<PAGE> 1
As filed with the Securities and Exchange Commission on March 31, 1997
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. 30 /x/
--
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 32 /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):
/X/ immediately upon filing pursuant to paragraph (b)
/ / on March 31, 1997 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
*Registrant has elected to register an indefinite number of shares of Common
Stock, $0.01 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, 1996
was filed on February 28, 1997.
-----------------
<PAGE> 2
HEARTLAND GROUP, INC.
FORM N-1A
CROSS-REFERENCE SHEET
TO POST-EFFECTIVE AMENDMENT NO. 30
_________________________________________
Form N-1A
Item No. Prospectus Heading
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PART A
1. Cover Page ............................. Cover Page
2. Synopsis ............................... Fund Expenses
3. Condensed Financial
Information ............................ Financial Highlights
4. General Description of
Registrant ............................. Description of Fund Shares;
Investment Objectives
and Policies
5. Management of the Fund ................. The Funds and the Heartland
Organization; How to Buy
Shares; Net Asset Value
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, Capital Gains
Distributions and Taxes;
Shareholder Services
7. Purchase of Securities Being
Offered ................................ How to Buy Shares; Net
Asset Value Calculation;
How to Redeem Shares
8. Redemption or Repurchase ............... How to Redeem Shares
9. Pending Legal Proceedings .............. None
<PAGE> 3
PART B
10. Cover Page ............................. Cover Page
11. Table of Contents ...................... Cover Page
12. General Information and
History ................................ Introduction to the Funds
13. Investment Objectives and
Policies ............................... Investment Policies and
Methods; 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
-3-
<PAGE> 4
PROSPECTUS
1P
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
March 31, 1997
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
(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 March 31, 1997) has been filed with
the Securities and Exchange Commission and is incorporated by reference into
this Prospectus. It is available at no charge by calling the Funds' investment
advisor and distributor, Heartland Advisors, Inc. ("Heartland Advisors"), at
1-800-432-7856 or (414) 289-7000.
- ------------------------------------------------------------------------------
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------
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
PROSPECTUS
2P
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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
$3.5 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. (This
Fund was formerly known as the Heartland Value & Income Fund.)
HEARTLAND U.S. GOVERNMENT SECURITIES FUND'S investment objectives are a
high level of current income, liquidity and safety of principal.
<PAGE> 6
PROSPECTUS
3P
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Fund Expenses 4
Financial Highlights 5
Investment Objectives and Policies 10
How to Buy Shares 28
How to Redeem Shares 32
Shareholder Services 37
Dividends, Capital Gains Distributions and Taxes 40
The Funds and the Heartland Organization 41
The Distribution Plan 43
Net Asset Value Calculation 44
Description of Fund Shares 44
Portfolio Transactions 45
Performance Information 47
</TABLE>
<PAGE> 7
PROSPECTUS
4P
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FUND EXPENSES
The expense summary format below was developed for use by all mutual funds
to help you make your investment decisions. Of course, you should consider this
expense information along with other important information, including each
Fund's investment objective and performance.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
U.S.
SMALL CAP MID CAP LARGE CAP VALUE GOVERNMENT
CONTRARIAN VALUE VALUE VALUE PLUS SECURITIES
FUND FUND FUND FUND FUND 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% .25%
Rule 12b-1 fees .25% .25% .25% .25% .25% .25%
Other expenses(3) .30% .23% .45% .70% .50% .31%
- ----------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.30% 1.23% 1.45% 1.70% 1.45% .81%
========================================================================================
</TABLE>
(1) The Agent charges a wire fee for the return of redemption proceeds
requested by wire transfer. The fee is currently $12.00. 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 expense information for the U.S. Government Securities Fund has been
restated to give effect to the voluntary waiver by Heartland Advisors of
0.40 of 1% of its management fee. Without any waivers, the Management fees
and Total Fund Operating Expenses for 1996 would have been .65% and 1.21%
of average net assets, respectively. Heartland Advisors expects to
continue the waiver for the current fiscal year; however, it may reinstate
all or a portion of the fee at any time.
(3) Other expenses set forth in the table for the Mid Cap Value and Large Cap
Value Funds are based on management's estimates for the current fiscal
year.
<PAGE> 8
PROSPECTUS
5P
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>
- ----------------------------------------------------------------------
U.S.
SMALL CAP MID CAP LARGE CAP VALUE GOVERNMENT
CONTRARIAN VALUE VALUE VALUE PLUS SECURITIES
FUND FUND FUND FUND FUND FUND
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
One year $ 13 $ 13 $15 $17 $ 15 $ 8
Three years $ 41 $ 39 $46 $54 $ 46 $ 26
Five years $ 71 $ 68 N/A N/A $ 79 $ 45
Ten years $157 $149 N/A N/A $174 $100
- ----------------------------------------------------------------------
</TABLE>
The purpose of this expense information is to assist in understanding the
various costs and expenses an investor will bear directly or indirectly in each
of the Funds. More detailed information concerning these expenses is set forth
in the sections of this Prospectus entitled "How To Buy Shares," "The
Distribution Plan" and "The Funds and the Heartland Organization." THE ABOVE
EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Except as indicated below, the following Financial Highlights table has been
examined by Arthur Andersen LLP, independent public accountants, whose reports
on the financial statements of the Small Cap Contrarian, Value, Value Plus and
U.S. Government Securities Funds for the fiscal year ended December 31, 1996
and the Mid Cap Value and Large Cap Value Funds for the period from October 11,
1996 to December 31, 1996, are included in the Funds' Annual Report to
Shareholders for such periods, and incorporated by reference into the Statement
of Additional Information. The information presented in the table for the Mid
Cap Value and Large Cap Value Funds for the two month period ending February
28, 1997 is unaudited. The table should be read in conjunction with the audited
financial statements and related notes appearing in the Funds' Annual Report,
which are incorporated by reference into the Statement of Additional
Information, and the unaudited financial statements and related notes for the
Mid Cap Value and Large Cap Value Funds contained in the Statement of
Additional Information. Additional information about the Funds' performance is
contained in the Annual Report, which may be obtained without charge by writing
or calling Heartland Advisors.
<PAGE> 9
PROSPECTUS
6P
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
----------------------------------- ----------------------------------------
NET DISTRIBUTIONS
REALIZED AND TOTAL DIVIDENDS FROM
NET ASSET NET UNREALIZED INCOME FROM NET
FISCAL VALUE, INVESTMENT GAINS FROM NET REALIZED
YEAR ENDED BEGINNING INCOME (LOSSES) ON INVESTMENT INVESTMENT GAINS ON TOTAL
DECEMBER OF PERIOD (LOSS) SECURITIES OPERATIONS INCOME INVESTMENTS DISTRIBUTIONS
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------
HEARTLAND SMALL CAP
CONTRARIAN FUND
- --------------------------------------------------------------------------------------------------------------
4/27/95(1)
to 12/31/95 $10.00 $0.03 $2.05 $2.08 $(0.03) $(0.26) $(0.29)
1996 11.79 0.02 2.20 2.22 (0.02) (0.59) (0.61)
- --------------------
HEARTLAND VALUE FUND
- --------------------------------------------------------------------------------------------------------------
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)
1996 27.95 0.06 5.78 5.84 (0.06) (2.08) (2.14)
- -------------------
HEARTLAND MID CAP
VALUE FUND
- --------------------------------------------------------------------------------------------------------------
10/11/96(1)
to 12/31/96 $10.00 $ - $ 0.66 $ 0.66 $ - $ - $ -
1/1/97
to 2/28/97(2) 10.66 - 0.34 0.34 - - -
- -------------------
HEARTLAND LARGE CAP
VALUE FUND
- --------------------------------------------------------------------------------------------------------------
10/11/96(1)
to 12/31/96 $10.00 $ - $ 0.50 $ 0.50 $ - $ - $ -
1/1/97
to 2/28/97(2) 10.50 - 0.43 0.43 - - -
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
(2) Unaudited.
(3) Annualized.
(4) Not Annualized.
(5) Disclosure of average commission per share was not required prior to the
year ended December 31, 1996.
* 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.
<PAGE> 10
PROSPECTUS
7P
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
---------------------------------------------------
RATIO OF NET
NET RATIO INVESTMENT
ASSET OF NET INCOME
VALUE, EXPENSES TO (LOSS) PORTFOLIO AVERAGE
END OF TOTAL NET ASSETS, END AVERAGE NET TO AVERAGE TURNOVER COMMISSION
PERIOD RETURN* OF PERIOD ASSETS NET ASSETS RATE PER SHARE(5)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$11.79 20.8%(4) $ 85,548,571 1.44%(3) 1.01%(3) 45% N/A
13.40 18.9% 263,011,396 1.30% 0.19% 57% $0.0464
- --------------------------------------------------------------------------------------------
$11.74 (8.4)%(2) $ 27,536,584 1.51% 0.43% 78% N/A
14.35 27.1% 28,499,177 1.71% 0.85% 50% N/A
13.82 6.6% 30,797,831 1.65% 0.86% 88% N/A
11.32 (17.1)% 19,942,598 1.74% 0.14% 76% N/A
16.06 49.4% 29,879,996 1.69% (0.54)% 79% N/A
20.41 42.5% 48,391,112 1.48% (0.49)% 76% N/A
23.22 18.8% 186,518,201 1.51% (0.71)% 51% N/A
22.72 1.7% 339,364,388 1.39% (0.52)% 35% N/A
27.95 29.8% 1,190,926,008 1.29% 0.61% 31% N/A
31.65 21.0% 1,626,759,836 1.23% 0.22% 31% $0.0530
- --------------------------------------------------------------------------------------------
$10.66 6.6%(4) $ 6,933,962 1.94%(3) (0.16)%(3) 4% $0.0675
11.00 3.2%(4) 16,626,165 1.64%(3) (0.05)%(3) 3% $0.0657
- --------------------------------------------------------------------------------------------
$10.50 5.0%(4) $ 2,441,475 2.73%(3) (0.25)%(3) 1% $0.0668
10.93 4.1%(4) 3,928,835 2.60%(3) (0.22)%(3) 1% $0.0672
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 11
PROSPECTUS
8P
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONT'D)
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
----------------------------------- ----------------------------------------
NET DISTRIBUTIONS
REALIZED AND TOTAL DIVIDENDS FROM
NET ASSET NET UNREALIZED INCOME FROM NET
FISCAL VALUE, INVESTMENT GAINS FROM NET REALIZED
YEAR ENDED BEGINNING INCOME (LOSSES) ON INVESTMENT INVESTMENT GAINS ON TOTAL
DECEMBER OF PERIOD (LOSS) SECURITIES OPERATIONS INCOME INVESTMENTS DISTRIBUTIONS
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------
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)
1996 11.17 0.38 3.33 3.71 (0.38) (0.77) (1.15)
- -------------------
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)
1996 9.96 0.59 (0.42) 0.17 (0.59) - (0.59)
</TABLE>
(1) Commencement of operations.
(2) Unaudited.
(3) Annualized.
(4) Not Annualized.
(5) Disclosure of average commission per share was not required prior to the
year ended December 31, 1996.
(6) Heartland Advisors voluntarily waived the Fund's management fees in their
entirety from May 7, 1988 through November 30, 1990. Effective December 1,
1990, Heartland Advisors partially reinstated a portion of the Fund's
management fees at the rate of .25 of 1% of average daily net assets and,
effective January 20, 1992 and January 1, 1993, reinstated additional
portions of the fees resulting in rates 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.
<PAGE> 12
PROSPECTUS
9P
<TABLE>
<CAPTION>
RATIOS AND SUPPLEMENTAL DATA
---------------------------------------------------
RATIO OF NET
NET RATIO INVESTMENT
ASSET OF NET INCOME
VALUE, EXPENSES TO (LOSS) PORTFOLIO AVERAGE
END OF TOTAL NET ASSETS, END AVERAGE NET TO AVERAGE TURNOVER COMMISSION
PERIOD RETURN* OF PERIOD ASSETS NET ASSETS RATE PER SHARE(5)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$10.45 5.2%(4) $ 5,810,983 1.30%(3) 6.52%(3) 6% N/A
9.53 (4.9)% 9,884,142 1.80% 4.39% 127% N/A
11.17 24.4% 19,122,694 1.54% 3.90% 150% N/A
13.73 33.8% 66,582,186 1.45% 3.23% 73% $0.0573
- --------------------------------------------------------------------------------------------
$9.22 1.9%(2) $12,610,076 1.04%(3) 7.16%(3) 64% N/A
9.04 6.4% 12,414,180 0.95%(6) 8.25% 136% N/A
9.25 11.3% 11,594,574 0.89%(6) 8.45% 142% N/A
9.39 10.0% 16,423,750 0.86%(6) 7.98% 127% N/A
9.97 17.0% 29,101,367 0.92%(6) 7.06% 185% N/A
9.93 10.1% 28,377,978 0.92%(6) 6.71% 149% N/A
10.50 17.8% 66,788,763 1.06%(6) 5.09% 200% N/A
8.91 (9.6)% 64,807,074 1.07%(6) 6.30% 95% N/A
9.96 19.0% 66,260,798 1.07%(6) 6.31% 97% N/A
9.54 2.0% 51,712,963 1.06%(6) 6.36% 30% N/A
</TABLE>
<PAGE> 13
PROSPECTUS
10P
- -------------------------------------------------------------------------------
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
<PAGE> 14
PROSPECTUS
11P
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 investors to
small- and mid-cap companies may result in opportunities 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."
<PAGE> 15
PROSPECTUS
12P
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 1, 1997, the median market capitalization of the companies in which the
Fund had a long position was approximately $52 million, with a weighted average
market capitalization of about $159 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. 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.
<PAGE> 16
PROSPECTUS
13P
To achieve long-term capital appreciation, the Value Fund invests primarily in
equity securities of small companies with market capitalizations of less than
$500 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 $500 million, a majority of the Fund's investments
will be in stocks with smaller market capitalizations. As of March 1, 1997, the
median market capitalization of the companies in the Value Fund's portfolio was
approximately $89 million, with a weighted average market capitalization for
the Fund's portfolio of approximately $288 million. The Value Fund may also
invest in convertible securities and debt securities rated B or above or judged
by Heartland Advisors to be of comparable quality, 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 $3.5 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 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,
<PAGE> 17
PROSPECTUS
14P
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.
<PAGE> 18
PROSPECTUS
15P
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.
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 ("U.S. Government
securities"). Under normal market conditions and with the exception of those
assets invested in short-term liquid reserves or options and futures, the Fund
intends to invest all of its assets in U.S. Government securities.
<PAGE> 19
PROSPECTUS
16P
Some U.S. Government securities, such as Treasury bills, notes and bonds and
securities guaranteed by the Government National Mortgage Association ("GNMA")
are supported by the full faith and credit of the United States. Others, such
as obligations of the Federal Home Loan Banks and Tennessee Valley Authority,
are backed by the right of the issuer to borrow from the Treasury. Still
others, such as those of the Federal National Mortgage Association ("FNMA"),
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations. In addition, obligations of certain agencies or
instrumentalities, such as those of the Student Loan Marketing Association, are
supported only by the credit of the agency or instrumentality issuing the
obligations. Current market prices for U.S. Government securities are not
guaranteed and the value of such securities will fluctuate.
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,
duration management and yield curve positioning in its value-based investment
process for the Fund. It may be expected that a decline in interest rates
generally will increase the value of securities held by the U.S. Government
Securities Fund, and an increase in interest rates will generally have the
opposite effect. Thus, interest rate fluctuations will affect the value of the
Fund's portfolio and, as a result, the Fund's net asset value per share. The
impact of interest rate fluctuations on fixed income securities is often
referred to as "market risk." The Fund may employ hedging techniques to reduce
the effects of such interest rate fluctuations; however, there can be no
assurance that such techniques will be successful.
Although there are no duration restrictions for the Fund or the individual
obligations in its portfolio, under normal market conditions, it is anticipated
that the Fund will maintain an average portfolio duration within three to six
years.
MATURITY AND DURATION
Maturity is a measure of the contractual term over which, or at the end of
which, a fixed income security must be repaid. In general, the longer the
maturity of a debt obligation, the higher its yield and the greater its
sensitivity to changes in interest rates. While the maturity of an obligation
is somewhat indicative of interest-rate risk, Heartland Advisors believes
duration is a more accurate measure. Duration incorporates a bond's yield,
coupon interest payments, final maturity and call features into a single
measure. Depending on the relative magnitude of these payments and features,
the market values of debt obligations may respond differently to changes in the
level and structure of interest rates. Based on underlying assumptions,
duration measures the approximate price sensitivity of a bond or bond portfolio
to a one
<PAGE> 20
PROSPECTUS
17P
percent rise or fall in interest rates. For example, if interest rates were to
increase by 1%, the market value of a bond with a duration of four years would
be expected to decrease by about 4%, with all other factors being constant. For
any fixed-income security with interest payments occurring prior to the payment
of principal, duration is always less than maturity. In general, all other
things being equal, the lower the stated or coupon rate of interest of a
fixed-income security, the longer the duration of the security; conversely, the
higher the stated or coupon rate of interest of a fixed-income security, the
shorter the duration of the security. Duration is not a static measure or a
complete measure of portfolio risk. Changing conditions and perceptions,
including market fluctuations and changing credit fundamentals, may modify an
obligation's duration and, independently, have other adverse or positive
effects on the value of a security.
Futures, options and options on futures have durations which, in general, are
closely related to the duration of the securities which underlie them. Holding
long futures or call option positions will lengthen a Fund's duration by
approximately the same amount that holding an equivalent amount of the
underlying securities would. Short futures or put option positions have
durations roughly equal to the negative duration of the securities that
underlie these positions, and have the effect of reducing portfolio duration by
approximately the same amount that selling an equivalent amount of the
underlying securities would have. See "Other Investment Practices - Options,
Futures Contracts and Options on Futures Contracts."
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 Investors Service, Inc. ("Moody's"), or Standard & Poor's
Corporation ("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.
Investment grade debt obligations are generally believed to have relatively
lower degrees of credit risk. However, securities rated in the fourth highest
rating category, while considered investment grade, may have some speculative
characteristics since their issuer's capacity for repayment may be more
vulnerable to adverse economic conditions or changing circumstances than that
of higher rated issuers.
HIGH YIELD SECURITIES. Non-investment grade securities (commonly known as "junk
bonds") in which each Fund, other than the U.S. Government Securities Fund, may
invest may be regarded, on balance, as predominantly speculative with respect
<PAGE> 21
PROSPECTUS
18P
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
redemptionor 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 and
Value Plus 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. All ratings are determined at the time of
investment. Any subsequent rating downgrade of a debt obligation will be
monitored by Heartland Advisors to consider what actions, if any, a Fund should
take consistent with its investment objective, but will not necessarily require
the Fund to dispose of the security. A description of the ratings assigned by
Moody's and S&P is contained in the Statement of Additional Information.
ASSET COMPOSITION
The following table provides a summary of the Value Plus Fund's debt holdings,
including convertible debt securities, 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, 1996, presented as a percentage of total portfolio holdings.
During the year ended December 31, 1996, or shorter period since inception, the
Small Cap Contrarian, Mid Cap Value and Large Cap Value Funds were not invested
in long-term corporate
<PAGE> 22
PROSPECTUS
19P
debt securities. Effective March 31, 1997, the U.S. Government Securities Fund
no longer invests in long-term corporate debt securities. The 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
OR EQUIVALENT FUND AVERAGE
- ----------------------------------
<S> <C>
Aaa 0%
Aa 0%
A 0%
Baa 3.8%
Ba 3.2%
B 17.2%
</TABLE>
The dollar-weighted average of debt securities included in these figures and
not rated by Moody's amounted to 8.0% of the Value Plus Fund's total portfolio.
This may include securities rated by other nationally recognized rating
organizations, as well as unrated securities. Unrated securities are not
necessarily lower quality securities. Please refer to the Statement of
Additional Information for a more complete discussion of these ratings.
OTHER INVESTMENT PRACTICES
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 anticipateddeclines 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
<PAGE> 23
PROSPECTUS
20P
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.
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, Mid Cap Value, Large Cap 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
<PAGE> 24
PROSPECTUS
21P
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 (sella security which the
Fund does not then own for delivery at a future date) and borrow the same
security from a broker or other institution to complete the sale. The Fund may
make a profit or loss depending upon whether the market price of the security
decreases or increases between the date of the short sale and the date on which
the Fund must replace the borrowed security. The Fund will maintain a
segregated account with cash or liquid assets to cover its open short
positions.
The 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
<PAGE> 25
PROSPECTUS
22P
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 besubject 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 U.S. 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
<PAGE> 26
PROSPECTUS
23P
transactions, making it difficult to settle certain transactions. Inability to
sell a portfolio security due to settlement problems could result either in a
loss to the Fund if the value of the portfolio security subsequently declined,
or, if the Fund had entered into a contract to sell the security, could result
in possible claims against the Fund.
FOREIGN CURRENCY TRANSACTIONS. Foreign securities are subject to currency risk,
that is, the risk that the U.S. dollar value of these securities may be
affected favorably or unfavorably by changes in foreign currency exchange 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-RELATED SECURITIES. The U.S. Government Securities Fund may invest up
to 65% of its assets in mortgage-related securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities. Mortgage-related securities
in which the Fund may invest include mortgage pass-through securities and
derivative mortgage securities, such as collateralized mortgage obligations and
stripped mortgage-backed securities, issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Mortgage-related 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-related securities to be paid prior to their maturities, and the value
of these securities may be significantly affected by changes in interest rates.
The rate of prepayments on underlying mortgages will affect the price and
volatility of a mortgage-related security and may have the effect of shortening
or extending the effective duration of the security beyond what was anticipated
at the time of purchase. Prepayments during a period of declining interest
rates may shorten the effective duration of the mortgage-related security,
resulting in the Fund having to invest the unanticipated proceeds in
lower-yielding securities. To the extent that unanticipated rates of prepayment
on underlying mortgages increase the effective duration of a mortgage-related
security, the volatility of such security can be expected to increase. During
periods of increased interest rate volatility, the market for certain
mortgage-related 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 such securities can be sold.
<PAGE> 27
PROSPECTUS
24P
Mortgage pass-through securities are securities representing interests in
"pools" of mortgage loans secured by residential or commercial real property in
which payments of both interest and principal on the securities are generally
made monthly, in effect "passing through" payments made by the individual
borrowers on the underlying mortgage loans after deduction of servicing fees.
Payments of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by
the full faith and credit of the U.S. Treasury, such as securities guaranteed
by GNMA. Othersecurities are guaranteed by U.S. Government agencies or
instrumentalities, such as securities guaranteed by FNMA or the Federal Home
Loan Mortgage Corporation which are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations. The U.S. Government
Securities Fund may invest in adjustable rate mortgage securities ("ARMs"),
which are pass-through securities collateralized by mortgages with interest
rates that may be adjusted from time to time, rather than fixed rate mortgages.
ARMs may experience greater rates of prepayment than other mortgage
pass-through securities.
Collateralized Mortgage Obligations ("CMOs") are hybrid mortgage-related
instruments secured by pools of mortgage loans or other mortgage-related
securities, such as mortgage pass-through securities or stripped
mortgage-backed securities. CMOs may be structured into multiple classes, often
referred to as "tranches," with each class bearing a different stated maturity
and entitled to a different schedule for payments of principal and interest,
including prepayments. Principal prepayments on collateral underlying a CMO may
cause it to be retired substantially earlier than its stated maturity.
Stripped Mortgage-Backed Securities ("SMBS") are derivative mortgage-related
securities generally structured in classes with rights to receive varying
proportions of principal and interest. A common type of SMBS will have one
class receiving some of the interest and most of the principal from the
underlying mortgage loans, while the other class will receive most of the
interest and the remainder of the principal. In certain cases, one class will
receive all of the interest (the interest-only, or "IO" class), while the other
class will receive all of the principal (the principal-only, or "PO" class).
The cash flows and yields on IO and PO classes are extremely sensitive to the
rate of principal payments (including prepayments) on the underlying
mortgage-related securities. The U.S. Government Securities Fund will limit its
aggregate investments in IO and PO classes to 10% of net assets.
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
<PAGE> 28
PROSPECTUS
25P
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. Many indexed securities are short to
intermediate term fixed-income securities whose values at maturity, or interest
rates, rise or fall according to the change in one or more specified underlying
instruments. Indexed securities may be positively or negatively indexed (i.e.,
their value may increase or decrease if the underlying instrument appreciates)
and may have return characteristics similar to direct investments in the
underlying instrument or to one or more options on the underlying instrument.
Indexed securities may be more volatile than the underlying instrument itself
and the market for indexed securities may be thinner than the market for
securities in general, which can adversely affect the availability of market
quotations and the prices at which indexed securities are sold.
INVESTMENTS IN INVESTMENT COMPANIES. The Small Cap Contrarian, Mid Cap Value
and Large Cap Value Funds may invest up to 10% of their respective total assets
in securities of other investment companies, including unit investment trusts
or closed-end management investment companies. As a shareholder of another
investment company, the Funds may bear service and other fees which are in
addition to the fees the Funds pay their service providers.
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
<PAGE> 29
PROSPECTUS
26P
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 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.
<PAGE> 30
PROSPECTUS
27P
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, it
is not anticipated that such reserves will exceed 20% of the respective assets
of the Small Cap Contrarian, Value or Value Plus Funds, or 15% of the
respective assets of the Mid Cap Value, Large Cap Value or U.S. Government
Securities Funds. Liquid 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, certificates of deposit, commercial paper, short-term
corporate debt securities, variable rate demand notes, 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 oremergency 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.
<PAGE> 31
PROSPECTUS
28P
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 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. Certain
restricted securities which may be resold to institutional investors under Rule
144A under the Securities Act of 1933, as well as commercial paper meeting the
definitions set forth in Section 4(2) of the Securities Act, may be determined
to be liquid under the guidelines.
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, 1996 and 1995, the portfolio
turnover rate for the Value Fund was 31% in each year, for the Value Plus Fund
the portfolio turnover rates were 73% and 150%, respectively, and for the U.S.
Government Securities Fund were 30% and 97%, respectively. The portfolio
turnover rates for the Small Cap Contrarian Fund for the 1996 fiscal year and
for the period from April 27, 1995 (commencement of operations) to December 31,
1995 were 57% and 45%, respectively. 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
<PAGE> 32
PROSPECTUS
29P
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.
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.
If you are investing through a tax-sheltered retirement plan, such as an IRA,
you will need to use a special application.
- -------------------------------------------------------------------------------
BY WIRE:
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.
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<PAGE> 33
PROSPECTUS
30P
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 number. See "Shareholder
Services - Exchange Privilege."
- -------------------------------------------------------------------------------
AUTOMATICALLY:
To Open an Account:
Complete and sign the Account Application, as well as an Automatic Investment
Plan Application, and mail to one of the addresses above. Your purchase of
Fund shares will be made automatically in accordance with the Plan.
To Add to an Account:
Use Heartland's automatic investment plan. Sign up for this service on your
Account Application, or call 1-800-432-7856 for information on how to add this
service.
- -------------------------------------------------------------------------------
THROUGH SECURITIES REPRESENTATIVES:
To Open an Account:
You may purchase shares through a broker-dealer or financial institution which
must promptly forward the order, together with payment, to the Agent. The
broker-dealer or financial institution may charge a fee for such services.
To Add to an Account:
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.
<PAGE> 34
PROSPECTUS
31P
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 and/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
canceled 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
<PAGE> 35
PROSPECTUS
32P
planners with at least $3 million of clients' assets invested in the Value Fund
as of July 1, 1995 may also continue to purchase shares of the Fund on behalf
of new or existing clients. The discussion elsewhere in this Prospectus
regarding the purchase of shares of the Value Fund is qualified by this
limitation. The Value Fund may resume sales to new investors at some future
date, but it has no present intention to do so.
- -------------------------------------------------------------------------------
HOW TO REDEEM SHARES
Shareholders may have any or all of their shares redeemed as described below on
any day the Funds are open for business at the next determined net asset value
per share following receipt of a redemption in proper form (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,
Mutual Fund Services
3rd Floor
P.O. Box 701
Milwaukee, WI 53201-0701
BY OVERNIGHT
DELIVERY TO:
Firstar Trust Company
Mutual Fund Services
615 E. Michigan St., 3rd Fl.
Milwaukee, WI 53202
Send a written request specifying the name of the Mutual Fund, the number of
shares to be redeemed, your name, account number, and any additional documents
listed below that apply to your particular account. The Agent cannot accept
requests submitted by fax or requests specifying a particular date for
redemption or other special conditions. A signature guarantee is required for
certain redemptions, including written redemptions over $25,000. For further
information, see "Signature Guarantees."
- -------------------------------------------------------------------------------
<PAGE> 36
PROSPECTUS
33P
TYPE OF REGISTRATION REQUIREMENTS
Individual, Joint Tenants, Letter of instruction signed by all persons
Sole Proprietorship, authorized to sign for the account, exactly as
Custodial, General Partners 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 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
<PAGE> 37
PROSPECTUS
34P
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; 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 $12 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.
<PAGE> 38
PROSPECTUS
35P
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:
<PAGE> 39
PROSPECTUS
36P
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A %
YEAR SINCE PURCHASE OF DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
- -------------------------------------------
<S> <C>
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
- -------------------------------------------
</TABLE>
In determining whether a contingent deferred sales charge is applicable to a
redemption, the calculation will be made in the manner that results in the
lowest possible rate being charged. Therefore, it will be assumed that the
redemption is first of shares purchased prior to the adoption of a contingent
deferred sales charge, then of shares held for over three years or shares
acquired pursuant to reinvestment of dividends or distributions and then of
shares held longest during the three-year period. The charge will not be
applied to dollar amounts representing an increase in the net asset value since
the time of purchase.
AN EXAMPLE. Assume an investor purchased one hundred shares at $10 per share
(at a cost of $1,000), and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares through dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to the charge because of dividend reinvestment. With
respect to the remaining 40 shares, the charge is applied only to the original
cost of $10 per share and not to the increase in net asset value of $2 per
share. Therefore, $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 theemployee 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
<PAGE> 40
PROSPECTUS
37P
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.
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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;
(iv) Simplified Employee Pension Plans and SIMPLE retirement plans established
by employers for individual or employer contributions; and (v) 403(b) Plans for
employees of most non-profit organizations.
The minimum initial retirement plan investment in any Fund is $500 (there is no
minimum required for a SIMPLE IRA). Firstar Trust Company, as the trustee of
the
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PROSPECTUS
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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. The
IRA annual maintenance fee will be waived for investors with an aggregate of
$10,000 or more in Heartland Fund accounts under the same social security
number. 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.
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
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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.
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PROSPECTUS
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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.
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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 gains 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 gains distributions in cash.
DISTRIBUTIONS. Capital gains distributions for each Fund, if any, will normally
be paid within 30 days before 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.
<PAGE> 44
PROSPECTUS
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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 gains
distributions are taxed as long-term capital gains. Distributions of long-term
capital gains will be taxable to the investor as long-term capital gains
regardless of the length of time shares have been held. A portion of each
Fund's dividends may qualify for the dividends received deduction for
corporations. The Funds' distributions are taxable when they are paid, whether
a shareholder takes them in cash or reinvests them in additional shares, except
that distributions declared in December and paid in January are taxable as if
paid on December 31. The federal income tax status of all distributions will be
reported to shareholders annually.
"BUYING A DIVIDEND." On the date of 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.
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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 Short Duration High-Yield Municipal Fund, Heartland High-Yield
Municipal Bond Fund and Heartland Wisconsin Tax Free Fund, three additional
series of Heartland, and also provides investment management services for
individuals and insti-
<PAGE> 45
PROSPECTUS
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tutional accounts, such as pension funds and profit-sharing plans. As of March
1, 1997, Heartland Advisors had approximately $3.1 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; fees of
shareholder recordkeeping agents; taxes and governmental fees; brokerage
commissions and other expenses incurred in acquiring or disposing of portfolio
securities; expenses of registering and qualifying shares for sale with the
Securities and Exchange Commission and state securities commissions; accounting
and legal costs; insurance premiums; expenses of maintaining the Fund's legal
existence and of shareholder meetings; expenses of preparation and distribution
to existing shareholders of reports, proxies and prospectuses; and fees and
expenses of membership in industry organizations.
For the fiscal year ended December 31, 1996, the Small Cap Contrarian Fund and
the Value Fund paid advisory fees of $1,448,964 and $10,877,255, respectively,
or approximately 0.75 of 1% of each Fund's 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, 1996, the Value Plus Fund paid advisory fees of $218,448, or
approximately 0.70 of 1% of the Fund's average daily net assets.
For the fiscal year ended December 31, 1996, the U.S. Government Securities
Fund paid advisory fees of $291,423, or approximately 0.50 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 $378,850 in advisory fees, or 0.65 of 1% of average net assets
for the year. At present, Heartland Advisors is voluntarily waiving 0.45 of 1%
of its investment advisory fee for the U.S. Government Securities Fund,
resulting in an annual rate of 0.25 of 1% of average daily net assets.
Heartland Advisors may reinstate all or a portion of the fee at any time.
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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, Ph. D., 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, Dr. Berry had been the portfolio manager of
the Kemper-Dreman Small Cap Value Fund, a Managing Director of Dreman Value
Advisors, Inc. and Chief Equity Strategist for Zurich Kemper Investments since
September, 1995. Dr. 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 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, Senior Vice
President and Treasurer of Heartland Advisors, has managed or co-managed the
Fund since October of 1988 and has been Vice President and Treasurer of
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.
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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
<PAGE> 47
PROSPECTUS
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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.
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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 value
of Fund shares even if there has not been any change in the foreign currency
denominated values of such securities.
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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 cor-
<PAGE> 48
PROSPECTUS
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poration. 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
FUND OPERATIONS
- ------------------------------------------------------------
<S> <C>
Small Cap Contrarian Fund 4/27/95
Value Fund 12/28/84
Mid Cap Value Fund 10/11/96
Large Cap Value Fund 10/11/96
Value Plus Fund 10/26/93
U.S. Government Securities Fund 4/9/87
Wisconsin Tax Free Fund 4/3/92
Short Duration High-Yield Municipal Fund 1/2/97
High-Yield Municipal Bond Fund 1/2/97
</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.
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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
<PAGE> 49
PROSPECTUS
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charge a commission for their services, although it is expected that a majority
of transactions in debt securities will generally be conducted with dealers
acting as principals. In executing such transactions, Heartland Advisors seeks
to obtain the best net results for each Fund, taking into account such factors
as price (including the brokerage commission or dealer spread), size of order,
competitive commissions on similar transactions, difficulty of execution and
operational facilities of the firm involved and the firm's risk in positioning
a block of securities. While Heartland Advisors seeks reasonably competitive
rates, it does not necessarily pay the lowest commission or spreads available.
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.
<PAGE> 50
PROSPECTUS
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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 gains distributions and the redemption of the shares at
the end of the period. Prior to June 1, 1994, shares of the Funds had been sold
subject to a contingent deferred sales charge and prior to February 12, 1993,
shares of the Value and U.S. Government Securities Funds had been sold subject
to an initial sales charge, neither of which are reflected in the total return
figures, rather the figures reflect the current no-load sales structure.
Performance information should be considered in light of the particular Fund's
investment objectives and policies, characteristics and quality of its
portfolio securities and the market conditions during the applicable period,
and should not be considered as a representation of what may be achieved in the
future. Further information is contained in the Statement of Additional
Information.
Each Fund may, from time to time, compare its performance to other mutual funds
with similar investment objectives and to the industry as a whole, as quoted by
ranking services and publications, such as Lipper Analytical Services, Inc.,
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 Value or
Capital Appreciation categories, the Mid Cap Value Fund would appear in the
Medium Value or General Equity categories, the Large Cap Value Fund would
appear in the Large Value, General Equity or Growth and Income categories and
the Value Plus Fund would appear in the Small Value or Equity Income
categories. The U.S. Government Securities Fund would generally 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.
<PAGE> 51
PROSPECTUS
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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
Price Waterhouse LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
COUNSEL
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
<PAGE> 52
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 March 31, 1997. A copy of the
Prospectus may be obtained without charge by telephone or written request to
the distributor, Heartland Advisors, Inc. ("Heartland Advisors"). Shareholder
inquiries should be directed to the Funds in writing or by telephone.
________________________________________________________________________________
Statement of Additional Information
________________________________________________________________________________
Shares may be purchased directly from Heartland Advisors, 790 North
Milwaukee Street, Milwaukee, Wisconsin 53202, without a sales charge. For more
complete information, including an Account Application form, see the Prospectus
or call Heartland Advisors toll free at 1-800-432-7856. Shares may also be
purchased through broker-dealers or financial institutions, which may charge a
fee for such service.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS MARCH 31, 1997.
<PAGE> 53
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. The Value, Mid Cap Value, Large Cap Value and Value Plus Funds
may also write covered call options on foreign currencies. 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 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
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option period. The premium received by a Fund for writing covered call options
will be recorded as a cash asset and a liability of the Fund. The liability
will be adjusted daily with a corresponding adjustment to the Fund's total
assets, to reflect the option's current market value, which will be the latest
sale price at the time at which the net asset value per share of the Fund is
computed (close of regular trading on the New York Stock Exchange), or, in the
absence of such sale, the latest asked price. The liability will be
extinguished and the net gain or loss on the option realized upon expiration of
the option, the purchase of an identical option in a closing transaction, or
delivery of the underlying security upon the exercise of the option. The Funds
do not consider a security covered by a call to be "pledged" as that term is
used in the respective Fund's policy limiting the pledging of its assets.
Closing transactions may be effected by purchasing a call option in order
to realize a profit on an outstanding call option, to prevent an underlying
security from being called, or, to permit the sale of the underlying security.
Furthermore, effecting a closing transaction may permit a Fund to write another
call option on the underlying security with either a different exercise price
or expiration date or both. If a Fund desires to sell a particular security
from its portfolio on which it has written a call option, it will seek to
effect a closing transaction prior to, or concurrently with, the sale of the
security. There is, of course, no assurance that a Fund will be able to effect
such closing transactions at a favorable price. A Fund may pay transaction
costs in connection with the writing or purchase of options to close out
previously written options, which costs are normally higher than the
transaction costs applicable to purchases and sales of portfolio securities.
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 put option
and any transaction costs would reduce any gain otherwise available for
distribution when the security is eventually sold.
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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 Value 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 margin" 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
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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% 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.
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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.
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
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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.
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
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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 currency in excess of the value of the respective Fund's securities or
other assets denominated in that currency. The Small Cap Contrarian Fund could
also hedge a position by selling another currency expected to perform similarly
to the currency in which the Fund's securities are denominated. This type of
hedge, sometimes referred to as a "proxy hedge," could offer advantages in
terms of cost, yield or efficiency, but generally would not hedge currency
exposure as effectively as a simple hedge into U.S. dollars. Proxy hedges may
result in losses if the currency used to hedge does not perform similarly to
the currency in which the hedged securities are denominated.
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The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult and the successful execution of
a short-term hedging strategy is highly uncertain. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the longer-term investment decisions made with regard to overall
diversification strategies. However, Heartland Advisors believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of a Fund will be served.
At the maturity of a forward contract, a Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to purchase, on
the same maturity date, the same amount of the foreign currency.
If a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If a Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline during the period between the
Fund's entering into a forward contract for the sale of a foreign currency and
the date it enters into an offsetting contract for the purchase of the foreign
currency, the Fund will realize a gain to the extent the price of the currency
it has agreed to sell exceeds the price of the currency it has agreed to
purchase. Should forward prices increase, the Fund will suffer a loss to the
extent that the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
It is impossible to forecast with precision the market value of securities
at the expiration of a forward contract. Accordingly, it may be necessary for
a Fund to purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver and if a decision
is made to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security if its market value
exceeds the amount of foreign currency the Fund is obligated to deliver.
The 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 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
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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 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 ex-
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change 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, Mid Cap Value Fund, Large Cap Value Fund and Value Plus
Fund will not invest in securities that are rated below the fifth or sixth
rating categories by Moody's or S&P (Ba and B for Moody's and BB and B for S&P)
or, if unrated, judged comparable by Heartland Advisors. Securities rated in
the higher of those categories have less near-term vulnerability to default
than other speculative issues, however they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
However, business and financial alternatives available to obligors of such
securities can generally be identified which could assist them in satisfying
their debt service requirements. Securities rated in the lower of these two
categories are considered highly speculative. While the issuers of such
securities currently must be meeting debt service requirements in order to
achieve this rating, adverse business, financial, or economic conditions likely
could impair the issuer's capacity or willingness to pay interest and repay
principal.
The Small Cap Contrarian Fund may invest in debt securities rated as low
as the lowest rating category assigned by Moody's or S&P (C for Moody's and D
for S&P). Debt securities rated below B may be even more speculative than B
rated bonds and may either be currently vulnerable to default or may be in
default. A detailed description of the characteristics associated with the
various debt credit ratings established by Moody's and S&P is set forth in
Appendix A to this Statement of Additional Information.
While rating categories help identify credit risks associated with debt
securities, they do not evaluate the market value risk of non-investment grade
securities. Additionally, the credit rating agencies may fail to promptly
change the credit ratings to reflect subsequent events. Accordingly,
Heartland's Board of Directors and Heartland
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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.
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.
INFLATION - INDEXED BONDS
Each Fund may invest in inflation-indexed bonds issued by the U.S.
Government, its agencies or instrumentalities. Inflation-indexed bonds are
fixed income securities whose principal value is periodically adjusted
according to the rate of inflation. The interest rate on these bonds is
generally fixed at issuance at a rate
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lower than typical bonds. Over the life of an inflation-indexed bond,
however, interest will be paid based on a principal value that is adjusted for
inflation.
If the periodic adjustment rate measuring inflation falls, the principal
value of inflation-indexed bonds will be adjusted downward and, as a result,
the interest payable on these securities (calculated with respect to a smaller
principal amount) will be reduced. Any increase in the principal amount of an
inflation-indexed bond will be considered taxable ordinary income and will be
includable in the Fund's gross income in the period in which it accrues, even
though investors do not receive their principal until maturity. There can be
no assurance that the applicable inflation index for the security will
accurately measure the real rate of inflation in the prices of goods and
services. At present, the U.S. Treasury has only recently begun issuing
inflation-indexed bonds. As such, there is no trading history of these
securities, and there can be no assurance that a liquid market in these
instruments will develop, although one is expected.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
Each of the Small Cap Contrarian, Mid Cap Value and Large Cap Value Funds
may invest in the securities of other investment companies as permitted under
the 1940 Act. At present, the 1940 Act provisions limit each Fund so that (a)
no more than 10% of its total assets may be invested in securities of other
investment companies, (b) it may not own securities of any one investment
company having a value in excess of 5% of the Fund's total assets, and (c) it
may not own more than 3% of the total outstanding voting stock of any one
investment company. As a shareholder of another investment company, each Fund
would bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would
be in addition to the advisory and other expenses of the Fund.
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, Large Cap Value and Value Plus 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. This percentage limitation is in
addition to assets that may be invested in short-term instruments as described
in the Prospectus.
U.S. GOVERNMENT SECURITIES FUND - MORTGAGE-RELATED SECURITIES
Mortgage-related securities in which the U.S. Government Securities Fund
may invest include mortgage pass-through securities and derivative mortgage
securities, such as collateralized mortgage obligations and stripped
mortgage-backed securities, issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
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In general, mortgage-related securities have yield and maturity
characteristics corresponding to the underlying assets. Unlike traditional
debt securities, which may pay a fixed rate of interest until the entire
principal amount comes due at maturity, payments on certain mortgage-related
securities include both interest and a partial repayment of principal. Besides
the scheduled repayment of principal, repayments of principal on
mortgage-related securities may result from the voluntary prepayment,
refinancing, or foreclosure of the underlying mortgage loans. If property
owners make unscheduled prepayments of their mortgage loans, these prepayments
may result in early payment of the applicable mortgage-related securities. In
that event, the Fund may be unable to invest the proceeds from the early
payment of the mortgage-related securities in an investment that provides as
high a yield as the mortgage-related securities. Consequently, early payment
associated with mortgage-related securities may cause these securities to
experience significantly greater price and yield volatility than that
experienced by traditional fixed-income securities. The occurrence of mortgage
prepayments is affected by factors including the level of interest rates,
general economic conditions, the location and age of the mortgage and other
social and demographic conditions. During periods of falling interest rates,
the rate of mortgage prepayments generally tends to increase, thereby tending
to decrease the life of mortgage-related securities. During periods of rising
interest rates, the rate of mortgage prepayments generally decreases, thereby
tending to increase the life of mortgage-related securities. If the life of a
mortgage-related security is inaccurately predicted, the Fund may not be able
to realize the rate of return it expected.
Mortgage-related securities are less effective than other types of
securities as a means of "locking in" attractive long-term interest rates. One
reason is the need to reinvest prepayments of principal; another is the
possibility of significant unscheduled prepayments resulting from declines in
interest rates. During periods of declining interest rates, these prepayments
likely would have to be reinvested at lower rates. As a result, these
securities may have less potential for capital appreciation during periods of
declining interest rates than other securities of comparable maturities,
although they may have a similar risk of decline in market value during periods
of rising interest rates.
Prepayments may cause losses in securities purchased at a premium. At
times, some of the mortgage-related securities in which the Fund may invest may
have higher than market yields and, therefore, will be purchased at a premium
above their par value. Unscheduled prepayments, which are made at par, will
cause the Fund to experience a loss equal to any unamortized premium. In
addition, the value of mortgage-related securities may change due to changes in
the market's perception of the creditworthiness of the federal agency that
issued them, and the mortgage-related securities market in general may be
adversely affected by changes in governmental regulation or tax policies.
Certain characteristics of adjustable rate mortgage securities ("ARMs")
may make them more susceptible to prepayments than other mortgage-related
securities. Unlike fixed rate mortgages, the interest rates on adjustable rate
mortgages are adjusted at regular intervals, generally based on a specified,
published interest rate index. Investments in ARMs allow the Fund to
participate in changing interest rate levels through regular adjustments in the
coupons of the underlying mortgages, resulting in more variable current income,
and potentially shorter duration characteristics than longer-term fixed rate
mortgage securities. The extent to which the values of ARMs fluctuate with
changes in interest rates will depend on the frequency of the interest resets
on the underlying mortgages, and the specific indexes underlying the ARMs, as
certain indexes closely mirror market interest rate levels and others tend to
lag changes in market rates.
ARMs will frequently have caps and floors which limit the maximum amount
by which the interest rate on the underlying mortgage loans may move up or down
during each adjustment period, and over the life of the loan. Interest rate
caps on ARMs may cause them to decrease in value in an increasing interest rate
environment and may also prevent their income from increasing to levels
commensurate with prevailing interest rates. Conversely, interest rate floors
on ARMs may cause their income to remain higher than prevailing interest rate
levels and result in an increase in the value of such securities. However,
this increase may be tempered by an acceleration of prepayments. In general,
ARMs tend to experience higher levels of prepayment than other mortgage-related
securities. During favorable interest rate environments, holders of adjustable
rate mortgages have greater incentives to refinance with fixed rate mortgages
in order to avoid interest rate risk. In addition, significant increases in
the index rates used for adjustment of the mortgages may result in increased
delinquency,
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default and foreclosure rates, which in turn would increase the rate of
prepayment on the ARMs.
Collateralized mortgage obligations ("CMOs") are designed to reduce the
risk of prepayment for investors by issuing multiple classes of securities,
each having different maturities, interest rates and payment schedules, and
with the principal and interest on the underlying mortgages allocated among the
several classes in various ways. Payment of interest or principal on some
classes or series of CMOs may be subject to contingencies or some classes or
series may bear some or all of the risk of default on the underlying mortgages.
CMOs of different classes or series are generally retired in sequence as the
underlying mortgage loans in the mortgage pool are repaid. If enough mortgages
are repaid ahead of schedule, the classes or series of a CMO with the earliest
maturities generally will be retired prior to their maturities. Thus, the
early retirement of particular classes or series of a CMO held by the Fund
would have the same effect as the prepayment of mortgages underlying other
mortgage-related securities. The prices of certain CMOs, depending on their
structure and the rate of prepayments, can be volatile and the market for
certain CMOs may not be as liquid as the market for other securities in
general.
Similarly, prepayments could also result in losses on stripped
mortgage-backed securities. Stripped mortgage-backed securities are commonly
structured with two classes that receive different portions of the interest and
principal distributions on a pool of mortgage loans. The Fund may invest in
both the interest-only or "IO" class and the principal-only or "PO" class. The
yield to maturity on an IO class of stripped mortgage-backed securities is
extremely sensitive not only to changes in prevailing interest rates but also
to the rate of principal payments (including prepayments) on the underlying
assets. A rapid rate of principal prepayments may have a measurable adverse
effect on the Fund's yield to maturity to the extent it invests in IOs. If the
assets underlying the IO experience greater than anticipated prepayments of
principal, the Fund may fail to recoup fully its initial investment in these
securities. Conversely, POs tend to increase in value if prepayments are
greater than anticipated and decline if prepayments are slower than
anticipated.
The secondary market for stripped mortgage-backed securities may be more
volatile and less liquid than that for other mortgage-related securities,
potentially limiting the Fund's ability to obtain market quotations for those
securities or to buy or sell those securities at any particular time.
The U.S. Government Securities Fund anticipates that governmental and
government-related entities may create mortgage loan pools offering
pass-through investments in addition to the types discussed above, including
securities with underlying pools of derivative mortgage-related securities. As
new types of mortgage-related securities are developed and offered to
investors, Heartland Advisors will, consistent with the Fund's objective and
investment policies, consider making investments in such new types of
securities.
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.
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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 liquid assets required to be deposited as collateral with the broker in
connection with the short sale (not including the proceeds from the short
sale). The Fund will maintain the account on a daily basis so that the amount
deposited with the custodian plus the amount deposited with the broker as
collateral will equal the current market value of the securities sold short;
provided, that at no time will the amount segregated in the account plus the
amount deposited with the broker be less than the market value of the
securities at the time they were sold short.
SMALL CAP CONTRARIAN FUND - LEVERAGE
The Small Cap Contrarian Fund may borrow from banks up to one-third of its
total assets, and may pledge its assets in connection with such borrowings. If
the Small Cap Contrarian Fund makes additional investments while borrowings are
outstanding, this may be construed as a form of leverage. Leveraging the Small
Cap Contrarian Fund may create an opportunity for increased net income;
however, it may also give rise to special risk considerations. For example,
leveraging may exaggerate changes in the net asset value of the Fund's shares
and in the gains and losses on the Fund's investments. Leveraging will create
interest expenses for the Fund that may exceed the return on investments made
with the borrowings. To the extent the income derived from securities
purchased with borrowed funds exceeds the Fund's costs of borrowing, the Fund's
net income may be greater than if leveraging were not used. Conversely, if the
income from the investments made with the borrowed funds is not sufficient to
cover the cost of leveraging, the net income of the Fund will be less than if
leveraging were not used and the value of the Fund's shares may be adversely
affected. Reverse repurchase agreements that are not fully collateralized
create leverage, a speculative factor, and will be considered as borrowings for
purposes of the Fund's investment limitations.
PORTFOLIO TURNOVER
Portfolio turnover for each Fund is the ratio of the lesser of annual
purchases or sales of portfolio securities by the Fund to the average monthly
value of portfolio securities owned by the Fund, not including securities
maturing in less than twelve months. A 100% portfolio turnover rate would
occur, for example, if the lesser of the value of purchases or sales of a
Fund's portfolio securities for a particular year were equal to the average
monthly value of the portfolio securities owned by the Fund during the year.
For the fiscal years ended December 31, 1996 and 1995, the portfolio turnover
rate for the Value Fund was 31% in each year, for the Value Plus Fund the
portfolio turnover rates were 73% and 150%, respectively, and for the U.S.
Government Securities Fund were 30% and 97%, 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 rates for the Small Cap Contrarian
Fund for the 1996 fiscal year and for the period from April 27, 1995
(commencement of operations) to December 31, 1995 were 57% and 45%,
respectively. 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 policy or 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
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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;
(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.
17
<PAGE> 69
In accordance with the following non-fundamental policies, which may be
changed without shareholder approval, the Small Cap Contrarian Fund may not:
(1) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(2) Invest in securities of other investment companies except as
permitted by the 1940 Act or as part of a merger, consolidation, acquisition of
assets, or similar reorganization transaction.
(3) Purchase warrants (other than those that have been acquired in units
or attached to other securities), except that the Fund may purchase warrants
which, when valued at lower of cost or market, do not exceed 5% of the value of
the Fund's net assets; included within the 5%, but not in excess of 2% of the
Fund's net assets, may be warrants which are not listed on the New York or
American Stock Exchanges.
(4) Purchase or retain the securities of any issuer if the officers,
directors, advisors or managers of the Fund owning beneficially more than 0.5%
of the securities of such issuer together own beneficially 5% of such
securities; provided no officer or director shall be deemed to own beneficially
securities held in other accounts managed by such person or held in employee or
similar plans for which such person acts as trustee.
(5) Purchase securities on margin or effect short sales of securities,
except that the Fund may obtain short-term credit 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
18
<PAGE> 70
estate, except that the U.S. Government Securities Fund will not invest in
real estate limited partnerships.
(7) Borrow money or property except for temporary or emergency purposes.
If a Fund ever should borrow money it would only borrow from banks and in an
amount not exceeding 10% of the market value of its total assets (not including
the amount borrowed). Neither Fund will pledge more than 15% of its net assets
to secure such borrowings. In the event a Fund's borrowing exceeds 5% of the
market value of its total assets the Fund will not invest in any additional
portfolio securities until its borrowings are reduced to below 5% of its total
assets. For purposes of these restrictions, collateral arrangements for
premium and margin payments in connection with a Fund's hedging activities are
not to be deemed to be a pledge of assets.
(8) Make loans, except that it may (i) acquire publicly distributed bonds,
debentures, notes and other debt securities and (ii) lend portfolio securities
provided that no such loan may be made if as a result the aggregate of such
loans would exceed 30% of the value of the Fund's total assets.
(9) Underwrite the securities of other issuers except where it might
technically be deemed to be an underwriter for purposes of the Securities Act
of 1933 upon the disposition of certain securities.
(10) Except with respect to investments in repurchase agreements by the U.
S. Government Securities Fund, purchase securities with legal or contractual
restrictions on resale.
(11) Issue senior securities.
(12) Purchase securities on margin or effect short sales of securities,
except that the Value Fund may sell securities short where it either: (a) holds
a long position in the same security which equals or exceeds the number of
shares sold short; or (b) holds a long position in a security with respect to
which there has been a public announcement of a proposed transaction that would
result in the conversion of the securities so held into an equal or greater
number of shares of the securities sold short; provided 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
19
<PAGE> 71
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 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
20
<PAGE> 72
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 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;
21
<PAGE> 73
(3) Purchase more than 10% of the outstanding voting securities of an
issuer, or invest in a company to get control or manage it.
(4) Invest more than 25% of its total assets, based on current market
value at the time of purchase, in securities of issuers in any single industry;
provided that there shall be no limitation on the purchase of securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities.
(5) Buy or sell real estate 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
22
<PAGE> 74
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 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.
<TABLE>
<CAPTION>
Principal Occupation
Name and Address Position with Heartland During Past Five Years
- ---------------- ----------------------- ----------------------
<S> <C> <C>
William J. Nasgovitz President and Director* President and Director Heartland
790 North Milwaukee Street Advisors, Inc., since 1982; Senior
Milwaukee, WI 53201 Vice President Investments, Dain
Bosworth Incorporated from 1988 to
June 1992; Director of Capital
Investments, Inc., since 1989 (small
business investment company).
Willard H. Davidson Director Financial and business consultant
3726 North Lake Drive since 1984; prior thereto, Chairman
Milwaukee, WI 53211 and a Director, Marine Corporation
(a bank holding company) and
Marine Bank, N.A.
Hugh F. Denison Vice President and Director* Vice President, Heartland Advisors,
790 North Milwaukee Street Inc. since 1988; Director, Heartland
Milwaukee, WI 53201 Advisors, Inc., 1988 through 1996.
Jon D. Hammes Director President, The Hammes Company,
Suite 305 since 1991; prior thereto, Managing
18000 West Sarah Lane Partner, Trammell, Crow Co.
Brookfield, WI 53045
</TABLE>
23
<PAGE> 75
<TABLE>
<CAPTION>
Principal Occupation
Name and Address Position with Heartland During Past Five Years
- ---------------- ----------------------- ----------------------
<S> <C> <C>
Patrick J. Retzer Vice President, Treasurer Vice President and Treasurer,
790 North Milwaukee Street and Director* Heartland Advisors, Inc. since 1987;
Milwaukee, WI 53201 Director of Heartland Advisors,
Inc. since 1988.
A. Gary Shilling Director President, A. Gary Shilling & Company,
500 Morris Avenue Inc. (economic consultants and
Springfield, NJ 07081-1020 investment advisors), since 1978.
Linda F. Stephenson Director President and Chief Executive Officer,
100 East Wisconsin Avenue Zigman Joseph Stephenson (a public
Milwaukee, WI 53202 relations and marketing communications
firm) since 1989.
Lois Schmatzhagen Secretary Secretary, Heartland Advisors, Inc.
790 North Milwaukee Street since 1988.
Milwaukee, WI 53201
- --------------------------
</TABLE>
*Directors who are "Interested Persons" (as defined in the 1940 Act) of
Heartland Advisors.
Heartland pays the compensation of the four Directors who are not
officers, directors or employees of Heartland Advisors. The following
compensation was paid to those Directors for their services during the fiscal
year ended December 31, 1996:
<TABLE>
<CAPTION>
Aggregate Estimated Total Compensation
Compensation from Pension or Actual Benefits Upon from Heartland and
Director Heartland Retirement Benefits Retirement Fund Complex
- -------- ----------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Willard H. Davidson $7,000 None None $7,000
Jon D. Hammes $7,000 None None $7,000
A. Gary Shilling $7,000 None None $7,000
Linda F. Stephenson $7,000 None None $7,000
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of February 28, 1997, the Directors and officers of Heartland Group,
Inc. as a group (8 persons) owned less than 1% of the outstanding shares of the
Small Cap Contrarian Fund, the Value Fund, the Value Plus Fund and the U.S.
Government Securities Fund, and owned 1.60% of the Mid Cap Value Fund and 7.06%
of the Large Cap Value 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 10,273,284
shares (or 19.2%) of the Value Fund, 2,852,099 shares (or 36.1%) of the Value
Plus Fund, and 6,773,320 shares (or 32.9%) of the Small Cap Contrarian Fund,
949,599 shares (or 62.9%) of the Mid Cap Value Fund, and 78,859 shares (or
21.9%) of the Large Cap Value Fund, and Catherine J. Polaski, 5329 Highway 38,
Franksville, WI 53126, held 38,095 shares (or 10.6%) of the Large Cap Value
Fund.
24
<PAGE> 76
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 31, 1996. 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 Short Duration High-Yield Municipal Fund, Heartland High-Yield
Municipal Bond Fund and Heartland Wisconsin Tax Free Fund, three 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 1, 1997, Heartland Advisors had
approximately $3.1 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; fees
of shareholder recordkeeping agents; 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.
For the fiscal years ended December 31, 1994, 1995, and 1996 the Value
Fund paid advisory fees of, $1,985,370, $6,452,487, and $10,877,255,
respectively. For the period from April 27, 1995 (commencement
25
<PAGE> 77
of operations) to December 31, 1995, and for the fiscal year ended
December 31, 1996, the Small Cap Contrarian Fund paid advisory fees of $172,583
and $1,448,964, respectively. For the period from October 11, 1996
(commencement of operations) to December 31, 1996, the Mid Cap Value and Large
Cap Value Funds paid advisory fees of $6,087 and $2,325, respectively. For the
fiscal years ended December 31, 1994, 1995, and 1996, the Value Plus Fund paid
advisory fees of $63,697, $102,311, and $218,448, respectively. For the years
ended December 31,1994, 1995, and 1996, the U.S. Government Securities Fund paid
advisory fees of $361,242, $325,124, and $291,423, respectively. During those
periods, advisory fees provided under the U.S. Government Securities Fund's
Agreement totaled $469,614, $422,661, and $378,850, respectively, but Heartland
Advisors voluntarily waived $108,372, $97,537, and $87,427 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,
interest, 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 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
26
<PAGE> 78
of the respective Fund's balance sheet that would equate the initial
amount invested to the ending redeemable value, according to the following
formula:
P(1 + T)" = 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 Funds for the one, five, and
ten-year periods or, if less, from commencement of operations through December
31, 1996 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 ................................ 21.0% 22.0% 15.3%
Heartland Small Cap Contrarian Fund (4/27/95) ....... 18.9% N/A 24.0%
Heartland Mid Cap Value Fund (10/11/96).............. N/A N/A 6.6%
Heartland Large Cap Value Fund (10/11/96)............ N/A N/A 5.0%
Heartland Value Plus Fund (10/26/93) ................ 33.8% N/A 17.4%
Heartland U.S. Government Securities Fund (4/9/87) .. 2.0% 7.3% 8.5%
</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
Where:
a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
27
<PAGE> 79
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 investment objective is long-term capital
appreciation, the Fund will typically not calculate or advertise its yield.
Similarly, the Small Cap Contrarian Fund will not typically calculate its
yield. The yields for the Mid Cap Value Fund and Large Cap Value Fund may be
quoted in the future; however, given the short period of time since the Funds
commenced operations, the Funds have not yet achieved an asset size where the
yields (net of expenses) would be positive for the 30 days ended February 28,
1997. The yield for the Value Plus Fund for the thirty days ended December 30,
1996 was 3.12%. The yield for the U.S. Government Securities Fund for the
thirty days ended December 30, 1996 was 6.41%. 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 latest bid price. 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.
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.
28
<PAGE> 80
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, 1996, Heartland Advisors received
contingent deferred sales charges with respect to redemptions of shares of the
Value Fund, Value Plus Fund, and the U.S. Government Securities Fund in the
amounts of $91,223, $7,812, and $32,254, respectively. 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.
DISTRIBUTION PLAN
Each Fund has adopted a Distribution Plan, which is described in the
Prospectus (see "The Distribution Plan"). Under each Plan, Heartland Advisors
provides the Directors for their review promptly after the end of each quarter
a written report setting forth all amounts expended under the Plan, including
all amounts paid to dealers as distribution or service fees. In approving the
Plan in accordance with the requirements of Rule 12b-1, the Directors
considered various factors, including the amount of the distribution fee. The
Directors determined that there is a reasonable likelihood that the Plan of
each respective Fund will benefit the Fund and the shareholders of the Fund.
Each Plan may be terminated by vote of a majority of the Directors who are
not interested persons, or by vote of a majority of the outstanding voting
securities of the Fund. Any change in the Plan that would materially increase
the distribution cost to the Fund requires shareholder approval; otherwise, it
may be amended by the Directors, including a majority of the Directors who are
not interested persons, by vote cast in person at a meeting called for the
purpose of voting upon such amendment. So long as a Distribution Plan is in
effect, the selection or nomination of the Directors who are not interested
persons is committed to the discretion of such Directors.
The Distribution Plan of a Fund may be terminated by the Directors at any
time on 60 days written notice without payment of any penalty by Heartland
Advisors, by vote of a majority of the outstanding voting securities of the
Fund, or by vote of a majority of the Directors who are not interested persons.
Each Distribution Plan will continue in effect for successive one-year
periods, if not sooner terminated in accordance with its terms, provided that
each such continuance is specifically approved by the vote of the Directors,
including a majority of the Directors who are not interested persons.
During the fiscal year ended December 31, 1996, the Funds paid the
following amounts under their respective Plans, all of which was spent on
compensation to dealers, financial institutions, and other service providers,
including Heartland Advisors: $482,988 for the Small Cap Contrarian Fund;
$3,625,752 for the Value Fund; $2,029 for the Mid Cap Value Fund (from
commencement of operations on October 11, 1996 to December 31, 1996); $775 for
the Large Cap Value Fund (from commencement of operations on October 11, 1996
to December 31, 1996); $78,017 for the Value Plus Fund; and $145,712 for the
U.S. Government Securities Fund.
29
<PAGE> 81
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.
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
30
<PAGE> 82
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 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, 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 on portfolio transactions paid by the Funds were as follows: the
Value Fund paid $2,619,410; the Value Plus Fund paid $140,980; and the U.S.
Government Securities Fund paid $676. Of such brokerage commissions, amounts
paid to Heartland Advisors as broker were: $438,094 for the Value Fund;
$29,768 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 such brokerage
commissions, amounts paid to Heartland Advisors as broker by the Fund were
$43,741.
During the fiscal year ended December 31, 1996, 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
Small Cap Contrarian Fund paid $874,098 on portfolio transactions of
$209,877,235; the Value Fund paid $2,822,252 on portfolio transactions of
$574,727,771; the Value Plus Fund paid $149,195 on portfolio transactions
31
<PAGE> 83
of $35,876,871; and the U.S. Government Securities Fund paid $75
on portfolio transactions of $58,562. Of such brokerage commissions, amounts
paid to Heartland Advisors as broker were: $22,532 in commissions (or 2.6% of
total commissions) or $2,439,588 of transactions (or 1.2% of total
transactions) for the Small Cap Contrarian Fund; $285,057 in commissions (or
10.1% of total commissions) on $85,640,009 of transactions (or 14.9% of total
transactions) for the Value Fund; $4,028 in commissions (or 2.7% of total
commissions) on $1,426,500 of transactions (or 4.0% of total transactions) for
the Value Plus Fund; and $0 for the U.S. Government Securities Fund. For the
period from October 11, 1996 (commencement of operations) to December 31, 1996,
the Mid Cap Value Fund paid aggregate brokerage commissions of $18,036 on
portfolio transactions of $5,722,363. For the period from October 11, 1996
(commencement of operations) to December 31, 1996, the Large Cap Value Fund
paid aggregate brokerage commissions of $4,995 on portfolio transactions of
$1,871,899. None of the commissions paid by the Mid Cap Value and Large Cap
Value Funds were paid to Heartland Advisors. 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") and Advest Group, Inc. ("Advest") may be deemed affiliated persons
of Heartland Advisors since Heartland Advisors may be deemed to hold or control
more than 5% of the outstanding voting securities of Stifel and Advest in
Heartland Advisors' capacity as investment advisor to the Funds and other
investment advisory accounts. During the fiscal year ended December 31, 1996,
the Value Fund paid $40,974 in brokerage commissions (or 1.5% of total
commissions paid) to Stifel for effecting $10,567,489 of transactions, or
approximately 1.8% of the dollar value of portfolio transactions for which a
brokerage commission was paid; the Value Plus Fund paid $2,100 in brokerage
commissions (or 1.4% of total commissions paid) to Stifel for effecting
$441,215 of transactions, or approximately 1.2% of the dollar value of
portfolio transactions for which a brokerage commission was paid; and the
Small Cap Contrarian Fund paid $3,000 in brokerage commissions (or 0.3% of
total commissions paid) to Stifel for effecting $400,437 of transactions, or
approximately 0.2% of the dollar value of portfolio transactions for which
brokerage commissions were paid. During the fiscal year ended December 31,
1996 the Value Fund paid $19,486 in brokerage commissions (or 0.7% of total
commissions paid) to Advest for effecting $5,167,636 of transactions, or
approximately 0.9% of the dollar value of portfolio transactions for which
brokerage commissions were paid; the Value Plus Fund paid $1,400 in brokerage
commissions (or 0.9% of total commissions paid) to Advest for effecting
$340,000 of transactions, or approximately 0.9% of the dollar value of
portfolio transactions for which brokerage commissions were paid; and the
Small Cap Contrarian Fund paid $1,750 in brokerage commissions (or 0.2% of
total commissions paid) to Advest for effecting $627,240 of transactions, or
approximately 0.3% of the dollar value of portfolio transactions for which
brokerage commissions were paid.
The portfolio holdings of the Funds may include the securities of certain
publicly traded brokerage firms. At December 31, 1996, the Value Fund held
300,000 shares, with a market value of $10,575,000, of Inter-Regional Financial
Group, Inc., the parent corporation of Dain Bosworth, Inc. and Rauscher Pierce
Refsnes, Inc., which were among the Fund's regular brokers or dealers for 1996
as defined in Rule 10b-1 under the Investment Company Act of 1940. At December
31, 1996, the Large Cap Value Fund held 800 shares, with a market value of
$25,100, of Lehman Brothers Holdings, Inc., the parent corporation of Lehman
Brothers, Inc., which was among the Fund's regular brokers or dealers for 1996
as defined in Rule 10b-1 under the Investment Company Act of 1940.
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.
32
<PAGE> 84
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Quarles & Brady serves as legal counsel for the Funds. Arthur Andersen
LLP, independent public accountants, served as auditors of the Funds through
calendar year 1996. Price Waterhouse LLP have been selected as independent
public accountants for the Funds beginning with fiscal year 1997.
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 Funds as of December 31, 1996 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.
The following pages present unaudited financial statements of the Mid Cap
Value and Large Cap Value Funds as of February 28, 1997 and for the two month
period then ended. In the opinion of the management of Heartland, all
adjustments which are necessary for a fair presentation of the results of
operations for the interim period ended February 28, 1997 are reflected.
33
<PAGE> 85
HEARTLAND MID CAP VALUE FUND
SCHEDULE OF INVESTMENTS
February 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
SHARES COMMON STOCKS - 91.2% VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AUTOMOTIVE - 1.3%
6,500 A. O. Smith Corporation - Makes auto frames, motors, water heaters, and other
misc. items................................................. $ 218,562
BANKS AND SAVINGS & LOANS - 11.0%
5,500 BanPonce Corporation - Commercial banker in Puerto Rico, the Virgin Islands
and the U.S. ............................................... 198,000
10,500 Commercial Federal Corporation - S & L serving Nebraska, Colorado, Kansas and Oklahoma......... 376,688
3,000 Cullen/Frost Bankers, Inc.- Bank holding company in Texas................................. 107,063
9,000 First Financial Corporation - S & L holding company in Wisconsin and Illinois............... 240,750
13,700 Hibernia Corporation (Class A) - Bank holding company in Louisiana............................. 190,087
6,800 Signet Banking Corporation - Bank holding company in VA, MD and DC......................... 215,900
21,600 Sovereign Bancorp, Inc. - S & L holding company in PA, NJ and DE........................ 272,700
6,200 TR Financial Corporation - Invests deposits in one - to four - family residential
properties.................................................. 218,937
------------
1,820,125
BUILDING PRODUCTS - 3.2%
7,200 Medusa Corporation - Produces cement and stone..................................... 287,100
4,100 Texas Industries, Inc. - Produces steel and construction materials, including cement... 238,825
------------
525,925
CHEMICALS - 2.8%
19,000 Agrium, Inc. - Manufacturer and distributor of fertilizers................... 261,250
15,500 Terra Industries, Inc. - Produces nitrogen fertilizer, crop protection
chemicals and seed.......................................... 211,188
------------
472,438
CONSTRUCTION/HOUSING - 3.0%
10,500 Lennar Corporation - Builds single-family homes; builds and manages rental units... 265,125
12,000 Toll Brothers, Inc. - Designs, builds, markets and finances single-family homes (a). 232,500
------------
497,625
CONSUMER PRODUCTS - 2.3%
9,000 First Brands Corporation - Mfrs and sells products for the home and automobile markets... 223,875
9,200 Wellman, Inc. - Mfrs high-quality "Fortel" polyester textile fibers;
related products............................................ 161,000
------------
384,875
DIVERSIFIED OPERATIONS - 2.0%
18,200 Onex Corporation - In-flight catering; food service dist; auto steel
parts and brakes............................................ 331,273
ENERGY & NATURAL RESOURCES - 7.5%
8,400 Asarco, Inc. - Mines zinc; produces copper, lead and silver.................. 262,500
22,200 Ranger Oil Ltd. - Explores for and produces oil and natural gas................. 199,800
2,500 Reynolds Metals Company - Produces metals and other materials........................... 156,875
9,000 Santa Fe Pacific Gold Corporation - Explores for and develops gold properties/mines; processes ore 168,750
19,000 Tesoro Petroleum Corporation - Refines petroleum and produces natural gas (a)................ 223,250
16,000 TransTexas Gas Corporation - Explores for, produces and transmits natural gas
primarily in TX (a) ........................................ 241,250
------------
1,252,425
FINANCIAL SERVICES - 4.3%
11,500 Lehman Brothers Holdings Inc. - Worldwide investment banking and brokerage services .......... 386,687
17,000 Olympic Financial Ltd. - Buys, sells and services retail installment contracts for cars 187,000
3,000 PHH Corporation - Provides cost-effective vehicle and home-related services..... 143,625
------------
717,312
FOOD & BEVERAGE - 5.7%
37,400 Darden Restaurants, Inc. - Operates "Red Lobster," "Bahama Breeze" and "The Olive Garden" 271,150
9,800 Dean Foods Company - Buys, processes and distributes dairy and specialty
food products............................................... 319,725
8,700 IBP Inc. - Produces fresh/boxed beef/pork products; treats hides
for leather................................................. 202,275
5,000 SUPERVALU, Inc. - Food distributor; operator of grocery stores.................. 155,000
------------
948,150
FOREST PRODUCTS - 5.4%
8,800 Boise Cascade Corporation - Mfrs paper products and building products; owns timberland.... 289,300
8,600 Bowater, Inc. - Produces paper and lumber..................................... 364,425
14,500 P. H. Glatfelter Company - Mfrs paper and manages woodlands.............................. 248,313
------------
902,038
HEALTH CARE SERVICES - 9.8%
8,600 Allegiance Corporation - Provides healthcare products and cost management services..... 226,825
14,000 Apria Healthcare Group, Inc. - Provides and/or manages comprehensive homecare services (a)... 250,250
11,200 HealthPlan Services Corporation - Managed health care services company (a)...................... 205,800
9,000 Integrated Health Services, Inc. - 192 facilities providing rehabilitation/pharmacy services..... 267,750
14,300 Sun Healthcare Group, Inc. - Provides nursing, rehabilitation therapy and other specialized
care........................................................ 196,625
8,900 Trigon Healthcare, Inc. - Managed health care company in Virginia (a)................... 159,087
7,700 Wellpoint Health Networks, Inc. - Managed health care company (a)............................... 330,138
------------
1,636,475
INSURANCE - 9.4%
5,000 Horace Mann Educators Corporation - Insurance provider to primarily public school employees....... 214,375
6,400 Mid Ocean Ltd. - Reinsurance provider.......................................... 316,800
8,600 Protective Life Corporation - Produces, distributes and services insurance/investment
products.................................................... 369,800
31,500 Reliance Group Holdings, Inc. - Property, casualty and title insurance; diversified inv.;
real estate................................................. 342,562
8,200 Vesta Insurance Group, Inc. - Property and casualty insurance group......................... 320,825
------------
1,564,362
</TABLE>
<PAGE> 86
HEARTLAND MID CAP VALUE FUND
SCHEDULE OF INVESTMENTS [CONT'D]
February 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
SHARES COMMON STOCKS - 91.2%[CONT'D] VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LEISURE - 1.6%
24,000 Grand Casinos, Inc. - Develops/manages land-based and dockside casinos, bingo
facilitiees(a)..............................................$ 264,000
MANUFACTURING - 7.7%
7,000 AGCO Corporation - Mfr/dist agricultural and related replacement parts worldwide. 198,625
6,400 A K Steel Holding Corporation - Integrated steel producer..................................... 230,400
5,700 Blount Int'l, Inc. (Class A) - Mfrs outdoor products, industrial, power and sporting
equipment................................................... 237,975
3,000 Cummins Engine Company, Inc. - Mfrs heavy-duty and midrange diesel engines................... 151,875
14,000 McDermott International, Inc. - Worldwide energy services company............................. 311,500
2,500 Tecumseh Products Company - Mfrs refrigeration products, small gas engines, gear drives
and pumps................................................... 143,125
------------
1,273,500
REITS - 1.3%
8,200 Walden Residential Properties, Inc. - Garden apts in OK, FL, AZ, TX, UT and TN...................... 211,150
RETAIL - 1.3%
15,000 Heilig Meyers Company - Retailer of home furnishings.................................. 211,875
TECHNOLOGY - 6.4%
4,500 Advanced Micro Devices, Inc. - Designs, develops, manufactures and markets integrated
circuits (a)................................................ 161,438
22,500 Auspex Systems, Inc. - Develops, mfrs, and markets a line of UNIX/NFS file
servers (a)................................................. 261,563
5,500 National Semiconductor Corporation - Designs, develops, mfrs and mkts various semiconductor
products (a)................................................ 143,687
7,500 MEMC Electronic Materials, Inc. - Produces silicon wafers used in semiconductors (a)............ 183,750
11,000 Silicon Valley Group, Inc. - Mfrs equipment used for producing semiconductors (a).......... 235,125
3,000 Teradyne, Inc. - Mfrs electronic systems/connection systems and software (a)... 81,750
------------
1,067,312
TRANSPORTATION 1.0%
5,500 KLM Royal Dutch Airlines NV - Full service airline; provides passenger and cargo transport.. 169,125
UTILITIES - 4.2%
31,000 El Paso Electric Company - Distributes and transmits electricity in west TX and
southern NM (a)............................................. 217,000
5,500 OGE Energy Corporation - Generates, transmits and distributes electricity in OK and AK. 231,688
13,800 Public Service Co. of New Mexico - Operates electric, gas and water utilities in NM.............. 253,575
------------
702,263
------------
TOTAL COMMON STOCKS (Cost $14,570,873).....................................................................$ 15,170,810
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
AMOUNT SHORT-TERM INVESTMENTS - 11.0% COUPON MATURITY VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VARIABLE RATE DEMAND NOTES (+) - 11.0%
$ 170,000 American Family Insurance Group...................................... 5.014% 05/16/1997 $ 170,000
825,000 Eli Lilly and Company................................................ 4.874% 07/28/1997 825,000
825,000 Warner-Lambert Company............................................... 4.984% 03/18/1997 825,000
TOTAL SHORT-TERM INVESTMENTS (Cost $1,820,000).............................................................$ 1,820,000
TOTAL INVESTMENTS - (Cost $16,390,873) 102.2% $ 16,990,810
Liabilities, less cash and receivables -2.2% (384,645)
------ ------------
TOTAL NET ASSETS...................... 100.0% $ 16,626,165
====== ============
</TABLE>
(a) Non-income producing security.
(+) Variable rate demand notes are considered short-term obligations
and are payable on demand. Interest rates change periodically on
specified dates. The rates listed are as of February 28, 1997.
The accompanying Notes to Financial Statements are an integral part
of this Schedule.
<PAGE> 87
HEARTLAND LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS
February 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SHARES COMMON STOCKS - 80.3% VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AIR FREIGHT - 0.9%
700 Federal Express Corporation - Transports freight by air for overnight delivery (a).................$ 36,050
BANKS AND SAVINGS & LOANS - 4.1%
400 Chase Manhattan Corp - Corporate finance; wholesale banking; investment services............ 40,050
600 PNC Bank Corporation - Consumer, corporate, mortgage and real estate banking................ 25,425
1,400 Summit Bancorp - Commercial, retail and mortgage banking; investment mgmt services.... 66,850
600 Union Planters Corporation - Banking and broker/dealer services through 402 offices............... 26,850
--------
159,175
COMMUNICATIONS - 4.1%
1,400 AT & T Corporation - Communication service and product provider........................... 55,825
2,200 Frontier Corporation - National long distance telecom. provider............................. 48,675
600 Telecomunicacoes Brasileiras S. A. (ADR) - Telecommunication services in Brazil................................. 58,200
--------
162,700
CONSTRUCTION/HOUSING - 3.8%
2,900 Louisiana-Pacific Corporation - Produces lumber and building products; owns 1,585,000 acres.......... 61,625
2,100 Owens Corning - Insulation and building materials systems............................ 88,987
--------
150,612
DIVERSIFIED OPERATIONS- 1.5%
600 Textron, Incorporated - Helicopters, combat vehicles, auto parts and missile reentry systems. 59,175
ELECTRICAL & ELECTRONICS - 1.4%
1,200 Philips Electronics N.V. - Consumer electronics, medical products and comm. systems............. 54,000
ENERGY & NATURAL RESOURSES - 6.2%
1,200 Elf Aquitane (ADR) - Explores, refines and markets petroleum and related products......... 57,600
2,400 Louisiana Land & Exploration Co. - Oil and natural gas producer......................................... 114,600
2,600 YPF Sociedad Anonima (ADR) - Integrated oil and gas company....................................... 69,550
--------
241,750
FINANCIAL SERVICES - 3.1%
800 Lehman Brothers Holdings Inc. - Worldwide investment banking and brokerage services.................. 26,900
900 Student Loan Marketing Association - Purchases and services student loans................................. 95,288
--------
122,188
FOOD & BEVERAGE - 3.1%
9,800 Darden Restaurants, Inc. - Operates "Red Lobster," "Bahama Breeze" and "The Olive Garden"...... 71,050
1,700 SUPERVALU, Inc. - Food distributor; operator of grocery stores......................... 52,700
--------
123,750
HEALTH CARE SERVICES - 8.3%
1,800 Aetna, Inc. - Health and life ins. for individuals and employer-sponsored groups... 149,175
5,500 Beverly Enterprises - Nursing care facilities, home health care and retirement housing (a). 79,062
3,600 Tenet Healthcare Corporation - Operates more than 75 acute care hospitals (a)....................... 97,650
--------
325,887
HOME FURNISHINGS - 2.0%
6,000 Shaw Industries, Inc. - Manufactures tufted carpet for residential and commercial use........ 78,000
INSURANCE - 9.2%
1,800 Allmerica Financial Corporation - Insurance and financial services provider............................ 67,275
1,100 Allmerica Property & Casualty
Companies, Inc. Underwrites property-liability insurance............................. 34,512
1,200 American General Corporation - Provides life insurance, annuities and consumer loans................ 52,050
1,100 Jefferson-Pilot Corporation - Writes annuity policies and life, accident and health insurance...... 64,900
1,300 Ohio Casualty Corporation - Offers full line of property and casualty insurance.................. 51,512
600 St. Paul Companies, Inc. - Worldwide provider of property-liability insurance................... 40,500
2,300 USF & G Corporation - Commercial, family, business, specialty business and life insurance.. 51,750
--------
362,499
MANUFACTURING - 4.6%
5,400 Hanna (M.A.) Company - Specialty chemicals, plastics and rubber compounds................... 112,050
250 Hanson PLC (ADR) - Broadly diversified international industrial company................. 5,562
1,800 Lubrizol Corporation - Manufacturer of chemical additives for lubricants and fuels.......... 62,325
--------
179,937
PAPER PRODUCTS - 6.1%
3,600 Fort Howard Corporation - Mfrs consumer tissue products from recycled fibers (a)............... 107,100
800 International Paper Company - Paper, paperboard, packaging products and wood pulp.................. 33,400
2,100 Jefferson Smurfit Group PLC (ADR) - Corrugated cases; paper; paperboard; packaging materials............. 53,025
800 Mead Corporation - Makes and sells paper, paperboard, pulp and wood products............ 46,600
--------
240,125
RETAIL - 6.6%
700 Dillard Department Stores, Inc. (Class A) - 245 retail department stores in Midwestern states.................... 21,087
800 J.C. Penney Company, Inc. - Sells apparel, home furnishings and leisure lines.................... 39,400
7,000 Kmart Corporation - Int'l retailer with such outlets as "Kmart" and "Builders Square" (a) 87,500
4200 Toys "R" Us, Inc. - Retailer of toys and children's clothing (a)......................... 109,200
--------
257,187
</TABLE>
<PAGE> 88
HEARTLAND LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS [CONT'D]
February 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SHARES COMMON STOCKS - 80.3%[CONT'D] VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY - 0.8%
1,000 Digital Equipment Corporation - Networked platforms for client/server computing (a)................$ 32,750
TOBACCO - 4.6%
400 Philip Morris Companies, Inc. - Tobacco, food, beer, and financial services........................ 54,050
1,600 RJR Nabisco Holdings Corporation - Int'l consumer products co.; mostly tobacco and foods.............. 58,600
2,200 UST, Inc. - Smokeless tobacco, tobacco and related products; premium wines..... 67,925
----------
180,575
UTILITIES - 9.9%
1,300 Consolidated Natural Gas Company - Natural gas utility holding company................................ 66,300
250 Energy Group PLC (ADR) - Electric service in U.S., Great Britain and Australia (a).......... 8,500
9,800 Niagara Mohawk Power Corporation - Produces and transmits electricity and gas in NY (a)............... 100,450
800 Ohio Edison Company - Pennsylvania and Ohio electric service provider.................... 18,000
1,500 OGE Energy Corporation - Generates, transmits and distributes electricity in OK and AK...... 63,188
6,000 Unicom Corporation - Chicago area and northern IL provider of electricity............... 133,500
----------
389,938
----------
TOTAL COMMON STOCKS (Cost $2,963,107)............................................................................$3,156,298
----------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PAR
AMOUNT SHORT-TERM INVESTMENTS - 19.8% COUPON MATURITY VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VARIABLE RATE DEMAND NOTES (+) - 19.8%
$ 180,000 Eli Lilly and Company.................................... 4.874% 07/28/1997 $ 180,000
130,700 General Mills, Inc....................................... 4.995% 08/19/1997 130,700
120,700 Pitney Bowes, Inc........................................ 5.013% 08/04/1997 120,700
155,000 Sara Lee Corporation..................................... 4.993% 05/02/1997 155,000
189,000 Warner-Lambert Company................................... 4.984% 03/18/1997 189,000
----------
TOTAL SHORT-TERM INVESTMENTS (Cost $775,400)...............................................$ 775,400
----------
TOTAL INVESTMENTS - (Cost $3,738,505) 100.1% $3,931,698
Liabilities, less cash and receivables -0.1% (2,863)
------ ----------
TOTAL NET ASSETS...................... 100.0% $3,928,835
====== ==========
</TABLE>
(a) Non-income producing security.
(+) Variable rate demand notes are considered short-term obligations
and are payable on demand. Interest rates change periodically on
specified dates. The rates listed are as of February 28, 1997.
The accompanying Notes to Financial Statements are an integral part
of this Schedule.
<PAGE> 89
STATEMENTS OF ASSETS AND LIABILITIES
February 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
ASSETS: Mid Cap Large Cap
Value Fund Value Fund
---------- ----------
<S> <C> <C>
Investments in securities, at cost..................... $16,390,873 $ 3,738,505
----------- -----------
Investments in securities, at value.................... $16,990,810 $ 3,931,698
Cash................................................... 11,544 803
Receivable from fund shares sold....................... 17,500 5,350
Accrued dividends and interest......................... 19,636 6,716
Deferred organization expense.......................... 15,057 15,057
----------- -----------
Total Assets........................................ 17,054,547 3,959,624
----------- -----------
LIABILITIES:
Payable to Advisor for management fee.................. 8,975 2,033
Payable to Advisor for distribution fees............... 5,045 1,272
Payable for investments purchased...................... 322,318 0
Payable for fund shares redeemed....................... 55,457 7,601
Payable to Advisor for deferred organization expense... 15,057 15,057
Accrued expenses....................................... 21,530 4,826
----------- -----------
Total Liabilities................................... 428,382 30,789
----------- -----------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $16,626,165 $ 3,928,835
=========== ===========
SHARES OUTSTANDING, $.001 par value (100,000,000 shares
authorized........................................... 1,510,923 359,354
=========== ===========
NET ASSET VALUE PER SHARE $ 11.00 $ 10.93
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of
these Statements.
<PAGE> 90
STATEMENTS OF OPERATIONS
For the period from January 1, 1997 to February 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
Mid Cap Large Cap
Value Fund Value Fund
---------- ----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.................................................. $ 22,496 $ 10,105
Interest................................................... 19,128 4,032
--------- ----------
Total investment income................................ 41,624 14,137
--------- ----------
EXPENSES:
Management fees............................................ 15,134 3,816
Distribution fees.......................................... 5,045 1,272
Transfer agent fees........................................ 10,532 3,100
Registration fees.......................................... 7,300 3,992
Custodian fees............................................. 1,832 530
Audit fees................................................. 1,500 1,500
Amortization of organization expenses...................... 550 550
Directors' fees............................................ 522 517
Postage.................................................... 271 53
Printing and communications................................ 191 69
Legal fees................................................. 50 25
--------- ----------
Total expenses.................................... 42,927 15,424
--------- ----------
NET INVESTMENT LOSS............................................ (1,303) (1,287)
--------- ----------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investments.......................... 2,601 1,097
Net increase in unrealized appreciation on investments..... 266,663 114,117
--------- ----------
TOTAL REALIZED AND UNREALIZED GAINS ON INVESTMENTS............. 269,264 115,214
--------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... $ 267,961 $ 113,927
========= ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of
these Statements.
<PAGE> 91
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Oct. 11, 1996
Jan. 1, 1997 (commencement
to Feb. 28, 1997 of operations) to
MID CAP VALUE FUND (Unaudited) Dec. 31, 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment loss....................................................... $ (1,303) $ (1,646)
Net realized gains (losses) on investments................................ 2,601 (3,604)
Net increase in unrealized appreciation on investments.................... 266,663 333,274
--------------- ----------------
Net increase in net assets resulting from operations.......... 267,961 328,024
--------------- ----------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued............................................... 9,858,641 6,732,455
Cost of shares redeemed................................................... (434,399) (126,517)
--------------- ----------------
Net increase in net assets derived from Fund share activities 9,424,242 6,605,938
--------------- ----------------
TOTAL INCREASE IN NET ASSETS................................................. 9,692,203 6,933,962
--------------- ----------------
NET ASSETS AT THE BEGINNING OF THE PERIOD.................................... 6,933,962 -----
NET ASSETS AT THE END OF THE PERIOD.......................................... $ 16,626,165 $ 6,933,962
=============== ================
</TABLE>
<TABLE>
<CAPTION>
Oct. 11, 1996
Jan. 1, 1997 (commencement
to Feb. 28, 1997 of operations) to
LARGE CAP VALUE FUND (Unaudited) Dec. 31, 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment loss....................................................... $ (1,287) $ (986)
Net realized gains (losses) on investments................................ 1,097 (1,071)
Net increase in unrealized appreciation on investments.................... 114,117 79,076
--------------- ----------------
Net increase in net assets resulting from operations.......... 113,927 77,019
--------------- ----------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued............................................... 1,558,925 2,589,599
Cost of shares redeemed................................................... (185,492) (225,143)
--------------- ----------------
Net increase in net assets derived from Fund share activities 1,373,433 2,364,456
--------------- ----------------
TOTAL INCREASE IN NET ASSETS................................................. 1,487,360 2,441,475
--------------- ----------------
NET ASSETS AT THE BEGINNING OF THE PERIOD.................................... 2,441,475 -----
NET ASSETS AT THE END OF THE PERIOD.......................................... $ 3,928,835 $ 2,441,475
=============== ================
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
<PAGE> 92
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Jan. 1, 1997
through Oct. 11, 1996 (1)
Feb. 28, 1997 through
MID CAP VALUE FUND (Unaudited) Dec. 31, 1996
- ------------------------------------------------------------------------------------------- -------------------
<S> <C> <C>
Selected Per Share Data
Net asset value, beginning of period.................................... $ 10.66 $ 10.00
Income from investment operations:
Net investment income............................................... --- ---
Net realized and unrealized gains on investments.................... 0.34 0.66
------------- ----------------
Total income from investment operations........................... 0.34 0.66
Less distributions from:
Net investment income............................................... --- ---
Net realized gains on investments................................... --- ---
------------- ----------------
Total distributions............................................... --- ---
Net asset value, end of period.......................................... $ 11.00 $ 10.66
============= ================
Total Return............................................................ 3.2%(2) 6.6%(2)
Ratios and Supplemental Data
Net assets, end of period (in thousands)............................ $ 16,626 $ 6,934
Ratio of expenses to average net assets............................. 1.64%(3) 1.94%(3)
Ratio of net investment loss to average net assets.................. -0.05%(3) -0.16%(3)
Portfolio turnover rate............................................. 3% 4%
Average commission per share........................................ $ 0.0657 $ 0.0675
</TABLE>
<TABLE>
<CAPTION>
Jan. 1, 1997
through Oct. 11, 1996 (1)
Feb. 28, 1997 through
LARGE CAP VALUE FUND (Unaudited) Dec. 31, 1996
- ------------------------------------------------------------------------------------------- -------------------
<S> <C> <C>
Selected Per Share Data
Net asset value, beginning of period.................................... $ 10.50 $ 10.00
Income from investment operations:
Net investment income............................................... --- ---
Net realized and unrealized gains on investments.................... 0.43 0.50
------------- ----------------
Total income from investment operations........................... 0.43 0.50
Less distributions from:
Net investment income............................................... --- ---
Net realized gains on investments................................... --- ---
------------- ----------------
Total distributions............................................... --- ---
Net asset value, end of period.......................................... $ 10.93 $ 10.50
============= ================
Total Return............................................................ 4.1%(2) 5.0%(2)
Ratios and Supplemental Data
Net assets, end of period (in thousands)............................ $ 3,929 $ 2,441
Ratio of expenses to average net assets............................. 2.60%(3) 2.73%(3)
Ratio of net investment loss to average net assets.................. -0.22%(3) -0.25%(3)
Portfolio turnover rate............................................. 1% 1%
Average commission per share........................................ $ 0.0672 $ 0.0668
</TABLE>
(1) Commencement of operations.
(2) Not annualized.
(3) Annualized.
The accompanying Notes to Financial Statements are an integral part of these
Statements.
<PAGE> 93
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997 (Unaudited)
(1) ORGANIZATION
The Heartland Group, Inc. (the "Corporation") is registered as a
diversified open-end management company under the Investment Company Act
of 1940. The Mid Cap Value Fund and the Large Cap Value Fund (the
"Funds) are two of the nine series of funds issued by the Corporation at
February 28, 1997.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of the financial statements:
(a) Portfolio securities which are traded on stock exchanges are
valued at the last sales price as of the close of business on the
day the securities are being valued, or, lacking any sales, at the
latest bid price. Each over-the-counter security for which the last
sale price on the day of valuation is available from NASDAQ 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.
Foreign securities are valued on the basis of quotations from the
primary market in which they are traded, and are translated from the
local currency into U.S. dollars using exchange rates as of the
close of the New York Stock Exchange. Debt securities are stated at
fair value as furnished by independent pricing services based
primarily upon information concerning market transactions and dealer
quotations for similar securities or by dealers who make markets in
such securities. Debt securities having maturities of 60 days or
less may be valued at acquisition cost, plus or minus any amortized
discount or premium. Securities and other assets for which
quotations are not readily available are valued at their fair value
using methods determined by the Board of Directors.
(b) The Funds' policy is to comply with the requirements of the
Internal Revenue Code which are applicable to regulated investment
companies and to distribute substantially all of their taxable
income to their shareholders. The Funds accordingly paid no Federal
income taxes, and no Federal income tax provision is required.
At February 28, 1997, the Mid Cap Value and Large Cap Value Funds
had Federal income tax capital loss carryforwards of $3,604 and
$1,071, respectively, expiring in 2004. The Funds do not intend
to make distributions of any future realized capital gains until
their Federal income tax capital loss carryforwards are completely
utilized.
(c) Net investment income, if any, is distributed to each
shareholder as a dividend. Dividends are declared and paid
annually. Dividends are recorded on the ex-dividend date. Net
realized gains on investments, if any, are distributed annually.
Statement of Position 93-2 requires that permanent financial
reporting and tax differences be reclassified to paid-in capital.
For the period ended February 28, 1997, the Mid Cap Value and
Large Cap Value Funds reclassified permanent differences between
book and taxable net investment loss in the amounts of $1,303 and
$1,287, respectively. Net assets were not affected by these
reclassifications.
<PAGE> 94
(d) The Funds record security and shareholder transactions no
later than the first business day after the trade date. Net
realized gains and losses on investments are computed on the
identified cost basis. Dividend income is recognized on the
ex-dividend date, and interest income is recognized on an accrual
basis. The Funds amortize premiums and accrete discounts on
investments utilizing the effective interest method.
(e) Each Fund may enter into futures contracts for hedging
purposes, such as to protect against anticipated declines in the
market value of its portfolio securities or to manage exposure to
changing interest rates. Upon entering into futures contracts, a
Fund pledges to the broker securities equal to the minimum "initial
margin" requirements of the exchange. Additionally, the Fund
receives from or pays to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or
payments are known as "variation margin," and are recorded by a Fund
as unrealized gains or losses. When the futures contract is closed,
a Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the
value at the time it was closed.
The use of futures contracts involves, to varying degrees,
elements of market risk in excess of the amount recognized in the
Statement of Assets and Liabilities. The predominant risk is that
the movement of a futures contract's price may result in a loss
which could render a portfolio's hedging strategy unsuccessful.
The Funds did not enter into futures contracts during the period
ended February 28, 1997.
(f) The Funds may each engage in "short sales against the box."
These transactions involve selling a security that a Fund owns for
delivery at a specified date in the future. Similarly, each of
these Funds may also engage in short sales of securities of an
issuer ("acquiror") that has publicly announced a proposed or
pending transaction in which a portfolio security of the Fund will
be converted into securities of the acquiror.
Each Fund maintains a segregated collateral account with its
custodian consisting of cash or liquid assets to cover short sales
in acquiror securities. The Funds did not engage in short sales
against the box or in short sales of securities of an acquiror
during the period ended February 28, 1997.
(g) A restricted security is a security which has been
purchased through a private offering and cannot be resold to the
general public without prior registration under the Securities Act
of 1933. These securities are valued under the supervision of, and
pursuant to guidelines adopted by, the Funds' Board of Directors.
The Funds did not purchase restricted securities during the period
ended February 28, 1997.
(h) The Funds each may write covered call options and purchase
put or call options that are traded on recognized U.S. exchanges and
enter into closing transactions with respect to such options. The
Funds may enter into options transactions for hedging purposes, and
will not use these instruments for speculation. Written covered
call options and purchased put or call options are valued at the
latest sales price at the time at which net asset value per share of
a Fund is computed (close of regular trading on the New York Stock
Exchange) or, lacking any sales, the latest asked price or bid
price, respectively. The Funds did not write covered call options
or purchase put or call options during the period ended February 28,
1997.
<PAGE> 95
(i) The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from the estimates.
(3) INVESTMENT MANAGEMENT FEES AND TRANSACTIONS WITH RELATED PARTIES
The Funds have management agreements with Heartland Advisors, Inc. (the
"Advisor") to serve as investment advisor and manager. Under the terms
of the agreements, the Funds pay the Advisor a monthly management fee at
the annual rate of .75% of the daily net asset value of the Funds.
The Funds have adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940. The Distributor is
Heartland Advisors, Inc. (the "Distributor"). The Plan requires the
Funds to pay to the Distributor a quarterly distribution fee on an annual
basis up to .25% of their daily net assets.
Officers and certain directors of the Funds are also officers and/or
directors of Heartland Advisors, Inc.; however, they receive no
compensation from the Funds.
As permitted under Rule 10f-3 of the Investment Company Act of 1940, the
Board of Directors of the Funds has adopted a plan which will allow the
Funds, under certain conditions described in the Rule, to acquire
newly-issued securities from syndicates in which the Distributor is a
member.
(4) DEFERRED ORGANIZATION EXPENSES
Organization expenses have been deferred and are being amortized on a
straight-line basis over sixty months. Payments for these expenses were
advanced by the Advisor, who will be reimbursed by the Funds over the
same period. The proceeds of any redemption of the initial shares by the
original shareholders will be reduced by a pro-rata portion of any then
unamortized expenses. Unamortized deferred organizational expenses and
the related payable to the Advisor at February 28, 1997 were $15,057 for
each Fund.
(5) INVESTMENT TRANSACTIONS
During the period ended February 28, 1997, purchases and sales of
securities, other than short-term obligations, were as follows (in
thousands):
<TABLE>
<CAPTION>
Mid Cap Large Cap
Value Fund Value Fund
---------- ----------
<S> <C> <C>
Purchases $8,912 $1,024
Proceeds from sales 344 26
</TABLE>
At February 28, 1997, the gross unrealized appreciation and
depreciation on investments for tax purposes were as follows (in
thousands):
<TABLE>
<CAPTION>
Mid Cap Large Cap
Value Fund Value Fund
---------- ----------
<S> <C> <C>
Appreciation $979 $259
Depreciation (379) (66)
---- ----
$600 $193
==== ====
</TABLE>
<PAGE> 96
Cost of investments is substantially the same for financial reporting
purposes and federal income tax purposes.
(6) FUND SHARE TRANSACTIONS
For the period ended February 28, 1997, Fund share transactions were as
follows:
<TABLE>
<CAPTION>
Mid Cap Large Cap
Value Fund Value Fund
---------- ----------
<S> <C> <C>
Shares issued 900,519 144,047
Shares redeemed (39,797) (17,112)
------- -------
Net increase in Fund shares 860,722 126,935
======= =======
</TABLE>
For the period ended December 31, 1996, Fund share transactions were as
follows:
<TABLE>
<CAPTION>
Mid Cap Large Cap
Value Fund Value Fund
---------- ----------
<S> <C> <C>
Shares issued 662,589 254,625
Shares redeemed (12,388) (22,206)
---------- ----------
Net increase in Fund shares 650,201 232,419
========== ==========
</TABLE>
(7) SOURCES OF NET ASSETS
At February 28, 1997, the Funds' sources of net assets were as follows:
<TABLE>
<CAPTION>
Mid Cap Large Cap
Value Fund Value Fund
------------- -------------
<S> <C> <C>
Paid-in capital $16,027,230 $3,735,616
Net unrealized appreciation
on investments 599,937 193,193
Accumulated undistributed net
realized gains (losses) on
investments (1,002) 26
----------- ----------
$16,626,165 $3,928,835
=========== ==========
</TABLE>
<PAGE> 97
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> 98
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.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or
A-2
<PAGE> 99
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-2
<PAGE> 100
TABLE OF CONTENTS
Page
----
INTRODUCTION TO THE FUNDS 2
INVESTMENT POLICIES AND METHODS 2
INVESTMENT RESTRICTIONS 16
MANAGEMENT 23
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES 24
THE INVESTMENT ADVISOR 25
PERFORMANCE INFORMATION 26
DETERMINATION OF NET ASSET VALUE PER SHARE 28
DISTRIBUTION OF SHARES 29
DISTRIBUTION PLAN 29
TAX STATUS 30
DESCRIPTION OF SHARES 30
PORTFOLIO TRANSACTIONS 30
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT 32
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS 33
FINANCIAL STATEMENTS 33
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
Price Waterhouse LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
<PAGE> 101
Part C. Other Information.
Item 24. Financial Statements and Exhibits
(a) Financial Statements and related footnotes for
the Funds (except for the Short Duration High-Yield Municipal
Fund and the High-Yield Municipal Bond Fund) included or
incorporated by reference in Part B are:
(1) Reports of Independent Public Accountants
(2) Statement of Net Assets
(3) Statement of Changes in Net Assets
(4) Statement of Operations
(b) Exhibits:
See Exhibit Index following the signature page of this
registration statement, which index is incorporated herein by
this reference.
Item 25. Persons Controlled by or under Common Control with Registrant
Not Applicable. See "Control Persons and Principal Holders of
Securities" in Part B.
Item 26. Number of Holders of Securities
On December 31, 1996, the number of record holders of each class of
securities of the Registrant was:
<TABLE>
<CAPTION>
NUMBER OF HOLDERS OF
FUND RECORD OF COMMON STOCK
- --------------------------------------------------------------------------------
<S> <C>
Heartland Small Cap Contrarian Fund 16,767
Heartland Value Fund 69,914
Heartland Mid Cap Value Fund 573
Heartland Large Cap Value Fund 255
Heartland Value Plus Fund 3,180
Heartland U.S. Government Securities Fund 2,890
Heartland Wisconsin Tax Free Fund 3,579
</TABLE>
<PAGE> 102
Item 27. Indemnification
Reference is made to Article IX of the Registrant's Bylaws filed
as Exhibit No. 2 to Registrant's Registration Statement with respect
to the indemnification of Registrant's directors and officers, which
is set forth below:
Section 9.1. Indemnification of Officers, Directors, Employees
and Agents. The Corporation shall indemnify each person who was or is
a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative ("Proceeding"), by reason of the fact
that he is or was a Director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as
a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against all
expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in
connection with such Proceeding to the fullest extent permitted by
law; provided that:
(a) whether or not there is an adjudication of liability in such
Proceeding, the Corporation shall not indemnify any
person for any liability arising by reason of such person's
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office
or under any contract or agreement with the Corporation
("disabling conduct"); and
(b) the Corporation shall not indemnify any person unless:
(1) the court or other body before which the Proceeding
was brought (i) dismisses the Proceeding for insufficiency of
evidence of any disabling conduct, or (ii) reaches a final
decision on the merits that such person was not liable by
reason of disabling conduct; or
(2) absent such a decision, a reasonable determination
is made, based upon a review of the facts, by (i) the vote of a
majority of a quorum of the Directors of the Corporation who
are neither interested persons of the Corporation as defined in
the Investment Company Act of 1940 nor parties to the
Proceeding, or (ii) if such quorum is not obtainable, or even
if obtainable, if a majority of a quorum of Directors described
in paragraph (b)(2)(i) above so directs, by independent legal
C-2
<PAGE> 103
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.
In addition, the Registrant maintains an Investment Advisor/Mutual
Fund Professional Liability insurance policy with a $10 million limit of
liability under which the Registrant and its affiliate, Heartland
Advisors, Inc., and each of their respective directors and officers are
named insureds.
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
C-3
<PAGE> 104
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
C-4
<PAGE> 105
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 December 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:
<TABLE>
<CAPTION>
POSITION WITH
NAME HEARTLAND ADVISORS, INC. OTHER
- ---- -------------------------------------- --------------------------------
<S> <C> <C>
William J. Nasgovitz President and Director President and Director,
Heartland Group, Inc.
Patrick J. Retzer Director and Vice President, Treasurer Vice President, Treasurer, and
Director, Heartland Group, Inc.
Hugh F. Denison Vice President Director, Heartland Group, Inc.
Kevin D. Clark Vice President, Trading
Mitchell L. Kohls Chief Operating Officer Communications Manager, GE
Medical Systems (General
Electric) (8/88 to 6/95)
Kenneth J. Della Chief Financial Officer None
Lorraine J. Koeper Vice President and General Counsel Attorney, Quarles & Brady (9/92
and Director to 7/95)
Lois J. Schmatzhagen Secretary Secretary, Heartland Group, Inc.
</TABLE>
Item 29. Principal Underwriters
(a) Heartland Advisors, Inc. acts as the Distributor
of each of the Heartland funds shares. Heartland Advisors,
Inc. does not act as the principal underwriter or distributor
for any open-end mutual funds other than the Heartland funds.
(b) See response to item 28(a) above.
C-5
<PAGE> 106
(c) Not applicable.
Item 30. Location of Accounts and Records
(a) Heartland Group, Inc.
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
(b) Firstar Trust Company
Mutual Funds Services, Third Floor
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
(c) Firstar National Bank-Milwaukee
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Item 31. Management Services
Not applicable
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> 107
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Milwaukee, and State of Wisconsin, on
the 28th day of March, 1997.
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 28th day of March, 1997,
by or on behalf of the following persons in the capacities indicated.
SIGNATURE TITLE
/s/ William J. Nasgovitz Director and President (Chief Executive Officer)
- ------------------------
WILLIAM J. NASGOVITZ
/s/ Patrick J. Retzer Director, Vice President and Treasurer (Chief
- --------------------- Financial and Accounting Officer)
PATRICK J. RETZER
Hugh F. Denison * Director
- -----------------
HUGH F. DENISON
A. Gary Shilling * Director
- ------------------
A. GARY SHILLING
Willard H. Davidson * Director
- ---------------------
WILLARD H. DAVIDSON
Jon D. Hammes * Director
- ---------------
JON D. HAMMES
Linda F. Stephenson * Director
- ---------------------
LINDA F. STEPHENSON
* By: /s/ William J. Nasgovitz
--------------------------------------------------
WILLIAM J. NASGOVITZ
Pursuant to Power of Attorney dated April 27, 1995
C-7
<PAGE> 108
EXHIBIT INDEX
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- --------
1(a) Articles of Incorporation*
(b) Form of Articles Supplementary to Articles of Incorporation
filed with Maryland Department of Assessments and Taxation
to withdraw the designation of, and to discontinue, the
series known as the Heartland Nebraska Tax Free Fund*
2 Amended and Restated By-Laws*
5(a) Investment Advisory Agreement for Heartland Value Fund*
5(b) Investment Advisory Agreement for Heartland U.S. Government,
Wisconsin Tax Free, Value Plus, Small Cap Contrarian, Mid
Cap Value and Large Cap Value Funds(1)
5(c) Amended Schedule A to Investment Advisory Agreement adding
Heartland Short Duration High-Yield Municipal and
Heartland High-Yield Municipal Bond Funds*
6(a)(i) Distribution Agreement between Heartland Group, Inc.
and Heartland Advisors, Inc.(1)
(a)(ii) Amendment No. 1 to Distribution Agreement between
Heartland Group, Inc. and Heartland Advisors, Inc.(1)
(b) Form of Selected Dealer Agreements*
(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*
C-8
<PAGE> 109
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- --------
11(a) Consent of Arthur Andersen LLP
(b) Consent of Quarles & Brady*
13 Subscription Agreements*
14(a) Form of Model Retirement Plans*
(b) Form of Heartland Funds Individual Retirement Account
Agreement and Forms
(c) Form of Heartland Funds Section 403(b)(7) Custodial
Account Agreement and Forms
(d) Form of Heartland Funds SIMPLE IRA Attachment to
IRS Form 5305-SA
15(a) The Value Fund's Rule 12b-1 Plan*
(b) Heartland Group Inc.'s Amended and Restated
Rule 12b-1 Plan(1)
(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*
(c) Schedules for Computation of Performance
Information for the Heartland
Value Plus Fund*
(d) Schedules for Computation Performance
Information for the Heartland
Small Cap Contrarian Fund*
17 Financial Data Schedules (See Exhibit 27)
27 Financial Data Schedules
__________________
C-9
<PAGE> 110
* Previously filed and incorporated herein by reference.
(1) Previously filed on August 7, 1996 as an Exhibit to Post-Effective
Amendment No. 26 to this Registration Statement and incorporated herein
by reference.
C-10
<PAGE> 1
EXHIBIT 11(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation in
this Registration Statement of our report, dated February 7, 1997, on the
financial statements and related notes of Heartland Value Fund, Heartland Small
Cap Contrarian Fund, Heartland Mid Cap Value Fund, Heartland Large Cap Value
Fund, Heartland Value Plus Fund, and Heartland U.S. Government Securities Fund
appearing in the Funds' December 31, 1996 Annual Report to Shareholders, and to
all references to our Firm included in or made a part of Post-Effective
Amendment No. 30 to Heartland Group, Inc.'s Registration Statement on Form
N-1A.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
March 25, 1997
<PAGE> 1
[Logo] Heartland Funds Exhibit 14(b)
- ------------------------
AMERICA'S VALUE INVESTOR
IRA DISCLOSURE
STATEMENT AND
AGREEMENT
<PAGE> 2
GENERAL PROCEDURE
If after reading the Heartland Funds Custodial Account Agreement, the
Disclosure Statement, and the Prospectus for the Fund(s) in which you wish to
invest, you would like to open a Heartland Funds custodial IRA, and meet the
eligibility requirements for establishing an IRA, you may open your account by
following the procedure below:
(1) Check the box indicating the type of account you wish to establish on the
Application Form (note that you must meet the eligibility requirements for
the type of account you select) and complete the remainder of the
Application Form.
(2) To establish your Heartland Funds IRA, you need an initial investment of
$500. However, you may choose to invest any amount larger than the
minimum initial investment up to the maximum limitations as described in
the Disclosure Statement.
(3) Bring or mail the Application Form and your initial investment of at
least $500 to the Custodian at: Firstar Trust Company, Heartland Funds
IRA, P.O. Box 701, Milwaukee, WI 53201-0701.
(4) The Custodian will confirm your establishment of the IRA and the amount
of shares purchased in the Fund.
IMPORTANT
NEITHER THE HEARTLAND FUNDS NOR THE CUSTODIAN CAN MAKE ANY REPRESENTATION AS TO
THE SUITABILITY OF THE HEARTLAND FUNDS IRA FOR YOUR PARTICULAR SITUATION, OR
WHETHER YOU ARE ELIGIBLE FOR THE USE OF AN IRA. SIMILARLY, NEITHER THE
HEARTLAND FUNDS NOR THE CUSTODIAN CAN BE RESPONSIBLE FOR THE TAX IMPACT OF ANY
DISTRIBUTIONS TO YOU OR YOUR BENEFICIARY. YOU SHOULD CONSULT YOUR ATTORNEY OR
OTHER PROFESSIONAL ADVISER FOR ANSWERS TO THESE TYPES OF QUESTIONS.
PLEASE REMEMBER THAT CONTRIBUTIONS MADE TO AN IRA ACCOUNT CANNOT BE WITHDRAWN
WITHOUT A PENALTY PRIOR TO AGE 591/2 EXCEPT IN THE CASE OF YOUR TOTAL
DISABILITY OR DEATH, THE PAYMENT OF CERTAIN MEDICAL EXPENSES OR HEALTH
INSURANCE PREMIUMS UNDER CERTAIN CIRCUMSTANCES, OR THE ROLLOVER OR TRANSFER OF
YOUR ACCOUNT TO ANOTHER INDIVIDUAL RETIREMENT INVESTMENT VEHICLE.
<PAGE> 3
HEARTLAND FUNDS
INDIVIDUAL RETIREMENT ACCOUNT
DISCLOSURE STATEMENT
The Internal Revenue Service requires that you be given a disclosure statement
for the purpose of understanding your individual retirement account. This
document explains the general rules regarding the operation and tax treatment
of your IRA. Please read this document, the Custodial Account Agreement (Form
5305-A), and our Prospectus very carefully before deciding to invest in
Heartland Fund shares.
If after reading the Disclosure Statement, Prospectus and Custodial Account
Agreement you need further assistance in answering questions pertaining to your
IRA, please call the Heartland Funds at (414) 289-7000, or toll-free
1-800-432-7856; or write to us at Heartland Funds Individual Retirement
Account, 790 North Milwaukee Street, Milwaukee, Wisconsin 53202. Although we
will be happy to help you by answering any questions that we can, we recommend
that you consult your lawyer, accountant, or personal tax adviser regarding the
tax or legal implications of your individual retirement custodial account.
1. YOUR RIGHT TO REVOKE YOUR ACCOUNT.
You may revoke your IRA within seven (7) days after the date it was established
by a written notice of revocation to Firstar Trust Company, Custodian,
Heartland Funds IRA, P.O. Box 701, Milwaukee, Wisconsin 53201-0701. If mailed,
the notice shall be deemed mailed on the date of the postmark. If you timely
revoke your IRA, then all your money shall be returned to you as soon as
practicable without adjustment for sales commissions, administrative expenses,
etc.
2. GENERAL CHARACTERISTICS OF THE IRA.
An individual retirement arrangement (IRA) is a savings plan that lets you set
aside money for your retirement. Contributions made to it may be tax
deductible and your IRA earnings are not taxed until they are distributed to
you.
The Heartland Funds IRA is a custodial account created by document for the
exclusive benefit of an individual and his or her beneficiaries. As a
qualified IRA it must meet the following requirements:
(a) Contributions must be made in cash and may not exceed the lesser of
$2,000 or 100% of your compensation for the taxable year (except in the
case of a contribution rolled over from a qualified employer retirement
plan, or another IRA as described more fully in paragraph 6, and
contributions under a Simplified Employee Pension or to a SIMPLE
Retirement Account, described in paragraphs 10 and 11, respectively).
(b) The custodian must be a bank or trust company, a savings and loan
association, a federally insured credit union, or other person found
acceptable by the Secretary of the Treasury.
1
<PAGE> 4
(c) No part of the custodial account assets may be invested in life insurance
contracts.
(d) The depositor's interest in this account balance is always 100% vested
and nonforfeitable.
(e) The assets of your custodial account must be held in a separate fund and
may not be commingled with other property, except in a common trust fund
or common investment fund.
(f) Distributions from your account may commence at any time after you reach
age 59 1/2 without any penalty imposed on you, but they must commence no
later than the April 1st following the calendar year in which you attain
age 70 1/2. You may choose to receive your benefits in any of the
following forms: (i) a lump sum payment of all your interest in your
account; (ii) periodic annuity payments for the period of your life, or
the joint lives of you and your designated beneficiary; or (iii) periodic
installment payments over a period of time not longer than your life
expectancy, or the joint life expectancy of you and your designated
beneficiary. Your designated beneficiary is the individual or individuals
you have selected to receive your IRA account balance upon your death.
Special distribution rules apply if you name more than one individual or a
trust as your designated beneficiary. If you do not elect a distribution
method by the April 1 following the year in which you reach age 70 1/2, a
minimum distribution will be made by that date and by each December 31
thereafter in an amount necessary to satisfy the minimum distribution
rules described below. Notwithstanding your election to receive your
assets in periodic installment payments pursuant to (iii) above, you may
still withdraw larger amounts in any specific year if you wish. If you
elect to receive periodic annuity payments, the amount and period over
which your payments will be made is determined under the terms of your
annuity contract.
(g) If you are receiving periodic installment payments and you die after the
April 1st following the year in which you attain age 70 1/2, any remaining
funds in your account must be distributed at least as rapidly after your
death as under the method being used at the date of your death. If you
die before the April 1st following the year in which you would have
attained age 70 1/2, your designated beneficiary may elect to have any
remaining funds distributed (i) by the end of the fifth calendar year
following your death or (ii) in periodic installment payments commencing
by the end of the year following the year of your death over a period no
longer than the life or life expectancy of the designated beneficiary.
Under the terms of Article VIII of the Custodial Agreement, if your
beneficiary does not elect either (i) or (ii) above by the December 31st
of the year following the year of your death, distribution will be made
over the life expectancy of your beneficiary if your beneficiary is your
spouse and within five
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years of your death if your beneficiary is anyone other than your spouse.
If your spouse is your beneficiary, he or she can forestall commencement
until as late as the year in which you would have attained age 70 1/2 and
then choose one of the methods specified in (f) above, or your spouse can
elect to treat the IRA as his or her own and become subject to the
distribution rules as if he or she were the depositor.
The IRS requires that minimum amounts be distributed from your account by
the December 31st of each year after you attain age 70 1/2 ("minimum
required distributions"). However, you may delay your first minimum
required distribution until the April 1st following the year in which you
attain age 70 1/2. The amount of any minimum required distribution is based
on your life expectancy or the joint life expectancy of you and your
designated beneficiary in the year of the distribution. In addition, if you
designate a beneficiary other than your spouse who is more than ten years
younger than you, your annual minimum required distribution will be computed
as if your beneficiary is only ten years younger than you. Under the terms
of Article IV of the Custodial Agreement, unless you elect not to have life
expectancy(ies) recalculated, the minimum amount that must be distributed to
you annually will be determined by recalculating your life expectancy (and
that of your spouse if your spouse is your designated beneficiary) using
attained ages for the year in which the minimum distribution is being made.
Life expectancies of designated beneficiaries other than the spouse will not
be recalculated.
You may be assessed a penalty for excess accumulations if the "minimum
required distributions" from your IRA are not made to you upon reaching age
70 1/2. This penalty may be a tax of 50% on the excess of the amount
required to be distributed over the amount actually distributed each year.
This penalty may be waived by the IRS if the deficit is due to reasonable
error and you are attempting to correct it.
3. ELIGIBILITY.
Any person who is under age 70 1/2 and who received "compensation" during the
taxable year may contribute to and participate in an IRA. ("Compensation"
includes salaries, wages, fees, self-employment earnings, alimony, and income
from personal services included in your gross income, but does not include
income from property such as dividends, interest and rent.) You may establish
an IRA whether or not you are a participant in any other employer-sponsored
retirement plan; however, participants in employer plans may be subject to
limitations on the deductibility of IRA contributions.
4. CONTRIBUTIONS.
You may contribute an amount not exceeding the lesser of $2,000 or 100% of
compensation includable in your gross income for that year
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(your "allowable contribution"). You may establish and/or contribute to your
IRA for any taxable year up to as late as the April 15th due date for filing
your income tax returns for that year (but not including any extensions). If
you are making a contribution before April 15 for the prior taxable year,
please indicate in writing the year for which the contribution is made.
The portion of your allowable contribution that is deductible begins to be
phased out if you (or your spouse, if you are married and filing a joint
return) are an active participant in an employer-sponsored retirement plan
during any part of the year and your adjusted gross income exceeds $25,000
($40,000 if married and filing jointly, and zero if married and filing
separately). The amount of your deduction is completely phased out if you (or
your spouse, if applicable) are an active participant in an employer-sponsored
plan and have an adjusted gross income of over $35,000 ($50,000 if married and
filing jointly, and $10,000 if married and filing separately).
If you (or your spouse, if you are married and filing a joint return) are an
active participant in an employer-sponsored plan and your adjusted gross income
falls between the above limits, you may deduct a portion of the amount you are
allowed to contribute. The maximum amount you may deduct is determined by
subtracting your adjusted gross income (before your IRA deduction) from the
amount where the phaseout is complete, multiplying that result by 20%, and
rounding up to the nearest $10. If the rounded figure is less than $200 but
greater than $0, you can deduct $200. The instructions to IRS Form 1040 and
IRS Publication 590 contain information which allows you to figure the exact
amount of your deductible contribution.
As mentioned, the deductible limitations described above only apply if you (or
your spouse, if you are married and filing jointly) are an active participant
in an employer-sponsored retirement plan during the year. You are an active
participant in an employer-sponsored retirement plan for a year if your
employer or union has a retirement plan under which money is added to your
account or you are eligible to earn retirement credits. Employer-sponsored
retirement plans include qualified money purchase or profit sharing plans,
certain government plans, salary reduction arrangements (such as a 403(b)
tax-sheltered annuity or a 401(k) plan), simplified employee pension (SEP)
plans, SIMPLE retirement accounts or qualified defined benefit plans which
promise you a retirement benefit based upon the number of years of service you
have with the employer. The Form W-2 you receive from your employer should
indicate whether or not you are an active participant in any year.
If you are not eligible to make fully-deductible IRA contributions, you may
still contribute nondeductible amounts to your IRA up to your allowable
contribution limit. You must designate the amount of your nondeductible
contributions on IRS Form 8606 and file such form with the IRS for the year in
which the contributions were made. You may be subject to a penalty if you
overstate the amount of your nondeductible contributions.
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5. EXCESS CONTRIBUTIONS.
If you contribute to your IRA more than the allowable contribution amount in a
tax year, or if you contribute to your IRA during or after the year in which
you reach age 70 1/2, a penalty will be imposed on any excess contribution. A
penalty tax of 6% of the excess contribution will be assessed against you.
However, if you withdraw your excess contribution (plus its earnings) before
the due date for filing your income tax returns for the year in which the
excess contribution was made, then you may avoid the 6% penalty. If your
excess contribution is not withdrawn by the time your income tax return is due,
you should consult your tax adviser to determine whether you are able to deduct
the excess contribution in future years, or whether you are able to withdraw
the amount of the excess contribution without having to pay income tax or a 10%
penalty tax for premature distributions.
6. ROLLOVER CONTRIBUTIONS.
A rollover is a tax-free transfer of cash or other assets from one retirement
program to another. You may not deduct the amount you roll over, but you are
able to avoid immediate taxation on the rollover amount.
If you receive a distribution from one IRA, you generally may roll over all or
part of the amount distributed (except amounts distributed as part of a
post-age 70 1/2 minimum required distribution) to your Heartland IRA within 60
days following the date of distribution. Amounts rolled over are not applied
against the $2,000 annual contribution limit mentioned above. Only one
IRA-to-IRA rollover may be made from each IRA in any 12-month period.
A transfer of the funds in your IRA from one trustee or custodian directly to
another trustee or custodian, either at your request or at the request of the
trustee or custodian, is not considered a rollover. It is a transfer that is
not affected by the twelve-month waiting period for rollovers between IRAs.
The amount transferred is not included in your gross income because none of it
is received by you.
Any portion of an "eligible rollover distribution" from a qualified employer
plan or tax-sheltered annuity may be rolled over to an IRA. Most distributions
are considered "eligible rollover distributions." Distributions not eligible
for rollover to an IRA include the nontaxable portion of a distribution, the
portion of a distribution that is required to be distributed at or after age
70 1/2, annuities or installment distributions made over a long period of time
(i.e. life or life expectancy or for a period of ten years or more), and
certain corrective distributions.
Any "eligible rollover distribution" can either be paid directly to your
Heartland IRA (a "direct rollover"), or it can be paid to you and you then have
60 days to reinvest the portion you wish to roll over into your Heartland IRA.
If you choose the direct rollover method, no income tax will be withheld from
the amount rolled over and that amount will not be taxed until it is later
distributed. If you choose to have the amount paid to you, 20% of the taxable
amount of the distribution will be auto-
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matically withheld from the payment and credited against your federal tax
liability for that year. In addition, the taxable portion of your distribution
will be included in your gross income (and will be subject to a 10% federal
early distribution penalty if you are under age 59 1/2) unless you roll it over
within 60 days of receipt. If you want to roll over the entire taxable portion
of the distribution, you will have to find other money to replace the amount
that was withheld; otherwise you will still be taxed on the 20% withheld and
not rolled over. See IRS Publication 590 for a more detailed explanation of
the rollover rules and a comparison of a direct rollover and a rollover after
amounts are paid to you.
Rollovers may be permitted in a number of situations. If you or your spouse
receive a distribution from a qualified pension or profit sharing plan because
of the other's death, the surviving spouse may roll over the amount received
into an IRA. You may also withdraw all or part of your assets from one IRA
and reinvest them within sixty (60) days into another IRA. You may not deduct
the amount you reinvest in your new IRA; however, you do not include in your
gross income that amount you withdrew from one IRA and rolled over into the
other. You may also roll over funds distributed from one employer's plan into
an IRA and then roll over those same funds into another employer's plan. These
funds may be rolled over into the second employer's plan only if they are the
same funds that you received from the first employer's plan, and are not mixed
with any of your contributions or funds from other sources.
7. DISTRIBUTIONS AND WITHDRAWALS.
Generally you may withdraw your IRA funds without adverse income tax
consequences after you reach age 59 1/2. An earlier distribution will be
taxable to you as ordinary income in the year of the distribution and will be
subject to a 10% penalty tax. However, no penalty tax will be imposed on
rollovers permitted to other IRAs or employer plans, timely returns of excess
contributions, or payments because of your death or disability. In addition,
under certain circumstances distributions after 1996 which are used to pay
deductible medical expenses or are used to pay health insurance premiums by an
unemployed individual, may not be subject to the 10% penalty tax.
Distributions from your IRA are included in your gross income, except for
amounts attributable to any nondeductible IRA contributions, and are taxed at
ordinary income tax rates. You are not allowed capital gains treatment or
special forward averaging on your IRA distributions. All distributions are
subject to withholding unless you have elected to have no withholding apply.
(Distributions are discussed more fully in subparagraphs 2(f)-(h) of the
Disclosure Statement and in Articles IV and VIII of the Custodial Agreement.)
An excise tax of 15% applies to distributions in excess of $160,000 in any
year. (The $160,000 amount is indexed periodically to reflect cost of living
increases.) All distributions from employer plans and IRAs, if includable in
gross income, are aggregated to determine whether you have
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exceeded the applicable limit (except that lump sum distributions from qualified
employer plans are counted separately and subject to a limit of five times the
$160,000 indexed amount). Special grandfather rules are available which may
reduce amounts subject to the tax. In addition, the 15% excise tax on excess
distributions is suspended for distributions received in 1997, 1998 or 1999.
8. PROHIBITED TRANSACTIONS AND PLEDGES.
If you or your beneficiary engage in a prohibited transaction (i.e.,
self-dealing types of activities, including borrowing money from the account)
described in Section 4975(c) of the Internal Revenue Code, with respect to your
IRA, the account will lose its tax exempt status as of the first day of the
taxable year in which the prohibited transaction occurs, and you must include
the fair market value of the account in your gross income for that taxable
year. The value of your account may also be subject to the 10% penalty tax for
premature distributions.
If you pledge your IRA as security for a loan, the portion that you pledge is
treated as a fully taxable distribution and must be included in your gross
income. The distribution may also be subject to the 10% penalty tax for
premature distributions if you have not reached age 59 1/2 at the time of the
pledge.
If someone other than you or your beneficiary engages in a prohibited
transaction, that person may be liable for certain prohibited transaction
excise taxes.
9. CONTRIBUTIONS TO A SPOUSAL IRA.
(a) For years after 1996, you may make contributions of up to $2,000 to an IRA
established on behalf of your spouse if (1) you and your spouse file a
joint federal income tax return in the taxable year of the contribution,
and (2) you have compensation that is included in your income for the
taxable year, and (3) your spouse is under age 70 1/2 at the end of the
taxable year, and (4) your spouse's compensation for the taxable year is
less than your compensation for the year.
(b) The amount that may be contributed to a spousal IRA is the lesser of (1)
$2,000 or (2) the sum of your compensation plus your spouse's compensation
minus the amount which can be contributed to your own IRA. This means that
you and your spouse can each contribute up to $2,000 to an IRA account as
long as the combined compensation of you and your spouse is at least equal
to the contributed amount. (For years prior to 1997 contributions to a
combination of an IRA and a spousal IRA were limited to $2250 and no more
than $2000 could be contributed to either IRA for any year.) The amount of
the spousal IRA contribution which is deductible is determined in a manner
similar to that described in paragraph 4 and is described more fully in IRS
Publication 590.
(c) If a spousal IRA is established, the spouse on whose behalf the IRA is
established is the "depositor" and is subject to all
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of the rules and regulations applicable generally to IRAs,
including (1) eligibility requirements; (2) premature distribution, excess
accumulation, and prohibited transaction penalties; (3) the power to
designate beneficiaries in the event of death; and (4) tax treatment of
withdrawals and distributions.
(d) If you or your spouse are making contributions to a spousal IRA
established on your behalf and you and your spouse become divorced or
legally separated, then you may be able to make further contributions to
your IRA if you receive taxable alimony which is treated as
compensation for IRA purposes. The normal rules regarding allowable
contributions and deductions would apply to your IRA.
10. SIMPLIFIED EMPLOYEE PENSIONS.
Your employer may make a contribution to your IRA if your employer has
established a simplified employee pension plan (SEP), for the benefit of all
eligible employees. (For years prior to 1997, small employers may have also
established a salary reduction SEP (SAR-SEP) which allows you to make salary
deferral contributions to your IRA, up to the lesser of 15% of your
compensation or $7,000, indexed annually for cost-of-living increases. New
salary reduction SEPs may not be established after 1996; however, previously
established salary reduction SEPs may be continued.) If your employer has
established a SEP, total employer and salary deferral contributions are limited
annually to the lesser of $30,000 or 15% of your compensation. Employer and
salary deferral contributions to a SEP are not includable in your gross income;
however, your participation in your employer's SEP may have an effect on your
ability to deduct your own contributions to an IRA. If your employer
establishes a SEP, your employer is required to provide you with additional
information describing the plan.
11. SIMPLE IRAs
For years after 1996, a small employer that does not maintain another
retirement plan may establish a SIMPLE retirement plan which provides for
employee pre-tax salary reduction contributions and employer matching or
non-elective contributions. SIMPLE retirement plan contributions may only be
made to SIMPLE IRAs which are special IRAs that hold only SIMPLE plan
contributions or transfers or rollovers from other SIMPLE plans. (Regular IRA
contributions cannot be made to a SIMPLE IRA; nor can SIMPLE IRA contributions
be made to your regular IRA.) If your employer has established a SIMPLE plan,
you can make salary reduction contributions to your SIMPLE IRA up to $6000 per
year (indexed periodically to reflect cost-of-living changes).
Neither employer contributions nor employee salary reduction contributions to
your SIMPLE IRA are includable in your gross income; however, your
participation in your employer's SIMPLE retirement plan may affect your ability
to deduct any contributions you may make to your regular IRA. (See paragraph
4). If your employer establishes a SIMPLE retirement plan, your employer is
required to provide you with
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certain information describing the SIMPLE plan and your establishment of a
SIMPLE IRA.
If your employer has established a SIMPLE retirement plan and you wish to have
your SIMPLE plan contributions invested in Heartland Fund shares, please
contact the Heartland Funds at the address or phone number indicated on the
first page of this Disclosure Statement.
12. ESTATE AND GIFT TAXES.
Generally, the amount in your IRA is includable in your taxable estate upon
your death. An excise tax may apply if at your death the amount remaining in
all of your qualified employer plans and IRAs constitutes an excess retirement
accumulation. (Unlike the excess distribution tax, described in paragraph 7,
the excess accumulation tax is not suspended from 1997 through 1999.) If
amounts are distributed to a beneficiary, they are taxable to the beneficiary.
13. TAXPAYER REPORTING REQUIREMENTS
Each year the Custodian will provide you with a statement of your account which
will give the amount of contributions to the account, earnings and distribution
activity, and the total value of the account as of the end of the year.
Information relating to contributions and withdrawals must be reported annually
to the IRS by the depositor. You must also file Form 5329 with the IRS for any
tax year during which a transaction occurs for which a penalty tax is imposed
(such as an excess contribution, a premature distribution, or an excess
distribution). Form 8606 must be filed if you make any nondeductible
contributions to the account.
14. FORM OF IRA
The form used by the Heartland Funds IRA has been approved by the Internal
Revenue Service. However, IRS approval of the form of the IRA does not address
the operation of the IRA; nor does such approval represent a determination as
to the merits of the Fund as an investment. You are responsible for making
certain that your IRA operates in accordance with applicable IRS rules. In
addition, you should examine the documents you receive closely to see if
investment in the Heartland Funds is an appropriate investment for you.
15. ADDED INFORMATION.
To obtain added information regarding the statutes and regulations governing
your IRA, you may contact any district office of the Internal Revenue Service
and/or obtain a copy of IRS Publication 590, Individual Retirement
Arrangements.
FINANCIAL INFORMATION
1. INVESTMENT INFORMATION.
The money you contribute to your Heartland Funds IRA will be invested in
Heartland Fund shares or shares of other mutual funds serviced
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by Heartland Group, Inc. (The Portico Money Market Fund is offered to IRA
depositors pursuant to a servicing agreement with Portico Funds, Inc.) The
shares are purchased at the net asset value plus any applicable fees as
described in the current Prospectus. The net asset value is determined by
subtracting the Fund's liabilities from the Fund's total assets and dividing
that by the total number of shares outstanding. Redemption of the shares may
also be subject to a deferred sales charge of up to 3% if redeemed within three
years of purchase.
The value of your investment will depend upon the value of
the Fund's portfolio as affected by the investment advisory fee and the
distribution fee. The value of your account is in no way guaranteed by
Heartland Funds or the Custodian. There are market risks inherent in any
investment and there can be no assurance against possible loss in the value of
the Fund's portfolio. There can be no projection of the future earnings on
your contributions because of fluctuations in the value of the Fund.
2. CUSTODIAL CHARGES.
The Custodian's fees are listed in the Application. These fees are subject to
change; however, you will be notified prior to any fee change.
3. MINIMUM CONTRIBUTIONS.
To establish a Heartland Funds IRA, you must make an initial contribution of
$500 (no required minimum for a SIMPLE IRA). Although you need not make
contributions to your IRA every year, all contributions made must be a minimum
of $100 (except for contributions to your SIMPLE IRA). All contributions are
also subject to the maximum limitations discussed previously.
HEARTLAND FUNDS
FORM 5305-A
(Revised October, 1992)
INDIVIDUAL RETIREMENT
CUSTODIAL ACCOUNT
(Under Section 408(a) of the Internal Revenue Code)
AGREEMENT
The Depositor is establishing an individual retirement account under section
408(a) to provide for his or her retirement and for the support of his or her
beneficiaries after death.
The Custodian has given the Depositor the disclosure statement required under
Regulations section 1.408-6.
The Depositor has deposited with the Custodian a sum of money as specified in
the IRA Application in cash.
By executing the IRA Application, the Depositor and the Custodian make the
following agreement:
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ARTICLE I
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in section 402(c) (but only after December 31, 1992),
403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a simplified
employee pension plan as described in section 408(k). Rollover contributions
before January 1, 1993, include rollovers described in section 402(a)(5),
402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8), 408(d)(3), or an employer
contribution to a simplified employee pension plan as described in section
408(k).
ARTICLE II
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III
1. No part of the custodial funds may be invested in life insurance
contracts, nor may the assets of the custodial account be commingled with
other property except in a common trust fund or common investment fund
(within the meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within
the meaning of section 408(m)) except as otherwise permitted by section
408(m)(3) which provides an exception for certain gold and silver coins
and coins issued under the laws of any state.
ARTICLE IV
1. Notwithstanding any provision of this agreement to the contrary, the
distribution of the Depositor's interest in the custodial account shall be
made in accordance with the following requirements and shall otherwise
comply with section 408(a)(6) and Proposed Regulations section 1.408-8,
including the incidental death benefit provisions of Proposed Regulations
section 1.401(a)(9)-2, the provisions of which are incorporated by
reference.
2. Unless otherwise elected by the time distributions are required to begin
to the Depositor under paragraph 3, or to the surviving spouse under
paragraph 4, other than in the case of a life annuity, life expectancies
shall be recalculated annually. Such election shall be irrevocable as to
the Depositor and the surviving spouse and shall apply to all subsequent
years. The life expectancy of a nonspouse beneficiary may not be
recalculated.
3. The Depositor's entire interest in the custodial account must be, or
begin to be, distributed by the Depositor's required beginning date,
(April 1 following the calendar year end in which the Depositor reaches
age 70 1/2. By that date, the Depositor may elect, in a manner acceptable
to the Custodian, to have the balance in the custodial account distributed
in:
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(a) A single sum payment.
(b) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the life of the Depositor.
(c) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the joint and last survivor lives of the
Depositor and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a specified period that
may not be longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual payments over a specified period that
may not be longer than the joint life and last survivor expectancy of the
Depositor and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is distributed to
him or her, the entire remaining interest will be distributed as follows:
(a) If the Depositor dies on or after distribution of his or her
interest has begun, distribution must continue to be made in accordance
with paragraph 3.
(b) If the Depositor dies before distribution of his or her interest has
begun, the entire remaining interest will, at the election of the
Depositor or, if the Depositor has not so elected, at the election of the
beneficiary or beneficiaries, either
(i) Be distributed by the December 31 of the year containing the
fifth anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments over
the life or life expectancy of the designated beneficiary or
beneficiaries starting by December 31 of the year following the year
of the Depositor's death. If, however, the beneficiary is the
Depositor's surviving spouse, then this distribution is not required
to begin before December 31 of the year in which the Depositor would
have turned age 70 1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on the
Depositor's required beginning date, even though payments may actually
have been made before that date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving spouse, no
additional cash contributions or rollover contributions may be accepted in
the account.
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5. In the case of a distribution over life expectancy in equal or
substantially equal annual payments, to determine the minimum annual
payment for each year, divide the Depositor's entire interest in the
Custodial account as of the close of business on December 31 of the
preceding year by the life expectancy of the Depositor (or the joint life
and last survivor expectancy of the Depositor and the Depositor's
designated beneficiary, or the life expectancy of the designated
beneficiary, whichever applies). In the case of a distribution under
paragraph 3, determine the initial life expectancy (or joint life and last
survivor expectancy) using the attained ages of the Depositor and
designated beneficiary as of their birthdays in the year the Depositor
reaches age 70 1/2. In the case of distribution in accordance with
paragraph 4(b)(ii), determine life expectancy using the attained age of
the designated beneficiary as of the beneficiary's birthday in the year
distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to
satisfy the minimum distribution requirements described above. This method
permits an individual to satisfy these requirements by taking from one
individual retirement account the amount required to satisfy the
requirement for another.
ARTICLE V
1. The Depositor agrees to provide the Custodian with information necessary
for the Custodian to prepare any reports required under section 408(i) and
Regulations sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service
and the Depositor prescribed by the Internal Revenue Service.
ARTICLE VI
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with section 408(a) and related
regulations will be invalid.
ARTICLE VII
This agreement will be amended from time to time to comply with the provisions
of the Code and related regulations. Other amendments may be made with the
consent of the Depositor and the Custodian.
ARTICLE VIII
(Additional provisions agreed upon by Depositor and Custodian to complete this
Agreement)
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1. DEFINITIONS.
(a) "Custodian" shall mean the Firstar Trust Company.
(b) "Depositor" shall mean the individual who establishes this Individual
Retirement Custodial Account by executing the Application Form and
agreeing to be bound by this Agreement.
(c) "Fund" or "Funds" shall mean the Heartland Fund shares offered by the
Investment Company for purchase under this Agreement, and such other
mutual fund shares which the Investment Company chooses to make available
for IRA investment through a servicing agreement.
(d) "Investment Company" shall mean Heartland Group, Inc., a registered
investment company, and its affiliates, including Heartland Advisors,
Inc., the investment advisor to the Funds.
2. ACCOUNT INVESTMENT.
(a) All contributions made by the Depositor shall identify the Depositor's
account number, and shall be invested by the Custodian in shares of the
Fund in accordance with the Depositor's directions. Depositor
contributions which are accompanied by inadequate account identification
shall be returned to the Depositor by the Custodian without any liability
for interest thereon.
(b) All Depositor contributions shall be invested in whole or fractional
shares of the Fund at a price and in the manner in which such shares are
being publicly offered. All distributions received by the Custodian on
shares of the Fund shall be reinvested in like shares and credited to the
Depositor's account.
(c) All shares of the Fund acquired by the Custodian shall be registered in
the name of the Custodian or its registered nominee. The Depositor shall
be the beneficial owner of all Fund shares held in the Depositor's account
and the Custodian shall not vote such shares, except upon written
direction of the Depositor. The Custodian will forward to every Depositor
a then current Prospectus, reports, notices, proxies and any materials
applicable to Fund shares received by the Custodian.
(d) Neither the Custodian nor the Investment Company shall have any liability
in connection with any contributions to the custodial account, nor any
investment choices made by the Depositor or the Depositor's beneficiaries,
as applicable.
3. EXPENSES AND FEES.
Any and all charges, expenses and fees shall be charged against and deducted
from the Depositor's custodial account, including all reasonable expenses
incurred by the Custodian in the administration of the account, all charges
involved in the investment and/or redemption of shares as stated in the then
current Prospectus, all income taxes and
14
<PAGE> 17
other taxes of any kind that are assessed upon the assets of the account, or
income arising therefrom, any fees for legal services rendered to the Custodian
in relation to the account, and the Custodian's fees, which shall be as stated
in the Application. Extraordinary charges resulting from unusual administrative
duties not contemplated herein will be subject to such additional charges as
will reasonably compensate the Custodian for its services.
4. AMENDMENT AND TERMINATION.
(a) This custodial account is intended to be a qualified individual
retirement custodial account under Section 408 of the Internal Revenue
Code. Depositor hereby delegates to the Investment Company the power to
amend this Custodial Account Agreement as necessary to comply with the
provisions of the Code and related regulations. Depositor also delegates
to the Investment Company the power to amend the Custodial Account
Agreement in any other manner not inconsistent with the provisions of
applicable law, such amendments to be binding upon the Depositor upon
written notification unless within 30 days after such notification, the
Depositor provides written objection to any such amendment.
Notwithstanding the above, no amendment shall cause or permit any part of
the assets of the custodial account to be diverted to purposes other than
for the exclusive benefit of the Depositor or his beneficiaries, nor shall
any amendment increase the duties of the Custodian without the Custodian's
consent.
(b) The Depositor may at any time terminate the custodial account by
delivering to the Custodian a written notice of such termination setting
forth the effective date thereof.
(c) The custodial account created by this Agreement shall automatically
terminate upon distribution to the Depositor or any beneficiary designated
under Paragraph 6 of Article VIII hereof of the entire balance in the
custodial account.
(d) The Custodian may be removed by the Depositor at any time upon sixty (60)
days written notice to the Custodian. At any time the Custodian may elect
to resign upon sixty (60) days written notice to the Depositor. The notice
shall contain the conditional appointment of a successor Custodian which
shall be an entity appointed by the Investment Company and qualified to
act as custodian of individual retirement accounts under the Internal
Revenue Code. Absent the Depositor's written objection within such sixty
(60) day period, the appointment of the successor Custodian shall be
deemed acceptable by the Depositor.
5. RECORDS AND COMMUNICATIONS.
(a) Records of all contributions, investments, disbursements and other
transactions performed shall be kept by the Custodian, and
15
<PAGE> 18
communicated to the Depositor or the Depositor's designated representative
within 60 days after the close of each calendar year (or within such
lesser period as may be required by applicable law), or after the
Custodian's removal or resignation pursuant to Article VIII, Paragraph 4.
(b) All communications to the Custodian shall be addressed to: Firstar Trust
Company, Heartland Funds IRA, Post Office Box 701, Milwaukee, Wisconsin
53201-0701. Communications to the Depositor will be mailed to the
Depositor's last known address. The Depositor shall notify the Custodian
of any change in address.
6. BENEFICIARY DESIGNATION.
The Depositor may designate a beneficiary or beneficiaries to receive any
benefits which may be payable to the Depositor after the Depositor's death. In
the absence of the Depositor's designation of any beneficiary, or the death of
all designated beneficiaries prior to the complete distribution of the benefit,
the benefits due shall be payable to the Depositor's spouse, if any; or if not
living, then in equal shares to the Depositor's children surviving the
Depositor and to the descendants then living of a deceased child by right of
representation. If the Depositor leaves no spouse, children or descendants of
children surviving, then any benefits due shall be paid to such Depositor's
estate. The Depositor is hereby notified that state community property law may
affect Depositor's designation of a beneficiary and that Depositor is solely
responsible for any payment made pursuant to such Depositor's beneficiary
designation or this Custodial Account Agreement absent any designation.
7. DISTRIBUTIONS
(a) The Custodian shall, from time to time, subject to the provisions of
Article IV, make distributions out of the custodial account to the
Depositor, in such manner and amounts as may be specified in written
instructions of the Depositor. All such instructions shall be deemed to
constitute a certification by the Depositor that the distribution so
directed is one that the Depositor is permitted to receive.
(b) Upon the Depositor's death, the election of either option (i) or option
(ii) under paragraph 4(b) of Article IV must be made by December 31 of the
year following the year of the Depositor's death. If the beneficiary or
beneficiaries do not elect either of the distribution options described in
paragraph 4(b)(i) and 4(b)(ii) of Article IV by such date, distribution
will be made in accordance with paragraph 4(b)(ii) of Article IV if the
beneficiary is the Depositor's surviving spouse and in accordance with
paragraph 4(b)(i) of Article IV if the beneficiary or beneficiaries
include anyone other than the surviving spouse.
(c) If the Depositor does not choose any of the methods of distribution
described in paragraphs 3(a) through 3(e) of Article IV by the April 1
following the calendar year in which he or she
16
<PAGE> 19
reaches age 70 1/2, then by that date, and by each December 31 thereafter,
distribution to the Depositor will be made only in such amounts as will
satisfy the requirements of the minimum distribution rules in paragraph 1
of Article IV above, based on the joint life expectancy of the Depositor
and his or her designated beneficiary (or based on the Depositor's sole
life expectancy if the Depositor has no designated beneficiary, or is
treated as having no designated beneficiary for purposes of the minimum
distribution rules described above).
(d) Neither the Custodian nor the Investment Company shall have any liability
with respect to any distribution from the Depositor's custodial account
pursuant to instructions received from the Depositor (or beneficiary) or in
accordance with this Agreement, or for any consequences to the Depositor or
beneficiary arising from such distribution including, but not limited
to, excise and other taxes and penalties which might accrue or be assessed.
8. LEGISLATION GOVERNS.
The law of the State of Wisconsin shall govern this agreement as to all matters
which are to be determined by reference to state law as distinguished from
federal law.
GENERAL INSTRUCTIONS
(Section references are to the Internal Revenue Code unless otherwise noted.)
PURPOSE OF FORM
Form 5305-A is a model Custodial Account Agreement that meets the requirements
of section 408(a) and has been automatically approved by the IRS. An individual
retirement account (IRA) is established after the form is fully executed by
both the individual (Depositor) and the Custodian and must be completed no
later than the due date of the individual's income tax return for the tax year
(without regard to extensions). This account must be created in the United
States for the exclusive benefit of the Depositor or his or her beneficiaries.
Individuals may rely on regulations for the Tax Reform Act of 1986 to the
extent specified in those regulations.
Do not file Form 5305-A with the IRS. Instead, keep it for your records.
For more information on IRAs, including the required disclosure you can get
from your custodian, get PUB. 590, Individual Retirement Account Arrangements
(IRAs).
DEFINITIONS
CUSTODIAN. - The Custodian must be a bank or savings and loan association, as
defined in section 408(n), or any person who has the approval of the IRS to act
as custodian.
17
<PAGE> 20
DEPOSITOR. - The Depositor is the person who establishes the custodial account.
IDENTIFYING NUMBER
The depositor's social security number will serve as the identification number
of his or her IRA. An employer identification number is required only for an
IRA for which a return is filed to report unrelated business taxable income. An
employer identification number is required for a common fund created for IRAs.
IRA FOR NONWORKING SPOUSE
Form 5305-A may be used to establish the IRA custodial account for nonworking
spouse.
Contributions to an IRA custodial account for a nonworking spouse must be made
to a separate IRA custodial account established by the nonworking spouse.
SPECIFIC INSTRUCTIONS
ARTICLE IV. Distributions made under this article may be made in a single sum,
periodic payment, or a combination of both. The distribution option should be
reviewed in the year the Depositor reaches age 70 1/2 to ensure that the
requirements of section 408(a)(6) have been met.
ARTICLE VIII. Article VIII and any that follow it may incorporate additional
provisions that are agreed to by the depositor and custodian to complete the
agreement. They may include, for example, definitions, investment powers,
voting rights, exculpatory provisions, amendment and termination, removal of
the custodian, custodian's fees, state law requirements, beginning date of
distributions, accepting only cash, treatment of excess contributions,
prohibited transactions with the depositor, etc. Use additional pages if
necessary and attach them to this form.
NOTE: Form 5305-A may be reproduced and reduced in size for adoption to
passbook purposes.
[Logo] Heartland Funds
------------------------
AMERICA'S VALUE INVESTOR
Heartland Advisors, Inc. - Distributor. Member SIPC, NASD.
<PAGE> 21
[Logo] Heartland Funds
AMERICA'S VALUE INVESTOR
IRA APPLICATION
For help with this application, please call 1-800-432-7856
OVERNIGHT MAIL TO:
Firstar Trust Company
615 E. Michigan
Milwaukee, WI 53202
REGULAR MAIL TO:
Firstar Trust Company
P.O. Box 701
Milwaukee, WI 53201-0701
- ----------------------------------------------------------
Shareholder Services: 1-800-432-7856 or (414)289-7000
for current prices, account information and market updates
- ----------------------------------------------------------
PLEASE PRINT
_____________________________________________________/__/__
your name birthdate
___________________________________________________________
address
___________________________________________________________
city state zip
______________________________(___)________________________
social security # work phone
BENEFICIARY DESIGNATION (OPTIONAL)
_____________________________________________________/__/__
your name birthdate
___________________________________________________________
address
___________________________________________________________
city state zip
______________________________(___)________________________
social security # work phone
You may change your beneficiary at any time by written notice to the Custodian.
If no beneficiary is designated, the provisions of Article VIII, Paragraph 6 of
the Custodial Agreement will apply.
PLEASE CHECK THE TYPE OF IRA
/ / Individual Account ($2,000 maximum, $500 minimum)
/ / Spousal IRA
/ / Transfer of Assets (No maximum). Also, please complete the IRA
Transfer Form.
/ / Direct Rollover (No maximum). Any direct rollover from an employer sponsored
retirement plan will not be subjected to the mandatory 20% withholding.
/ / Rollover Account (No maximum). Any rollover from an IRA or other qualified
plan must be made within 60 days of receipt and is irrevocable.
/ / SEP-IRA (Simplified Employee Pension Plan). One application must
be completed for each employee.
/ / SIMPLE IRA (No minimum). One application must be completed for
each employee.
PLEASE INDICATE THE AMOUNT TO BE INVESTED IN EACH FUND (MINIMUM INVESTMENT
$500 PER FUND)
Value Fund (closed to new investors) $______________________________________
Small Cap Contrarian Fund $_________________________________________________
Value Plus Fund $___________________________________________________________
Mid Cap Value Fund $________________________________________________________
Large Cap Value Fund $______________________________________________________
U.S. Government Securities Fund $___________________________________________
Money Market Fund $_________________________________________________________
PLEASE COMPLETE ONE
This is a new IRA for tax year 19___.
I am establishing this IRA by rolling over or transferring assets from:
/ / IRA / / Corporate / / 403(b) / / Keogh (HR-10)
Other (specify)___________________
<PAGE> 22
TELEPHONE EXCHANGE OPTION
/ / By checking this box, I authorize Firstar Trust Company and Heartland
Advisors, Inc. to act upon my instructions, received by telephone, to exchange
shares in this account for shares of any identically registered account(s) with
Heartland Funds. (Liquidations of IRA accounts must be in writing accompanied
by withholding election instructions.)
FEE SCHEDULE (THESE FEES ARE SUBJECT TO CHANGE BY THE CUSTODIAN UPON NOTICE TO
THE DEPOSITOR)
<TABLE>
<S> <C>
Annual Maintenance Fee (Maximum $25.00 per social security number) .. $12.50
Waived for balances over $10,000
Lump Sum Distribution ............................................... $15.00
Each Non-Regular Periodic Distribution .............................. $15.00
Refund of Excess Contributions ...................................... $15.00
Transfer of Funds to Successor Custodian ............................ $15.00
</TABLE>
ACKNOWLEDGEMENT AND APPOINTMENT
I have received and read the Prospectus for the Fund(s) to which I am making my
contribution and have read and understand the IRA Custodial Agreement and
Disclosure Statement. I certify under penalties of perjury that my Social
Security Number (above) is correct, I am of legal age and
I am eligible to establish the type of IRA indicated above. I agree that I am
responsible for ascertaining any tax consequences associated with this
transaction, including future contributions, rollovers, and/ or distributions.
I will supply the Internal Revenue Service with information as to any taxable
year as required unless such information is filed by the Custodian.
I hereby authorize and appoint Firstar Trust Company to act as Custodian of my
account. I indemnify Firstar Trust Company when making distributions in
accordance with my beneficiary designation on file or in accordance with the
Custodial Agreement absent and such designation.
Appointment of Custodian accepted: FIRSTAR TRUST COMPANY
MAIL TO: FIRSTAR TRUST COMPANY
P.O BOX 701, MILWAUKEE, WI 53201-0701
Be sure to include your check with this application,
payable to the appropriate Heartland Fund.
_____________________________________________________/__/__
your signature date
_____________________________________________________/__/__
custodian acceptance (Firstar Trust Company) date
<PAGE> 23
[Logo] Heartland Funds
- ----------------------
AMERICA'S VALUE INVESTOR
For help with this application, please call 1-800-432-7856
INVESTMENT
TRANSFER FORM
OVERNIGHT MAIL TO:
Firstar Trust Company
615 E. Michigan
Milwaukee, WI 53202
REGULAR MAIL TO:
Firstar Trust Company
P.O. Box 701
Milwaukee, WI 53201-0701
- ----------------------------------------------------------
Shareholder Services: 1-800-432-7856 or (414)289-7000
for current prices, account information and market updates
- ----------------------------------------------------------
Dealer
-----------------------------------------------------
Branch
-----------------------------------------------------
Representative
---------------------------------------------
PLEASE PRINT
- ---------------------------------------------------------
Name
- ---------------------------------------------------------
Address
- ---------------------------------------------------------
City State Zip
- ---------------------------------------------------------
Social security number
- ---------------------------------------------------------
Work phone
- ---------------------------------------------------------
Home phone
/ / PLEASE LIQUIDATE MY ASSETS FROM OR
/ / PLEASE TRANSFER-IN-KIND MY ASSETS FROM
(FOR EXISTING HEARTLAND SHAREHOLDERS ONLY.)
- ---------------------------------------------------------
Name of fund/retirement plan
- ---------------------------------------------------------
Address
- ---------------------------------------------------------
City State Zip
- ---------------------------------------------------------
Account number
- ---------------------------------------------------------
CD maturity date
/X/ I AM ENCLOSING A COPY OF MY LATEST STATEMENT.
<PAGE> 24
PLEASE CHECK ALL THAT APPLY
/ / Please deposit the proceeds from the above liquidation or transfer into my
current Heartland fund account # _________________________________________
/ / Please establish a new account in accordance with my instructions on the
ATTACHED HEARTLAND FUNDS ACCOUNT APPLICATION.
<TABLE>
<S> <C>
Please deposit the proceeds from the above liquidation into:
/ / Heartland Small Cap Contrarian Fund / / Heartland Value Plus Fund
/ / Heartland Value Fund / / Heartland U.S. Government
(closed to new investors 7/1/95) Securities Fund
/ / Heartland Mid Cap Value Fund / / Portico Money Market Fund
/ / Heartland Large Cap Value Fund
</TABLE>
HEARTLAND FUNDS:
Please consider this your authority to / / sell or / / transfer-in-kind ____%
of all of my assets or $__________ of my assets in the above mentioned mutual
fund account, and prepare a check payable (or transfer assets) to Heartland
Funds for my benefit. It is my intention to invest the proceeds from this
liquidation or transfer into the HEARTLAND FUNDS for my benefit. It is my
intention to invest the proceeds from this liquidation or transfer into the
HEARTLAND FUNDS, for which the Firstar Trust Company acts as Transfer
Agent/Custodian.
*IMPORTANT: Please check with your current custodian/trustee to determine if a
signature guarantee is required.
__________________________________________________________
Signature
__________________________________________________________
Co-signature (if necessary)
__________________________________________________________
Date
__________________________________________________________
Signature guarantee
================================================================================
If applicable,
Please send check to: HEARTLAND FUNDS
C/O FIRSTAR TRUST COMPANY
P.O BOX 701
MILWAUKEE, WI 53201-0701
Please note:
This is not an account application form.
<PAGE> 25
[Logo] Heartland Funds
- ------------------------
AMERICA'S VALUE INVESTOR
IRA TRANSFER FORM
This transfer form should not be used for transferring assets from an Employer
Sponsored Retirement Plan.
OVERNIGHT MAIL TO:
Firstar Trust Company
615 E. Michigan
Milwaukee, WI 53202
REGULAR MAIL TO:
Firstar Trust Company
P.O. Box 701
Milwaukee, WI 53201-0701
- ------------------------------------------------------------------------------
Shareholder Services: 1-800-432-7856 or (414)289-7000
for current prices, account information and market updates
- ------------------------------------------------------------------------------
Dealer _______________________________________________________
Branch ______________________________________________________
Representative _________________________________________________
PLEASE PRINT
__________________________________________________________
Name
__________________________________________________________
Address
__________________________________________________________
City State Zip
___________________________________________________________
Social security number
___________________________________________________________
Work phone
____________________________________________________________
Home phone
PLEASE TRANSFER MY IRA FROM
__________________________________________________________
Name of current custodian/trustee (bank, S&L, mutual fund, etc.)
__________________________________________________________
Address
__________________________________________________________
City State Zip
___________________________________________________________
Account number
___________________________________________________________
CD maturity date
/X/ I AM ENCLOSING A COPY OF MY LATEST STATEMENT.
I WOULD LIKE TO
/ / Invest in my existing Heartland IRA, account number_________________________
/ / Open a new IRA in:
/ / Heartland Small Cap Contrarian Fund Amount_____________
/ / Heartland Value Fund (closed to new investors 7/1/95) Amount_____________
/ / Heartland Mid Cap Value Fund Amount_____________
/ / Heartland Large Cap Value Fund Amount_____________
/ / Heartland Value Plus Fund Amount_____________
/ / Heartland U.S. Government Securities Fund Amount_____________
/ / Portico Money Market Fund Amount_____________
FOR A NEW ACCOUNT, I WILL ALSO COMPLETE AN IRA APPLICATION.
<PAGE> 26
TO MY CURRENT CUSTODIAN/TRUSTEE
Please consider this your authority to sell: / / all of my assets
/ / $_______________________________________________________________________
of my assets in the above mentioned account and prepare a check to the specific
Fund checked above. It is my intention to transfer these assets to Heartland
Funds, for which the Firstar Trust Company acts as Transfer Agent/Custodian.
*IMPORTANT: Please check with your current custodian/trustee to determine if a
signature guarantee is required.
__________________________________________________________
Signature guarantee (if required)
__________________________________________________________
Date
___________________________________________________________
Your signature
FIRSTAR TRUST COMPANY WILL COMPLETE THIS ACCEPTANCE AGREEMENT
As custodian for Heartland Funds, we have been appointed to serve as successor
custodian of this IRA. Please prepare a check representing liquidation of the
investment referenced above. To ensure proper credit, please return a copy of
this form with the check. Our IRA has been approved by the IRS.
Mail to: HEARTLAND FUNDS
C/O FIRSTAR TRUST COMPANY
P.O BOX 701
MILWAUKEE, WI 53201-0701
___________________________________________________________
Authorized signature
___________________________________________________________
Date
<PAGE> 1
Exhibit 14(c)
[Logo] Heartland Funds
- ----------------------
AMERICA'S VALUE INVESTOR
SECTION 403(b)(7)
CUSTODIAL ACCOUNT
AGREEMENT
<PAGE> 2
GENERAL PROCEDURE
To establish a Heartland Funds 403(b)(7) Custodial Account, complete the
following:
- 403(b)(7) Custodial Account Application
- Beneficiary Designation Form
- Salary Reduction Agreement (both you and your employer must sign)
- Transfer Form (only if you wish to transfer prior 403(b) funds to your
Heartland Funds 403(b)(7) Custodial Account)
The forms will be held by Firstar Trust Company, Custodian, until the first
contribution is received, after which your account will be opened and
investments made according to your instructions.
<TABLE>
<S> <C>
OVERNIGHT MAIL TO: REGULAR MAIL TO:
Firstar Trust Company Firstar Trust Company
615 E. Michigan P.O. Box 701
Milwaukee, WI 53202 Milwaukee, WI 53201-0701
</TABLE>
IMPORTANT
NEITHER THE HEARTLAND FUNDS NOR THE CUSTODIAN CAN MAKE ANY REPRESENTATION AS TO
THE SUITABILITY OF THE HEARTLAND FUNDS 403(b)(7) CUSTODIAL ACCOUNT AGREEMENT
FOR YOUR PARTICULAR SITUATION, OR WHETHER YOU ARE ELIGIBLE FOR THE USE OF A
403(b) PLAN. SIMILARLY, PLEASE REMEMBER THAT IT IS THE RESPONSIBILITY OF THE
EMPLOYER AND EMPLOYEE, NOT THE HEARTLAND FUNDS OR THE CUSTODIAN, TO MAKE
CERTAIN THAT THE OPERATION OF YOUR 403(b)(7) CUSTODIAL ACCOUNT COMPLIES WITH
THE HEARTLAND FUNDS MATERIALS AND APPLICABLE INTERNAL REVENUE SERVICE AND
DEPARTMENT OF LABOR RULES. YOU SHOULD CONSULT YOUR ATTORNEY OR OTHER
PROFESSIONAL ADVISOR WITH ANY QUESTIONS ON THESE MATTERS.
PLEASE REMEMBER THAT CONTRIBUTIONS MADE TO A 403(b)(7) ACCOUNT CANNOT BE
WITHDRAWN WITHOUT A PENALTY PRIOR TO AGE 59 1/2 EXCEPT IN THE CASE OF YOUR
TOTAL DISABILITY, DEATH, TERMINATION OF EMPLOYMENT OR IN THE EVENT OF FINANCIAL
HARDSHIP.
<PAGE> 3
ARTICLE I DEFINITIONS
1.1 AGREEMENT. The Heartland Funds 403(b)(7) Custodial Account Agreement,
as set forth herein.
1.2 ACT. The Employee Retirement Income Security Act of 1974, as amended,
also known as ERISA, and including all rules and regulations issued thereunder.
To the extent that any applicable provisions of the Act conflict with any of
the provisions of this Agreement, the provisions of the Act shall be
controlling.
1.3 APPLICATION. The application for a Heartland Funds 403(b)(7)
Custodial Account which shall be executed by the Employer (if applicable), the
Employee and the Custodian pursuant to the terms of this Agreement. The
Application, as well as the Salary Reduction Agreement, the Transfer Form, and
the Beneficiary Designation Form, shall be incorporated by reference in this
Agreement.
1.4 BENEFICIARY. The person or persons designated by the Employee to
receive any assets in the Custodial Account upon the Employee's death in
accordance with Section 6.8 of the Agreement.
1.5 CODE. The Internal Revenue Code of 1986, as amended, including all
rules and regulations issued thereunder. To the extent that the applicable
provisions of the Code conflict with any of the provisions of this Agreement,
the provisions of the Code shall be controlling.
1.6 COMPANY. Heartland Group, Inc., a registered investment company, and
its affiliates. To the extent that any duties of the Company as described
herein are performed by Heartland Advisors, Inc., the term "Company" shall also
include Heartland Advisors, Inc. Any action to be taken by the Company
hereunder may be taken by an authorized officer or employee of the Company.
1.7 CUSTODIAL ACCOUNT. The account established and maintained under this
Agreement on behalf of the Employee pursuant to Code Section 403(b)(7).
1.8 CUSTODIAN. The Firstar Trust Company or any successor thereto.
1.9 EMPLOYEE. An individual described in Section 3.2 who executed the
Application and who is employed by an Employer on a full or part time basis or
who is a former or retired employee of the Employer.
1.10 EMPLOYER. The school or organization described in Section 3.1 which
is eligible to contribute to a Custodial Account on behalf of any of its
Employees.
1.11 FUND(S). The Heartland Fund shares made available by the Company for
purchase under this Agreement, and such other mutual fund shares which the
Company may make available for Custodial Account investment through a servicing
agreement or otherwise.
1.12 PLAN ADMINISTRATOR. The entity responsible for the administration of
any employee benefit plan under Title I of ERISA, which shall be the Employer.
ARTICLE II PURPOSE
2.1 PURPOSE. The Heartland Funds 403(b)(7) Custodial Account Agreement is
intended for use by Employers and Employees who desire to establish Custodial
Accounts in accordance with Section 403(b)(7) of the Code.
1
<PAGE> 4
2.2 EMPLOYER PLAN. In the event contributions are being made to a
Custodial Account pursuant to any retirement plan or program sponsored by an
Employer, it is recognized that such retirement plan or program may contain
specific provisions, restrictions or limitations on participation, vesting,
contributions, distributions, investments or other aspects of the Custodial
Account. To the extent that any provisions of the Agreement are inconsistent
with such retirement plan or program, the provisions of the retirement plan or
program shall be controlling, unless such provisions impose duties or
responsibilities upon the Company or the Custodian which differ from those set
forth in this Agreement, in which event such provisions shall be binding upon
the Custodian and Company only if consented to by the Custodian and Company.
The Employer shall be responsible for notifying the Company and Custodian of
any provisions of the Employer's retirement plan or program that differ from
the provisions of this Agreement and for obtaining the written consent of the
Custodian and Company to any such provisions which impose additional duties on
the Custodian or Company. Absent such notification and consent, as required
above, neither the Company nor the Custodian shall be responsible for any
action or inaction consistent with this Agreement which may conflict with the
provisions of an Employer's retirement plan or program.
ARTICLE III ELIGIBILITY
3.1 EMPLOYERS. Organizations described in Code Section 501(c)(3) which
are exempt from tax under Code Section 501(a), and educational organizations
described in Code Section 170(b)(1)(A)(ii) which are part of a State or
political subdivision of a State (or agent or instrumentality of either), are
eligible to make contributions to a Custodial Account on behalf of their
Employees.
3.2 EMPLOYEES. Employees who perform services for an Employer described
in Section 3.1 above, are eligible to establish a Custodial Account. Former
employees and beneficiaries of such an Employer also may have assets in a
Custodial Account subject to the provisions of the Code and the terms of the
Agreement.
ARTICLE IV PARTICIPATION
4.1 ADOPTION. An Employee or Employer may establish a Custodial Account
pursuant to the terms of this Agreement by forwarding completed copies of the
Application and ancillary documents signed by the Employee and Employer to the
Custodian or its agent. (The Employer's signature is required if the Custodial
Account is part of an "employee pension benefit plan" as defined in Section
3(2) of the Act or is maintained pursuant to an Employer retirement plan or
program, as described in Section 2.2 of the Agreement.) A Custodial Account
will be effective and the Agreement adopted upon written acceptance of the
Application by the Custodian.
4.2 RELIANCE ON INFORMATION. The Company and the Custodian may rely on the
names, addresses, tax identification and social security numbers set forth on
the Application. It shall be the obligation of the Employer and Employee to
notify the Custodian and the Company of any changes thereto.
4.3 APPLICABILITY OF ERISA. If the establishment of one or more Custodial
Accounts under this Agreement is determined to constitute an "employee pension
benefit plan" as defined in Section 3(2) of the Act and such employee pension
benefit plan is established or maintained by
2
<PAGE> 5
an Employer subject to Title I of the Act, then the Employer shall be
responsible for assuring that such employee pension benefit plan complies at all
times with the requirements of Title I of ERISA and shall fulfill any
obligations imposed upon the Plan Administrator thereunder. Neither the
Custodian nor the Company shall have any obligation or liability to determine
the Act's applicability or to comply with the terms of the Act.
ARTICLE V CONTRIBUTIONS
5.1 SALARY REDUCTION CONTRIBUTIONS. The Employer shall make contributions
to the Custodial Account on behalf of the Employee in accordance with any
salary reduction agreement executed by such Employer and Employee, subject to
the Code Section 415 and 403(b) limitations as described in Section 5.3, as
well as the Code Section 402(g) limitations applicable to salary reduction
contributions described in Section 5.4. The salary reduction agreement shall
be a binding agreement between the Employer and Employee in which the Employee
agrees to take a reduction in salary or to forego an increase in salary and in
which the Employer agrees to contribute such amounts to the Custodial Account.
For tax years prior to 1996, the Employer and Employee may not enter into more
than one such agreement in any one taxable year of the Employee. The salary
reduction agreement must be irrevocable but may be terminated at any time with
respect to amounts not currently available to the Employee (or, for years prior
to 1996, with respect to amounts not yet earned by the Employee). Neither the
Company nor the Custodian shall be under any duty to inquire as to the validity
of any agreement or the amounts transmitted pursuant to an agreement, including
but not limited to, the timeliness of any transmittal.
Except to the extent provided otherwise in the Code and applicable regulations
or rulings thereunder, effective for years commencing after 1988, salary
reduction contributions shall be subject to the rules under Code Section
403(b)(12)(A)(ii) governing the availability of salary reduction arrangements.
Neither the Company nor the Custodian shall have any responsibility for
determining the applicability of or complying with any Code provisions relating
to nondiscrimination, coverage or limitations upon salary reduction
contributions.
5.2 EMPLOYER CONTRIBUTIONS. In addition to any salary reduction
contributions made pursuant to Section 5.1, the Employer may make direct
employer contributions, including matching contributions as defined in Code
Section 401(m), to a Custodial Account on behalf of an Employee in accordance
with any retirement plan or program established by such Employer. Except to
the extent provided otherwise in the Code and applicable regulations or rulings
thereunder, effective for years after 1988 such Employer contributions shall
not discriminate in favor of highly compensated employees (within the meaning
of Code Section 414(q)) and shall comply with the requirements of Code Section
403(b)(12)(A)(i) and regulations and rulings issued thereunder (including
compensation limitations, coverage rules and minimum participation rules, as
applicable). Further, Employer contributions will be subject to any applicable
limits on matching contributions as described in Section 5.5 and all
contributions will be subject to the Code Section 403(b) and 415 limitations as
described in Section 5.3. The Employer shall have the sole responsibility for
determining the applicability of and complying with any Code provisions
relating to Employer contributions, and neither the Custodian nor the Company
shall have any responsibility or liability with respect to such determination
or compliance.
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5.3 LIMITATION ON TOTAL CONTRIBUTIONS.
(a) Generally, the amount of total contributions (including salary
reduction contributions) that can be made under Sections 5.1 and 5.2 of
this Agreement and which may be excluded from income during any taxable
year of the Employee (which shall be the limitation year unless
specified otherwise in accordance with Code Section 415 and regulations
thereunder) shall not exceed the lesser of the following:
(i) 25% of compensation or $30,000 (adjusted annually in accordance
with applicable regulations), whichever is less, for the limitation
year ending with or within the Employee's taxable year. For this
purpose "compensation" shall have the meaning set forth in Code
Section 415(c), and regulations thereunder;
(ii) The excess, if any, of (1) 20% of the Employee's includable
compensation multiplied by the Employee's number of years of service
(as defined in Code Section 403(b)(4) and regulations thereunder),
over (2) the aggregate amount previously contributed by the Employer
to 403(b) or other retirement plans and excluded from the Employee's
gross income in prior taxable years. For this purpose, "includable
compensation" has the meaning set forth in Code Section 403(b)(3)
and regulations thereunder.
For purposes of this subparagraph (a) contributions under the Agreement
will be aggregated with contributions made by the Employer on behalf of the
Employee under any other annuity or custodial account subject to Code
Section 403(b), and for purposes of subparagraph (a)(i) any contributions
made by an employer controlled by the Employee (within the meaning of Code
Section 415(e)(5)) on behalf of the Employee to a defined contribution plan
shall also be aggregated for purposes of satisfying the limitation under
such subparagraph (a)(i).
(b) An Employee who is employed by an Employer which is described in Code
Section 415(c)(3) (i.e., a church or convention or association of
churches, an organization exempt from tax under Code Section 501 and
controlled by a church or convention or association of churches, an
educational institution, a hospital, a home health service agency, or a
health and welfare service agency) may elect to be governed by one of
three alternative limitations as follows:
(i) In lieu of the limitation described in subparagraph (a)(i) above
for any limitation year, such Employee may elect to use a limitation
equal to the lesser of 25% of such Employee's includable
compensation for the taxable year within which the limitation year
ends plus $4,000 or $15,000; or
(ii) Such Employee may elect not to apply the limitation described in
subparagraph (a)(ii) above; or
(iii) For the limitation year ending with or within the taxable year
in which such Employee's employment terminates, such Employee may
elect to replace the 25% of
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compensation limitation (but not the $30,000 limit) in subparagraph
(a)(i) above with the exclusion allowance in subparagraph (a)(ii),
but taking into consideration only years of service and
contributions made during the ten-year period ending on the date of
the Employee's termination. Election of this option (iii) precludes
future election of any of the other options provided in this
subparagraph (b) with respect to any 403(b) annuity or custodial
account.
The above described optional limitations are mutually exclusive. An
election of one of the options is irrevocable.
(c) With respect to an Employee employed by an entity described in Code
Section 415(c)(7) (i.e, a church or convention or association of
churches, or an organization exempt from tax under Code Section 501 and
controlled by or associated with a church or convention or association
of churches) the following special rules will apply:
(i) With respect to the Employee who has adjusted gross income for
any taxable year not exceeding $17,000, the amount determined under
subparagraph (a)(ii) above shall not be less than $3,000, or
the Employee's includable compensation for such taxable year
whichever is less;
(ii) At the election of the Employee, the limitations of subparagraph
(a)(i) shall be deemed not exceeded if the total amount of
contributions to the Custodial Account do not exceed $10,000. The
total amount of contributions which will be taken into account for
purposes of this subparagraph (c)(ii) for all limitation years shall
not exceed $40,000. No election may be made under this subparagraph
(c)(ii) if the Employee has made an election under subparagraph
(b)(iii) for such limitation year.
(d) The applicable provisions of Code Sections 403(b) and 415 are hereby
incorporated herein by reference and shall supersede any provisions of
this Section 5.3 to the extent inconsistent with such provisions.
5.4 LIMITATIONS ON SALARY REDUCTION CONTRIBUTIONS.
(a) In addition to the limitations on total contributions under Section
5.3, salary reduction contributions made pursuant to Section 5.1 shall
not exceed the limitation under Code Section 402(g), which is the
greater of (i) $9500 or (ii) $7,000 (as indexed) per calendar year,
reduced by any salary reduction contributions made during such year to
any other annuity contract or custodial account under Code Section 403(b),
a qualified cash or deferred arrangement under Code Section 402(a)(8), a
simplified employee pension plan under Code Section 402(h), or a SIMPLE
retirement account under Code Section 408(p)(2).
(b) An Employee who has completed 15 years of service with a qualified
organization described in Code Section 402(g)(8)(B) (i.e., a church or
convention or association of churches, an organization exempt from tax
under Code Section 501 and controlled by or associated with a church or
convention or association of
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churches, an educational institution, hospital, home health service
agency, or a health and welfare service agency), may increase the limit
described in subparagraph (a) above by the lesser of the following: (i)
$3000; (ii) $15,000, less amounts excluded in prior years under this
election; or (iii) the excess of $5000 multiplied by the Employee's number
of years of service with the qualified organization less salary reductions
made on behalf of the Employee in prior taxable years under a 403(b)
arrangement, a 401(k) plan, a simplified employee pension plan or a SIMPLE
retirement account.
(c) If any salary reduction contributions made to a Custodial Account on
behalf of any Employee exceed the Code Section 402(g) limitations as
described in this Section 5.4 during a calendar year, and the Employee
has, prior to March 1 of the following year, communicated in writing to
the Custodian the amount of such excess attributable to this Custodial
Account ("excess deferrals"), any such excess deferrals and income
allocable thereto may be distributed to the Employee, per the Employee's
direction, prior to the April 15th of the year following the calendar
year during which the excess deferrals were made. If excess deferrals
and income allocable thereto under this Section 5.4 are not distributed
by the April 15th following the end of the calendar year during which
they were made, they shall be held in the Custodial Account until later
distribution in accordance with Article VI. Income allocable to any
excess deferrals returned under this Section 5.4 shall be determined in
accordance with applicable regulations. The Employee shall have the
sole responsibility for timely and properly determining and
communicating the existence of excess deferrals to the Custodian and
directing the Custodian with respect to the distribution of excess
deferrals, and neither the Custodian nor the Company shall have any
responsibility with respect to the determination, allocation or
distribution of any excess deferrals in the Custodial Account.
5.5 LIMITATIONS ON MATCHING CONTRIBUTIONS.
(a) Except to the extent provided otherwise in the Code and applicable
regulations or rulings thereunder, for years after 1988, matching
contributions made by the Employer to any Custodial Account under this
Agreement shall satisfy the matching contribution percentage limitation
under Code section 401(m). Code Section 401(m) and applicable rules and
regulations thereunder are incorporated herein by reference. The
Employer shall keep records demonstrating satisfaction of the
contribution percentage limitation.
(b) If it becomes necessary in the sole judgment of the Employer to reduce
or limit the matching contributions made to one or more Custodial
Accounts under this Agreement in order to satisfy the matching
contribution percentage limitation described above, such matching
contributions shall be reduced in accordance with applicable
regulations. The Employer shall direct the Custodian in writing to
distribute any excess aggregate contributions (and income allocable
thereto) as soon as practicable after the year during which the excess
aggregate contributions were made. Income allocable to any excess
aggregate contributions returned under this Section 5.5 shall be
determined in accordance with
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applicable regulations. The Employer shall have the sole responsibility
for timely and properly determining and communicating the existence
of any excess aggregate contributions to the Custodian and directing the
Custodian with respect to the distribution of such excess aggregate
contribution, and neither the Custodian nor the Company shall have any
responsibility with respect to the determination or distribution of any
excess aggregate contributions in the Custodial Account.
5.6 DETERMINATION OF DEDUCTIBLE/EXCLUDABLE AMOUNTS.
If during any taxable year, the Employer or Employee contributes an amount in
excess of the applicable limits as provided under Section 5.3 above, such
amount may be considered an excess contribution subject to the excise taxes
under Code Section 4973. Neither the Company nor the Custodian shall have any
duty, responsibility, or liability whatsoever for determining whether any
contributions to the Custodial Account are excludable from the Employee's gross
income, or for determining the amount of any contribution which an Employer may
contribute on behalf of an Employee during any specified period, or for
determining whether any contributions satisfy the Code requirements as
described in Sections 5.2, 5.3, 5.4 and 5.5 above. The Custodian shall have no
obligation to make any distribution under Section 5.4 or 5.5 above unless
directed by the Employee or Employer, whichever is applicable.
5.7 ROLLOVERS AND TRANSFERS. At the written direction of the Employee,
the Custodian may accept any rollover contribution, direct rollover
contribution or transfer of assets from another custodial account or annuity
contract described in Code Section 403(b) (or a rollover from an individual
retirement account (IRA) whose assets are attributable solely to a previous
rollover contribution from one or more such custodial accounts or annuity
contracts); provided that such rollover or transfer complies with the
appropriate requirements of Code sections 403(b)(8), 408(d)(3), 1035 and other
applicable Code sections and regulations thereunder. Any assets which are
transferred or rolled over (directly or otherwise) to the Custodial Account
shall become subject to the distribution restrictions set forth in Article VI.
Neither the Company nor the Custodian shall be responsible for determining
whether such rollover contribution or transfer of assets complies with the
appropriate Code sections, or for determining the proper tax treatment of such
transaction, including, but not limited to determining whether such rollover,
direct rollover, or transfer is excludable from the Employee's income or
constitutes an excess contribution under Code Section 4973.
5.8 MANNER OF MAKING CONTRIBUTIONS. All initial contributions to the
Custodial Account shall be made by check, wire or money order after proper
receipt and acknowledgement by the Custodian of the Account Application, and
shall be accompanied by instructions which shall specify that the amount
contributed represents a transfer or rollover, or a salary reduction or other
Employer contribution on behalf of the Employee, and which shall specify the
Fund or Funds in which the contribution is to be invested. Subsequent
contributions shall be identified by the Employee's name, social security
number and contribution amount. Subsequent contributions will continue to be
invested in the Fund(s) previously selected unless instructions from the
Employee specifying a different Fund(s) are received by the Custodian. If
instructions as to investment selection or allocation are, in the opinion of
the Custodian, unclear or not provided, the Custodian shall invest the
contribution pursuant to Section 7.3 until the
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Custodian receives proper instruction. Neither the Company nor the Custodian
shall be responsible for compelling that any contribution, transfer or rollover
be made to a Custodial Account, nor shall any of them be liable to any party
for losses which may result from the absence of or incorrect instructions or
information concerning any contribution, transfer or rollover.
ARTICLE VI DISTRIBUTIONS
6.1 TIME OF DISTRIBUTIONS. The Employee, or his Beneficiary(ies) in the
event of his death, shall be entitled to distribution of the assets in the
Employee's Custodial Account upon any of the following circumstances:
(a) Upon the Employee's attainment of age 59 1/2; or
(b) Upon the Employee's separation from service with the Employer; or
(c) Upon the Employee's becoming disabled within the meaning of Code
Section 72(m)(7) as certified by the Employer (or if no Employer exists
or if the Employer is not a party to the Agreement, then as certified by
the Employee); or
(d) Upon the Employee's death; or
(e) Upon the Employee's heavy financial hardship as described in Section
6.2 below.
Distribution shall commence as soon as practicable following the Employee's
written request, in accordance with Section 6.3.
6.2 FINANCIAL HARDSHIP. Notwithstanding any other provision of this Article,
distribution due to financial hardship may be made at any time upon
completion of such forms as the Custodian may require. For purposes of this
Section 6.2, a financial hardship shall have the meaning set forth in Code
Section 403(b)(7). The Employer or its designee (or the Employee or its
designee, if consistent with applicable law and if no Employer exists or the
Employer determines that the Employee's Custodial Account is not subject to the
Act, as described in Section 4.3) shall be responsible for determining the
existence of a financial hardship and the amount necessary to satisfy such
financial hardship.
For years after 1988, distributions made as a result of a heavy financial
hardship shall be limited to the Custodial Account balance as of December 31,
1988 plus salary reduction contributions made after 1988 (excluding earnings
thereon), or any such other amount as allowed by applicable Internal Revenue
Service regulations.
6.3 FORM OF DISTRIBUTION. Subject to the provisions of Section 6.4, the
Employee may elect a form of distribution from among the following
alternatives:
(a) A single sum payment in cash or Fund shares; or
(b) An eligible rollover distribution as described in Section 6.5; or
(c) Equal or substantially equal monthly, quarterly or annual payments in
cash or Fund shares over a period certain not extending beyond the life
expectancy of the Employee, or the joint life and last survivor expectancy
of the Employee and his designated beneficiary; or
(d) A specific dollar amount as directed by the Employee from time to
time.
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Such election shall be made within a reasonable period prior to the date on
which distribution is expected to be made or to begin. Such election shall
be made in writing in a form as shall be acceptable to the Custodian and
shall be irrevocable after distribution has commenced; provided, however,
that the Employee may accelerate distribution at any time. The Custodian
shall have no obligation to make any distribution until it receives an
Employee's election and shall comply with the last written election
received.
If the Employee elects a mode of distribution under subparagraph (b) above,
the amount of the monthly, quarterly, or annual payments shall be
determined in a manner which satisfies the minimum distribution
requirements set out in Section 6.6 below.
6.4 ERISA JOINT AND SURVIVOR ANNUITY DISTRIBUTIONS.
This Section 6.4 shall only apply to a Custodial Account which is part of an
"employee pension benefit plan" (within the meaning of Section 3(2) of the Act)
which is subject to the joint and survivor annuity requirements of Section 205
of the Act. The Employer shall be responsible for making any determination as
to the applicability of the Act and the joint and survivor provisions of the
Act, and shall notify the Custodian of such applicability. Neither the Company
nor the Custodian shall have any responsibility for determining the
applicability of any provisions of the Act, nor shall the Company or Custodian
have any liability for making distribution in accordance with the Employee's
election of one of the forms of distribution described in Section 6.3 above
absent notification from the Employer as to the applicability of this Section
6.4.
Any Custodial Account which the Employer has notified the Custodian is part of
an employee pension benefit plan subject to the joint survivor annuity
requirements of Section 205 of the Act shall be distributed as follows: (i) any
unmarried Employee who fails to elect one of the payment methods specified in
Section 6.3 above shall receive distribution in the form of a nontransferable
fixed or variable annuity contract purchased from an insurance company and
payable for the Employee's life; (ii) any married Employee who fails to elect,
with his spouse's consent, one of the payment methods specified in Section 6.3
above shall receive distribution in the form of a nontransferable fixed or
variable annuity contract purchased from an insurance company and payable for
the life of the Employee, with a survivor annuity for the Employee's spouse in
an amount equal to 50% of the amount payable during the life of the Employee
(hereinafter termed a "joint and survivor spousal annuity"). The Employer
shall direct the Custodian concerning the purchase of any annuity required
under this Section 6.4, which direction shall identify the form of annuity and
the identity of the insurance company from which such annuity shall be
purchased. Subject to the provisions of the Employer's plan, such Employee may
elect one of the forms of distribution specified in Section 6.3 above; provided
however, that if the Employee is married, the Employee's spouse must consent in
writing to the election within the 90 day period prior to the commencement of
benefits. Such consent must acknowledge the effect of the election and be
witnessed by a notary public or an Employer representative. Within a
reasonable period of time prior to the commencement of benefits, the Employer
shall provide the Employee with information concerning the available forms of
payment and the spouse's rights with respect thereto, all in accordance with
applicable regulations.
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6.5 ELIGIBLE ROLLOVER DISTRIBUTIONS. An Employee may provide direction
and information to the Custodian sufficient to enable all or some portion of an
"eligible rollover distribution" to be directly rolled over to an "eligible
retirement plan" which accepts such direct rollovers. A person entitled to an
eligible rollover distribution hereunder shall be provided with a written
notice setting forth a description of the distribution options and withholding
treatment applicable to such distribution within a reasonable period of time
prior to the making of such distribution, as required by applicable
regulations. For purposes of this Section 6.5, the terms "eligible rollover
distribution" and "eligible retirement plan" shall have the meanings given such
terms in Code Section 402(c). The Custodian may develop procedures to
administer the direct rollover provisions of this Section 6.5.
6.6 MINIMUM DISTRIBUTIONS. Amounts in the Custodial Account shall be
distributed in compliance with Code Section 403(b)(10) and regulations
thereunder, including compliance with the minimum distribution incidental
benefit requirement, as applicable. Distributions to an Employee shall
commence no later than the Employee's "required beginning date" as defined in
Code Section 401(a)(9)(C) (i.e. generally, the April 1 following the calendar
year during which the Employee attains age 70 1/2; except that any Employee who
attains age 70 1/2 before 1988 or after 1996 shall have a "required beginning
date" on the April 1 following the later of the calendar year in which the
Employee attains age 70 1/2 or the calendar year during which the Employee
terminates employment). If an Employee fails to elect any of the methods of
distribution described above by the end of the calendar year prior to the
Employee's required beginning date, then, subject to the provisions of Section
6.4 above, the minimum required amount, determined in accordance with this
Section 6.6 and the provisions of Code Sections 401(a)(9) and 403(b)(10) shall
be distributed from such Employee's Custodial Account no later than the
Employee's required beginning date.
If the Employee's Custodial Account is to be distributed in other than a single
sum payment, the minimum amount required to be distributed to the Employee for
each taxable year beginning with the year prior to the Employee's required
beginning date, shall be the amount determined by dividing the total amount
credited to the Custodial Account as of the end of the calendar year preceding
the year of distribution by the life expectancy of the Employee (or the joint
life and last survivor expectancy of the Employee and his or her Beneficiary,
whichever applies) in the applicable calendar year, calculated in a manner
consistent with the minimum distribution regulations. (The minimum
distribution for the calendar year prior to the Employee's required beginning
date shall be made prior to the required beginning date and the minimum
distribution for each subsequent calendar year shall be made by the end of such
year.) If the Employee has elected distribution in other than a single sum
payment, and the Employee's spouse is not the Employee's Beneficiary, the
minimum amount of any annual distribution to be made on and after the
Employee's required beginning date shall also comply with the minimum
distribution incidental benefit requirements set out in applicable regulations.
For purposes of determining the minimum amounts under this Section 6.6, life
expectancies of the Employee and the Employee's spouse, if the spouse is the
Employee's Beneficiary, shall be recalculated annually unless elected
otherwise.
Notwithstanding the above, if the Custodian keeps records as to the amount of
the Custodial Account balance as of December 31, 1986 (as reduced by
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any subsequent distributions in excess of the minimum amount required to be
distributed under this Section 6.6), or with respect to any rollover or
transfer the Employee provides information to the Custodian as to the amount of
such December 31, 1986 custodial account balance (modified as described above),
the minimum distributions required under this Section 6.6 shall be computed
based only on the Employee's post-1986 account balance and shall not apply to
the value of the custodial account balance as of December 31, 1986 (modified as
described above).
The provisions of Code Sections 403(b)(10) and 401(a)(9) and applicable
regulations (including the exceptions applicable to governmental and church
plans) are hereby incorporated herein and shall control over any inconsistent
provisions in the Agreement.
6.7 DISTRIBUTIONS AT DEATH.
(a) If the Employee dies before the Employee's "required beginning date" as
defined in Code Section 401(a)(9)(C) the Employee's entire remaining
balance, if any, shall be distributed to the Beneficiary or
Beneficiaries designated by the Employee in accordance with Section 6.8.
Distribution shall be made, at the election of the Beneficiary, in cash
or Fund shares as follows: (i) in one or more payments to be completed
by the end of the fifth calendar year following the year of the
Employee's death, or (ii) in equal or substantially equal monthly,
quarterly or annual payments over a period certain not extending beyond
the life expectancy of the Beneficiary. In determining the life
expectancy of the Beneficiary, the life expectancy shall be recalculated
annually if the Employee's surviving spouse is the Beneficiary, unless
the Employee's surviving spouse elects otherwise, and shall not be
recalculated if the Employee's Beneficiary is other than the surviving
spouse. If distribution is to be made pursuant to subparagraph (ii)
above, distribution shall commence no later than the end of the
calendar year following the year of the Employee's death; provided
however, that if the Employee's surviving spouse is the Beneficiary,
distribution need not commence until the December 31 after the Employee
would have attained age 70 1/2, if later. If the Employee's Beneficiary
fails to elect a method of payment by the December 31 following the year
in which the Employee died, distribution of the Employee's entire
remaining interest shall be made to such Beneficiary in accordance with
subparagraph (ii) above if the Beneficiary is the Employee's surviving
spouse (or in the form of a single life annuity for the surviving
spouse's lifetime if benefits had not begun prior to the Employee's
death and the Custodial Account is subject to the joint and survivor
annuity provisions in Section 205 of the Act as described in Section 6.4
above), and in accordance with subparagraph (i) above if the Beneficiary
is other than the Employee's surviving spouse.
(b) If the Employee dies after his required beginning date, or after
benefits have commenced in accordance with the terms of an annuity
contract as described in Section 6.4, then the balance in the Employee's
Custodial Account shall be distributed at least as rapidly as under the
method being used at the date of death, or under the method specified in
the annuity contract, whichever is applicable.
6.8 DESIGNATION OF BENEFICIARY. The Employee may designate a primary
beneficiary or beneficiaries of his or her own choosing, and may, in
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addition, name a secondary beneficiary. Such designation shall be made in
writing on a form acceptable to the Custodian. The Employee may at any time
revoke his or her designation of a beneficiary or change the beneficiary by
filing notice of such revocation or change with the Custodian. The most recent
designation filed with the Custodian prior to the Employee's death shall be
controlling.
Notwithstanding the above, if the Custodial Account is part of an
"employee pension benefit plan" (as defined in the Act) which is subject to the
joint and survivor annuity requirements of Section 205 of the Act, an
Employee's surviving spouse, if any, shall be deemed designated as the sole
beneficiary for 100% of the Employee's Custodial Account (or such lesser amount
as set forth in the Employer's plan described in Section 2.2 of the Agreement),
despite any attempted designation to the contrary, unless the surviving spouse
consents to such contrary designation in writing signed by the spouse and
witnessed by a representative of the Employer or a notary public. (Further, if
such employee pension benefit plan is subject to the qualified preretirement
annuity provisions of Section 205 of the Act and the spouse's consent is
obtained prior to the first day of the plan year on which the Employee attains
age 35 or separates from service, whichever is earlier, such spousal consent
will be ineffective as of the first day of the Plan Year during which the
Employee attains age 35 and a new spousal consent, witnessed by a
representative of the Employer or a notary public, is required for a valid
designation.) The Employer shall be responsible for determining and
complying with the joint and survivor and the qualified preretirement survivor
annuity provisions of the Act, and the Custodian and Company shall have no
liability for payment pursuant to the beneficiary designation filed with the
Custodian pursuant to this Section 6.8.
If no valid designation of a beneficiary shall have been made, or in the
result of the death of all designated beneficiaries prior to the complete
distribution of the benefit, the Employee's beneficiary shall be the Employee's
surviving spouse. If the Employee has no surviving spouse, then the Employee's
estate shall be the beneficiary.
ARTICLE VII INVESTMENTS
7.1 METHOD OF ELECTION. Each Employee (or Beneficiary, executor or
administrator, as applicable) for whom a Custodial Account is established shall
have the power to direct the Custodian or Company, in such manner as is
acceptable to the Custodian and Company, as to the investment and reinvestment
of all assets in the Custodial Account, subject to any limitations on
investments set forth in the Agreement. By giving such direction, the Employee
(or Beneficiary, executor or administrator, as applicable) acknowledges receipt
of the then current Fund prospectus with respect to the Employee's applicable
investment.
7.2 PERMITTED INVESTMENTS. All amounts allocated to an Employee's
Custodial Account, as well as any earnings thereon, shall be invested in one or
more Funds which comply with the investment requirements of section 403(b)(7)
of the Code. All income, dividends and capital gains or other distributions
shall be reinvested in additional Fund shares of the same investment and
credited to the Employee's Custodial Account.
7.3 NO INVESTMENT DIRECTION. If, in the opinion of the Custodian, the
Custodial Account contains assets for which there is no investment direction or
unclear investment direction, or in the event that the Custodian is unable to
comply with any investment direction, the Custodian shall invest such assets in
the Portico Money Market Fund until the Custodian receives proper investment
direction.
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7.4 REGISTRATION. All shares held as investments of an Employee's
Custodial Account hereunder shall be registered in the name of the Custodian
for the benefit of such Employee. The Custodian shall transmit to the
Employee, at the most recent address provided to the Custodian, all notices,
financial statements, confirmations, reports, proxies and prospectuses relating
to Fund shares held in the Custodial Account. The Custodian shall not vote any
Fund shares except in accordance with written instructions received from the
Employee.
7.5 EFFECT OF DIRECTION. The Custodian, the Company, and their agents,
may conclusively rely upon and shall be protected in acting upon any written
direction or telephone instruction from the Employee (or the Employee's
Beneficiary, executor or administrator, as applicable) or any other notice,
request, consent, certificate or other instrument or paper believed by the
Custodian to be genuine and to have been properly executed. Neither the
Custodian nor the Company shall have any duty to question any direction of the
Employee (or the Employee's Beneficiary, executor or administrator, as
applicable) regarding the investment of the assets of the Custodial Account or
to advise such persons regarding the purchase, retention or sale of such
investments, nor shall the Custodian or the Company, or any of their affiliates
be liable for any loss that results from the exercise of control (whether by
action or inaction) over the Custodial Account by the Employee (or the
Employee's Beneficiary, executor or administrator, as applicable).
ARTICLE VIII POWERS AND DUTIES OF
CUSTODIAN AND COMPANY
8.1 DUTIES OF CUSTODIAN. The Custodian shall be the Employee's agent to
perform the duties under this Agreement and shall be responsible for the
safekeeping of the assets in the Custodial Account and the holding of all Fund
shares registered in the Custodian's name as Custodian. The Custodian (or any
of its affiliates) shall not be deemed to be a fiduciary in carrying out the
following duties: (i) to receive contributions pursuant to the provisions of
the Agreement; (ii) to hold, invest and reinvest the contributions in Fund
shares; (iii) to register any property held by the Custodian in its own name,
or in nominee or bearer form that will pass delivery; and (iv) to make
distributions from the Custodial Account in cash or Fund shares as directed by
the Employee or Employer pursuant to the provisions of the Agreement.
The Custodian shall keep accurate and detailed accounts of all contributions,
receipts, investments, disbursements and other transactions. As soon as
practicable after December 31, and at any other time required by applicable
regulations, the Custodian shall file with the Employee a written report of the
Custodian's transactions relating to the Custodial Account during the period
since the previous accounting, and shall file such forms with the Internal
Revenue Service as may be required by the Code to be filed by the Custodian
(not including any such reports required to be filed by the Employer).
8.2 DELEGATION. Subject to any applicable legal restrictions and with
prior permission of the Company, the Custodian may delegate any of its duties
under this Agreement to an agent, including any affiliate of the Company or
Custodian. In the event of any such delegation, the references in this
Agreement to the Custodian and the protections afforded the Custodian shall
also be deemed to refer to such agent of the Custodian.
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<PAGE> 16
8.3 DUTIES OF THE COMPANY. The Company shall have the power to remove the
Custodian and select a successor Custodian, as described in Section 8.1, and
the power to amend or terminate the Agreement, as described in Article X. The
Company may also accept direction from the Employee regarding the investment of
assets in the Custodial Account in accordance with Article VII. In addition,
the Company, together with the Custodian, may consent to the imposition of
additional duties under an Employer's plan, pursuant to Section 2.2. Neither
the Company, nor any affiliate, officer, director, board, or employee of the
Company shall have any other responsibility with respect to the administration
of the Custodial Account.
8.4 INDEMNIFICATION AND LIMITATIONS ON LIABILITY. The Employee (and if this is
an "employee pension benefit plan" under Section 3(2) of the Act then the
Employer sponsoring such Plan) intends that the Custodian and Company shall have
no discretion, authority or responsibility as to any investment in connection
with the Custodial Account and that neither the Custodian nor the Company shall
be responsible in any way for the propriety or tax treatment of any
contribution, or of any distribution, or any other action or non-action taken
pursuant to the Employee's or Employer's direction or lack thereof (or that of
the Employee's Beneficiary, executor or administrator, as applicable). The
Employee who directs the investment of his Custodial Account shall bear sole
responsibility for the suitability of any directed investment and for any
adverse consequences arising from such an investment. Neither the Company nor
the Custodian, nor any of their affiliates, officers or employees, shall have
any responsibility for or liability arising from: (i) the initial or continued
qualification under section 403(b) of the Code of this Agreement or any
Employer's retirement plan or program; (ii) determining the amount of or
collecting any contribution to the Custodial Account; (iii) determining the
amount, character, form or timing of any distribution, other than as instructed
by the Employee or Employer; (iv) calculating or determining the amount of any
exclusion allowance, contribution limitation or any salary deferral limit.
To the fullest extent permitted by law, the Employee, the Employee's
Beneficiary, and the executor or administrator of each of them, as applicable
(and the Employer, if this is an employee pension benefit plan under Section
3(2) of the Act) shall at all times fully indemnify and save harmless the
Custodian, the Company (including Heartland Advisors, Inc.), and their agents,
affiliates, successors, assigns, officers, directors and employees, from any
and all liability arising from any Employer or Employee direction under the
Custodial Account and from any and all other liability whatsoever which may
arise in connection with the Custodial Account, except liability arising from
the gross negligence or willful misconduct on the part of the indemnified
person.
8.5 RESIGNATION OR REMOVAL OF CUSTODIAN. The Custodian may resign as Custodian
of any Custodial Account upon 60 days prior written notice to the Company and 30
days prior written notice to any affected Employee and Employer. In the absence
of any other Agreement, the Company may remove the Custodian upon 30 days prior
written notice. Upon the Custodian's resignation or removal, the Company may,
but shall not be required to, appoint a successor Custodian. The Custodian
shall then transfer and deliver all assets of the Custodial Accounts and all
records relative thereto to the successor custodian. Neither the Custodian, the
Funds, nor the Company shall be liable for the acts or omissions of any
successor custodian. If no successor custodian is appointed by the Company, the
Custodial Account shall be terminated in accordance with Article X.
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<PAGE> 17
The Custodian, and any successor Custodian appointed to serve under this
Agreement, shall be a bank as defined in Section 408(n) of the Code or such
other person who is qualified to serve as custodian under Section 401(f)(2) of
the Code.
8.6 RESIGNATION OF THE COMPANY. If the Company shall hereafter determine that
it is no longer desirable to continue to make available custodial accounts
pursuant to this Agreement or to exercise any of the powers hereby delegated to
it, it may relieve itself of any further responsibilities hereunder by notice in
writing to the Custodian and each Employee and Employer adopting the Agreement
at least sixty (60) days prior to the date on which it proposes to discontinue
the exercise of the powers delegated to it. Resignation of the Company shall
terminate the Custodial Account in accordance with Article X.
ARTICLE IX PAYMENT OF FEES AND EXPENSES
9.1 FEES AND CHARGES. All administrative or other fees for services, including
sales charges and expenses chargeable to the Custodial Account, shall be
collected when due from the contributions received or, if insufficient, from
redemption of assets in such Custodial Account, without prior notice. Any
extraordinary expenses, such as legal fees, incurred in connection with the
management, administration or investment of a Custodial Account shall be paid by
such Account. The Company and Custodian may amend the fee schedules and sales
charges then in effect upon written notice to affected Employees.
9.2 TAXES AND TAX WITHHOLDING. Transfer and other taxes, if any, incurred in
connection with the investment and reinvestment of the Custodial Account shall
be paid from the assets in the Account. Any income, estate, inheritance, gift
or other tax or charge attributable to amounts paid from a Custodial Account
shall be paid by such Account. The Custodian may require a release or other
documents and indemnities as it may deem necessary prior to making any payment
or withholding or not withholding any amount of a distribution.
Any distribution shall be made by the Custodian subject to withholding of any
income or other taxes as may be required by federal law, including, federal
income tax withholding on any "eligible rollover distribution" as described in
Section 6.5.
ARTICLE X AMENDMENT AND TERMINATION
10.1 AMENDMENT BY COMPANY. The Employee, Employer and the Custodian delegate to
the Company the power to amend the Agreement, including retroactive amendment.
The Company shall provide written notice to the Custodian and Employees of any
amendment.
10.2 FEE CHANGES. This Article X does not limit the rights of the Custodian or
Company to alter or amend any fee schedules or sales charges.
10.3 TERMINATION. The Employer and/or Employee reserve the right to cease
further contributions to the Custodial Account. The Employer and Employee
reserve the right to terminate adoption of the Agreement and request transfer or
distribution of the assets of the Custodian Account. In the event of any
termination under this Article X or pursuant to Article VIII, the Employee may
direct the Custodian to transfer assets of the Custodial Account directly to
another custodial account under Section 403(b)(7) of the Code, or the Custodian
shall distribute the assets in the Custodial Account to the Employee and the
Agreement shall be terminated. Neither
15
<PAGE> 18
the Custodian nor the Company shall be responsible for the tax consequences of
any such distribution or transfer.
ARTICLE XI ALIENATION AND FORFEITURE
11.1 EXCLUSIVE BENEFIT. All assets in the Custodial Account shall be retained
for the exclusive benefit of the Employee or his Beneficiaries and shall only be
used to pay benefits to such persons or to pay the fees and expenses, including
sales charges, of the Custodial Account.
11.2 NONTRANSFERABILITY. The interest of an Employee in the Custodial Account
may not be assigned, transferred, pledged, hypothecated or otherwise alienated,
either voluntarily or involuntarily, nor shall it be subject to levy,
attachment, lien or other form of legal process; provided, however, that the
Custodian shall comply with any qualified domestic relations order as provided
in Section 206(d)(3) of the Act, if applicable. The Employer shall be
responsible for determining the qualified status of any domestic relations order
under Section 206(d)(3) of the Act.
11.3 VESTING. Subject to Section 2.2, the Employee's interest in the balance of
the Employee's Custodial Account shall at all times be nonforfeitable.
ARTICLE XII MISCELLANEOUS
12.1 APPLICABLE LAW. To the extent not governed by the provisions of federal
law, the Agreement shall be construed in accordance with the laws of the State
of Wisconsin.
12.2 NOTICES. Any notice, accounting or other communication which the Custodian
or Company must give to any party shall be deemed given when mailed to the last
address furnished to the Custodian or Company. Any notice or other
communication required to be given to the Custodian or Company, as the case may
be, shall be effective when actually received by the Custodian or Company
respectively.
12.3 WAIVER OF OBJECTION. Unless a party sends the Custodian written objection
to a report within 60 days after its receipt, the report shall be deemed
approved and, in such cases, the Custodian shall be forever released and
discharged with respect to all matters and things included therein. The
Custodian may seek a judicial settlement of its accounts. In any such
proceeding the only necessary party thereto in addition to the Custodian shall
be the affected Employee.
12.4 OTHER 403(B) ARRANGEMENTS. This Agreement shall not prevent the Employee
or Employer from making contributions to other custodial accounts under Code
Section 403(b)(7), or from purchasing other annuity contracts under Code Section
403(b); provided that the aggregate payments or contributions under this
Custodial Account and all other custodial accounts and annuity contracts shall
not exceed the amounts specified under Article V hereof.
16
<PAGE> 19
[Logo] Heartland Funds
------------------------
AMERICA'S VALUE INVESTOR
Heartland Advisors, Inc. - Distributor. Member SIPC, NASD.
<PAGE> 20
[Logo] Heartland Funds
- ----------------------
AMERICA'S VALUE INVESTOR
SECTION 403(b)(7)
CUSTODIAL ACCOUNT
DESCRIPTION
<PAGE> 21
FEATURES OF THE PLAN
The Internal Revenue Code (the "Code") and the Employee Retirement Income
Security Act of 1974 (the "Act") allow employees of certain tax exempt
organizations and public schools to have a portion of their compensation set
aside for their retirement years in a mutual fund custodial account. The
employee is not taxed on the amounts set aside or the earnings on those amounts
until he draws out his accumulated funds, normally at retirement.
Under the Heartland Funds Section 403(b)(7) Custodial Account, your
contributions are invested in the stock of one or more of the portfolios in the
fund group sponsored by Heartland Group, Inc. (the "Company") or in the stock
of one or more portfolios serviced by Heartland Group, Inc. (the "Funds").
(For example, the Portico Money Market Fund is offered for investment by your
Heartland Funds Section 403(b)(7) Custodial Account pursuant to a servicing
agreement with Portico Funds, Inc.) Firstar Trust Company will serve as
custodian of your account (the "Custodian").
If you think you would like to participate please read on for a further
explanation of the key features of your custodial account. If you would like
additional information or assistance in enrolling please call the Funds at
(414) 289-7000 or toll-free at 1-800-432-7856.
ELIGIBILITY
Any employee of a qualifying tax-exempt organization is eligible to
participate. Thus, teachers, administrators, ministers, employees of
hospitals, libraries, community chests, funds, foundations, and many others may
be eligible. The employer must be an organization described in Section
501(c)(3) of the Internal Revenue Code and must be exempt from tax under
Section 501(a) of the Code. The definition in Section 501(c)(3) is set forth
below for your convenience in determining whether your employer may be one of
the many qualifying organizations.
CODE SECTION 501(C)(3)
"Corporations and any community chest, fund, or foundation, organized and
operated exclusively for religious, charitable, scientific, testing for
public safety, literary, or educational purposes, or to foster national or
international amateur sports competition (but only if no part of its
activities involve the provision of athletic facilities or equipment), or
for
1
<PAGE> 22
the prevention of cruelty to children or animals, no part of the net
earnings of which inures to the benefit of any private shareholder or
individual, no substantial part of the activities of which is carrying on
propaganda, or otherwise attempting to influence legislation, (except as
otherwise provided in subsection (h)), and which does not participate in,
or intervene in (including the publishing or distributing of statements),
any political campaign on behalf of (or in opposition to) any candidate
for public office."
As noted above, an employer organization that is one of the types of
organizations described in Code Section 501(c)(3) must also be exempt under
Code Section 501(a) to be a qualified employer organization.
In addition to employees of tax-exempt organizations, an employee of most
public educational institutions is eligible if his employer is a State or a
political subdivision of a State, or an agency or instrumentality of either.
An eligible individual is not disqualified from establishing a salary
reduction custodial account by reason of the fact that his employer provides a
separate retirement plan for its employees, as long as the employer is willing
to let all employees establish salary reduction accounts. However, the
limitation on salary reduction contributions under this or any other 403(b)
custodial account will be affected by the salary reduction contributions and
other employer contribution to any other retirement plan. In lieu of or in
addition to a salary reduction arrangement, an employer may be willing to make
contributions to a custodial account on behalf of some or all of its employees,
but an employer is not obligated to do so. If the employer does make
contributions to the custodial account, the employer's contributions may be
subject to additional limitations and discrimination rules and may constitute
an "employee pension benefit plan" subject to ERISA.
CONTRIBUTIONS
The total amount your employer may contribute to the custodial account and
which you may exclude from your taxable income in any taxable year is the least
of the following amounts:
(i) 25% of compensation or $30,000, whichever is less. For this
purpose, "compensation" generally means amounts included in your
taxable income, but does not include 403(b) contributions;
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<PAGE> 23
(ii) The excess, if any, of (a) 20% of Includable Compensation times
your number of years of service over (b) the aggregate amount
contributed by the employer previously for 403(b) and other
retirement plans and excluded from your gross income for prior tax
years. "Includable Compensation" is, generally, current compensation
from the school or eligible organization. It does not include
403(b) contributions or amounts paid by a public school system to a
teachers retirement plan which were not currently taxed to the
teacher.
If you are employed by an educational institution, hospital, home health
service agency, health and welfare service agency or a church or convention or
association of churches, you may elect to be governed by one of a number of
alternate limitations. These optional limitations are mutually exclusive and
an election of one of the options is irrevocable.
In addition to the above limitations, salary reduction contributions are
limited to $9,500 per year, indexed in accordance with cost of living
increases. The $9,500 limit is reduced by salary deferral contributions to
other 403(b) or 410(k) plans or simplified employee pension plans and SIMPLE
retirement accounts. Special catch-up contributions are allowed in addition to
the $9,500 limit for an employee of an educational institution, hospital, home
health service agency, health and welfare service agency, or church or
convention or association of churches, if the employee has completed 15 years
of service with the organization. You should contact your employer or tax
advisor to determine whether you qualify for a catch-up contribution and to
determine the maximum allowable contribution for your particular situation.
INVESTMENTS
Your contributions will be used to purchase shares of the portfolios
offered, by Heartland Group, Inc. or made available through a servicing
agreement with Heartland Group, Inc. (the "Funds"). Any dividends on the
shares automatically will be reinvested in additional shares. These additional
shares will represent your earnings in your account. At any time you may
direct the Custodian to invest your contributions and/or your account assets in
any of the available Fund portfolios. In the absence of a clear direction,
contributions will be invested in the Portico Money Market Fund. The law says
that the shares must be held by a Custodian, but you will be entitled to vote
the shares.
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<PAGE> 24
The Custodian will send you a statement of the account annually, including
such information as the law may require, and in particular, a statement of the
exact amount of contribution, earnings, distributions and total value at the
end of the year.
DISTRIBUTIONS
You may withdraw funds from your custodial account upon attainment of age
59 1/2 or when you terminate employment by retirement or otherwise. You may
also withdraw funds in the event you become disabled or in the event of
financial hardship. Your account may at your option be distributed to you in
the following ways: (1) a single sum payment of your entire account, in cash or
shares; (2) monthly, quarterly or annual payments over any period you designate
which is not longer than your life expectancy or the joint life expectancy of
you and your designated beneficiary; or (3) specific dollar amounts as you
direct. If your custodial account is part of your employer's plan or is an
employee pension benefit plan under ERISA, it may be subject to special annuity
distribution and spousal consent rules or other distribution rules or
limitations imposed by your employer's plan.
Please note that a distribution prior to your attainment of age 59 1/2 may
be subject to a 10% additional tax under the Internal Revenue Code. Also note
that distributions generally must begin for the year in which you attain age
70 1/2 or retire, whichever is later, and thereafter a minimum amount must be
distributed each year.
In the event of your death, your beneficiary or beneficiaries will receive
the balance in your custodial account. You may designate a beneficiary and
change beneficiaries at any time. If you do not designate a beneficiary, your
surviving spouse or estate, in that order, will receive the balance in your
account. Special spousal distribution and consent rules will apply if your
account is part of an employee pension benefit plan under ERISA.
HOW TO PARTICIPATE
If you and your employer satisfy the eligibility requirements described
earlier, you may establish a custodial account by completing the Account
Application, Beneficiary Designation Form and Salary Reduction Agreement and
mailing them to the Custodian. (If you wish to transfer funds directly from
another 403(b) annuity or custodial account, you should also complete a
Transfer Form and mail it to the Custodian.) If you are planning to directly
roll over funds from another 403(b) annuity or custodial account, please see
the enclosed Direct Rollover Notice.
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<PAGE> 25
Your forms will be held until the first contribution is received. Upon
receipt of the initial investment, your account will be opened. Be sure not to
send your own funds.
If your employer is funding your custodial account, simply complete and
return the above forms to your employer. Your employer will send the forms to
the Custodian with the first contribution.
PLAN QUALIFICATION
You may consider it prudent to submit a ruling request to the Internal
Revenue Service concerning whether or not the Custodial Account Agreement
complies with applicable Internal Revenue Code provisions. It should be
understood that neither the Company nor the Custodian is in a position to
render legal or tax advice and that the information contained in and the
documents furnished with this description merely represent the Company's
understanding of the statutes and regulations affecting the establishment and
qualification of a 403(b)(7) custodial account. Accordingly, you are urged to
consult your attorney or tax advisor in connection with the adoption of the
custodial account and the submission of any ruling request on your behalf.
PLEASE NOTE: The foregoing is not a complete or definitive explanation of
the Custodial Account Agreement or of the provisions of the Act or Code.
Please do not complete the Account Application without reading the Custodial
Account Agreement and the prospectus of the mutual fund(s) you have chosen
which will accompany the Custodial Account Agreement. If your account is part
of a retirement plan established by your employer, your employer's plan may
contain additional rules and limitations which apply to contributions to and
distributions from your account. Consult your employer or your financial or
tax advisor if you are uncertain that a 403(b)(7) custodial account is an
appropriate program for your particular needs. You may obtain additional
information about 403(b)(7) custodial accounts from your nearest Internal
Revenue Service district office.
5
<PAGE> 26
[Logo] Heartland Funds
------------------------
AMERICA'S VALUE INVESTOR
Heartland Advisors, Inc. - Distributor. Member SIPC, NASD.
<PAGE> 27
[Logo] Heartland Funds
- ------------------------
AMERICA'S VALUE INVESTOR
SECTION 403(b)(7) CUSTODIAL ACCOUNT
APPLICATION
OVERNIGHT MAIL TO: REGULAR MAIL TO:
Firstar Trust Company Firstar Trust Company
615 E. Michigan P.O. Box 701
Milwaukee, WI 53202 Milwaukee, WI 53201-0701
- -------------------------------------------------------------------------------
Shareholder Services: 1-800-432-7856 or (414) 289-7000
for current prices, account information and market updates
- -------------------------------------------------------------------------------
To establish a Heartland Funds 403(b)(7) Custodial Account, complete the
following:
- - 403(b)(7) CUSTODIAL ACCOUNT APPLICATION
- - BENEFICIARY DESIGNATION FORM
- - SALARY REDUCTION AGREEMENT (both you and your employer must sign)
- - TRANSFER FORM (only if you wish to transfer prior 403(b) funds to your
Heartland Funds 403(b)(7) Custodial Account)
The forms will be held by Firstar Trust Company, Custodian, until the first
contribution is received, after which your account will be opened and
investments made according to your instructions. If you have any questions
about this application, please call Heartland Funds at (414) 289-7000 or
toll-free at 1-800-432-7856.
EMPLOYEE INFORMATION (Please print)
- ---------------------------------------- -------------------------------------
Name Date of birth
- -------------------------------------------------------------------------------
Address City State Zip code
( )
- ---------------------------------------- -------------------------------------
Daytime telephone number Social security number
EMPLOYER INFORMATION (Please print)
( )
- ---------------------------------------- -------------------------------------
Name of employer Employer telephone number
- -------------------------------------------------------------------------------
Employer address City State Zip code
CONTRIBUTION INFORMATION
Please describe the types of contributions to be made to your account:
a) [ ] Salary reduction contributions will be made to the account
(complete Salary Reduction Agreement).
b) [ ] Employer contributions (matching or otherwise) will be made to
the account.
c) [ ] A transfer of 403(b) assets will be made to the account
(complete the 403(b)(7) Transfer Form).
d) [ ] Amounts will be rolled over (directly or otherwise) to the
account (see Direct Rollover Notice).
TELEPHONE EXCHANGE OPTION
[ ] By checking this box, I authorize Firstar Trust Company and Heartland
Advisors, Inc. to act upon my instructions, received by telephone, to
exchange shares in this account for shares of any identically registered
account(s) with Heartland Funds.
<PAGE> 28
INVESTMENT ALLOCATION (Please elect how the contribution made to your
account should be invested)
Employee directs that all contributions shall be invested in shares of the
following Fund(s) in the following whole percentages:
<TABLE>
<CAPTION>
SALARY REDUCTION EMPLOYER
CONTRIBUTIONS CONTRIBUTIONS
<S> <C> <C>
Heartland Value Fund (closed to new investors 7/1/95) _____________% ______________%
Heartland Small Cap Contrarian Fund _____________% ______________%
Heartland Value Plus Fund _____________% ______________%
Heartland Mid Cap Value Fund _____________% ______________%
Heartland Large Cap Value Fund _____________% ______________%
Heartland U.S. Government Securities Fund _____________% ______________%
Portico Money Market Fund _____________% ______________%
Total 100% Total 100%
</TABLE>
If a specific Fund is not selected or if allocation instructions are unclear,
contributions will be invested in the Portico Money Market Fund until the
Custodian receives further instructions.
CUSTODIAL FEES
Employee agrees that the Custodian shall be entitled to deduct its fees and
administrative expenses from the Custodial Account, and may sell the Employee's
Fund shares to the extent necessary to pay fees and expenses. The Custodian's
fees shall be at the following rates initially but may be amended by the
Custodian in the future:
<TABLE>
<S> <C>
Annual maintenance fee (maximum $25.00 per social security number) $12.50
Lump sum distribution............................................. 15.00
Each non-regular periodic distribution............................ 15.00
Refund of excess contributions.................................... 15.00
Transfer of funds to successor custodian.......................... 15.00
</TABLE>
ACKNOWLEDGMENT AND APPOINTMENT
(a) EMPLOYEE. Employee acknowledges receiving and reading the Fund(s)
current prospectus(es) and the Heartland Funds 403(b)(7) Custodial Account
Agreement and ancillary forms. Employee understands that he/she is
responsible for determining the amount and tax treatment of any
transaction, including contributions, transfers, rollovers, and
distributions to and from the Custodial Account. Employee certifies that
his/her social security number is correct and that he/she is eligible to
adopt a 403(b)(7) custodial account. Employee hereby adopts the Heartland
Funds 403(b)(7) Custodial Account upon the terms and conditions set forth
in the Agreement and this Account Application.
______________________________________________________ __________________
Employee Signature Date
(b) EMPLOYER. Employer agrees to the terms and conditions of the Heartland
Funds 403(b)(7) Custodial Account as set forth in the Agreement and this
Account Application, and certifies that it is a qualifying organization
described in Code Section 403(b)(1)(A). Employer agrees that it is
responsible for complying with ERISA and/or any state laws relating to
employee pension benefit plans, as applicable.
________________________________ __________________ __________________
Employer Signature Title Date
(c) CUSTODIAN. Appointment of Custodian is accepted.
FIRSTAR TRUST COMPANY
______________________________________________________ __________________
Authorized Signature Date
<PAGE> 29
[Logo] Heartland Funds
- ------------------------
AMERICA'S VALUE INVESTOR
SECTION 403(b)(7) CUSTODIAL ACCOUNT
SALARY REDUCTION
AGREEMENT
OVERNIGHT MAIL TO: REGULAR MAIL TO:
Firstar Trust Company Firstar Trust Company
615 E. Michigan P.O. Box 701
Milwaukee, WI 53202 Milwaukee, WI 53201-0701
- -------------------------------------------------------------------------------
Shareholder Services: 1-800-432-7856 or (414) 289-7000
for current prices, account information and market updates
- -------------------------------------------------------------------------------
- Complete form with authorized signatures - Mail to Custodian with
the Section 403(b)(7) Custodial Account Application
================================================================================
AGREEMENT made this ____ day of ______________________________, 19_____, by and
between ________________________________________ (the "Employer") and
_________________________________________ the ("Employee"), whereby the
Employer and Employee agree as follows:
1. The salary of the Employee will be reduced per pay
period by $____________, or by ________%
(minimum of $______________ per pay period).
2. The amount of such reduction shall be paid by the
Employer to: Heartland Funds c/o Firstar Trust Company, P.O.
Box 701, Milwaukee, WI 53201-0701. In accordance with the
Heartland Funds 403(b)(7) Custodial Account Agreement, the
amounts contributed under this Salary Reduction Agreement
shall be deposited in the Employee's Custodial Account under
Section 403(b)(7) of the Internal Revenue Code and shall be
subject to the limitations under Sections 402(g), 403(b) and
415 of the Internal Revenue Code of 1986. The Employee shall
be solely responsible for ensuring that these limits are not
violated.
3. This Salary Reduction Agreement is legally binding and
irrevocable with respect to all amounts which become currently
available to the Employee while this Agreement is in effect;
provided, however, that the Employee or Employer may terminate
the entire Agreement at any time with respect to amounts not
currently available at the time of termination.
4. This Agreement will continue in effect for the remainder
of the current year and for future years until the Employee
and Employer agree to terminate or modify the Agreement.
EXECUTED as of the date first written above.
____________________________________________________________________________
Employer (please print)
_______________________________________________ __________________________
Employer authorized signature Title
____________________________________________________________________________
Employee (please print)
____________________________________________________________________________
Eployee signature
<PAGE> 30
[Logo] Heartland Funds
- ----------------------
AMERICA'S VALUE INVESTOR
SECTION 403(b)(7) CUSTODIAL ACCOUNT
BENEFICIARY
DESIGNATION FORM
OVERNIGHT MAIL TO: REGULAR MAIL TO:
Firstar Trust Company Firstar Trust Company
615 E. Michigan P.O. Box 701
Milwaukee, WI 53202 Milwaukee, WI 53201-0701
- ----------------------------------------------------------
Shareholder Services: 1-800-432-7856 or (414) 289-7000
for current prices, account information and market updates
- ----------------------------------------------------------
Please complete this form to initially name a beneficiary for your Heartland
Funds 403(b)(7) Custodial Account or to change your existing beneficiary.
<TABLE>
<CAPTION>
DESIGNATION OF BENEFICIARIES
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
(a)PRIMARY BENEFICIARY
- ----------------------------- -------------------------------- ----------------------
Name Social security number Date of birth
- ---------------------------- ------------------------------ ----------------------
City State Zip Relationship
(b)SECONDARY BENEFICIARY
- ---------------------------- ----------------------------- ----------------------
Name Social security number Date of birth
- ---------------------------- ----------------------------- ----------------------
City State Zip Relationship
</TABLE>
SPOUSAL CONSENT AND STATEMENT OF NON-MARRIAGE
If your 403(b)(7) Custodial Account is subject to ERISA (for example, if your
employer makes contributions and is not a governmental unit or a church) and if
you do not designate your spouse as your sole primary beneficiary, your spouse
must consent to your designation and your spouse's consent must be witnessed by
a notary public or representative of your employer's plan. (Depending upon the
applicable provisions of ERISA and your employer's plan, your spouse's consent
may be ineffective prior to the plan year which you attain age 35 or may
automatically expire on the first day of the plan year during which you attain
age 35. You should check with your employer regarding the application of these
rules.) PLEASE COMPLETE EITHER THE SPOUSAL CONSENT OR STATEMENT OF
NON-MARRIAGE BELOW.
SPOUSAL CONSENT
As the spouse of the Employee, I consent to the beneficiary(ies) designated
above and acknowledge that by doing so, I am waiving my pre-retirement survivor
annuity rights and rights to be sole primary beneficiary of any death benefits
payable under the Heartland Funds Custodial Account(s).
- --------------------------------------- ----------------------
Signature of spouse Date
NOTARY PUBLIC OR PLAN REPRESENTATIVE AFFIRMATION:
I affirm that _________________________________ appeared before me on this______
day of ___________________, 19___, and executed the above spousal consent.
- ---------------------------------------- ------------------------
Notary Public (or) Plan administrator
- ----------------------------------------
County
My commission expires
-------------------
<PAGE> 31
STATEMENT OF NON-MARRIAGE
I hereby certify that I am not married at this time.
_______________________________________________ ___________________________
Signature of employee Date
______________________________________________________________________________
EMPLOYEE SIGNATURE
I understand that if I do not validly designate any beneficiary(ies) or if I am
not survived by any designated beneficiary, my beneficiary will be my surviving
spouse, or, if I do not have a surviving spouse, my estate. I am aware that
this form becomes effective when delivered to Heartland Funds, and will remain
in effect until I deliver to Heartland Funds another form with a later date.
The Beneficiary information provided herein shall apply to all my Heartland
Funds 403(b)(7) Custodial Accounts for which Firstar Trust Company (or any
successor custodian) acts as custodian, and shall replace all previous
designation(s) I have made on any of my Heartland Funds 403(b)(7) Custodial
Accounts.
_______________________________________________ ___________________________
Signature of employee Date
INFORMATION ON NAMING A BENEFICIARY:
You can name more than one person to be primary and/or secondary beneficiary by
including all the information requested above on a separate piece of paper.
Sign and date any additional page and attach it to this Beneficiary Designation
Form. If you name more than one primary or secondary beneficiary, you can
specify if they are to receive equal or unequal shares. If you do not specify,
we will assume you want them paid in equal shares.
We will assume that you want your entire 403(b)(7) account balance paid to the
beneficiaries who survive you. For example, if you name two primary
beneficiaries but one of them dies before you, the entire balance will go to
the surviving primary beneficiary.
Any secondary beneficiary or beneficiaries you name will receive all or a
portion of your Heartland Funds 403(b)(7) Custodial Account balance only if the
primary beneficiary(ies) die before you.
To name a trust as primary or secondary beneficiary, write the name and address
of the trustee, then give the date of the trust agreement and the name of each
trust beneficiary. Also, attach a copy of the trust. The naming of a trust
may impact upon the calculation of distributions under the minimum distribution
rules. You should contact your legal or tax advisor to determine the possible
impact of naming a trust as beneficiary for your 403(b)(7) Custodial Account
balance.
If your 403(b)(7) Custodial Account is part of a retirement plan maintained by
your employer, your employer's plan or the provisions of ERISA may impose
additional rules and limitations on the naming of beneficiaries. You should
check with your employer to see if your account is part of your employer's
retirement plan.
OTHER IMPORTANT POINTS TO REMEMBER:
By naming a beneficiary on this Beneficiary Designation Form, you automatically
cancel any earlier designation of a beneficiary you may have made with respect
to the assets in your Heartland Funds 403(b)(7) Custodial Account(s).
You have the right to change your beneficiary at any time by filing a proper
written request with the Custodian. The most recent designation on file with
the Custodian at your death will be controlling.
If no beneficiary survives you, or if no valid beneficiary designation is in
effect at your death, we will pay the balance in your account to your surviving
spouse, or if you have no surviving spouse, to your estate.
If you are a resident of a state which has adopted a marital or community
property law, your spouse may have rights in your custodial account which may
affect your beneficiary designation. You should consult your legal or tax
advisor regarding the impact of any marital property law.
<PAGE> 32
[Logo] Heartland Funds
- ------------------------
AMERICA'S VALUE INVESTOR
SECTION 403(b)(7) CUSTODIAL ACCOUNT
DIRECT ROLLOVER
NOTICE
TO RECIPIENTS OF DISTRIBUTIONS FROM TAX SHELTERED ANNUITIES:
If your Heartland Funds 403(b)(7) Custodial Account is to be funded by the
rollover of a distribution from a 403(b) tax sheltered annuity or custodial
account, 20% of your distribution eligible for rollover must be withheld for
tax purposes unless the distribution is made DIRECTLY to the custodian of your
403(b)(7) custodial account.
If you receive a distribution from a 403(b) tax sheltered annuity or custodial
account which is eligible for rollover and you intend to directly roll that
amount to your Heartland Funds 403(b)(7) Custodial Account, that distribution
may take ONE OF THREE FORMS:
=============================================================================
1. Your employer or custodian may deliver a check to you. If so, make sure
the check is payable as follows:
Firstar Trust Company, Custodian
FBO 403(b)(7) Custodial Account
------------------------------------------
(YOUR NAME)
and deliver it along with a completed Heartland Funds 403(b)(7) Custodial
Account Application to the following:
OVERNIGHT MAIL TO: REGULAR MAIL TO:
Firstar Trust Company Firstar Trust Company
615 E. Michigan P.O. Box 701
Milwaukee, WI 53202 Milwaukee, WI 53201-0701
2. YOUR EMPLOYER OR CUSTODIAN MAY FORWARD YOUR DISTRIBUTION DIRECTLY TO THE
CUSTODIAN. IF THIS OCCURS, MAKE SURE THE CHECK IS PAYABLE AS FOLLOWS AND THAT
THE CHECK, ALONG WITH A COMPLETED HEARTLAND FUNDS 403(b)(7) CUSTODIAL ACCOUNT
APPLICATION, IS SENT TO US AT THE FOLLOWING ADDRESS:
FBO 403(b)(7) Custodial Account
------------------------------------------
(YOUR NAME)
OVERNIGHT MAIL TO: REGULAR MAIL TO:
Firstar Trust Company Firstar Trust Company
615 E. Michigan P.O. Box 701
Milwaukee, WI 53202 Milwaukee, WI 53201-0701
Make sure that your completed Heartland Funds 403(b)(7) Custodial Account
Application indicates that you are about to receive a direct rollover.
3. IF YOUR EMPLOYER WILL BE WIRING FUNDS TO FIRSTAR TRUST COMPANY, THE
WIRING INSTRUCTIONS ARE AS FOLLOWS:
CREDIT TO:
Heartland
--------------------------------------------------------------------
(NAME OF FUND)
FBO 403 (b)(7) Custodial Account
----------------------------------------------
(YOUR NAME)
- -----------------------------------------------------------------------------
(ACCOUNT NUMBER)
-------------------------
Firstar National Bank
ABA #0750-00022
Firstar Trust MFS
A/C #112-952-137
777 East Wisconsin Avenue
Milwaukee, WI 53202
-------------------------
MAKE SURE THAT YOU HAVE A COMPLETED HEARTLAND FUNDS 403(b)(7) CUSTODIAL ACCOUNT
APPLICATION FILED WITH THE CUSTODIAN PRIOR TO RECEIPT OF THE WIRE TRANSFER.
<PAGE> 33
[Logo] Heartland Funds
- ------------------------
AMERICA'S VALUE INVESTOR
SECTION 403(b)(7) CUSTODIAL ACCOUNT
TRANSFER FORM
OVERNIGHT MAIL TO: REGULAR MAIL TO:
Firstar Trust Company Firstar Trust Company
615 E. Michigan P.O. Box 701
Milwaukee, WI 53202 Milwaukee, WI 53201-0701
- ----------------------------------------------------------
Shareholder Services: 1-800-432-7856 or (414) 289-7000
for current prices, account information and market updates
- ----------------------------------------------------------
PLEASE NOTE: THIS IS NOT AN ACCOUNT APPLICATION FORM.
Please complete the items below if you wish to transfer assets from a current
403(b) annuity contract or 403(b)(7) custodial account to your Heartland Funds
403(b)(7) Custodial Account. Upon receipt, Firstar Trust Company will arrange
for the transfer on your behalf, and the assets will be invested in your
Heartland Funds 403(b)(7) Custodial Account as soon as practical after they are
received by Firstar Trust Company. Most insurers or custodians will accept
this Transfer Form with your signature alone; others require a signature
guarantee. Failure to secure proper signature could delay your transfer.
EMPLOYEE INFORMATION (Please print)
- ------------------------------------- ----------------------------------------
Name Date of birth
- --------------------------------------------------------------------------------
Address City State Zip code
( )
- --------------------------------------------------------------------------------
Daytime telephone number Social security number
( )
- --------------------------------------------------------------------------------
Name of employer Employer telephone number
- --------------------------------------------------------------------------------
Employer address
- --------------------------------------------------------------------------------
City State Zip code
EXISTING ANNUITY/CUSTODIAL ACCOUNT INFORMATION (Where your account is presently
held)
- --------------------------------------------------------------------------------
Name of current insurer or custodian mailing
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip code
- --------------------------------------------------------------------------------
Contract/account number /x/ I am enclosing a copy of my latest statement.
<PAGE> 34
TRANSFER INSTRUCTIONS
Transfer all or part of my existing account as follows:
[ ] $ or
------------------------
[ ] the entire balance in the Section 403(b) annuity contract or Section
403(b)(7) custodial account.
INVESTMENT INSTRUCTIONS (to Heartland Funds):
Please invest my transferred amount as follows:
[ ] in my existing Heartland Funds 403(b)(7) Custodial Account
#
------------------------
[ ] in a new Heartland Funds 403(b)(7) Custodial Account. FOR A NEW ACCOUNT,
I WILL ALSO COMPLETE AN ACCOUNT APPLICATION.
<PAGE> 35
TRANSFER AGREEMENT AND AUTHORIZATION
(a) The above-named Employee hereby irrevocably agrees to surrender his or
her interest in the Section 403(b) annuity contract or Section 403(b)
custodial account identified above to the issuing insurer or custodian
thereof for purposes of having the proceeds received by the insurer or
custodian upon surrender transferred directly to Firstar Trust Company for
immediate deposit in a Heartland Funds 403(b)(7) Custodial Account
established on behalf of the Employee.
(b) The above-named Employee hereby authorizes Firstar Trust Company to
take whatever action is necessary to effect the transfer identified
in (a) above, and directs Firstar Trust Company to deposit the proceeds
received in the Heartland Funds 403(b)(7) Custodial Account established on
behalf of the Employee.
AUTHORIZATION AND ACCEPTANCE
(a) EMPLOYEE ACCEPTANCE: I hereby agree to the terms and conditions set
forth in this Transfer Form, and acknowledge having established a
403(b)(7) Custodial Account through execution of a Heartland Funds
403(b)(7) Custodial Account Application.
- -------------------------------------------------------- ---------------------
Signature Date
- -------------------------------------------------------- ---------------------
Signature guarantee (if applicable) Date
(b) CUSTODIAN ACCEPTANCE (FIRSTAR TRUST COMPANY WILL COMPLETE THIS PORTION):
Firstar Trust Company hereby agrees to accept the transfer described above
and upon receipt will deposit the proceeds in the Heartland Funds
403(b)(7) Custodial Account established on behalf of the Employee.
- -------------------------------------------------------- ---------------------
Authorized signature Date
INSTRUCTIONS TO TRANSFEROR INVESTMENT PROVIDER
Please prepare a check representing liquidation of the investment
referenced above and send it to:
HEARTLAND FUNDS
C/O FIRSTAR TRUST COMPANY
P. O. BOX 701
MILWAUKEE, WI 53201-0701
To ensure proper credit, please return a copy of this form with the check.
Also, if separate accounting is intended for purposes of compliance with
certain distribution rules, please identify that portion of the transfer for
which separate accounting is requested (for example, that portion of the
transfer that represents the employee's pre-1987 account balance, that portion
of the transfer representing the employee's pre-1989 account balance, or that
portion representing post-1988 salary reduction contributions (excluding
earnings).
<PAGE> 1
Exhibit 14(d)
HEARTLAND FUNDS SIMPLE IRA
ATTACHMENT TO IRS FORM 5305-SA
ARTICLE VIII
(Additional provisions agreed upon by Participant and Custodian to complete
this Agreement)
1. DEFINITIONS.
(a) "Custodian" shall mean the Firstar Trust Company.
(b) "Fund" or "Funds" shall mean the Heartland Fund shares
offered by the Investment Company for purchase under this Agreement,
and such other mutual fund shares which the Investment Company chooses
to make available for IRA investment through a servicing agreement.
(c) "Investment Company" shall mean Heartland Group, Inc., a
registered investment company, and its affiliates, including Heartland
Advisors, Inc., the investment advisor to the Funds.
(d) "Participant" shall mean the individual who establishes this
SIMPLE IRA by executing and agreeing to be bound by this Agreement.
2. ACCOUNT INVESTMENT.
(a) All Participant salary reduction contributions and other matching
or nonelective contributions made by the Participant's employer on
behalf of the Participant shall identify the Participant's account
number, and shall be invested by the Custodian in shares of the Funds
in accordance with the Participant's or the Participant's employer's
directions (whichever is applicable). Contributions which are
accompanied by inadequate account identification or investment
directions shall be invested by the Custodian in the Portico Money
Market Fund until the Custodian receives proper investment directions.
(b) All contributions shall be invested in whole or fractional shares
of the Fund at a price and in the manner in which such shares are
being publicly offered. All distributions received by the Custodian
on shares of the Fund shall be reinvested in like shares and credited
to the Participant's account.
(c) All shares of the Fund acquired by the Custodian shall be
registered in the name of the Custodian or its registered nominee.
The Participant shall be the beneficial owner of all Fund shares held
in the Participant's account and the Custodian shall not vote such
shares, except upon written direction of the Participant. The
Custodian will forward to every Participant a then current Prospectus,
reports, notices, proxies and any materials applicable to Fund shares
received by the Custodian.
(d) Neither the Custodian nor the Investment Company shall have any
liability in connection with any contributions to the custodial
account, nor any investment choices made by the Participant or the
Participant's employer or beneficiaries, as applicable.
3. EXPENSES AND FEES.
Any and all charges, expenses and fees shall be charged against and
deducted from the Participant's custodial account, including all reasonable
expenses incurred by the Custodian in the administration of the account, all
charges involved in the investment and/or redemption of shares as stated in the
then current Prospectus, all income taxes and other taxes of any kind that are
assessed upon the assets of the account, or income arising therefrom, any fees
for legal services rendered to the Custodian in relation to the account, and
the Custodian's fees, which shall be as stated in the Application.
Extraordinary charges resulting from unusual administrative duties not
contemplated herein will be subject to such additional charges as will
reasonably compensate the Custodian for its services.
4. AMENDMENT AND TERMINATION.
(a) This custodial account is intended to be a qualified individual
retirement custodial account used with a SIMPLE retirement plan and is
intended to comply with the requirements of Sections 408(a) and 408(p)
of the Internal Revenue Code. The Participant hereby delegates to the
Investment Company the power to amend this Custodial Account Agreement
as necessary to comply with applicable provisions of the Code and
related regulations. The Participant also delegates to the Investment
Company the power to amend the Custodial Account Agreement in any
other manner not inconsistent with the provisions of applicable law,
such amendments to be binding upon the Participant upon written
notification unless within 30 days after such notification, the
Participant provides written objection to any such amendment.
Notwithstanding the above, no amendment shall cause or permit any part
of the assets of the custodial account to be diverted to purposes
other than for the exclusive benefit of the Participant or his
beneficiaries, nor shall any amendment increase the duties of the
Custodian without the Custodian's consent.
(b) The Participant may at any time terminate the custodial account
by delivering to the Custodian a written notice of such termination
setting forth the effective date thereof.
<PAGE> 2
(c) The custodial account created by this Agreement shall
automatically terminate upon distribution to the Participant or any
beneficiary designated under Paragraph 6 of Article VIII hereof of the
entire balance in the custodial account.
(d) The Custodian may be removed by the Investment Company at any
time upon sixty (60) days written notice to the Custodian. At any
time the Custodian may elect to resign upon sixty (60) days written
notice to the Investment Company and Participant. The notice shall
contain the conditional appointment of a successor Custodian which
shall be an entity appointed by the Investment Company and qualified
to act as custodian of individual retirement accounts under the
Internal Revenue Code. Absent the Participant's written objection to
a new Custodian within sixty (60) days after notification, the
appointment of the successor Custodian shall be deemed acceptable by
the Participant.
5. RECORDS AND COMMUNICATIONS.
(a) Records of all contributions, investments, disbursements and
other transactions performed shall be kept by the Custodian, and
communicated to the Participant or the Participant's designated
representative within 60 days after the close of each calendar year
(or within such lesser period as may be required by applicable law),
or after the Custodian's removal or resignation pursuant to Article
VIII, Paragraph 4.
(b) All communications to the Custodian shall be addressed to:
Firstar Trust Company, Heartland Funds IRA, Post Office Box 701,
Milwaukee, Wisconsin 53201-0701. Communications to the Participant
will be mailed to the Participant's last known address. The
Participant shall notify the Custodian of any change in address.
6. BENEFICIARY DESIGNATION.
The Participant may designate a beneficiary or beneficiaries to receive
any benefits which may be payable to the Participant after the Participant's
death. In the absence of the Participant's designation of any beneficiary, or
the death of all designated beneficiaries prior to the complete distribution of
the benefit, the benefits due shall be payable to the Participant's spouse, if
any; or if not living, then in equal shares to the Participant's children
surviving the Participant and to the descendants then living of a deceased
child by right of representation. If the Participant leaves no spouse,
children or descendants of children surviving, then any benefits due shall be
paid to such Participant's estate. The Participant is hereby notified that
state community property law may affect the Participant's designation of a
beneficiary and that the Participant is solely responsible for any payment made
pursuant to such beneficiary designation or this Custodial Account Agreement
absent any designation.
7. DISTRIBUTIONS
(a) The Custodian shall, from time to time, subject to the provisions
of Article IV, make distributions out of the custodial account to the
Participant, in such manner and amounts as may be specified in written
instructions of the Participant. All such instructions shall be
deemed to constitute a certification by the Participant that the
distribution so directed is one that the Participant is permitted to
receive.
(b) Upon the Participant's death, the election of either option (i)
or option (ii) under paragraph 4(b) of Article IV must be made by
December 31 of the year following the year of the Participant's death.
If the beneficiary or beneficiaries do not elect either of the
distribution options described in paragraph 4(b)(i) and 4(b)(ii) of
Article IV by such date, distribution will be made in accordance with
paragraph 4(b)(ii) of Article IV if the beneficiary is the
Participant's surviving spouse and in accordance with paragraph
4(b)(i) of Article IV if the beneficiary or beneficiaries include
anyone other than the surviving spouse.
(c) If the Participant does not choose any of the methods of
distribution described in paragraphs 3(a) through 3(e) of Article IV
by the April 1 following the calendar year in which he or she reaches
age 70 1/2, then by that date, and by each December 31 thereafter,
distribution to the Participant will be made only in such amounts as
will satisfy the requirements of the minimum distribution rules in
paragraph 1 of Article IV above, based on the joint life expectancy of
the Participant and his or her designated beneficiary (or based on the
Participant's sole life expectancy if the Participant has no
designated beneficiary, or is treated as having no designated
beneficiary for purposes of the minimum distribution rules described
above).
(d) Distributions from this SIMPLE IRA shall be subject to a 25%
excise tax on early distributions in accordance with Code Section
72(t)(6) if made during the two year period commencing on the date the
Participant first participated in the employer's SIMPLE retirement
plan.
(e) Neither the Custodian nor the Investment Company shall have any
liability with respect to any distribution from the Participant's
custodial account pursuant to instructions received from the
Participant (or beneficiary) or in accordance with this Agreement, or
for any consequences to the Participant or beneficiary arising from
such distribution including, but not limited to, excise and other
taxes and penalties which might accrue or be assessed by reason
thereof, nor shall the Custodian or Investment Company be under any
duty to make any inquiry or investigation with respect thereto.
8. LEGISLATION GOVERNS.
The law of the State of Wisconsin shall govern this agreement as to all
matters which are to be determined by reference to state law as
distinguished from federal law.
<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, 1996 and is qualified
in its entirety by reference to such report.
</LEGEND>
<SERIES>
<NUMBER> 001
<NAME> HEARTLAND VALUE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 1,277,629,866
<INVESTMENTS-AT-VALUE> 1,549,146,589
<RECEIVABLES> 84,294,201
<ASSETS-OTHER> 1,533,985
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,634,974,775
<PAYABLE-FOR-SECURITIES> 3,520,413
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,694,526
<TOTAL-LIABILITIES> 8,214,939
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,309,230,296
<SHARES-COMMON-STOCK> 51,400,775
<SHARES-COMMON-PRIOR> 42,613,011
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (218,750)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 317,748,290
<NET-ASSETS> 1,626,759,836
<DIVIDEND-INCOME> 7,545,098
<INTEREST-INCOME> 13,667,971
<OTHER-INCOME> 0
<EXPENSES-NET> 18,011,782
<NET-INVESTMENT-INCOME> 3,201,287
<REALIZED-GAINS-CURRENT> 101,382,821
<APPREC-INCREASE-CURRENT> 167,734,490
<NET-CHANGE-FROM-OPS> 272,318,598
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,201,287
<DISTRIBUTIONS-OF-GAINS> 101,601,571
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,865,977
<NUMBER-OF-SHARES-REDEEMED> 9,964,582
<SHARES-REINVESTED> 2,886,369
<NET-CHANGE-IN-ASSETS> 435,833,828
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,877,255
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 18,011,782
<AVERAGE-NET-ASSETS> 1,463,020,169
<PER-SHARE-NAV-BEGIN> 27.95
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> 5.78
<PER-SHARE-DIVIDEND> .06
<PER-SHARE-DISTRIBUTIONS> 2.08
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 31.65
<EXPENSE-RATIO> 1.23
<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, 1996 and is qualified
in its entirety by reference to such report.
</LEGEND>
<SERIES>
<NUMBER> 002
<NAME> HEARTLAND U.S. GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 52,033,523
<INVESTMENTS-AT-VALUE> 51,838,445
<RECEIVABLES> 307,195
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 52,145,640
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 432,677
<TOTAL-LIABILITIES> 432,677
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 57,707,484
<SHARES-COMMON-STOCK> 5,418,511
<SHARES-COMMON-PRIOR> 6,650,557
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,799,443)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (195,078)
<NET-ASSETS> 51,712,963
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,236,767
<OTHER-INCOME> 0
<EXPENSES-NET> 605,510
<NET-INVESTMENT-INCOME> 3,631,257
<REALIZED-GAINS-CURRENT> 88,090
<APPREC-INCREASE-CURRENT> (3,109,011)
<NET-CHANGE-FROM-OPS> 610,336
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,631,257
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 976,754
<NUMBER-OF-SHARES-REDEEMED> 2,486,341
<SHARES-REINVESTED> 277,541
<NET-CHANGE-IN-ASSETS> (14,547,835)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 378,850
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 692,937
<AVERAGE-NET-ASSETS> 65,315,965
<PER-SHARE-NAV-BEGIN> 9.96
<PER-SHARE-NII> .59
<PER-SHARE-GAIN-APPREC> (.42)
<PER-SHARE-DIVIDEND> .59
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.54
<EXPENSE-RATIO> 1.06
<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, 1996 and is qualified
in its entirety by reference to such report.
</LEGEND>
<SERIES>
<NUMBER> 005
<NAME> HEARTLAND VALUE PLUS FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 59,276,043
<INVESTMENTS-AT-VALUE> 66,077,542
<RECEIVABLES> 1,349,658
<ASSETS-OTHER> 20,086
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 67,447,286
<PAYABLE-FOR-SECURITIES> 464,774
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 400,326
<TOTAL-LIABILITIES> 865,100
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 59,780,687
<SHARES-COMMON-STOCK> 4,850,879
<SHARES-COMMON-PRIOR> 1,712,269
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,801,499
<NET-ASSETS> 66,582,186
<DIVIDEND-INCOME> 601,136
<INTEREST-INCOME> 956,949
<OTHER-INCOME> 0
<EXPENSES-NET> 482,937
<NET-INVESTMENT-INCOME> 1,075,148
<REALIZED-GAINS-CURRENT> 3,357,002
<APPREC-INCREASE-CURRENT> 5,791,869
<NET-CHANGE-FROM-OPS> 10,224,019
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,075,148
<DISTRIBUTIONS-OF-GAINS> 3,357,002
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,188,644
<NUMBER-OF-SHARES-REDEEMED> 1,349,351
<SHARES-REINVESTED> 299,317
<NET-CHANGE-IN-ASSETS> 47,459,492
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 218,448
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 482,937
<AVERAGE-NET-ASSETS> 33,258,741
<PER-SHARE-NAV-BEGIN> 11.17
<PER-SHARE-NII> .38
<PER-SHARE-GAIN-APPREC> 3.33
<PER-SHARE-DIVIDEND> .38
<PER-SHARE-DISTRIBUTIONS> .77
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.73
<EXPENSE-RATIO> 1.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Annual
Report to Shareholders for the period ended December 31, 1996 and is qualified
in its entirety by reference to such report.
</LEGEND>
<SERIES>
<NUMBER> 006
<NAME> HEARTLAND SMALL CAP CONTRARIAN FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 234,583,662
<INVESTMENTS-AT-VALUE> 246,990,005
<RECEIVABLES> 32,215,569
<ASSETS-OTHER> 4,053,657
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 283,259,231
<PAYABLE-FOR-SECURITIES> 1,618,910
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18,628,925
<TOTAL-LIABILITIES> 20,247,835
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 250,107,871
<SHARES-COMMON-STOCK> 19,623,261
<SHARES-COMMON-PRIOR> 7,256,249
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,903,525
<NET-ASSETS> 263,011,396
<DIVIDEND-INCOME> 999,936
<INTEREST-INCOME> 1,981,319
<OTHER-INCOME> 0
<EXPENSES-NET> 2,605,671
<NET-INVESTMENT-INCOME> 375,584
<REALIZED-GAINS-CURRENT> 11,035,747
<APPREC-INCREASE-CURRENT> 11,875,878
<NET-CHANGE-FROM-OPS> 23,287,209
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 375,584
<DISTRIBUTIONS-OF-GAINS> 11,035,749
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 18,340,944
<NUMBER-OF-SHARES-REDEEMED> 6,717,525
<SHARES-REINVESTED> 743,593
<NET-CHANGE-IN-ASSETS> 177,462,825
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,448,964
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,605,671
<AVERAGE-NET-ASSETS> 200,163,965
<PER-SHARE-NAV-BEGIN> 11.79
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 2.20
<PER-SHARE-DIVIDEND> .02
<PER-SHARE-DISTRIBUTIONS> .59
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.40
<EXPENSE-RATIO> 1.30
<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, 1996 and is qualified
in its entirety by reference to such report.
</LEGEND>
<SERIES>
<NUMBER> 007
<NAME> HEARTLAND MID CAP VALUE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 6,522,710
<INVESTMENTS-AT-VALUE> 6,855,984
<RECEIVABLES> 103,772
<ASSETS-OTHER> 2,478
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,962,234
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,272
<TOTAL-LIABILITIES> 28,272
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,604,292
<SHARES-COMMON-STOCK> 650,201
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,604)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 333,274
<NET-ASSETS> 6,933,962
<DIVIDEND-INCOME> 10,834
<INTEREST-INCOME> 7,546
<OTHER-INCOME> 0
<EXPENSES-NET> 20,026
<NET-INVESTMENT-INCOME> (1,646)
<REALIZED-GAINS-CURRENT> (3,604)
<APPREC-INCREASE-CURRENT> 333,274
<NET-CHANGE-FROM-OPS> 328,024
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 662,589
<NUMBER-OF-SHARES-REDEEMED> 12,388
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,933,962
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,087
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 20,026
<AVERAGE-NET-ASSETS> 4,592,425
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> .66
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.66
<EXPENSE-RATIO> 1.94
<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, 1996 and is qualified
in its entirety by reference to such report.
</LEGEND>
<SERIES>
<NUMBER> 008
<NAME> HEARTLAND LARGE CAP VALUE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 2,507,024
<INVESTMENTS-AT-VALUE> 2,586,100
<RECEIVABLES> 19,652
<ASSETS-OTHER> 2,201
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,607,953
<PAYABLE-FOR-SECURITIES> 144,580
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21,898
<TOTAL-LIABILITIES> 166,478
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,363,470
<SHARES-COMMON-STOCK> 232,419
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,071)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 79,076
<NET-ASSETS> 2,441,475
<DIVIDEND-INCOME> 5,908
<INTEREST-INCOME> 3,779
<OTHER-INCOME> 0
<EXPENSES-NET> 10,673
<NET-INVESTMENT-INCOME> (986)
<REALIZED-GAINS-CURRENT> (1,071)
<APPREC-INCREASE-CURRENT> 79,076
<NET-CHANGE-FROM-OPS> 77,019
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 254,625
<NUMBER-OF-SHARES-REDEEMED> 22,206
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,441,475
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,325
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,673
<AVERAGE-NET-ASSETS> 1,740,983
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> .50
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.50
<EXPENSE-RATIO> 2.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
