NET-ASSETS> 1,190,926,008
<DIVIDEND-INCOME> 4,552,900
<INTEREST-INCOME> 11,775,742
<OTHER-INCOME> 0
<EXPENSES-NET> 11,049,966
<NET-INVESTMENT-INCOME> 5,278,676
<REALIZED-GAINS-CURRENT> 56,744,275
<APPREC-INCREASE-CURRENT> 135,718,470
<NET-CHANGE-FROM-OPS> 197,741,421
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,278,676
<DISTRIBUTIONS-OF-GAINS> 56,744,275
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 31,485,987
<NUMBER-OF-SHARES-REDEEMED> 5,853,677
<SHARES-REINVESTED> 2,044,105
<NET-CHANGE-IN-ASSETS> 851,561,620
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 14,108,358
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,452,487
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11,049,966
<AVERAGE-NET-ASSETS> 858,765,189
<PER-SHARE-NAV-BEGIN> 22.72
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> 6.63
<PER-SHARE-DIVIDEND> .13
<PER-SHARE-DISTRIBUTIONS> 1.40
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.95
<EXPENSE-RATIO> 1.29
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Annual
Report to shareholders for the period ended December 31, 1995 and is qualified
in its entirety by reference to such report.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> HEARTLAND U.S. GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 62,427,656
<INVESTMENTS-AT-VALUE> 65,341,589
<RECEIVABLES> 6,054,170
<ASSETS-OTHER> 25,869
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 71,421,628
<PAYABLE-FOR-SECURITIES> 4,960,263
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 200,567
<TOTAL-LIABILITIES> 5,160,830
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,000,415
<SHARES-COMMON-STOCK> 6,650,557
<SHARES-COMMON-PRIOR> 7,275,315
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,888,683)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,913,933
<NET-ASSETS> 66,260,798
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,818,512
<OTHER-INCOME> 0
<EXPENSES-NET> 697,649
<NET-INVESTMENT-INCOME> 4,120,863
<REALIZED-GAINS-CURRENT> (291,019)
<APPREC-INCREASE-CURRENT> 7,612,595
<NET-CHANGE-FROM-OPS> 11,442,439
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,120,864
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,191,613
<NUMBER-OF-SHARES-REDEEMED> 2,115,677
<SHARES-REINVESTED> 299,306
<NET-CHANGE-IN-ASSETS> 1,453,724
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (5,597,664)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 422,661
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 795,186
<AVERAGE-NET-ASSETS> 65,315,965
<PER-SHARE-NAV-BEGIN> 8.91
<PER-SHARE-NII> .60
<PER-SHARE-GAIN-APPREC> 1.05
<PER-SHARE-DIVIDEND> .60
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.96
<EXPENSE-RATIO> 1.07<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Heartland Advisors voluntarily waived the management fee in its entirety
from May 7, 1988 through November 30, 1990. Effective December 1, 1990,
Heartland Advisors partially reinstated a portion of the fee at the rate of
.25 of 1% of average net assets and effective January 20, 1992 and January 1,
1993, reinstated additional portions of the fees resulting in a rate of .35 of
1% and .50 of 1% of average daily set assets, repectively.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the annual
report to shareholders for the period ended December 31, 1995 and is qualified
in its entirety by reference to such report.
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> HEARTLAND VALUE & INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 17,298,077
<INVESTMENTS-AT-VALUE> 18,299,111
<RECEIVABLES> 279,351
<ASSETS-OTHER> 572,100
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 19,150,562
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27,868
<TOTAL-LIABILITIES> 27,868
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,121,660
<SHARES-COMMON-STOCK> 1,712,269
<SHARES-COMMON-PRIOR> 1,037,119
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,001,034
<NET-ASSETS> 19,122,694
<DIVIDEND-INCOME> 290,670
<INTEREST-INCOME> 504,178
<OTHER-INCOME> 0
<EXPENSES-NET> 225,354
<NET-INVESTMENT-INCOME> 569,494
<REALIZED-GAINS-CURRENT> 574,699
<APPREC-INCREASE-CURRENT> 1,645,292
<NET-CHANGE-FROM-OPS> 2,789,485
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 569,494
<DISTRIBUTIONS-OF-GAINS> 420,255
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,286,133
<NUMBER-OF-SHARES-REDEEMED> 691,990
<SHARES-REINVESTED> 81,006
<NET-CHANGE-IN-ASSETS> 9,238,552
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 102,311
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 225,354
<AVERAGE-NET-ASSETS> 14,601,779
<PER-SHARE-NAV-BEGIN> 9.53
<PER-SHARE-NII> .41
<PER-SHARE-GAIN-APPREC> 1.89
<PER-SHARE-DIVIDEND> .41
<PER-SHARE-DISTRIBUTIONS> .25
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.17
<EXPENSE-RATIO> 1.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Annual
Report to shareholders for the period ended December 31, 1995 and is qualified
in its entirety by reference to such report.
</LEGEND>
<SERIES>
<NUMBER> 6
<NAME> HEARTLAND SMALL CAP CONTRARIAN FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-27-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 84,448,823
<INVESTMENTS-AT-VALUE> 85,476,175
<RECEIVABLES> 9,723,895
<ASSETS-OTHER> 1,734,814
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 96,934,884
<PAYABLE-FOR-SECURITIES> 10,918,905
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 467,408
<TOTAL-LIABILITIES> 11,386,313
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 84,520,924
<SHARES-COMMON-STOCK> 7,256,249
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,027,647
<NET-ASSETS> 85,548,571
<DIVIDEND-INCOME> 51,682
<INTEREST-INCOME> 527,254
<OTHER-INCOME> 0
<EXPENSES-NET> 340,413
<NET-INVESTMENT-INCOME> 238,523
<REALIZED-GAINS-CURRENT> 1,801,126
<APPREC-INCREASE-CURRENT> 1,027,647
<NET-CHANGE-FROM-OPS> 3,067,296
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 238,523
<DISTRIBUTIONS-OF-GAINS> 1,801,125
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,979,895
<NUMBER-OF-SHARES-REDEEMED> 889,253
<SHARES-REINVESTED> 165,607
<NET-CHANGE-IN-ASSETS> 85,548,571
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 172,583
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 340,413
<AVERAGE-NET-ASSETS> 34,762,770
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 2.05
<PER-SHARE-DIVIDEND> .03
<PER-SHARE-DISTRIBUTIONS> .26
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.79
<EXPENSE-RATIO> 1.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
