HEARTLAND GROUP INC, 485APOS, 1998-10-15

HEARTLAND GROUP INC
485APOS, 1998-10-15

Previous: AUDIOVOX CORP, 10-Q, 1998-10-15

Next: AMERICAN AADVANTAGE FUNDS, 485APOS, 1998-10-15

<PAGE>

As filed with the Securities and Exchange Commission on October 15, 1998
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. 36 [X]
-------
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 38 [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 Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code (414) 347-7777

JILAINE HUMMEL BAUER, Vice President and General Counsel
790 NORTH MILWAUKEE STREET
MILWAUKEE, WISCONSIN 53202
(Name and Address of Agent for Service)

Copy to:
CONRAD G. GOODKIND, ESQ.
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, WI 53202

It is proposed that this filing will become effective (check
appropriate box):
[_] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[X] 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

===============
<PAGE>

HEARTLAND GROUP, INC.
FORM N-1A
CROSS-REFERENCE SHEET
TO POST-EFFECTIVE AMENDMENT NO. 36
_________________________________________

HEARTLAND TAXABLE MUNICIPAL FUND

<TABLE>
<CAPTION>
Form N-1A
Item No. Prospectus Heading
-------- ------------------
<S> <C> <C>

PART A

1. Front and Back Cover Pages ................... Front and Back Cover Pages

2. Risk/Return Summary: Investments, Risks, and
Performance .................................. Fund Highlights

3. Risk/Return Summary: Fee Table ............... Fund Highlights

4. Investment Objectives, Principal Investment
Strategies, and Related Risks ................ Investment Objectives and
Policies; Principal
Investments and Investment
Strategies

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

6. Management, Organization, and Capital
Structure .................................... Management of the Fund

7. Shareholder Information ...................... How to Invest; Shareholder
Information and Reporting

8. Distribution Arrangements .................... Fund Highlights

9. Financial Highlights Information ............. Not applicable

</TABLE>

<PAGE>

10. Cover Page and Table of Contents......... Cover Page

11. Fund History............................. Description of Shares

12. Description of the Fund and Its
Investments and Risks.................... Investment Objective and
Policies; Types and
Securities; Investment
Restrictions

13. Management of the Fund................... Management

14. Control Persons and Principal
Holders of Securities.................... Control Persons and
Principal Holders of
Securities
15. Investment Advisory and
Other Services........................... Investment Advisory and
Other Services

16. Brokerage Allocation and Other Practices. Portfolio Transactions

17. Capital Stock and Other
Securities............................... Description of Shares

18. Purchase, Redemption and
Pricing of Shares........................ Distribution of Shares;
Purchases and Sales

19. Taxation of the Fund..................... Additional Income Tax
Considerations

20. Underwriters............................. Distribution of Shares

21. Calculation of Performance
Data..................................... Performance Information

22. Financial Statements..................... Not applicable
</TABLE>
<PAGE>

HEARTLAND
TAXABLE MUNICIPAL FUND

Prospectus
December __, 1998

This Fund seeks a high level of current income with a low degree of share price
fluctuation. It invests primarily in short and intermediate term taxable
municipal obligations of medium and lower quality, and maintains an average
portfolio duration of three years or less. The Fund is managed using Heartland
Advisors' Municipal Ten-Point Value Investment Grid , a strict investment
discipline designed to identify value. The Fund offers investors an attractive
investment opportunity combined with active risk management. The Fund is 100%
no-load. Investors pay no sales fees or charges to purchase, redeem, or exchange
their shares.

The Securities and Exchange Commission has not approved the shares of this or
any other mutual fund, nor determined whether this or any other prospectus is
accurate or complete. Anyone who tells you otherwise is committing a crime.

(logo)Heartland Investment Advisors
-----------------------------------
AMERICA'S VALUE INVESTOR(R)

SUBJECT TO COMPLETION

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>

TABLE OF CONTENTS
<TABLE>
<S> <C>
FRONT COVER--------------------------------------------------------------------1

FUND HIGHLIGHTS
Investment Goal-----------------------------------------------------------3
Principal Investment Strategies-------------------------------------------3
Principal Investment Risks------------------------------------------------4
Who Should Consider Investing?--------------------------------------------6
Fund Performance----------------------------------------------------------6
Fund Expenses-------------------------------------------------------------7

MANAGEMENT OF THE FUND
Heartland Group-----------------------------------------------------------8
Heartland Advisors--------------------------------------------------------8

INVESTMENT OBJECTIVE AND POLICIES
General------------------------------------------------------------------10
Credit Quality-----------------------------------------------------------10
Temporary Positions------------------------------------------------------11

PRINCIPAL INVESTMENTS AND INVESTMENT STRATEGIES
Heartland Advisors' Municipal Ten-Point Value Investment Grid(TM)--------11
Municipal Obligations----------------------------------------------------12
Other Investments and Investment Strategies------------------------------13

HOW TO INVEST
Purchasing Shares--------------------------------------------------------15
Redeeming Shares---------------------------------------------------------17
Exchanging Shares--------------------------------------------------------19
Share Prices-------------------------------------------------------------20

SHAREHOLDER INFORMATION AND REPORTING
Investment Reports-------------------------------------------------------21
Dividends and Capital Gain Distributions---------------------------------21
Taxes--------------------------------------------------------------------21

BACK COVER--------------------------------------------------------------------23
</TABLE>

2
<PAGE>

FUND HIGHLIGHTS

Investment Goals

The Fund seeks a high level of current income with a low degree of share price
fluctuation.

Principal Investment Strategies

The Fund invests primarily in a diversified portfolio of taxable medium and
lower quality obligations issued by municipalities ("Municipal Obligations"),
and maintains an average portfolio duration of three years or less.

Heartland Advisors' Municipal Ten-Point Value Investment Grid(TM). The Fund's
investments are selected using Heartland Advisors' Municipal Ten-Point Value
Investment Grid, a set of strict value criteria:

. Essential Service
. Financial Soundness
. Strong Competitive Position
. High Debt Service Coverage
. Experienced Management
. A Financial Stake by Management
. Strong Legal Covenants
. High Yield vs. U.S. Treasuries
. Catalyst for Change
. Willingness to Pay Debt Obligations

Duration Management. The Fund's share price is affected by changes in the value
of bonds held in its portfolio. In general, when interest rates rise, a bond's
value falls, and when interest rates fall, a bond's value rises. Duration
measures the approximate price sensitivity of a bond, or bond mutual fund, to a
one percent (1%) rise or fall in interest rates. For example, all else being
equal, if interest rates rise by 1%, a bond fund with a 3-year duration would
expect its share price to decline by about 3%; conversely, if interest rates
fall by 1% the fund would expect to see about a 3% rise in price. When a change
in direction of, or degree of movement in interest rates is anticipated, the
Fund will shorten or lengthen its duration to help minimize share price
fluctuation.

Taxable Municipal Obligations. Most Municipal Obligations offer income free from
federal income tax. However, another type of Municipal Obligation is subject to
federal income tax for a variety of reasons. These Municipal Obligations do not
qualify for the federal tax exemption because (i) they did not receive the
necessary authorization for tax-exempt treatment from state or local
governmental authorities, (ii) they exceed certain

3
<PAGE>

regulatory limitations on the cost of issuance for tax-exempt financing, or
(iii) they finance public or private activities that do not qualify for the
federal income tax exemption. These non-qualifying activities might include, for
example, certain types of multi-family housing, certain professional and local
sports facilities, refinancing of certain municipal debt, and borrowing to
replenish a municipality's underfunded pension plan.

Taxable Municipal Obligations may offer yields comparable to those of corporate
debt obligations. However, they also may have less credit risk than corporate
debt obligations because of stronger legal covenants and lower risk of default.

Concentration. The Fund may invest 25% or more of its net assets in Municipal
Obligations that finance similar types of projects or projects in related
industry sectors. These could include, for example, projects involving
community development, education, health care, hospitals, retirement, single
family or multi-family housing, redevelopment, transportation, or various types
of utilities. The Fund also may invest 25% or more of its net assets in
Municipal Obligations whose issuers or projects financed are located in the same
state or other geographic region.

Other Investment Strategies. The Fund may invest in other debt and equity
securities, including convertible securities, and use other investment
strategies consistent with the objectives, policies, and overall risk profile
described in this prospectus. It may, for example, use options, futures, and
options on futures to protect against exposure to interest rate changes (i.e.,
duration management). It also may use these instruments to protect against
anticipated declines in the market value of portfolio securities or increases in
the market value of securities it intends to acquire. Finally, the Fund may use
these instruments to invest in permitted asset classes more efficiently,
expeditiously and at lower cost than is believed possible by direct investment
in the underlying securities.

Principal Investment Risks

As with any mutual fund, the Fund cannot guarantee that it will achieve its
investment goals. Like investing in most mutual funds that invest primarily in
medium and lower quality debt obligations, investing in the Fund involves the
following risks:

Credit Risk. Credit risk is the possibility that the municipality or other
legal entity ("municipality") issuing a security, or its guarantor, will not be
able to make timely principal and interest payments on its obligations. Although
credit ratings issued by credit rating agencies are designed to evaluate these
risks, such ratings are not always accurate. Even if the ratings are accurate
when made, the rating agencies may not always make timely changes in a rating in
response to changes in the economy or in the condition of the issuer that could
affect the likelihood of timely repayment of the Municipal Obligation. Many
debt obligations and, in particular, higher yield debt obligations, are unrated.
As a result, Heartland Advisors uses credit ratings only as a preliminary
indicator of investment quality, relying on its own proprietary credit research
and analysis

4
<PAGE>

of Municipal Obligations and continually monitoring portfolio securities to
determine whether credit quality has changed.

Market Risk. Market risk is the possibility that the value of the Fund's
portfolio securities will decline due to (a) an increase in interest rates, (b)
adverse changes in supply and demand for debt obligations because of market,
sector, industry or political factors, or (c) the unavailability or inaccuracy
of key information about a particular security or market.

"High Yield" Risk. "High yield" risk is a characteristic of medium and lower
quality debt obligations. These obligations offer higher yields, but greater
investment risk than higher quality securities with similar maturities. These
securities sometimes may be referred to as "junk bonds" and are rated below
investment grade, or determined by Heartland Advisors to be of comparable
quality if unrated. In general, these securities are considered to be more
speculative with respect to the issuer's capacity to pay interest and repay
principal, and involve greater risk of issuer default or bankruptcy. Avoiding
this type of risk will depend more on Heartland Advisors' credit analysis than
would be the case for investment in higher quality securities. High yield debt
obligations also may be more susceptible to real or perceived adverse economic
conditions or political developments. Any reduction in the value of a portfolio
security as a result of one or more of these factors could adversely affect the
Fund's share price.

Investing in lower quality and defaulted securities also may lead to additional
expense if the Fund is required to seek recovery of principal and interest
payments, and the Fund's right to payment may rank behind those of other
creditors of the issuer. Because secondary trading in high yield bonds may be
less active than secondary trading in higher quality securities, the Fund could
experience difficulty in disposing of portfolio securities. Thin trading in
markets for debt obligations might make it more difficult to value portfolio
securities because of the lack of objective pricing data provided by actively
traded markets. As a result, the valuation process may require greater
subjective judgment.

Concentration risk. Concentration risk is the risk that the Fund may invest
more than 25% of its net assets in Municipal Obligations that are related in
such a way that an economic, business or political development affecting one
security could also not only affect other portfolio securities, but also overall
Fund performance.

Hedging risk. Hedging risk is the risk that changes in the value of a hedging
instrument will not match those of the asset or security being hedged. Hedging
is the use of one investment to offset the effects of another investment.
Imperfect or no correlation of the values of the hedging instrument and the
hedged security or asset might occur because of characteristics of the
instruments themselves, or unrelated factors involving, for example, the markets
on which the instruments are traded. As a result, hedging strategies may not

5
<PAGE>

always be successful. While hedging strategies can help reduce or eliminate
portfolio losses, they also can reduce or eliminate portfolio gains.

An investment in the Fund is not a deposit of any bank, nor insured or
guaranteed by the Federal Deposit Insurance Corporation ("FDIC") or any other
governmental agency. It is not designed to be a complete investment program,
and while you may make money, you can also lose money. The Fund's share price
will fluctuate.

Who Should Consider Investing?

The Fund is designed for investors who seek higher income than that generally
available from higher quality taxable Municipal Obligations, and who are willing
to accept the higher risk of loss and principal fluctuation associated with
medium and lower quality taxable Municipal Obligations. Because the Fund seeks
to minimize share price fluctuation by maintaining a short portfolio duration,
the Fund may be appropriate for short-term investment needs. However, the Fund's
share price will fluctuate. The Fund is not an appropriate investment for those
whose primary objective is absolute principal stability.

. The Fund may be appropriate as part of your investment portfolio if:

. You are interested in a value-based approach to fixed income investing
that uses duration to help limit share price volatility associated with
interest rate risk.

. You are looking for a high yield taxable fixed income alternative to
balance your investment portfolio.

. You are investing through an Individual Retirement Account, 401(k) or
other retirement plan for which Municipal Obligations free from federal
income tax would not be appropriate.

. You believe high yield Municipal Obligations can offer superior credit
quality, higher yield potential and greater price stability compared to
high yield corporate bonds.

Fund Performance

All mutual funds use the same formulas to calculate yields and total returns. As
with all mutual funds, the Fund's yield and total return will fluctuate. Past
performance is no guarantee of future results. Performance information will be
available beginning after the end of the calendar quarter in which the Fund
begins operations, and may be obtained by calling 1-800-432-7856.

Yield. Yield is annualized net income of the Fund during a specified
period as a percentage of the Fund's share price. Like other non-money
market mutual funds, the Fund is required to state its yield in terms of a
30-day period.

6
<PAGE>

Total Return. Total return measures the change in the share price of the
Fund over a given period. Because it assumes the reinvestment of all
dividend income and capital gain distributions, it includes the effect of
compounding. Cumulative return is the Fund's actual return for a given
period, but it does not indicate how much return has fluctuated during the
period. Average annual return is always hypothetical, and represents what
constant year-by-year return would have produced the Fund's cumulative
return for a given period. It should not be confused with actual annual
returns, the sum of which over a particular period produces the Fund's
cumulative return.

Fund Expenses.

This summary describes the fees and expenses you would pay if you buy and hold
shares of the Fund.

Shareholder Transaction Expenses. (fees you pay directly)

Because the Fund is a no-load fund, you pay no fees or sales charges when you
buy or sell shares. However, the Fund's transfer agent does charge a fee
(currently $12.00) when you have redemption proceeds paid to you by wire
transfer. To defray account maintenance expenses, and subject to the approval
of the Heartland Board of Directors and advance notice to you, the Fund reserves
the right to charge you an annual fee if your account balance falls below a
specified minimum. To defray certain transaction expenses and facilitate
portfolio management, upon 90 days' advance written notice to you, the Fund
reserves the right to charge you an early redemption fee of 1% of the proceeds
of shares redeemed or exchanged that are held for less than 90 days.

Annual Fund Operating Expenses. (These are expenses that are deducted from Fund
assets and reflected in the Fund's share price.)/1/

<TABLE>
<S> <C>
Management and administrative fees 0.60%
Rule 12b-1 fees 0.25%
Other expenses2 0.40%
Total annual operating expenses 1.25 %
Fee waiver and/or expense reimbursement (0.30%)
------
Net accrued operating expenses 0.95%
</TABLE>

Example of Effect of Fund Operating Expenses. (This example illustrates the cost
of investing in the Fund compared to the cost of investing in other mutual
funds. It uses the

- ---------------------
/1/ Heartland Advisors has undertaken to waive fees paid to it by the Fund
and/or pay the Fund's other expenses so as to limit total annual ordinary
operating expenses to 0.95% through April 30, 2000. After that date, fee waivers
and undertakings to pay other Fund expenses may be terminated or revised at any
time. Absent these limitations, other expenses and total operating expenses for
the Fund's fiscal year ended December 31, 1999 are expected to be 0.40%
and 1.25%, respectively.
/2/ "Other expenses" include transfer agency and custodial expenses as well as
costs to provide shareholders with prospectuses, financial reports and account
statements. Because the Fund has no operating history, these expenses are based
on estimates for the current fiscal year.

7
<PAGE>

same hypothetical assumptions required by regulations of the Securities and
Exchange Commission ("SEC") that other funds use in their prospectuses,
including (a) a $10,000 initial investment, (b) a 5% annual return, (c) constant
operating expenses during the period and (d) the redemption of all shares at the
end of the stated period. The assumed return in the example does not represent
actual or future performance, and your actual cost of investing in the Fund may
be higher or lower.)

EXPENSE TABLE
-------------
<TABLE>
<CAPTION>
1 year 3 years
------ -------
<S> <C> <C>
Taxable Municipal Fund $127 $397
</TABLE>

MANAGEMENT OF THE FUND

Heartland Group

The Fund is a mutual fund portfolio series of Heartland Group, Inc.
("Heartland"). The shares of the Fund offered by this prospectus are the "no-
load" class. No other classes of shares have been authorized at this time.

Heartland is governed by a Board of Directors that oversees its business
affairs. The Board meets regularly to review the Fund's investments, performance
and expenses. It elects the officers of Heartland and hires the Fund's service
providers, including the Fund's investment advisor. As a matter of policy,
Heartland requires that a majority of its Board members must be independent of
the Fund's investment advisor.

Heartland Advisors

Founded in 1982 by William J. Nasgovitz, Heartland Advisors, Inc., America's
Value Investor(TM) ("Heartland Advisors"), is an independent firm owned by its
employees. It manages the Fund's investments subject to the authority of and
supervision by the Board of Directors of Heartland. Heartland Advisors also
distributes the Fund's shares and provides administrative and accounting
services to the Fund and shareholder services to the Fund's investors. In
addition to managing the Heartland family of nine equity and fixed income
mutual funds, Heartland Advisors provides investment advisory and brokerage
services to individuals, institutions and retirement plans. Its principal
offices are located at, and its mailing address is, 790 North Milwaukee Street,
Milwaukee, Wisconsin 53202.

Portfolio Managers. Thomas J. Conlin and Greg D. Winston, co-managers of the
Fund, are responsible for the day-to-day management of the Fund's portfolio, and
make all decisions with respect to the purchase and sale of portfolio
securities. However, in making decisions with respect to investments other than
Municipal Obligations, the co-managers will consult with Heartland Advisors'
Director of Fixed Income, Patrick J. Retzer. Messrs. Conlin and Winston are
both Chartered Financial Analysts, and Vice Presidents and principals of
Heartland Advisors, which they joined in August 1996. They

8
<PAGE>

have been managing municipal investments since 1978 and 1988, respectively.
Mr. Retzer joined Heartland Advisors in 1987 and has been managing investments
since 1988. He is a Senior Vice President, director and principal of the firm.
He has been a Director of Heartland since 1993.

Management Fee and Expense Limitation. For Heartland Advisors' investment
management services, the Fund pays an annual fee, accrued daily and paid
monthly, computed as a percentage of the Fund's average net assets. The total
annual fee of 0.60 of 1% of average net assets has two parts - a portfolio
management fee in the amount of 0.45 of 1% of average net assets and an
administrative fee in the amount of 0.15 of 1% of average net assets.

Through April 30, 2000, Heartland Advisors has agreed to waive fees paid to it
by the Fund and/or pay other Fund ordinary operating expenses (excluding
brokerage commissions, interest and taxes) to the extent necessary to ensure
that the Fund's total annual ordinary operating expenses do not exceed 0.95 of
1% of average net assets. After such time, Heartland Advisors may continue,
modify, or discontinue these waivers and/or reimbursements. Any waiver of fees
or reimbursement of expenses is made on an annual basis. If any fees are owed
to Heartland Advisors, Heartland Advisors may pay Fund expenses indirectly by
reducing the amount of such fees owed to it by the Fund. Waivers and
reimbursements have the effect of lowering the Fund's overall expense ratio and
increasing the Fund's overall return to investors.

If the Fund's operating expenses fall below the expense limitation, the Fund
will begin repaying Heartland Advisors for fees previously waived and expenses
previously reimbursed. This repayment will continue for up to three years
after the end of the fiscal year in which a fee is waived or an expense is paid,
subject to any expense limitation then in effect, until the Fund has repaid
Heartland Advisors for the entire amount or such three-year period expires.

Year 2000 Readiness. Many computer systems use two digits rather than four to
identify the year in a date. These systems, if not modified, will not correctly
handle the change from "99" to "00" on January 1, 2000, causing them to be
unable to accurately perform certain functions ("Year 2000 processing"). This
problem affects virtually all companies and organizations, and, among other
things, could have a negative impact on the handling of securities trades,
payments of interest and dividends, and the pricing of and accounting for
securities portfolios.

Heartland Advisors has taken steps to help assure that its major computer
systems are capable of handling Year 2000 processing. It is also assessing the
readiness of the Fund's custodian and transfer and dividend disbursing agent and
other third parties performing major Year 2000 processing services for the Fund
and Heartland Advisors. Although Heartland Advisors expects all major Fund
computer systems to be ready in time, the Fund could be adversely affected if
Year 2000 processing systems are not properly modified in a timely manner.

9
<PAGE>

Issuers of Municipal Obligations and other securities or instruments in which
the Fund may invest could be affected by the Year 2000 processing issue, as
could the service providers who administer the payment of principal and
interest on Municipal Obligations owned by bondholders, such as the Fund. At
this time, the degree of impact on the Fund cannot be predicted. To the extent
a portfolio holding is adversely affected by a Year 2000 processing issue, the
Fund's return could be adversely affected.

INVESTMENT OBJECTIVE AND POLICIES

General

The Fund seeks a high level of current income with a low degree of share price
fluctuation. This investment goal may be changed by the Fund's Board of
Directors upon notice to shareholders, but without shareholder approval.

Under normal market conditions, the Fund invests at least 65% of net assets in
taxable Municipal Obligations. Consistent with its investment objective, the
Fund also may invest up to 35% of net assets in other debt securities;
convertible securities; preferred and common stocks, and other equity
securities; warrants or other securities exchangeable for shares of equity
securities; foreign securities; options; futures; and hybrid instruments. A
hybrid instrument is an instrument that has characteristics of securities,
futures and options. For example, an instrument whose principal value and
interest rate is tied to a commodity, currency or securities index or another
interest rate is a hybrid instrument.

When Heartland Advisors considers the yield on Municipal Obligations exempt from
federal income tax to be high in relation to taxable Municipal Obligations, the
Fund also may invest in tax-exempt Municipal Obligations.

Credit Quality

The Fund invests primarily in medium and lower quality debt obligations. Medium
and lower quality debt obligations are those rated as such by a nationally
recognized statistical rating organization ("NRSRO"); for example, BBB by
Standard & Poors' Rating Group ("S&P"). The Fund may not invest more than 20%
of its total assets in debt obligations rated lower than B- by S&P or a
comparable rating by another NRSRO. It may invest in debt obligations that are
in default, but such obligations are not expected to exceed 10% of total assets.

Taxable Municipal Obligations are rated using the same criteria as corporate
obligations. NRSROs publishing rating information on which Heartland Advisors
may rely include S&P, Moody's Investors Services, Duff & Phelps Rating Co.,
Thomson BankWatch, Inc., and Fitch IBCA, Inc., among others. The Fund also may
invest in unrated securities if Heartland Advisors believes that such securities
are of comparable quality so as to satisfy the foregoing requirements.

10
<PAGE>

All rating limitations on investments are applied at time of purchase.
Subsequent to purchase, a rated debt obligation may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require the sale of such a security, but it will be a factor
in considering whether to continue to hold the security. To the extent that
ratings may change as a result of changes in a rating organization or their
rating systems, the Fund will attempt to use comparable ratings as standards for
selecting investments.

Temporary Positions

Under adverse market conditions, or other extraordinary economic or market
conditions, or when the spreads between the yields on medium and high quality
taxable Municipal Obligations are relatively narrow, the Fund may take a
defensive position and invest, without limitation, in higher quality taxable or
tax-exempt Municipal Obligations and other debt securities, or hold assets in
liquid reserves. Taking a defensive position is not required, and may not be
possible because of market conditions. It also might prevent the Fund from
achieving its investment objective.

PRINCIPAL INVESTMENTS AND INVESTMENT STRATEGIES

Heartland Advisors' Municipal Ten-Point Value Investment Grid(TM)

The following questions illustrate Heartland Advisors' process for evaluating
the value characteristics of Municipal Obligations using its proprietary
Municipal 10-Point Value Investment Grid(TM).

. Essential Service - Does the municipality provide a vital public service?
Will the demographics of the public sector help ensure the service's
continued importance?

. Financial Soundness - Are the municipality's financials sound? We prefer
low to moderate debt, rising revenues and ample liquidity.

. Strong Competitive Position - Does the municipality have a strong competitive
position? We prefer a municipality that holds a #1 or #2 market position (or
an improving position) or one that has a competitive advantage in terms of
service or price.

. High Debt Service Coverage - Does the municipality have a stable or improving
ability to pay interest and principal on its bonds?

. Experienced Management - Does the municipality have seasoned, highly
specialized and focused management?

11
<PAGE>

. A Financial Stake by Management - Does sharing the financial risk with
bondholders give management an incentive for superior performance?

. Strong Legal Covenants - Do the legal documents adequately protect
bondholders with provisions like first mortgages, prior claims on revenues,
funding levels of debt reserves, occupancy targets, operating ratios, and
control of management's accountability to bondholders?

. High Yield vs. U.S. Treasuries - Is the yield attractive relative to that
currently available on U.S. Treasuries?

. Catalyst for Change - Does the municipality enjoy a feature or benefit that
may improve its competitive or financial position, such as new management,
technological advances or changes in the political, economic, or regulatory
environment?

. Willingness to Pay Debt Obligations - Is there public support for the
project to be financed by the municipality, and are there legal, tax or
political considerations that could affect its ability to meet its financial
commitments?

Municipal Obligations

The term "Municipal Obligations" means debt obligations issued by or on behalf
of states, territories or possessions of the United States and sovereign nations
within the territorial boundaries of the United States, the District of Columbia
and their respective political subdivisions, agencies, and instrumentalities,
and corporations duly authorized by them.

The two principal classifications of Municipal Obligations are "general
obligations" and "revenue obligations." General obligations are secured by the
municipality's pledge of its credit and taxing power for the payment of
principal and interest. Revenue obligations are generally payable only from
the revenues from a particular facility or project or, in some cases, from the
proceeds of a special excise tax or other specific revenue source. Generally,
general obligations are not supported by the municipality's general power to
levy taxes.

Municipal Obligations may bear either fixed or variable rates of interest.
Variable rate securities bear rates of interest that are adjusted periodically
according to formulas intended to minimize fluctuation in the value of the
instruments.

Within the two principal classifications of Municipal Obligations, there are
various types of securities, including, in part, municipal bonds, private
activity bonds, municipal notes, municipal leases, loan interests, custodial
receipts and participation certificates.

12
<PAGE>

Private activity bonds are a type of revenue obligation issued by municipalities
and other public authorities to provide funding for various privately operated
business facilities ("industrial revenue bonds" or "IRBs"). In most cases, IRBs
are not secured by the credit of the municipality, but rather the payment of
principal and interest depends solely upon payments by the user of the
industrial facility financed by the bond or a separate guarantor of the bond.
In some instances, real and personal property is pledged as security for
principal and interest payments.

Municipal lease obligations are another type of revenue obligation issued by
municipalities and other public authorities to acquire land, equipment or
facilities. These obligations are not secured by the credit of the
municipality, but rather the payment of principal and interest depends solely
upon payments by the municipality under a lease or installment purchase
contract. Payments by the municipality may be subject to certain conditions,
including, for example, clauses that do not require the municipality to make
lease or contractual payments unless specific annual appropriations are made by
the municipality. If the municipality stops making payments, the obligations
could lose value. Some of these instruments may be illiquid and, as such, will
be subject to the Fund's 15% limit on illiquid securities.

Participation interests or certificates of participation represent interests in
all or part of specific holdings of Municipal Obligations, including, for
example, municipal lease obligations.

Other Investments and Investment Strategies

In addition to the investments and investment strategies discussed under "Fund
Highlights" in this prospectus, the Fund may engage in the strategies and may
purchase and sell the investments discussed below and in its statement of
additional information.

When-Issued and Delayed-Delivery Securities; Forward Commitments. The Fund may
purchase securities on a when-issued or delayed-delivery basis, and may
purchase forward commitments. Although the payment and interest terms of these
securities are established at the time the purchaser enters into the commitment,
the securities may be delivered and paid for a month or more after the purchase
date. The Fund purchases securities in this manner in order to secure an
advantageous price and yield but the value of the security could change before
settlement. Therefore, although the Fund will make such commitments only with
the intention of actually acquiring the securities, it may sell the securities
before settlement if it is deemed advisable for investment reasons. When-issued
or delayed-delivery securities may sometimes be purchased on a "dollar roll"
basis, meaning that the Fund will sell securities with a commitment to purchase
similar, but not identical, securities at a future date. Dollar rolls are
engaged in when Heartland Advisors believes securities similar to those sold can
be purchased a short time later at a lower price.

13
<PAGE>

Standby Commitments. To facilitate portfolio liquidity, the Fund may obtain
standby commitments when it purchases debt obligations. A standby commitment
gives the holder the right to sell the underlying security back to the seller at
an agreed price on certain dates or within a specified period. Standby
commitments generally increase the cost of the acquisition of the underlying
security, reducing its yield.

Loan Interests. The Fund may invest in loan interests, which are interests in
amounts owed by a municipality or other borrower to lenders or lending
syndicates. Loan interests purchased by the Fund will vary in maturity, may be
subject to restrictions on resale, are not readily marketable and may be secured
or unsecured. They involve the risk of loss in case of default or bankruptcy of
the borrower or, if in the form of a participation interest, the insolvency of
the financial intermediary.

Illiquid Securities. The Fund will not invest more than 15% of net assets in
illiquid securities. For purposes of applying this limitation, an "illiquid
security" means one that may not be sold or disposed of in the ordinary course
of business within seven days at a price approximating the value at which the
security is carried by the Fund. The Fund may invest in debt obligations that
are purchased in private placements (i.e., transactions in which securities have
not been registered under federal law) and that are subject to restrictions on
resale as a matter of contract or law. Private placement notes issued pursuant
to the private placement exemption provided by Section 4(2) of the Securities
Act of 1933 (the "1933 Act") have been determined to be liquid by the Heartland
Board of Directors. These securities and restricted securities issued under
Rule 144A of the 1933 Act that are deemed to be liquid by Heartland Advisors
under guidelines established by the Board of Directors are not subject to the
Fund's limitation on illiquid securities. Municipal lease obligations, which
also may be considered illiquid, may similarly be determined to be liquid in
accordance with guidelines adopted by the Heartland Board of Directors. Absent
such determinations, such securities, and repurchase agreements maturing in
more than seven days, are considered illiquid.

Futures and Options. The Fund may engage in transactions in options, futures
contracts and options on futures contracts to hedge against anticipated declines
in the market value of portfolio securities and increases in the market value of
securities it intends to acquire. It also may engage in such transactions to
protect against exposure to interest rate changes. Finally, the Fund may use
these instruments to enhance total return or to invest in eligible asset classes
with greater efficiency and lower cost than is believed to be possible through
direct investments.

Borrowing. The Fund may borrow from any bank or other person up to 5% of total
assets for temporary purposes. A borrowing is presumed to be for temporary
purposes if it is repaid by the Fund within 60 days and is not extended or
renewed. The Fund also may borrow solely from banks to facilitate the management
of its investment portfolio and make other investments or engage in other
transactions permissible under the 1940 Act which may be considered a borrowing
(such as dollar rolls and reverse repurchase

14
<PAGE>

agreements), provided such borrowings for these purposes do not exceed one-third
of total assets.

Presently, the Fund intends to borrow only from banks, for a period of not
longer than 60 days in amounts not to exceed 20% of total assets, and only for
the following purposes: (i) to avoid liquidating securities under circumstances
which Heartland Advisors believes are unfavorable to shareholders, such as to
meet large or unexpected redemptions or to purchase debt obligations pending
receipt of proceeds in the settlement of the sale of other portfolio securities;
and (ii) when the Fund is scheduled to receive cash in exchange for debt
obligations that are being retired, called, or exchanged pursuant to a sinking
fund provision or put feature of the instrument. The extent to which the Fund
will borrow will depend, among other things, on market conditions and interest
rates.

Portfolio Turnover. The Fund's portfolio turnover rate indicates changes in
its portfolio of securities and will vary year to year as well as within a year.
Portfolio turnover also may be affected by short term investment strategies and
the sale of portfolio securities to meet cash requirements for redemption of
Fund shares. High portfolio turnover could result in increases in transaction
costs and may result in realized capital gains which would be taxable
distributions to shareholders.

HOW TO INVEST

If you wish to place a telephone order under one of the purchase or redemption
options described below, have a question about investing or need forms for
electing an option, please call Shareholder Services at 1-800-432-7856 or 414-
289-7000. Please note that you may terminate or change any option you elect at
any time upon five days' advance notice to the Fund. The Fund may suspend,
modify or terminate any purchase or redemption option, other than the option to
redeem by mail, at any time without notice to you.

Purchasing Shares

Opening and Adding to Accounts.
- -------------------------------

. By mail - Mail or send by courier your check payable to the Fund to one of
the following addresses. Checks for new accounts should be mailed with an
Account Application. Checks for existing accounts should include your account
number and be mailed with the Additional Investment Form attached to a prior
account statement.

Firstar Mutual Fund Services, LLC Firstar Mutual Fund Services, LLC
3rd Floor 3rd Floor
P.O. Box 701 615 East Michigan Street
Milwaukee, WI 53201-0701 Milwaukee, WI 53202

By Wire - Instruct your bank to wire federal funds (monies of member banks of
the Federal Reserve System) to the Fund's transfer agent using the following
wire

15
<PAGE>

instructions. If you are opening a new account, you must first call 1-800-443-
2862, to obtain an account number from the Fund and provide your tax
identification number.

Firstar Bank Milwaukee, N.A.
ABA # 0750-00022
Firstar Trust MFS A/C #112-952-137
777 East Wisconsin Avenue, Milwaukee, WI 53202
CREDIT TO: Heartland Taxable Municipal Fund
Account of (exact name(s) listed in your account registration)
Your Fund Account No._______

. By Electronic Transfer - These services allow you to add to your account by
electronic transfer of funds from your bank account, and must be elected in
advance of use. You may obtain the forms for electing these services by
calling Heartland Advisors at one of the numbers listed above. Please allow
approximately 15 calendar days for these services to be established. Please
note that if your electronic transfer order cannot be processed because of
insufficient funds or a stop payment, the Fund's transfer agent will charge
your account a service fee of $20.

. Electronic Transfer by Telephone Request - You may add to your account
by electronic transfer in any amount between $100 and $25,000 on any day
the Fund is open for business by calling Heartland Advisors at one of
the numbers listed above.

. Electronic Transfer by Automatic Investment Plan - You also may add to
your account on a pre-scheduled basis in an amount of not less than $50
per transaction. You may change the schedule of your investments or the
investment amount, or you may terminate this service at any time on five
days' advance notice to Heartland Advisors. Your pre-scheduled
investments will be confirmed on your quarterly account statement.

Time of purchase and form of payment. Your purchases will be made at the net
asset value ("NAV") per share next determined after the Fund or its authorized
agent receives your payment. Payment must be in U. S. dollars by check drawn on
a U.S. bank, wire transfer or electronic transfer. Usually, the Fund will not
accept payment in the form of a check payable to you or a third party, and
endorsed over to the Fund. Shares purchased by checks that are returned will be
canceled and you will be liable for any losses or fees incurred by the Fund or
its agents, including bank handling charges for returned checks.

If your payment is received after 4:00 p.m., Eastern time, your purchase will be
effective on the next business day. Purchase orders are not binding until
accepted by the Fund or its authorized agent, and entered on the Fund's books.
The Fund may reject any order its officers determine is not in the best
interests of the Fund or its shareholders, and the offering of Fund shares may
be suspended or limited at any time without notice to

16
<PAGE>

shareholders. The Fund also may reject any order not accompanied by
instructions in English. Once accepted, you may not cancel or revoke your
purchase order, but you may redeem your shares.

Investment minimums. If you purchase shares directly from the Fund, your
initial investment must be for a minimum of $1,000, except for accounts opened
under prototype Individual Retirement Accounts ("IRAs") or tax-sheltered
retirement plans sponsored by Heartland and accounts opened with an automatic
investment plan described below. Subsequent purchases, other than through
dividend reinvestment, must be for a minimum of $100. The Fund may waive or
lower its investment minimums for any reason. Different minimums may apply to
accounts opened through third parties.

Tax Identification Numbers. Under IRS rules, we must receive your correct social
security or tax identification number on a signed Account Application or IRS
Form W-9 when you open your account. Otherwise, you may be subject to an IRS
fine, and we may be required to withhold a percentage (currently 31%) of your
dividend and capital gain distributions and of your redemption proceeds.

Purchases through third parties. Heartland reserves the right to refuse
purchases through any intermediary arrangement that the officers of Heartland
determine employs investment strategies which are not in the best interests of
the Fund or its shareholders.

Shares purchased through third parties may be subject to special fees and
conditions that do not apply if you purchase your shares directly from the Fund.
Third parties also may place limits on your ability to use the shareholder
services or receive shareholder information described in this prospectus.

Redeeming Shares

. By mail - Mail or send by courier your redemption instruction to the Fund at
one of the following addresses. Please include the number of shares or dollar
amount you wish to redeem, and your name and account number. Please also be
sure that your instruction is signed by all persons in whose names your
account is registered. Signatures must match the names in the account
registration and be guaranteed as further explained below.

For corporate, trust, partnership and other institutional accounts, the
persons signing should also indicate their officer or other fiduciary
capacity. A certified corporate resolution evidencing the signing officer's
authority to sign on behalf of a shareholder corporation also is required.
Executors, administrators, guardians, trusts and other institutional
shareholders should call Heartland Advisors prior to mailing their
instructions to determine if other documentation may be required.

17
<PAGE>

Firstar Mutual Fund Services, LLC Firstar Mutual Fund Services, LLC
3rd Floor 615 East Michigan Street 3rd Floor
P.O. Box 701 Milwaukee, WI 53202
Milwaukee, WI 53201-0701

. By Telephone - This service allows you to redeem shares in an amount of
$1,000 or more on any day the Fund is open for business by calling
Heartland Advisors at one of the numbers listed above. You may direct
that your redemption proceeds be mailed to your registered address or
wired to your bank account subject to a wire fee (currently $12.00)
charged by the Fund's transfer agent. Unless you instruct the Fund that
you do not want this service, you are automatically eligible to use it.
However, wire instructions must be pre-authorized in writing on your
Account Application or another form furnished when you request wire
privileges after you open your account.

. By Check - You may redeem shares by writing special checks in the amount
of $250 or more. This service is provided free of charge. Please note
that these checks are drawn on a special account at the Fund's custodian
bank, so you will be subject to that bank's procedures and rules
relating to its checking accounts. Canceled checks are not returned, but
copies may be obtained upon request. Please note that you may realize a
taxable gain or loss when you redeem shares by check.

. By Systematic Withdrawals - You may redeem your shares on a
pre-scheduled basis in an amount of at least $100 per transaction,
provided you have an account balance of at least $25,000 when you set up
this service. You may obtain the form to elect this service by calling
one of the numbers listed above.

Time of redemption; form of instructions and payment. Your shares will be
redeemed at the NAV per share next determined after your instructions, in
English, are received by the Fund or its authorized agent in good order as
further explained below. The Fund will not accept an order with instructions
for redemption on a particular date or at a particular price. The Fund uses
procedures reasonably designed to authenticate telephone instructions including,
for example, requesting personal identification information from callers. The
Fund is not liable for any losses due to unauthorized or fraudulent telephone
instructions if these procedures are followed. Once accepted, you may not
cancel or revoke your redemption order.

Usually, proceeds are mailed within one or two days of redemption or wired on
the next business day, but in no event are proceeds remitted to you later than
seven business days after redemption. In limited circumstances, the Fund may
elect to suspend the redemption of shares.

18
<PAGE>

Generally, proceeds will be paid in cash, but the Fund reserves the right to pay
redemptions in the amount of $250,000 or more "in kind," which means you would
be paid in portfolio securities. If this occurred, you might incur transaction
costs when you sell the portfolio securities.

If redemption instructions are received in good order for shares that have not
been paid for, your shares will be redeemed, but the Fund reserves the right to
hold the proceeds until payment of the purchase price can be confirmed. This
type of delay can be avoided by purchasing shares by federal funds wire.

Exchanging Shares

Unless you instruct the Fund that you do not want this service, you are
automatically permitted to purchase shares of the Fund with the proceeds of a
redemption for your account in any other Heartland Fund or the Firstar Money
Market Fund, a money market fund sponsored by an affiliate of the Heartland
Funds' transfer agent. This type of transaction is referred to as an "exchange"
and may be effected by writing or calling Heartland Advisors. Written exchanges
may be for any amount, but telephone exchanges may be for not less than $1,000
and not more than $500,000.

Exchanges with the Firstar Money Market Fund are subject to the terms and
conditions of that Fund's prospectus, which may be obtained from Heartland
Advisors. Heartland Advisors receives an annual fee from Firstar Money Market
Fund for shareholder account servicing and recordkeeping and distribution
services in the amount of 0.20 of 1% of the average daily net assets of shares
for which Heartland Advisors is the holder or dealer of record.

To minimize Fund expenses and to protect the Fund and its shareholders from
unfair expense burdens, the Fund reserves the right to restrict excessive
exchange activity by any shareholder.

IRAs and Tax-Sheltered Retirement Plans. Heartland sponsors an IRA plan for
individual investors as well as SIMPLE IRAs and other tax-sheltered retirement
plans for self-employed persons and employers. The Fund is available for
investment under these programs at the reduced initial investment minimum of
$500. Booklets describing the programs and the forms necessary for establishing
accounts under them are available on request from Heartland Advisors.

Signature Guarantees. To protect your account, the Fund reserves the right to
require a signature guarantee for written redemption instructions. Normally, a
signature guarantee will be required if the redemption proceeds will exceed
$25,000 or if the proceeds are being paid to a third party or mailed to an
address other than the address listed on the Fund's records. Acceptable
guarantors include, among others, banks and brokerage firms that are members of
a domestic stock exchange. Signatures witnessed by notaries public are not
acceptable.

19
<PAGE>

Redemptions through third parties. You may redeem shares through a third party
broker dealer or other financial institution provided the third party presents
documentation satisfactory to the Fund indicating it is your authorized agent.
If you redeem shares through a third party which also is an authorized agent of
the Fund, your order will be processed at the NAV per share next determined
after the third party receives your order; other orders will be processed at the
NAV per share next determined after receipt by the Fund. Third parties may
charge fees for their services, and impose terms or conditions that do not apply
if you do business directly with the Fund.

Involuntary redemptions; small account fees. If your account value falls below
$500 for three months or more, the Fund may redeem all of your shares upon 60
days' advance notice to you. You may avoid involuntary redemption by making
additional investments to bring your account value up to at least $1,000. In
addition, to help defray shareholder accounting expenses, the Fund reserves the
right to impose an annual fee on small accounts upon advance notice to you.

Share Price

Fund shares are purchased and redeemed at the net asset value ("NAV") per share
next determined following receipt of your order in proper form by the Fund or
its authorized agent. NAV is the difference between the values of the Fund's
assets and liabilities divided by the number of shares outstanding. It is
determined at the close of regular trading on the New York Stock Exchange
(generally 4:00 p.m., Eastern time). Orders received after 4:00 p.m., Eastern
time, are priced at the NAV per share determined on the next business day of the
Fund.

If you purchase or redeem shares through a third party which is an authorized
agent of the Fund, your order will be processed at the NAV per share next
determined after the third party receives your order; other purchases and
redemptions through third parties are processed at the NAV per share next
determined after receipt by the Fund. Third parties acting as authorized agents
of the Fund are required to segregate orders received after the close of regular
trading on the New York Stock Exchange ("NYSE") and transmit those orders
separately for execution at the NAV per share next subsequently determined.

Portfolio securities are valued on the basis of market quotations or at fair
value using methods determined by Heartland's Board of Directors. Like most
mutual funds, the Fund generally uses "fair value" methodologies to value debt
obligations because market quotations are generally not available for most debt
obligations. Fair values are normally determined by using valuations furnished
by one or more pricing services approved by Heartland's Board of Directors.
Debt securities purchased with remaining maturities of 60 days or less are
valued at acquisition cost, plus or minus any amortized discount or premium.

20
<PAGE>

SHAREHOLDER INFORMATION AND REPORTING

Investment Reports

Shareholder Reports. The Fund portfolio managers review their strategies and
results in quarterly Value Reports. In addition, semiannually these reports
contain schedules of investments and Fund financial statements. If several
members of a household own the Fund, only one Value Report is mailed to that
address. To receive additional copies, you may call Shareholder Services at
1-800-432-7856 or write to Heartland Advisors at 790 North Milwaukee Street,
Milwaukee, WI 53202.

Other Reports. Heartland Advisors also publishes and mails to shareholders News
& Views, a quarterly investment newsletter providing market analysis and
commentary. In addition, it publishes investment research pieces that are
mailed to shareholders periodically.

Dividends and Capital Gain Distributions

A dividend from net investment income represents the income the Fund earns from
dividends and interest paid on its investments, after payment of Fund expenses.
A capital gain is the increase in the value of a security that the Fund holds
compared to its original purchase price. The gain is "unrealized" until the
security is sold. Each realized capital gain is either short-term or long-term
depending on whether the Fund held the security for less than or more than one
year. This is the case regardless of how long you hold your Fund shares.

Income dividends are declared each business day and paid monthly. If the Fund
has net capital gains for a year, the Fund normally will distribute
substantially all of its net capital gains at the end of the year. Both types
of distributions are automatically invested in additional shares for your
account unless you elect on your Account Application to have them invested in
another Heartland Fund or to have them paid to you in cash.

"Buying a Dividend." Please note that if you purchase shares just before the
record date of a capital gain distribution, you will receive a portion of you
purchase price back as a taxable distribution. The Fund's NAV per share on the
record date will be reduced by the amount of the dividend. This is sometimes is
referred to as "buying a dividend."

Taxes

All income dividend distributions and short-term capital gain distributions will
be taxable to shareholders as ordinary income for federal income tax purposes.
Long-term capital gain distributions will be taxable as long-term capital gains
to shareholders. If the Fund declares a distribution in December, but does not
pay it until January of the following year, you still will be taxed as if the
distribution were paid in December. The Fund's

21
<PAGE>

transfer agent will process your distributions and send you a statement for tax
purposes each year showing the source of distributions for the preceding year.

If you redeem or exchange your shares, the transaction is a taxable event.
Special tax rules apply to non-individual shareholders and shareholders owning
Fund shares in IRAs and tax-sheltered retirement plans. State and local tax
rules differ from the federal tax rules described in this prospectus. Because
this tax information is only a general overview, you should consult with your
own tax advisor about the tax consequences of your investment in the Fund.

22
<PAGE>

BACK COVER

If you have a question about the Fund or would like more information, including
a free copy of the Fund's Statement of Additional Information ("SAI"), or its
Annual or Semiannual Report, you may call or write Heartland Advisors at:

Heartland Advisors, Inc.
790 N. Milwaukee Street
Milwaukee, WI 53202
1-800-432-7856
(414) 289-7000
Web Site: http://www.heartlandfunds.com

The SAI, which contains more information on the Fund, has been filed with the
Securities and Exchange Commission ("SEC"), and is legally a part of this
prospectus. The Annual and Semiannual Reports, also filed with the SEC, discuss
market conditions and investment strategies that affected the Fund's performance
during the prior fiscal year and six-month fiscal period, respectively.

To view these documents, along with other related documents, you can visit the
SEC's Internet web site (http://www.sec.gov) or the SEC's Public Reference Room
in Washington, D.C. Information on the operation of the public reference room
can be obtained by calling 1-800-SEC-0330. Additionally, copies of this
information can be obtained, for a duplicating fee, by writing the Public
Reference Section of the SEC, Washington, D.C. 20549-6009.

Investment Company Act File No. 811-4982

23
<PAGE>

Statement of Additional Information
Dated __________________, 1998

HEARTLAND TAXABLE MUNICIPAL FUND
790 North Milwaukee Street, Milwaukee, Wisconsin 53202
(414) 289-7000 or 1-800-432-7856
Web Site: http://www.heartlandfunds.com

Heartland Group, Inc. ("Heartland") is registered as an open-end management
investment company consisting of nine separate series. This Statement of
Additional Information relates to only one of such series, the Heartland Taxable
Municipal Fund (the "Fund"), which is classified as diversified and has a
distinct investment objective and program.

This Statement of Additional Information is not a prospectus, but provides you
with additional information that should be read in conjunction with the
prospectus for the Fund dated ____________________, 1998 (the "Prospectus").
You may obtain a free copy of the Prospectus and an account application by
contacting the distributor, Heartland Advisors, Inc. ("Heartland Advisors"), at
the street or web site address or either number listed above. Separate
prospectuses and related Statements of Additional Information for the other
Heartland funds are also available from Heartland Advisors.

- --------------------------------------------------------------------------------

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>

INVESTMENT OBJECTIVE AND POLICIES 2
TYPES OF SECURITIES 3
PORTFOLIO MANAGEMENT STRATEGIES 21
INVESTMENT RESTRICTIONS 26
MANAGEMENT 29
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES 31
INVESTMENT ADVISORY AND OTHER SERVICES 31
DISTRIBUTION OF SHARES 32
PORTFOLIO TRANSACTIONS 33
DESCRIPTION OF SHARES 34
PURCHASES AND SALES 35
ADDITIONAL INCOME TAX CONSIDERATIONS 36
PERFORMANCE INFORMATION 37
</TABLE>
<PAGE>

INVESMENT OBJECTIVE AND POLICIES

Heartland Taxable Municipal Fund seeks a high level of current income with a low
degree of share price fluctuation. The Fund seeks to achieve this objective by
investing primarily in a diversified portfolio of taxable medium and lower
quality obligations issued by municipalities ("Municipal Obligations"), and
maintains an average portfolio duration of three years or less.

Under normal market conditions, the Fund invests at least 65% of net assets in
taxable Municipal Obligations. Consistent with its investment objective, the
Fund also may invest up to 35% of net assets in other debt securities;
convertible securities; preferred and common stocks, and other equity
securities; warrants or other securities exchangeable for shares of equity
securities; foreign securities; options; futures; and hybrid instruments. A
hybrid instrument is a type of instrument that has characteristics of
securities, futures and options. For example, an instrument whose principal
value and interest rate is tied to a commodity, currency or securities index or
another interest rate is a hybrid instrument. When Heartland Advisors considers
the yield on Municipal Obligations exempt from federal income tax to be high in
relation to taxable Municipal Obligations, the Fund may invest in tax-exempt
Municipal Obligations.

Under adverse market conditions, other extraordinary economic or market
conditions, or when the spreads between the yields on medium and high quality
taxable Municipal Obligations are relatively narrow, the Fund may take a
defensive position and invest, without limitation, in higher quality taxable or
tax-exempt Municipal Obligations and other debt securities, or hold assets in
liquid reserves. Taking a defensive position is not required, and may not be
possible because of market conditions. It also might prevent the Fund from
achieving its investment objective.

Any assets not otherwise invested will be held in liquid reserves. Liquid
reserves include, but are not limited to, money market instruments, repurchase
agreements, certificates of deposit, commercial paper, short-term corporate debt
securities, variable rate demand notes and U.S. Government securities.

In pursuing its objective, the Fund may employ the investment techniques
described in the Prospectus and under the sections in this Statement of
Additional Information ("SAI") titled "Types of Securities" and "Portfolio
Management Strategies." The Fund's investment objective may be changed with the
approval of its Board of Directors and notice to shareholders, but without
shareholder approval.

<PAGE>

TYPES OF SECURITIES

The following information supplements the discussion of the Fund's investments
described in the Prospectus.

Debt Securities

In pursuing its investment objective, the Fund may invest in debt securities of
corporate and governmental issuers. The risks inherent in short-, intermediate-
and long-term debt securities depend on a variety of factors, including the term
of the obligations, the size of a particular offering, and the credit quality
and rating of the issuer, in addition to general market conditions.

In general, the longer the maturity of a debt obligation, the higher its yield
and the greater its sensitivity to changes in interest rates. Conversely, the
shorter the maturity, the lower the yield but the greater the price stability.
A decline in the prevailing levels of interest rates will generally increase the
value of the securities held by the Fund, and an increase in rates will
generally have the opposite effect.

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

Debt obligations rated in the highest through the medium quality categories are
commonly referred to as "investment grade" debt obligations. Investment-grade
debt obligations are generally believed to have relatively low degrees of credit
risk. However, medium quality debt obligations, while considered investment
grade, may have some speculative characteristics, since their issuers' capacity
for repayment may be more vulnerable to adverse economic conditions or changing
circumstances than that of higher rated issuers. The Fund's investment program
permits it to invest in securities rated below investment grade (or unrated
securities believed to be of comparable quality by Heartland Advisors); however,
it may not invest more than 20% of its total assets in debt obligations rated
lower than B- by S&P or a comparable rating by another NRSRO. The principal
value of lower-rated securities generally will fluctuate more widely than
higher-quality securities. Lower-quality securities entail a higher degree of
risk as to the payment of interest and return of principal. Such securities are
also subject to special risks, discussed below. To compensate investors for
taking on such increased risk, issuers deemed to be less creditworthy generally
must offer their investors higher interest rates than do issuers with better
credit ratings.

In conducting its credit research and analysis, Heartland Advisors considers
both qualitative and quantitative factors to evaluate the creditworthiness of
individual issuers. Heartland Advisors also relies, in part, on credit ratings
compiled by a number of NRSROs.

All ratings limitations are applied at time of purchase. Subsequent to
purchase, a debt security may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Fund. Neither event will require
the sale of such a security, but it will be a factor in considering whether to
continue to hold the security. To the extent that ratings may change as a
result of changes in a rating organization or their rating systems, the Fund
will attempt to use comparable ratings as standards for selecting investments.

Municipal Obligations. The term "Municipal Obligations" as used in the
Prospectus and this SAI means debt obligations issued by or on behalf of states,
territories or possessions of the United States and sovereign nations within the
territorial boundaries of the United States, the District of Columbia and their
respective political subdivisions, agencies, and instrumentalities, and
corporations duly authorized by them. Municipal obligations are generally
issued to obtain funds for various public purposes, including the construction
or improvement of a wide range of public facilities such as airports, bridges,
highways, housing, hospitals, nursing homes, mental health facilities, mass
transportation, schools, and water and sewer works. Other public purposes for
which Municipal Obligations may be issued include refunding outstanding
obligations, obtaining funds for general operating expenses and lending such

<PAGE>

funds to other public institutions and facilities. Municipal Obligations may
also be issued by or on behalf of public bodies to obtain funds to provide for
the construction, equipping, repair or improvement of housing facilities,
convention or trade show facilities, airport, mass transit, industrial, port or
parking facilities, and certain local facilities for water supply, gas,
electricity, sewage or solid waste disposal. In addition, there is another type
of Municipal Obligation that is subject to federal income tax for a variety of
reasons. These Municipal Obligations do not qualify for the federal exemption
because (i) they did not receive necessary authorization for tax-exempt
treatment from state or local government authorities, (ii) they exceed certain
regulatory limitations on the cost of issuance for tax-exempt financing, or
(iii) they finance public or private activities that do not qualify for the
federal income tax exemption. These non-qualifying activities might include,
for example, certain types of multi-family housing, certain professional and
local sports facilities, refinancing of certain municipal debt, and borrowing to
replenish a municipality's underfunded pension plan.

The two principal classifications of Municipal Obligations are "general
obligations," which are secured by the municipality's pledge of its credit and
taxing power for the payment of principal and interest, and "revenue
obligations," which are generally payable only from the revenues from a
particular facility or project, or, in some cases, from the proceeds of a
special excise tax or other specific revenue source. In addition, certain kinds
of "private activity bonds" ("industrial revenue bonds" or "IRBs") are issued
by public authorities to provide funding for various privately operated
industrial facilities. In most cases, IRBs are not secured by the credit of the
municipality, but rather the payment of principal and interest is dependent
solely upon payments by the user of the industrial facility financed by the bond
or a separate guarantor of the bond. In some instances, real and personal
property is pledged as security for principal and interest payments.

The Fund may also invest in the following types of Municipal Obligations:

Municipal Notes. The principal kinds of municipal notes in which the Fund may
invest include tax anticipation notes, bond anticipation notes, revenue
anticipation notes and project notes. Notes sold in anticipation of collection
of taxes, a bond sale or receipt of other revenues are usually general
obligations of the issuing municipality or agency. Project notes, which are
guaranteed by the United States Department of Housing and Urban Development
and secured by the full faith and credit of the United States, are issued by
local agencies.

Municipal Commercial Paper. Municipal commercial paper typically represents
very short-term, unsecured, negotiable promissory notes. These obligations are
often issued to provide interim construction financing or to meet seasonal
working capital needs of municipalities and are paid from general revenues of
municipalities or are refinanced with long-term debt. In most cases, municipal
commercial paper is backed by letters of credit, lending agreements, note
repurchase agreements or other credit facility agreements offered by banks or
other institutions which may be called upon in the event of default by the
issuer of the commercial paper.

Municipal Lease Obligations. The Fund may invest in state or local municipal
leases. Municipal leases may take the form of a lease with an option to
purchase, an installment purchase or a conditional sales contract which is
entered into by state and local governments and other public authorities to
purchase or lease land, equipment or facilities, such as fire, sanitation or
police vehicles or telecommunications equipment, buildings or other capital
assets. Municipal lease obligations, which are secured by payments by the
municipality under the lease or sales contract but are not backed by the
municipality's credit, frequently have the special risks described below.
Municipal lease obligations that are illiquid are subject to the 15%
limitation on investments in illiquid securities. See the section of this SAI
titled "Illiquid Securities."

Leases and installment purchase or conditional sale contracts (which usually
provide for title to the leased asset to pass eventually to the governmental
issuer) have evolved as a means for public bodies to acquire property and
equipment without needing to comply with all of the constitutional and
statutory requirements for the issuance of debt. Often municipal leases
contain "nonappropriation" clauses that provide that the public body has no
obligation to make future payments under the lease unless money is
specifically appropriated for such purpose each year (the "nonappropriation"
clause). In addition, protections extended to holders of indebtedness under
relevant state law do

4
<PAGE>

not extend to owners of municipal leases. Finally, municipal leases may
provide for termination at the option of the municipality at the end of each
fiscal year for any reason or, in some cases, automatically if not
affirmatively renewed. If a lease is terminated or not renewed, the lessor is
without recourse to the general credit of the municipality and may be limited
to repossession of the leased property. The disposition of the leased property
by the lessor in the event of a lease termination might prove difficult and
could result in a loss to the holders of participation interests.

Mortgage-Backed Municipal Obligations. The Fund may invest in mortgage-backed
Municipal Obligations, which finance residential housing mortgages to target
groups, generally low income individuals who are first-time home buyers. An
investment in such obligations represents an undivided interest in a pool of
mortgages. Payments made on the underlying mortgages and passed through to the
investor represent both regularly scheduled principal and interest payments,
as well as additional principal payments representing prepayments of the
underlying mortgages. While a certain level of prepayments can be expected
regardless of the interest rate environment, prepayment of the underlying
mortgages usually accelerates in periods of declining interest rates.
Accelerated prepayment could result in the Fund having to invest the
unanticipated proceeds in lower-yielding securities. This prepayment risk
causes mortgage-backed securities to be more significantly affected by changes
in interest rates than is the case for other types of Municipal Obligations.

Credit enhanced securities. The Fund may invest in credit enhanced
securities, which are Municipal Obligations that are either insured as to the
timely payment of principal and interest or backed by (i) the full faith and
credit of the U.S Government, (ii) agencies or instrumentalities of the U.S.
Government, or (iii) U.S. Government securities. Municipal Obligations may be
insured when purchased by the Fund or the Fund may purchase insurance in order
to turn an uninsured Municipal Obligation into an insured Municipal
Obligation.

Government Obligations. The Fund may invest in securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities. These securities
include a variety of Treasury securities, which differ in their interest rates,
maturities and times of issuance. Treasury Bills generally have maturities of
one year or less; Treasury Notes generally have maturities of one to ten years;
and Treasury Bonds generally have maturities of greater than ten years. Some
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, such as Government National Mortgage Association pass-through
certificates, are supported by the full faith and credit of the U.S. Treasury;
other obligations, such as those of the Federal Home Loan Banks, are secured by
the right of the issuer to borrow from the Treasury; other obligations, such as
those issued by the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase certain obligations
of the agency or instrumentality; and other obligations, such as those issued by
the Student Loan Marketing Association, are supported only by the credit of the
instrumentality itself. Although the U.S. Government provides financial support
to such U.S. Government-sponsored agencies or instrumentalities, no assurance
can be given that it will always do so, since it is not so obligated by law.

"High-Yield" Risk. The Fund's investment program permits it to invest in non-
investment grade debt obligations, sometimes referred to as "junk bonds"
(hereinafter referred to as "lower quality securities"); however, it may never
invest more than 20% of its total assets in debt obligations rated lower than
B-. Lower quality securities are those securities that are rated lower than
investment grade and unrated securities believed by Heartland Advisors to be of
comparable quality. Although these securities generally offer higher yields than
investment grade securities with similar maturities, lower quality securities
involve greater risks, including the possibility of default or bankruptcy. In
general, they are regarded to be more speculative with respect to the issuer's
capacity to pay interest and repay principal. The ability of the Fund to avoid
this type of risk is more dependent on Heartland Advisors' credit analysis than
is the case for higher rated bonds. Other potential risks associated with
investing in high-yield securities include:

. Effect of Interest Rates and Economic Changes. The lower quality and
comparable unrated security market is relatively new and its growth has
paralleled a long economic expansion. As a result, it is not clear how this
market

5
<PAGE>

may withstand a prolonged recession or economic downturn. Such conditions
could severely disrupt the market for, and adversely affect the value of, such
securities.

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

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

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

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

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

Floating and Variable Rate Securities. The Fund may invest in securities which
offer a variable or floating rate of interest. Floating rate securities
generally provide for automatic adjustment of the interest rate whenever some
specified

6
<PAGE>

interest rate index changes. Variable rate securities, on the other hand,
provide for automatic establishment of a new interest rate at fixed intervals.
Interest rates on 9floating and variable rate securities are based on a
designated rate or a specified percentage thereof, such as a bank's prime rate.

Floating or variable rate securities typically include a demand feature
entitling the holder to demand payment of the obligation on short notice at par
plus accrued interest. Some securities which do not have floating or variable
interest rates may be accompanied by puts producing similar results and price
characteristics. The issuer of these securities normally has a corresponding
right, after a given period, to prepay in its discretion the outstanding
principal amount of the note plus accrued interest upon a specified number of
days notice to the noteholders. When considering the maturity of any instrument
which may be sold or put to the issuer or a third party, the Fund may consider
the instrument's maturity to be shorter than its stated maturity.

Deferrable Subordinated Securities. Certain securities have been issued
recently which have long maturities and are deeply subordinated in the issuer's
capital structure. They generally have 30-year maturities and permit the issuer
to defer distributions for up to five years. These characteristics give the
issuer more financial flexibility than is typically the case with traditional
bonds. As a result, the securities may be viewed as possessing certain "equity-
like" features by rating agencies and bank regulators. However, the securities
are treated as debt securities by market participants, and the Fund intends to
treat them as such as well. These securities may offer a mandatory put or
remarketing option that creates an effective maturity date significantly shorter
than the stated one. The Fund may invest in these securities to the extent
their yield, credit, and maturity characteristics are consistent with the Fund's
investment objective and strategies.

Inflation - Indexed Bonds. The 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 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. If any such downward adjustment in the
principal value of an inflation-indexed bond exceeds the interest otherwise
includable in the Fund's gross income for the relevant tax year, the excess will
be treated as an ordinary loss.

If the periodic adjustment rate measuring inflation increases, the principal
value of inflation-indexed bonds will be adjusted upward and, as a result, the
interest payable on these securities (calculated with respect to a larger
principal amount) will be increased. 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, subject to
offset against any tax loss carryforwards from earlier tax years. There can be
no assurance that the applicable inflation index for the security will
accurately measure the real rate of inflation (or deflation) in the prices of
goods and services.

Mortgage-Related and Asset-Backed Securities. 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, or by private issuers, generally
originators and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers, and special purpose
entities (collectively, "private lenders"). Mortgage-backed securities issued
by private lenders may be supported by pools of mortgage loans or other
mortgage-backed securities that are guaranteed, directly or indirectly, by the
U.S. Government or one of its agencies or instrumentalities, or they may be
issued without any governmental guarantee of the underlying mortgage assets but
with some form of non-governmental credit enhancement.

7
<PAGE>

Asset-backed securities have structural characteristics similar to mortgage-
backed securities. Asset-backed debt obligations represent direct or indirect
participation in, or are secured by and payable from, assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property, and receivables from credit
card or other revolving credit arrangements. The credit quality of most asset-
backed securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement of the
securities. Payments or distributions of principal and interest on asset-backed
debt obligations may be supported by non-governmental credit enhancements
including letters of credit, reserve funds, overcollateralization, and
guarantees by third parties. The market for privately issued asset-backed debt
obligations is smaller and less liquid than the market for government sponsored
mortgage-backed securities.

In general, mortgage-related and asset-backed 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 and asset-
backed securities include both interest and a partial repayment of principal.
Besides the scheduled repayment of principal, repayments of principal on
mortgage-related and asset-backed securities may result from the voluntary
prepayment, refinancing, or foreclosure of the underlying mortgage loans or
other assets. Prepayments may result in early payment of the applicable
mortgage-related or asset-backed securities. In that event, the Fund may be
unable to invest the proceeds from the early payment of the mortgage-related or
asset-backed securities in an investment that provides as high a yield as the
mortgage-related or asset-backed securities. Consequently, early payment
associated with mortgage-related and asset-backed securities may cause these
securities to experience significantly greater price and yield volatility than
that experienced by traditional fixed-income securities. During periods of
falling interest rates, the rate of prepayments generally tends to increase,
thereby tending to decrease the life of mortgage-related and asset-backed
securities. During periods of rising interest rates, the rate of prepayments
generally decreases, thereby tending to increase the life of mortgage-related
and asset-backed securities. If the life of a mortgage-related or asset-backed
security is inaccurately predicted, the Fund may not be able to realize the rate
of return it expected.

Mortgage-related and asset-backed 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 and asset-backed 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 and asset-backed securities may change
due to changes in the market's perception of the creditworthiness of the issuer,
and the mortgage-related and asset-backed securities markets 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.

8
<PAGE>

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, 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
and asset-backed securities. Stripped mortgage-backed and asset-backed
securities are commonly structured with two classes that receive different
portions of the interest and principal distributions on a pool of 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
or asset-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 and asset-backed securities
may be more volatile and less liquid than that for other 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 Fund anticipates that certain entities may create loan pools offering pass-
through investments in addition to the types discussed above, including
securities with underlying pools of derivative mortgage-related and asset-backed
securities. As new types of mortgage-related and asset-backed 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.

Zero-Coupon, Step-Coupon and Pay-In-Kind Securities. The Fund may invest
without limitation in zero-coupon, step-coupon and pay-in-kind securities.
These securities are debt securities that do not make regular cash interest
payments. Zero-coupon and step-coupon securities are sold at a deep discount to
their face value. Pay-in-kind securities pay interest through the issuance of
additional securities. Because such securities do not pay current cash income,
the price of these securities can be volatile when interest rates fluctuate.
While these securities do not pay current cash income, federal income tax law
requires the holders of the zero-coupon, step-coupon and pay-in-kind

9
<PAGE>

securities to include in income each year the portion of the original issued
discount (or deemed discount) and other non-cash income on such securities
accrued during that year. In order to continue to qualify for treatment as a
"regulated investment company" under the Internal Revenue Code and avoid a
certain excise tax, the Fund may be required to distribute a portion of such
discount and income and may be required to dispose of other portfolio
securities, which could occur in periods of adverse market conditions, in order
to generate cash to meet these distribution requirements.

Convertible Securities

Convertible securities in which the Fund may invest include any bonds,
debentures, notes, preferred stocks or other securities that may be converted
into or exchanged for a specified amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. By investing in convertible securities, the Fund obtains the right to
benefit from the capital appreciation potential in the underlying common stock
upon exercise of the conversion right, while generally earning higher current
income than would be available if the stock were purchased directly. In
determining whether to purchase a convertible security, Heartland Advisors will
look to the conversion feature and consider substantially the same investment
criteria it would consider if purchasing the underlying common stock. However,
these securities will nevertheless be subject to the same quality limitations
applicable to the Fund's investments in debt securities.

The value of a convertible security is a function of its "investment value,"
which is determined by its yield in comparison with the yields of other
securities of comparable quality and maturity that do not have the conversion
privilege, and its "conversion value," which is the security's worth if
converted into the underlying common stock. Investment value is typically
influenced by interest rates and the credit standing of the issuer. Conversion
value is determined by the market price of the underlying common stock and
generally decreases as the convertible security approaches maturity.

Illiquid Securities

The Fund may invest in illiquid securities. However, the Fund may not acquire
illiquid securities if, as a result, more than 15% of the value of the Fund's
net assets would be invested in such securities. For purposes of applying this
limitation, an "illiquid security" means one that may not be sold or disposed of
in the ordinary course of business within seven days at a price approximating
the value at which the security is carried by the Fund.

Under guidelines established by, and the oversight of, Heartland's Board of
Directors, Heartland Advisors determines which securities are illiquid for
purposes of this limitation. Certain securities exempt from registration or
issued in transactions exempt from registration under the Securities Act of
1933, as amended (the "Securities Act"), such as securities that may be resold
to institutional investors under Rule 144A under the Securities Act, may be
considered by Heartland Advisors to be liquid under guidelines adopted by
Heartland's Board of Directors. The Board of Directors has determined that
private placement notes issued pursuant to Section 4(2) of the Securities Act of
1933 generally are readily marketable even though they are subject to certain
legal restrictions on resale. These securities, as well as Rule 144A securities
deemed to be liquid pursuant to the guidelines adopted by Heartland's Board of
Directors, are not treated as being subject to the limitation on illiquid
securities.

Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act, or in a registered public offering. Where registration is required, the
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.

Repurchase agreements maturing in more than seven days are deemed to be
illiquid.

10
<PAGE>

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

Loan Interests

The Fund may invest in loan interests, which are interests in amounts owed by a
municipality or other borrower to lenders or lending syndicates. Loan interests
purchased by the Fund will vary in maturity, may be subject to restrictions on
resale, are not readily marketable and may be secured or unsecured. They
involve the risk of loss in case of default or bankruptcy of the borrower or, if
in the form of a participation interest, the insolvency of the financial
intermediary. If the Fund acquires a loan interest under which the Fund
derives its rights directly from the borrower, such loan interests are
separately enforceable by the Fund against the borrower and all payments of
interest and principal are typically made directly to the Fund from the
borrower. In the event that the Fund and other lenders become entitled to take
possession of shared collateral being held in connection with a loan interest as
a result of default or insolvency, it is anticipated that such collateral would
be held in the custody of an institution for their mutual benefit.

Typically, the U.S. or foreign commercial bank, insurance company, finance
company, or other financial institution that originates, negotiates and
structures the loan interest (the "Agent") administers the terms of the loan
agreement. As a result, the Fund will generally rely on the Agent to receive
and forward to the Fund its portion of the principal and interest payments on
the loan. The Fund may also rely on the Agent and the other members of the
lending syndicate to use appropriate credit remedies against the borrower, if
necessary. However, the Fund may be required to perform certain tasks on its
own behalf in the event the Agent does not perform certain administrative or
enforcement functions.

The Fund may incur certain costs and delays in realizing payment on a loan
interest, or suffer a loss of principal and/or interest, in the event the Agent
becomes insolvent or enters into receivership or bankruptcy proceedings.
Indebtedness of borrowers whose creditworthiness is poor involves substantially
greater risks, and may be highly speculative. In addition, there is no
assurance that the liquidation of collateral from a secured loan would satisfy
the borrower's obligation, or that the collateral can be liquidated.

Real Estate Investment Trusts

The Fund may invest up to 10% of its total assets in real estate investment
trusts ("REITs") which may own real estate properties ("equity REITs") or may
make or purchase mortgages on real estate ("mortgage 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. Equity REITs may be
adversely affected by rising interest rates, which may increase the costs of
obtaining financing for real estate projects or cause investors to demand a high
annual yield from future distributions. Mortgage REITs may experience
diminished yields during periods of declining interest rates if they hold
mortgages that the mortgagors elect to prepay during such periods. 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.

11
<PAGE>

Some REITs have relatively small market capitalizations, which could increase
their market volatility. REITs tend to depend upon specialized management
skills and may have limited diversification causing them to be subject to risks
inherent in operating and financing a limited number of properties.

When-Issued and Delayed-Delivery Securities; Forward Commitments

The Fund may purchase securities on a when-issued or delayed-delivery basis, and
may purchase forward commitments. Payment and interest terms of these
securities are set out at the time the Fund enters into the commitment to
purchase, but normally the securities are not issued, and delivery and payment
for such obligations normally does not take place, for a month or more after the
purchase date. In a forward commitment transaction, the Fund contracts to
purchase securities for a fixed price at a future date beyond customary
settlement time. Obligations purchased on a when-issued or forward commitment
basis involve a risk of loss if the value of the security purchased declines
prior to the settlement date, and may increase net asset value fluctuation.

On the date the Fund enters into an agreement to purchase securities on a when-
issued or forward commitment basis, it will record the transaction and reflect
the value of the obligation in determining its net asset value. In addition,
the Fund will establish and maintain, for the term of the position, a segregated
account consisting of cash or other liquid assets, either of which may be quoted
or denominated in any currency, having a value at least equal to the Fund's
obligation under the position.

Custodial Receipts and Participation Interests

The Fund may invest in custodial receipts which represent ownership in future
interest or principal payments (or both) on certain securities that are
underwritten by securities dealers or banks.

The Fund may also invest in participation interests in securities.
Participation interests give the Fund an undivided interest in a security in the
proportion that the Fund's participation interest bears to the principal amount
of the security.

Investment Companies

The Fund may invest in the securities of other investment companies, including
unit investment trust or closed-end management companies, as permitted under the
Investment Company Act of 1940 (the "1940 Act"). At present, the 1940 Act
provisions limit the 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, the 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.

Foreign Investments

The Fund may invest up to 25% of its assets directly in the securities of
foreign issuers traded outside of the United States (Non-U.S. Traded Foreign
Securities). The Fund may also invest in foreign securities through depository
receipts, as discussed below; securities of foreign issuers that are traded on a
registered U.S. stock exchange or the NASDAQ National Market System; and foreign
securities guaranteed by a United States person without regard to the above
limitations.

12
<PAGE>

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. The
value of securities, and dividends and interest earned from such securities can
change significantly when foreign currencies strengthen or weaken relative to
the U.S. dollar. Foreign securities markets may 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, auditing and
disclosure standards comparable to those applicable to U.S. companies, and it
may be more difficult to obtain reliable information regarding a foreign
issuer's financial condition and operations. In addition, the costs of
investing overseas, including non-U.S. withholding taxes, brokerage commissions,
and custodial costs, are generally higher than for U.S. investments. Such
markets may have different clearance and settlement procedures, and in certain
markets there have been times when settlements have been unable to keep pace
with the volume of securities transactions, making it difficult to settle
certain transactions. Inability to sell a portfolio security due to settlement
problems could result either in a loss to the Fund if the value of the portfolio
security subsequently declined, or, if the Fund had entered into a contract to
sell the security, could result in possible claims against the Fund.

Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government regulation than their U.S. counterparts. 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, but not limited to, the possibility of
expropriation or nationalization of assets, confiscatory taxation, or
restrictions on U.S. investment or on the ability to repatriate assets or
convert currency into U.S. dollars. 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. Equity securities of foreign
companies with smaller market capitalizations may involve a higher degree of
risk than investments in the general foreign equity markets and such securities
may be subject to even greater price volatility and may have less market
liquidity than equity securities of foreign issuers with larger market
capitalizations.

The Fund 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 where the issuer is domiciled, they may be less
liquid than foreign securities of the same class that are not subject to such
restrictions.

American Depository Receipts ("ADRs") are certificates evidencing ownership of
shares of a foreign-based issuer held by a U.S. bank or similar financial
institution as depository. Designed for use in U.S. securities markets, ADRs
are alternatives to the direct purchase of the underlying securities in their
national markets and currencies. The limitations as to the Fund's investments
in foreign securities do not apply to investments in ADRs or to securities of
foreign issuers that are traded on a registered U.S. stock exchange or the
NASDAQ National Market System.

A Depository Receipt may be sponsored or unsponsored. If the Fund is invested
in an unsponsored Depository Receipt, the Fund is likely to bear its
proportionate share of the expenses of the depository, and it may have greater
difficulty in receiving shareholder communications than it would have with a
sponsored ADR.

13
<PAGE>

Indexed Securities

The Fund may purchase securities whose prices are indexed to the prices of other
securities, securities indices, or other financial indicators. Indexed
securities typically 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 Fund may invest may include
securities whose interest rates are determined by reference to one or more
specific financial indicators, such as LIBOR, resulting in a security whose
interest payments tend to rise and fall together with the financial indicator.
Indexed securities may be positively or negatively indexed; that is, their
maturity value may increase when the specified underlying instrument's value
increases, resulting in a security that performs similarly to the underlying
instrument, or their maturity value may decline when the underlying instrument
increases, resulting in a security whose price characteristics are similar to a
put on the underlying instrument.

The performance of indexed securities depends to a great extent on the
performance of the security or other instrument to which they are indexed, and
may also be influenced by interest rate changes in the U.S. and abroad. At the
same time, indexed securities are subject to the credit risks associated with
the issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Recent issuers of indexed securities
have included banks, corporations, and certain U.S. government agencies.

The market for indexed securities may be thinner and less active than the market
for securities in general, which can adversely affect the prices at which
indexed securities are sold. 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 to accurately
value indexed securities and the Fund's ability to dispose of these securities.

Rights and Warrants

The Fund may purchase rights and warrants which are securities giving the holder
the right, but not the obligation, to purchase the underlying securities at a
predetermined price during a specified period or perpetually. Rights and
warrants are considered more speculative than certain other types of investments
because they generally have no voting rights, pay no dividends, and have no
rights with respect to the assets of the corporation issuing them. In addition,
the prices or rights and warrants do not necessarily move parallel to the prices
of the underlying securities, and they cease to have value if they are not
exercised on or prior to their expiration dates.

Derivative Instruments

The Fund may invest in a broad array of financial instruments and securities,
the value of which is "derived" from the performance of an underlying asset or a
"benchmark" such as a security index, an interest rate, or a currency. In
particular, the Fund may engage in transactions in options, futures contracts,
options on futures contracts and hybrid instruments to (i) hedge against
anticipated declines in the market value of its portfolio securities or
currencies and against increases in the market values of securities or
currencies it intends to acquire, (ii) to manage exposure to changing interest
rates (duration management), (iii) to enhance total return, or (iv) to invest in
eligible asset classes with greater efficiency and lower cost than is possible
through direct investment.

Some options and futures strategies, including selling futures, buying puts and
writing calls, tend to hedge the 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 in order to adjust the risk and return characteristics of the Fund's
overall strategy. 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 the duration
of the Fund's portfolio by approximately the same amount of time that holding an
equivalent

14
<PAGE>

amount of the underlying securities would. The Fund does not currently intend
to invest more than 5% of its net assets in any type of derivative except for
options, futures contracts and options on futures contracts.

Writing Covered Options. The Fund may write covered put and call options on any
securities or futures contracts in which it may invest, on any securities index
based on securities in which it may invest, on any currency in which Fund
investments may be denominated. A call option on an asset written by the Fund
obligates the Fund to sell the specified asset to the holder (purchaser) at a
stated price (the exercise price) if the option is exercised before a specified
date (the expiration date). A put option on an asset written by the Fund
obligates the Fund to buy the specified asset from the purchaser at the exercise
price if the option is exercised before the expiration date.

The term "covered" means that the Fund will (i) in the case of a call option,
own the asset subject to the option or have an unconditional right to purchase
the same underlying asset at a price equal to or less than the exercise price of
the "covered" option or, in the case of a put option, have an unconditional
right to sell the same underlying asset at a price equal to or greater than the
exercise price of the "covered" option, or (ii) establish and maintain, for the
term of the option, a segregated account consisting of cash or other liquid
assets, either of which may be quoted or denominated in any currency, having a
value at least equal to the Fund's obligation under the option, or (iii)
purchase an offsetting option or any other option which, by virtue of its
exercise price or otherwise, reduces the Fund's net exposure on its written
option position. The Fund may cover call options on a securities index by
owning securities whose price changes are expected to be similar to those of the
underlying index.

Writing put or call options can enable the Fund to enhance income by reason of
the premiums paid by the purchaser of such options. 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
asset in return for the exercise price, even if its current value is greater, a
call writer gives up some ability to participate in the price increases in the
underlying asset. Conversely, if the price of the underlying asset 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 asset and therefore would not benefit from the appreciation in
price. If the price of the underlying asset falls, the put writer would expect
to suffer a loss, which loss could be substantial, because a put writer must be
prepared to pay the exercise price for the option's underlying asset if the
other party to the option chooses to exercise it. However, the loss should be
less than the loss experienced if the Fund had purchased the underlying asset
directly because the premium received for writing the option will mitigate the
effects of the decline.

If a put or call option which the Fund has written expires, the Fund will
realize a gain in the amount of the premium; however, such gain may be offset by
a change in the market value of the underlying asset during the option period.
If the put or call option is exercised, the Fund will realize a gain or loss
from the sale of the underlying asset.

The premium received is the market value of an option. The premium the Fund
receives from writing an option reflects, among other things, the current market
price of the underlying asset, the relationship of the exercise price to such
market price, the historical price volatility of the underlying asset and the
length of the option period. The premium received by the Fund for writing
covered options will be recorded as a receivable and the option will be recorded
as a liability. 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 (as described below), or delivery of the underlying asset
(or cash in the case of an index option) upon the exercise of the option. The
Fund does not consider a security covered by an option to be "pledged" as that
term is used in the Fund's policy limiting the pledging of its assets. With
respect to options on futures contracts, the Fund would be 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 the Fund will be required to make margin payments as described
below for futures contracts.

15
<PAGE>

The Fund may enter into closing transactions with respect to options by
purchasing an option identical to the one it has written (for exchange-listed
options) or by entering into an offsetting transaction with the counterparty to
such option (for OTC options). The Fund's ability to establish and close out
positions in exchange-listed options depends on the existence of a liquid
market; however, there can be no assurance that such a market will exist at any
particular time or that the Fund will be able to effect such closing
transactions at a favorable price. In addition, although the Fund will enter
into OTC options only with counterparties that are expected to be capable of
entering into closing transactions with the Fund, there is no assurance that the
Fund will in fact be able to close out an OTC option position at any time prior
to its expiration or that the Fund will be able to effect such closing
transactions at a favorable price. Closing transactions may be effected in
order to realize a profit on an outstanding option or limit the loss on an
option position prior to its exercise or expiration. Furthermore, effecting a
closing transaction may permit the Fund to write another option on the
underlying asset with either a different exercise price or expiration date or
both. If the Fund desires to purchase or sell a particular asset from its
portfolio on which it has written an option, it will seek to effect a closing
transaction prior to, or concurrently with, the purchase or sale of the asset.
The Fund may pay transaction costs in connection with closing transactions which
are higher than the transaction costs applicable to purchases and sales of
portfolio securities.

Purchasing Options. The Fund may purchase put and call options on any
securities or futures contracts in which it may invest, on any securities index
based on securities in which it may invest or on any currency in which Fund
investments may be denominated. The Fund would normally purchase call options in
anticipation of an increase, or put options in anticipation of a decrease, in
the market value of securities or currencies of the type in which it may invest.
The Fund may enter into closing transactions with respect to such options by
writing an option identical to the one it has purchased (for exchange-listed
options) or by entering into an offsetting transaction with the counterparty to
such option (for OTC options). The Fund may also exercise such options or allow
them to expire.

The Fund would normally purchase call options in anticipation of an increase in
the market value of the underlying assets. As the holder of a call option, the
Fund has the right to purchase the underlying asset at the exercise price at any
time during the option period. A call buyer typically attempts to participate
in potential price increases of the underlying asset with risk limited to the
cost of the option, including the premium paid and transaction costs, if such
asset prices fall. At the same time, the buyer can expect to suffer a loss if
such asset prices do not rise sufficiently to offset the cost of the option.

The Fund would normally purchase put options in anticipation of an decrease in
the market value of the underlying assets. As the holder of a put option, the
Fund has the right to sell the underlying asset at any time during the option
period. The Fund may also purchase put options on a security or currency related
to its investments as a defensive technique in order to protect against an
anticipated decline in the value of the underlying asset. 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 asset at the put exercise price
regardless of any decline in the underlying asset's market price. The premium
paid for the put option and any transaction costs would reduce any gain
otherwise available for distribution when the asset is eventually sold.

The premium paid by a Fund when purchasing an 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 asset (or cash in the case of an index option) upon the exercise
of the option.

Futures Contracts. The Fund may purchase and sell futures contracts, including,
but not limited to, interest rate, index or foreign currency futures contracts,
that are traded on a recognized U.S. exchange, board of trade or similar entity,
or quoted on an automated quotation system. The Funds may engage in
transactions in futures contracts for "short" hedging or "long" strategies as
described below.

16
<PAGE>

When the Fund purchases a futures contract, it agrees to purchase a specified
underlying instrument at a specified future date. When the 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. While the Fund may make or take delivery of
the underlying instrument whenever it appears economically advantageous to do
so, positions taken in the futures markets are not normally held to maturity but
are instead liquidated through offsetting transactions which may result in a
profit or loss as discussed below.

The Fund may take a "short" position in the futures market by selling futures
contracts in an attempt to hedge against an anticipated rise in interest rates
or a decline in market prices or foreign currency rates that would adversely
affect the dollar value of the Fund's portfolio securities. As part of its
hedging strategy, the Fund may sell futures contracts on (i) securities held by
the Fund or securities with characteristics similar to those of the Fund's
portfolio securities, or (ii) currencies in which its portfolio securities are
quoted or denominated or on one currency to hedge against fluctuations in the
value of securities denominated in a different currency if there is an
established historical pattern of correlation between the two currencies, or
(iii) other financial instruments, securities indices or other indices, if, in
the opinion of Heartland Advisors, there is a sufficient degree of correlation
between price trends for the Fund's portfolio securities and such futures
contracts. A successful short hedging position would result in any depreciation
in the value of portfolio securities being substantially offset by appreciation
in the value of the futures position. Conversely, any unanticipated
appreciation in the value of the Fund's portfolio securities would be
substantially offset by a decline in the value of the futures position.

The Fund may also take a "long" position in the futures market by purchasing
futures contracts. This strategy would be employed, for example, when interest
rates are falling or securities prices are rising and the Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices that are currently available. The Fund
may also purchase futures contracts to alter the investment characteristics of
or currency exposure associated with portfolio securities, as a substitute for
transactions in securities or foreign currencies, or to gain or increase
exposure to a particular securities market or currency.

The purchaser of a futures contract is not required to pay for and the seller of
a futures contract is not required to deliver 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, the
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 initial margin required for a particular futures contract is
set by the exchange on which the contract is traded and may be significantly
modified from time to time by the exchange during the term of the contract.
Futures contracts are customarily purchased and sold on initial margins that may
range upward from less than 5% of the value of the contract being traded. There
may be certain circumstances, such as periods of high volatility, that cause an
exchange to increase the level of the Fund's initial margin payment. Unlike
margin in securities transactions, initial margin on futures contracts does not
represent a borrowing, but rather is in the nature of a performance bond or
good-faith deposit that is returned to the Fund upon termination of the
transaction assuming all contractual obligations have been satisfied.

Each day that the Fund has an open position in a futures contract or an option
on a futures contract it will pay or receive cash, called "variation margin" to
or from the futures broker equal to the daily change in value of the futures
contract. This process is known as "marking to market." Variation margin paid
or received by the Fund does not represent a borrowing or a loan, but rather
represents settlement between the Fund and the broker of the amount one would
owe the other if the futures contract had expired at the close of the previous
day. When the Fund purchases an option on a future, all that is at risk is the
premium paid plus transaction costs. Alternatively, when the Fund purchases or
sells a futures contract or writes a call or put option thereon, it is subject
to daily variation margin calls that could be substantial in the event of
adverse price movements. The Fund may be required to sell securities at a time
when such sales are disadvantageous in the event the Fund has insufficient cash
to meet daily variation margin requirements. In computing daily net asset
value, the Fund will mark to market the current value of its open futures
contracts. The Fund expects to earn interest income on its margin deposits.

17
<PAGE>

Futures contracts can be held until their delivery dates, or can be closed out
before then if a liquid secondary market is available; however, there can be no
assurance that such a market will exist at any particular time or that the Fund
will be able to effect such closing transactions at a favorable price. Closing
out an open futures contract purchase or sale is effected by entering into an
offsetting futures contract sale or purchase, respectively, for the same
aggregate amount of the identical securities and the same delivery date. If the
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, the Fund realizes a gain; if it is more, the 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 the Fund will be able to enter into an offsetting
transaction with respect to a particular futures contract at a particular time.
If the 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 the Fund's exposure to positive and negative price
fluctuations in the underlying instrument, much as if it had purchased the
underlying instrument directly. When the 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. Movements in the prices of futures
contracts or options on futures contracts may not correlate perfectly with
movements in the prices of the underlying instruments due to certain
characteristics of the futures markets. In particular, daily variation margin
calls may cause certain participants in futures markets to liquidate futures or
options on futures contracts positions to avoid being subject to further calls.
These liquidations could distort the normal price relationship between the
futures or options and the underlying instruments by increasing price
volatility. Temporary price distortion may also be caused by increased
participation by speculators in the futures markets as a result of initial
margin deposit requirements being less onerous than in the securities markets.

Limitations on Futures and Options on Futures Transactions. The Fund will
engage in transactions in futures contracts and options thereon either for bona
fide hedging purposes or to seek to increase total return, in each case in
accordance with the rules and regulations of the Commodity Futures Trading
Commission. The Fund may hold positions in futures contracts and related
options that do not qualify as bona fide hedging positions if, as a result, the
sum of initial margin deposits and premiums paid to establish such positions,
after taking into account unrealized profits and unrealized losses on such
contracts, does not 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.

When purchasing a futures contract or writing an option on a futures contract,
the Fund must (i) establish and maintain, for the term of the option, a
segregated account consisting of cash or other liquid assets, either of which
may be quoted or denominated in any currency, having a value at least equal to
the Fund's obligation under the position, or (ii) purchase an offsetting
position or any other position which, by virtue of its exercise price or
otherwise, reduces the Fund's net exposure on its futures contract or written
option position. The Fund may cover index futures and call options on index
futures by owning securities whose price changes are expected to be similar to
those of the underlying index.

Combined Positions. The Fund 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, the 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.

<PAGE>

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 use options and futures 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 options and futures
strategies require the ability to predict future movements in securities prices,
interest rates, and other economic factors. There are significant differences
between the securities markets, the currency markets and the options and futures
markets that could result in an imperfect correlation between the markets,
causing a given transaction not to achieve its objectives. 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 or suspensions by an exchange. If price changes in the
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 the Fund's current or anticipated investments exactly. The Fund may
invest in options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures positions
will not track the performance of the Fund's other investments. For example,
even the use of an option or a futures contract on a municipal bond index may
result in an imperfect correlation since the index generally will be composed of
a much broader range of Municipal Obligations than the securities in which the
Fund likely is to be invested. To the extent that the Fund's options or futures
positions do not match its current or anticipated investments, there is an
increased risk that the options or futures positions will not track performance
of the Fund's other investments. Moreover, the Fund 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 the Fund.
Therefore, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract by the Fund.

There can be no assurance that a liquid secondary market will exist for any
particular options or futures contracts at any particular time. On volatile
trading days when the price fluctuation limit is reached or a trading halt or
suspension is imposed, it may be impossible for the Fund to enter into new
positions, close out existing positions or dispose of assets held in a
segregated account. These events may also make an option or futures contract
difficult to price. 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 the Fund to
continue to hold the position until delivery or expiration regardless of changes
in its value. As a result, the Fund's access to other assets held to cover its
options or futures positions could also be impaired. Similarly, if the Fund is
unable to effect a closing sale transaction with respect to options it has
purchased, it would have to exercise the options in order to realize any profit
and will incur transaction costs upon the purchase or sale of underlying
securities or currencies.

Federal Tax Treatment of Options, Futures Contracts, and Forward Foreign
Exchange Contracts. The Funds may enter into certain options and futures
contracts which may or may not 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.
Generally, 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 recognize net gains or
losses on such

<PAGE>

transactions when determining the Fund's distribution requirements even though
it may not have closed the transaction and received cash to pay such
distribution.

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

In order for the 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). Options, futures and forward foreign exchange contracts entered
into for an investment purpose are qualifying income. See "Foreign Currency
Transactions" below for a discussion of forward foreign exchange contracts.

The Taxpayer Relief Act of 1997 (the "Act") imposed constructive sale treatment
for federal income tax purposes on certain hedging strategies with respect to
appreciated securities. Under these rules, taxpayers will recognize gain, but
not loss, with respect to securities if they enter into short sales of
"offsetting notional principal contracts" (as defined by the Act) or futures or
"forward contracts" (as defined by the Act) with respect to the same or
substantially identical property, or if they enter into such transactions and
then acquire the same or substantially identical property. These changes
generally apply to constructive sales after June 8, 1997. Furthermore, the
Secretary of the Treasury is authorized to promulgate regulations that will
treat as constructive sales certain transactions that have substantially the
same effect as short sales, offsetting notional principal contracts, and futures
or forward contracts to deliver the same or substantially similar property.

Hybrid Instruments. The Fund may invest in hybrid instruments, a type of
potentially high-risk derivative which combines the characteristics of futures
contracts or options with those of debt, preferred equity, or a depository
instrument. Generally, a hybrid instrument will be a debt security or other
evidence of indebtedness on which a portion of or all interest payments, and/or
the principal or stated amount payable at maturity, redemption, or retirement,
is determined by reference to prices, securities, currencies, intangibles,
goods, articles, or commodities or by another objective index, economic factor,
or other measure, such as interest rates, currency exchange rates, commodity
indices, and securities indices. Thus, hybrid instruments may take a variety of
forms, including, but not limited to, debt instruments with interest or
principal payments or redemption terms determined by reference to the value of a
currency or commodity or securities index at a future point in time, preferred
stock with dividend rates determined by reference to the value of a currency, or
convertible securities with the conversion terms related to a particular
commodity.

Since hybrid instruments reflect a combination of the characteristics of futures
or options with those of securities, hybrid instruments may entail significant
risks that are not associated with a similar investment in a traditional debt
instrument that has a fixed principal amount, is denominated in U.S. dollars, or
bears interest either at a fixed rate or a floating rate determined by reference
to a common, nationally published benchmark. Although the risks of a particular
hybrid instrument will depend upon the terms of the instrument, such risks may
include, without limitation, the possibility of significant changes in the
benchmarks or underlying assets to which the instrument is linked. Such risks
generally depend upon factors which are unrelated to the operations or credit
quality of the issuer (although credit risk of the issuer is a consideration) of
the hybrid instrument and which may not be readily foreseen by the purchaser,
such as economic and political events, the supply and demand for the underlying
assets, and interest rate movements. The benchmarks and underlying assets to
which hybrid instruments are linked may also result in greater volatility and
market risk, including leverage risk which may occur when the hybrid instrument
is structured so that a given change in a benchmark or underlying asset is
multiplied to produce greater value change in the hybrid instrument, thereby
magnifying the risk of loss as well as the potential for gain. In addition,
hybrid instruments may also carry liquidity risk since the instruments are often
"customized" to meet the needs of the particular investor. See the section of
this SAI titled "Derivative Instruments - Risks in Options and Futures
Transactions."

Swap Agreements. The Fund may enter into swap agreements and may purchase or
sell related caps, floors and collars. It would enter into these transactions
primarily to preserve a desired return or spread on a particular investment or
portion of its portfolio, as a duration management technique or to protect
against any increase in the price of, or the

<PAGE>

currency exchange rate applicable to, securities it anticipates purchasing at a
later date. The Fund intends to use these techniques for hedging purposes and
not for speculation.

Swap agreements are generally individually negotiated agreements, primarily
entered into by institutional investors, in which the parties agree to exchange
the returns (or differentials in rates of return) earned or realized on
particular predetermined investments or instruments. The gross returns to be
exchange or "swapped" between the parties are calculated with respect to a
"notional amount" (i.e., the return on or increase in value of a particular
dollar amount invested at a particular interest rate) in a particular foreign
currency, or in a "basket" of securities representing a particular index. The
Fund's successful use of these instruments will depend, in part, on Heartland
Advisors' ability to predict correctly whether certain types of investments are
likely to produce greater returns than other investments.

Depending on its structure, a swap agreement may increase or decrease the
exposure to changes in the value of an index of securities, the value of a
particular security or group of securities, or foreign currency values.
Depending on how it is used, a swap agreement may increase or decrease the
overall volatility of the Fund's investments and its net asset value. The
performance of a swap agreement is determined by the change in the specific
currency, market index, security, or other factors that determine the amounts of
payments due to and from the Fund. The Fund's obligation under a swap
agreement, which is generally equal to the net amount to be paid or received
under the agreement based on the relative values of the positions held by each
party to the agreement, will be accrued daily (offset against amounts owed to
the Fund) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of the segregated account consisting of cash
and/or other appropriate liquid assets having a value at least as great as the
commitment underlying the obligations.

Swap agreements may include interest rate caps, which entitle the purchaser to
receive payments on a notional principal amount from the party selling the cap
to the extent that a specified index exceeds a predetermined interest rate or
amount; interest rate floors, which entitle the purchaser to receive payments on
a notional principal amount from the party selling such floor to the extent that
a specified index falls below a predetermined interest rate or amount; and
interest rate collars, under which a party sells a cap and purchases a floor, or
vice versa, in an attempt to protect itself against interest rate movements
exceeding given minimum or maximum levels.

If a swap agreement calls for payments by the Fund, it must be prepared to make
such payments when due. If the counterparty's creditworthiness declines, or in
the event of a default of the counterparty, the value of the swap agreement
would be likely to decline, potentially resulting in a loss of the amount
expected to receive under a swap agreement. The Fund will enter into swap
agreements only with counterparties that Heartland Advisors reasonably believes
are capable of performing under the swap agreements. The swap market is largely
unregulated and swap agreements may be considered to be illiquid.

PORTFOLIO MANAGEMENT STRATEGIES

The following information supplements the discussion of the Fund's investment
objective and policies discussed in the Prospectus.

Borrowing

The Fund may borrow from any bank or other person up to 5% of total assets for
temporary purposes. A borrowing is presumed to be for temporary purposes if it
is repaid by the Fund within 60 days and is not extended or renewed. The Fund
also may borrow solely from banks to facilitate the management of its investment
portfolio and make other investments or engage in other transactions permissible
under the 1940 Act which may be considered a borrowing (such as dollar rolls and
reverse repurchase agreements), provided such borrowings for these purposes do
not exceed one-third of total assets.

<PAGE>

Presently, the Fund intends to borrow only from banks for the following purposes
for a period of not longer than 60 days and in amounts not to exceed 20% of
total assets. First, is to avoid liquidating securities under circumstances,
which Heartland Advisors believes are unfavorable to shareholders, such as to
meet large or unexpected redemptions or to purchase debt obligations pending
receipt of proceeds in the settlement of the sale of other portfolio securities.
Second, is when the Fund is scheduled to receive cash in exchange for debt
obligations that are being retired, called, or exchanged pursuant to a sinking
fund or put feature of the instrument. The extent to which the Fund will borrow
will depend, among other things, on market conditions and interest rates.

Concentration

The Fund may invest 25% or more of its net assets in Municipal Obligations that
finance similar types of projects or projects in related industry sectors.
These could include, for example, projects involving community development,
education, health care, hospitals, retirement, single-family or multi-family
housing, redevelopment, transportation, or various types of utilities. There
may be economic, business or political developments or changes that affect all
obligations of a similar type, or in related sectors, such as proposed
legislation affecting the financing of certain projects, judicial decisions
relating to the validity of certain projects or the means of financing them,
shortages or price increases of necessary materials, or declining market needs
for such projects. Therefore, developments affecting a single industry or the
securities financing similar types of projects, could have a significant effect
on the Fund's performance. The Fund also may invest 25% or more of its net
assets in Municipal Obligations whose issuers or projects financed are located
in the same state or other geographic region. In the event the Fund should
concentrate its investments in such a geographic territory, developments and
events which have a greater effect on the economy of that geographic territory
as compared to the national or global economy may tend to have a greater effect
on the Fund's net asset value than would be the case for a less geographically
concentrated investment portfolio.

Duration

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. Duration
is a measure of the approximate price sensitivity of a bond (or bond mutual
fund) to a one percent (1%) rise or fall in interest rates. The Fund will have
an average portfolio duration of three years or less, and thus, based on its
duration, would be expected to experience a decline in price of three percent
(3%) or less should interest rates increase one percent (1%).

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.

<PAGE>

Standby Commitments

To facilitate portfolio liquidity, the Fund may obtain standby commitments from
brokers, dealers or banks with respect to debt securities in its portfolio. A
standby commitment gives the holder the right to sell the underlying security to
the seller at an agreed-upon price, generally equal to the amortized cost of the
underlying security plus accrued interest, on certain dates or within a
specified period. Standby commitments generally increase the cost of the
acquisition of the underlying security, thereby reducing its yield. Standby
commitments are subject to the issuer's ability to fulfill its obligation upon
demand. Although no definitive creditworthiness criteria are used, Heartland
Advisors reviews the creditworthiness of the brokers, dealers and banks from
which the Fund obtains standby commitments to evaluate those risks.

Foreign Currency Transactions

To manage the currency risk accompanying investments in foreign securities and
to facilitate the purchase and sale of foreign securities, the Fund may engage
in foreign currency transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or through forward foreign
currency exchange contracts ("forward contracts"). Forward contracts are
contractual obligations to purchase or sell a specific currency at a future date
(or within a specified time period) at a price set at the time of the contract.
These contracts are usually entered into with banks and broker-dealers, are not
exchange traded, and are usually for less than one year, but may be renewed.

The Fund may use these instruments for hedging or any other lawful purpose
consistent with the Fund's investment objective. The Fund's use of such
contracts would include, but not be limited to, the following:

When the 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.

In addition, when Heartland Advisors believes that the currency of a particular
foreign country may suffer a substantial decline against another currency,
including the U.S. dollar, it may enter into a forward contract to sell or buy
the amount of the former foreign currency, approximating the value of some or
all of the Fund's portfolio securities denominated in such foreign currency.
Alternatively, where appropriate, the Fund may hedge all or part of its foreign
currency exposure through the use of a basket of currencies or a proxy currency
where such currency or currencies act as an effective proxy for other
currencies. In such a case, the Fund may enter into a forward contract where
the amount of the foreign currency to be sold exceeds the value of the
securities denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into separate
forward contracts for each currency it holds.

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 the Fund will be served.

<PAGE>

When required, the Fund will establish and maintain, for the term of the
respective forward contract, a segregated account consisting of cash or other
liquid assets, either of which may be quoted or denominated in any currency,
having a value at least equal to the Fund's obligation under the position. If a
large portion of the Fund's assets are so set aside, this could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.

At the maturity of a forward contract, the Fund may either sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and either acquire the currency on the spot market or 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 the 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 the 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 the
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 Fund's dealings in forward foreign currency exchange contracts will be
limited to the transactions described above. However, the Fund reserves the
right to enter into foreign forward currency contracts for different purposes
and under different circumstances. Of course, the Fund is 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.
It should also be realized that 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 the 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 the Fund by selling that
currency in exchange for U.S. dollars, the Fund would be unable to participate
in the currency's appreciation. There might be imperfect correlation, or even
no correlation, between price movements of an instrument and price movements of
investments being hedged. Such a lack of correlation might occur due to factors
unrelated to the value of the investments being hedged, such as speculative or
other pressures on the markets in which these instruments are traded. In
addition, the Fund's use of currency-related derivative instruments is always
subject to the risk that the currency in question could be devalued by the
foreign government. In such a case, any long currency positions would decline
in value and could adversely affect any hedging position maintained by the Fund.
There is no assurance that Heartland Advisors' use of forward currency contracts
will be advantageous to the Fund or that it will hedge at an appropriate time.

Although the Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and investors should be aware

<PAGE>

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 the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.

Lending Portfolio Securities

The Fund may lend its portfolio securities to institutional investors or broker-
dealers up to a maximum of one-third of its total 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 lent. The
collateral received by the Fund will be invested in short-term debt instruments.
The Fund receives amounts equal to earned income for having made the loans. The
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, the Fund takes into account the credit worthiness 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. The Fund may pay a fee to placing brokers in connection with loans of
its portfolio securities.

Repurchase Agreements

The Fund may enter into repurchase agreements with certain banks or nonbank
dealers. In a repurchase agreement, the Fund buys a security at one price, and
at the time of sale the seller agrees to repurchase the obligation at a
mutually-agreed upon time and price (usually within seven days). The repurchase
agreement thereby determines the yield during the purchaser's holding period,
while the seller's obligation to repurchase is secured by the value of the
underlying security. Repurchase agreements which mature in more than seven days
will be treated as illiquid securities under the guidelines adopted by
Heartland's Board of Directors and will be subject to the 15% limitation on
investments in illiquid securities. See the section of this SAI titled
"Illiquid Securities."

Heartland Advisors will monitor, on an ongoing basis, the value of the
underlying securities to ensure that the value equals or exceeds the repurchase
price plus accrued interest. Since the underlying securities are not owned by
the Fund but only constitute collareral for the seller's obligation to repay the
purchase price, repurchase agreements could involve certain risks in the event
of a default or insolvency of the other party to the agreement, including
possible delays or restrictions upon a Fund's ability to dispose of and costs in
connection with the disposal of the underlying securities. Although no
definitive creditworthiness criteria are used, Heartland Advisors reviews the
creditworthiness of the banks and nonbank dealers with which the Funds enter
into repurchase agreements to evaluate those risks. A Fund may, under certain
circumstances, deem repurchase agreements collateralized by U.S. Government
securities to be investments in U.S. Government securities.

Reverse Repurchase Agreements and Dollar Rolls

The Fund may enter into reverse repurchase agreements with banks and broker-
dealers, under which the Fund sells a portfolio security to such party in return
for cash and agrees to repurchase the instrument at a particular price and time.
The Fund generally retains the right to interest and principal payments on the
security. While a reverse repurchase agreement is outstanding, the Fund will
establish and maintain a segregated account consisting of cash or other liquid
assets, either of which may be quoted or denominated in any currency, having a
value at least equal to the Fund's obligation under the agreement.

The Fund may also enter into dollar rolls, in which the Fund would sell
securities for delivery in the current month and simultaneously contract to
purchase substantially similar securities on a specified future date. While the
Fund would forego principal and interest paid on the securities during the roll
period, the Fund would be compensated by the

25
<PAGE>

difference between the current sales price and the lower price for the future
purchase as well as by any interest earned on the proceeds of the initial sale.
The Fund also could be compensated through the receipt of fee income equivalent
to a lower forward price. At the time of entering into a dollar roll, the Fund
will establish and maintain a segregated account consisting of cash or other
liquid assets, either of which may be quoted or denominated in any currency,
having a value at least equal to the Fund's obligation to buy the securities.

To the extent the value of the security that a Fund agrees to purchase pursuant
to a reverse repurchase agreement or a dollar roll declines, the Fund may
experience a loss. Reverse repurchase transactions and dollar rolls may
increase fluctuations in the market value of a Fund's assets and may be viewed
as a form of leverage. In determining whether to enter into a reverse
repurchase agreement or dollar roll, the Fund will take into account the
creditworthiness of the counterparty.

Short Sales

The Fund may engage in short sales of securities under certain circumstances.
Selling securities "short against the box" 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. 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. The Fund may also engage in
short sales of securities of an issuer ("acquirer") 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 acquirer. The Fund will maintain a
segregated collateral account with its custodian to cover open short positions
in acquirer securities. If the value of an acquirer'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.

INVESTMENT RESTRICTIONS

The Fund has adopted the following investment restrictions. Unless otherwise
expressly provided herein, any restriction that is expressed as a percentage is
adhered to at the time of investment or other transaction; a later change in
percentage resulting from changes in the value of the Fund's assets will not be
considered a violation of the restriction. Calculations based on total assets do
not include cash collateral held in connection with portfolio lending
activities.

Restrictions that are designated as fundamental policies cannot be changed
without the majority approval of shareholders as defined in the 1940 Act. Non-
fundamental restrictions may be changed by the Heartland Board of Directors
without shareholder approval.

Under the 1940 Act, "majority approval of shareholders" means approval by the
lesser of (1) the holders of 67% or more of Fund shares represented at a meeting
of shareholders at which the holders of at least 50% of the Fund's outstanding
shares are present in person or by proxy or (2) more than 50% of the Fund's
outstanding shares.

26
<PAGE>

Fundamental Restrictions

As a matter of fundamental policy, which may not be changed without shareholder
approval, the Fund may not:

(1) Diversification. With respect to 75% of total assets, purchase the
securities of any one issuer, except for securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, if, as a result,
(i) more than 5% of total assets would be invested in the securities of
that issuer, or (ii) the Fund would hold more than 10% of the outstanding
voting securities of that issuer.

(2) Concentration. Invest more than 25% of net assets in securities of non-
governmental issuers whose principal business activities are in the same
industry; provided there shall be no limitation on the purchase of
Municipal Obligations and securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities.

(3) Real Estate. Purchase or sell real estate, except the Fund may (i) acquire
real estate as a result of ownership of securities or other instruments,
(ii) invest in securities or other instruments backed by real estate, and
(iii) invest in securities of companies that are engaged in the real estate
business and those that invest in real estate, including, but not limited
to, real estate investment trusts.

(4) Borrowing. Borrow money or property, except the Fund may (i) make
investments or engage in other transactions permissible under the 1940 Act
which may involve borrowing, provided that the combination of such
activities shall not exceed 33 1/3% of total assets (including the amount
borrowed), less the Fund's liabilities (other than borrowings) and (ii)
borrow up to an additional 5% of its total assets (not including the amount
borrowed) from a bank for non-investment and non-leveraging temporary or
emergency purposes. In addition to borrowing from banks, the Fund may
borrow from other Heartland Funds or other persons to the extent permitted
by applicable law. Any borrowing which comes to exceed these limits shall
be reduced in accordance with applicable law.

(5) Loans. Make loans, except the Fund may (i) lend portfolio securities, (ii)
participate in an interfund lending program with other mutual funds managed
by the Fund's investment adviser to the extent permitted by the 1940 Act or
by an exemptive order therefrom issued by the SEC, (iii) acquire publicly
distributed or privately placed debt securities and purchase debt and (iv)
purchase money market instruments and enter into repurchase agreements;
provided no loan under (i) or (ii) may be made if, as a result thereof, the
aggregate of all such loans would exceed 33 1/3% of total assets taken at
market value at the time of such loan.

(6) Underwriting. Underwrite the securities of other persons, except to the
extent that the Fund may be deemed to be an underwriter within the meaning
of the Securities Act in connection with the purchase and sale of
portfolio securities.

(7) Senior Securities. Issue senior securities, except to the extent permitted
under the 1940 Act.

(8) Commodity Interests. Purchase or sell physical commodities unless acquired
as a result of ownership of securities or other instruments, except the
Fund may purchase or sell futures contracts, options on futures contracts
and other derivative instruments, and it may invest in securities or other
instruments backed by physical commodities or in the securities of
companies engaged in commodities businesses.

27
<PAGE>

Non-Fundamental Restrictions

The Fund's investment objective (set forth in the Prospectus) and the following
non-fundamental restrictions are subject to change by Heartland's Board of
Directors without shareholder approval.

The Fund may not:

(1) Investment Companies. Purchase securities of other open-end or closed-end
investment companies, except as permitted by the 1940 Act. Subject to
approval by the Heartland Board of Directors, the Fund may invest all (or
substantially all) of its assets in the securities of a single open-end
investment company (or series thereof) with the same investment objective
and substantially the same investment policies and restrictions as the Fund
in connection with a "master/feeder" arrangement. The Fund and one or more
other mutual funds or other eligible investors with identical investment
objectives ("Feeders") would invest all (or a portion) of their respective
assets in the shares of another investment company (the "Master") that had
the same investment objective and substantially the same investment
policies and restrictions as the Feeders. The Fund would invest in this
manner in an effort to achieve economies of scale associated with having
the Master make investments in portfolio companies on behalf of the
Feeders.

(2) Illiquid Securities. Purchase a security if, as a result, more than 15% of
net assets would be invested in illiquid securities.

(3) Margin Purchases. Purchase securities on margin, except that the Fund may
(i) obtain short-term credit necessary for the clearance and settlement of
purchases and sales of portfolio securities, and (ii) make margin deposits
as required in connection with permissible options, futures, options on
futures, short selling and other arbitrage activites.

(4) Short Sales. Sell securities short, unless the Fund owns or has the right
to obtain securities equivalent in kind and amount to the securities sold
short, or unless it covers such short sale as required by the current rules
and positions of the Securities and Exchange Commission ("SEC") or its
staff, and provided that transactions in options, futures, options on
futures, or other derivative instruments are not deemed to constitute
selling securities short.

(5) Control. With respect to non-governmental issuers, invest for the purpose
of exercising control or management of any company.

(6) Concentration. For purposes of the Fund's fundamental restriction on
concentration, industries shall be determined by reference to the
classifications specified in the Fund's annual and semiannual reports. For
so long as it is the position of the staff of the SEC that foreign
governments are industries for purposes of such restriction, investments in
foreign governments shall be so limited.

(7) Futures Contracts. Purchase a futures contract or an option on a futures
contract if, with respect to positions in futures and futures options which
do not represent bona fide hedging transactions, the aggregate initial
margin and premiums required to establish such positions, less the amount
by which such positions are in the money within the meaning of the
Commodity Exchange Act, would exceed 5% of the Fund's net assets.

(8) Real Estate Investment Trusts. Invest more than 10% of its total assets in
real estate investment trusts.

28
<PAGE>

MANAGEMENT

Heartland is governed by a Board of Directors that oversees its business
affairs, and meets regularly to review the Fund's investments, performance and
expenses. The Board elects the officers of Heartland and hires the Fund's
service providers, including the Fund's investment advisor, Heartland Advisors,
Inc. The policy of Heartland is that the majority of Board members are
independent of Heartland Advisors. The Directors and officers of Heartland are
listed below, together with their principal occupations during the past five
years.

<TABLE>
<CAPTION>
Principal Occupation
Name and Address Age Position with Heartland During Past Five Years
- ---------------- --- ----------------------- ----------------------
<S> <C> <C> <C>
William J. Nasgovitz 54 President and Director* President and Director,
790 North Milwaukee Street Heartland Advisors, Inc., since
Milwaukee, WI 53202 1982; Director of Capital
Investments, Inc., since 1989
(small business investment
company).

Willard H. Davidson 80 Director Director of Artos Engineering
3726 North Lake Drive Company since 1984; financial
Milwaukee, WI 53211 and business consultant since
1984.

Hugh F. Denison 52 Director* Educator; Shareholder Ombudsman,
790 North Milwaukee Street Heartland Advisors, Inc., since
Milwaukee, WI 53202 January 1998; Vice President,
Director Research and Director,
Heartland Advisors, 1988 to 1996.

Jon D. Hammes 50 Director President, The Hammes Company (a
Suite 305 commercial real estate
18000 West Sarah Lane development company) since 1991.
Brookfield, WI 53045

Patrick J. Retzer 41 Vice President, Senior Vice President and
790 North Milwaukee Street Treasurer and Director* Director of Heartland Advisors,
Milwaukee, WI 53202 Inc. since 1987; Treasurer,
Heartland Advisors, 1987 to
September 1998.

A. Gary Shilling 61 Director President, A. Gary Shilling &
500 Morris Avenue Company, Inc. (economic
Springfield, NJ 07081-1020 consultants and investment
advisors) since 1978.

Allen H. Stefl 55 Director Senior Vice President,
800 North Brand Boulevard Communications, Nestle USA,
Glendale, CA 91203 since 1993.

Linda F. Stephenson 57 Director President and Chief Executive
100 East Wisconsin Avenue Officer, Zigman Joseph
Milwaukee, WI 53202 Stephenson (a public relations
and marketing communications
firm) since 1989.
</TABLE>

29
<PAGE>

<TABLE>
<S> <C> <C> <C>
Jilaine Hummel Bauer 43 Vice President Senior Vice President and
790 North Milwaukee Street General Counsel, Heartland
Miwlaukee, WI 53202 Advisors, Inc. since January
1998; Senior Vice President,
Stein Roe & Farnham
Incorporated, 1992 to 1997.

Paul T. Beste 42 Vice President and Senior Vice
790 North Milwaukee Principal Accounting President--Investment
Street Milwaukee, WI Officer Operations, Heartland Advisors,
53202 Inc. since September 1998;
Investment Operations Officer,
Heartland Advisors, 1997 to
1998; Director of
Taxes/Compliance, Strong Capital
Management, Inc., 1992 to 1997.

Kenneth J. Della 35 Vice President Senior Vice President and
790 North Milwaukee Street Treasurer, Heartland Advisors,
Milwaukee, WI 53202 Inc. since September 1998; Chief
Financial Officer, Heartland
Advisors, 1995 to 1998; employed
by Heartland Advisors since 1992.

Lois J. Schmatzhagen 56 Secretary Secretary, Heartland Advisors,
790 North Milwaukee Street Inc. since 1988.
Milwaukee, WI 53202
</TABLE>

- --------------------

*Directors who are "Interested Persons" (as defined in the 1940 Act) of
Heartland Advisors.

Heartland pays the compensation of the five Directors who are not officers,
directors or employees of Heartland Advisors. The following compensation was
paid to the other Directors who are not "Interested Persons" of Heartland
Advisors for their services during the fiscal year ended December 31, 1998*:

<TABLE>
<CAPTION>
Total
Compensation
Aggregate Pension or from Heartland
Compensation from Retirement and
Director Heartland Benefits FundComplex
-------- --------- -------- -----------
<S> <C> <C> <C>
Willard H. Davidson $32,000 None $32,000

Jon D. Hammes $32,000 None $32,000

A. Gary Shilling $30,000 None $30,000

Linda F. Stephenson $32,000 None $32,000

Allen H. Stefl $ 6,000 None $ 6,000
</TABLE>

* Since the effective date of this SAI is December __, 1998, the compensation
figures are estimates.
** Mr. Stefl joined the Board in October, 1998.

30
<PAGE>

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

Since the Fund is first publicly offering its shares on the date of this SAI,
share ownership information is not available.

INVESTMENT ADVISORY AND OTHER SERVICES

Heartland Advisors provides investment management and administrative services to
the Fund pursuant to an investment management agreement and an administrative
agreement (the "Agreements"). William J. Nasgovitz, a Director and the
President of Heartland, controls Heartland Advisors by virtue of his ownership
of a majority of its outstanding capital stock and serves as its President and a
Director. In addition to serving as investment advisor to the Fund, Heartland
Advisors also serves as the distributor for the shares of the Fund. Heartland
Advisors, founded in 1982, serves as the investment adviser for nine equity and
fixed income mutual funds, and also provides investment management services for
individuals, institutions and retirement plans. As of September 30, 1998
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.

The Fund pays Heartland Advisors for its services a monthly investment
management fee at an annual rate of ________________; and a monthly
administrative fee at an annual rate of ______________. Heartland Advisors has
agreed to certain voluntary fee waivers and expense reimbursements as discussed
in the Prospectus.

Under the Agreements, Heartland Advisors manages the investment operations of
the Fund and provides administrative services. Subject to the supervision and
control of the Board of Directors, Heartland Advisors is authorized to formulate
and maintain a continuing investment program with respect to the Fund and to
determine the selection, amount, and time to buy, sell or lend securities or
other investments for the Fund, including the selection of entities with or
through which such purchases, sales or loans are to be effected. In addition,
Heartland Advisors supervises the business and affairs of the Fund and provides
such services and facilities as may be required for effective administration of
the Fund. Heartland Advisors will permit any of its officers or employees to
serve without compensation from the Fund as directors or officers of Heartland
if elected to such positions.

Heartland Advisors at its own expense furnishes all executive and other
personnel to the Fund, paying all salaries and fees of the officers and
directors of Heartland who are employed by Heartland Advisors or its affiliates.
In addition, Heartland Advisors provides office space and other facilities
required to render the services set forth above. The Fund bears all its other
expenses including taxes and governmental fees; brokerage commissions and other
expenses incurred in acquiring, disposing or lending of portfolio securities;
fees and expenses of custodians, depositories, shareholder recordkeeping and
dividend disbursing agents; expenses of issuance and redemption of shares;
expenses of preparation and distribution to existing shareholders of periodic
reports, proxies, prospectuses and SAIs; auditing and legal expenses; expenses
of registering and qualifying shares for sale with the Securities and Exchange
Commission and with various state securities commissions; charges for equipment
and services used for daily determination of net asset value, obtaining price
quotations, or for communication between Heartland Advisors and the Fund or its
agents; charges for administrative and accounting services provided to the Fund
by Heartland Advisors or any other service provider; salary and fees of those
directors and officers of Heartland who are not officers, directors, or
employees of Heartland Advisors; all expenses (including legal fees) of all
directors and officers of Heartland; interest expenses; bond and insurance
premiums; expenses of maintaining the Fund's legal existence and of required
shareholder meetings; fees and expenses of membership in industry organizations;
and any other charges or fees not specifically enumerated. Any expenses that are
attributable solely to the organization, operation or business of the Fund shall
be paid solely out of its assets. Any expenses incurred by Heartland that are
not solely attributable to a particular series are apportioned in such a manner
as Heartland Advisors determines is fair and appropriate, or as otherwise
specified by the Board of Directors.

<PAGE>

The investment management agreement provides that neither Heartland Advisors,
nor any of its directors, officers, shareholders, agents, or employees shall
have any liability to Heartland or any shareholder of Heartland for any error of
judgment, mistake of law, loss arising out of any investment, or any other act
or omission in the performance by Heartland Advisors of its duties under the
agreement, except for loss or liability resulting from willful misfeasance, bad
faith, or gross negligence on Heartland Advisors' part or from reckless
disregard by Heartland Advisors of its obligations and duties under the
agreement.

Bookkeeping and Accounting Agreement

Heartland Advisors receives a fee for performing certain bookkeeping and
accounting services for the Fund pursuant to a separate agreement with
Heartland. For services provided to the Fund, Heartland Advisors receives a
monthly fee at an annual rate of $_______________________ plus ______________
of _______% of average daily net assets over $________ million.

Custodian and Transfer and Dividend Disbursing Agent

Firstar Bank Milwaukee, N.A. acts as custodian for the Fund (the "Custodian").
The Custodian is responsible for, among other things, holding all securities and
cash, handling the receipt and delivery of securities, and receiving and
collecting income from investments. Subcustodians may provide custodial
services for certain assets of the Fund held domestically and outside the U.S.
Firstar Mutual Fund Services, LLC acts as transfer and dividend disbursing agent
for the Fund. The address for Firstar Bank Milwaukee, N.A. and Firstar Mutual
Fund Services, LLC is P.O. Box 701, Milwaukee, Wisconsin 53201-0701.

Independent Public Accountants

PricewaterhouseCoopers LLP serve as independent public accountants for the Fund.
In this capacity, the accountants audit the annual financial statements of the
Fund and report thereon, prepare and/or review certain regulatory reports and
the federal income tax returns, and perform other professional accounting,
auditing, tax and accounting services when engaged by Heartland to do so.

DISTRIBUTION OF SHARES

Heartland Advisors acts as principal underwriter and distributor of the shares
of the Fund. Heartland Advisors has agreed to use its "best efforts" to
distribute the Fund's shares, but has not committed to purchase or sell any
specific number of shares. The Fund's Distribution Agreement will remain in
effect until June 30, 1999 and will continue in effect from year to year
thereafter as long as it is approved at least annually by the vote of a majority
of the members of Heartland's Board who are not interested persons of Heartland
Advisors or the Fund and by the vote of either a majority of Heartland's Board
or by a majority of the outstanding voting securities of the Fund. The
Distribution Agreement may be terminated upon 60 days' written notice by either
party and will automatically terminate in the event of its assignment. Under
the Distribution 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.

<PAGE>

Rule 12b-1 Plan

The Fund has adopted a distribution plan (the "Rule 12b-1 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. Heartland Advisors has agreed to certain voluntary fee waivers
and expense reimbursements as discussed in the Prospectus.

Under the Rule 12b-1 Plan, the Fund is obligated to pay distribution fees only
to the extent of expenses actually incurred by Heartland Advisors, as
distributor, for the current year, and thus there will be no carry-over expenses
from previous years. These expenses may include expenses incurred for media
advertising, the printing and mailing of prospectuses to persons other than
shareholders, the printing and mailing of sales literature, answering routine
questions relating to the 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 the Fund's shareholders. No fee paid by the Fund under the Rule 12b-1 Plan
may be used to reimburse Heartland Advisors for expenses incurred in connection
with another Fund.

Under the Rule 12b-1 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 Rule 12b-1 Plan, including all amounts paid to
dealers as distribution or service fees. In approving the Rule 12b-1 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 Rule 12b-1 Plan will benefit the
Fund and its shareholders.

The Rule 12b-1 Plan may be terminated with respect to the Fund by vote of a
majority of the Directors who are not interested persons, or by vote of a
majority of the outstanding voting securities of the Fund. Any change in the
Rule 12b-1 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 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 Rule 12b-1 Plan may be terminated with respect to the Fund by the Directors
at any time on 60 days' written notice without payment of any penalty by
Heartland Advisors, by vote of a majority of the outstanding voting securities
of the Fund, or by vote of a majority of the Directors who are not interested
persons. The Rule 12b-1 Plan will continue in effect for successive one-year
periods with respect to the Fund, if not sooner terminated in accordance with
its terms, provided that each such continuance is specifically approved by the
vote of the Directors, including a majority of the Directors who are not
interested persons.

PORTFOLIO TRANSACTIONS

As provided in its Investment Advisory Agreement, Heartland Advisors is
responsible for the Fund's portfolio decisions and the placing of portfolio
transactions. In executing such transactions, Heartland Advisors seeks to obtain
the best net results for the 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.

Allocation of portfolio brokerage transactions, including their frequency, to
various dealers is determined by Heartland Advisors in its best judgment and in
a manner deemed fair and reasonable to shareholders. The primary consideration
is prompt and efficient execution of orders in an effective manner at the most
favorable price. Subject to this consideration, dealers who provide
supplemental investment research, statistical or other services to Heartland
Advisors may

<PAGE>

receive orders for transactions by the Fund including purchases in fixed price
offerings. 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 the Fund. 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
Fund. 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. The Fund may also consider
sales of its own shares 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 Fund may pay higher commissions to brokers
(other than Heartland Advisors) 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 Fund. 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 arm's-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.

The Fund 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 the Fund in over-the-counter transactions conducted on an agency
basis. Pursuant to plans adopted by Heartland's Board of Directors for the Fund
under, and subject to, the provisions of Rule 10f-3 under the 1940 Act, the Fund
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.

DESCRIPTION OF SHARES

The Fund is a series of Heartland Group, Inc. ("Heartland"), an open-end
management investment company registered under the 1940 Act, which was
incorporated under the laws of the State of Maryland in December, 1986. Under
the Articles of Incorporation, Heartland's Board of Directors is authorized to
create additional series without shareholder approval. Heartland began offering
shares of the Heartland Taxable Municipal Fund, the series described in this
SAI, in December, 1998.

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, nine series are authorized and outstanding. The
authorized common stock of Heartland consists of one billion shares, $0.001 par
value per share. 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.
Shares have no

<PAGE>

preemptive, cumulative voting, subscription or conversion rights and are freely
transferable. In the interest of economy and convenience, certificates
representing shares purchased are not issued.

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. Heartland may fill vacancies on the
Board or appoint new directors if the result is at least two-thirds of the
directors have still been elected by shareholders. Moreover, pursuant to
Heartland's Bylaws, any director may be removed by the affirmative vote of a
majority of the outstanding shares of Heartland; and holders of 10% or more of
the outstanding shares of Heartland can require that a special meeting of
shareholders be called for the purpose of voting upon the question of removal of
one or more directors.

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.

PURCHASES AND SALES

Determination of Net Asset Value

The Fund's shares are sold at the next determined net asset value per share.
The 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 the 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.

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 is valued at that price, or, lacking any sales, at the latest bid 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.

Securities and other assets for which market quotations are not readily
available will be valued at their fair value as determined in good faith by
Heartland's Board of Directors or its designee.

Debt Securities. Debt securities are valued by a pricing service approved by
Heartland's Board of Directors which uses various valuation methodologies such
as matrix pricing and other analytical pricing models as well as market
transactions and dealer quotations. Debt securities purchased with maturities of
60 days or less shall be valued at acquisition cost, plus or minus any amortized
discount or premium. Because the Adviser believes that there currently is no
uniform methodology for valuing foreign debt, such securities must be valued
pursuant to the fair value procedures adopted by Heartland's Board of Directors.

Illiquid and Thinly Traded Securities. The lack of a liquid secondary market
for certain securities may make it more difficult for the Fund to obtain
accurate market quotations for purposes of valuing the Fund's portfolio. If
market quotations are not available, these securities will be valued in
accordance with procedures established by Heartland's Board of Directors.
Judgment may, therefore, play a greater role in valuing these securities.
Market quotations are generally available on many lower quality and comparable
unrated issues only from a limited number of dealers, and

<PAGE>

may not necessarily represent firm bids of such dealers or prices for actual
sales. During periods of thin trading, the spread between bid and asked prices
is likely to increase significantly. In addition, adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of lower quality and comparable unrated securities,
especially in a thinly traded market.

Foreign Investments. In the event that (i) a foreign investment held by the
Fund is traded in both a local and foreign form, (ii) each such form may be
converted or exchanged for the other, and (iii) Heartland Advisors reasonably
determines that the rights and privileges of holders of either form are
comparable for valuation purposes, then the Adviser may value the Fund's
investment based on the form for which current market quotes are most readily
available even if such form is not the form of investment held by the Fund. If
the Adviser has reason to believe that circumstances exist which could
reasonably be expected to have a material impact on the valuation of one form
over the other, such as limitations on the ability to convert or exchange
between forms, limitations on foreign ownership of securities or currency
regulations, the Adviser shall value the particular investment based on market
quotations or a fair value determination with respect to the same form as that
held by the Fund.

On any business day of the Fund on which the principal exchange on which a
foreign security is traded is closed (e.g., local holiday), but trading occurs
in the U.S. on either a national exchange or over-the-counter as reported by the
exchange or through NASDAQ, respectively, then the last sales price from such
source shall be used. If no sales price is available from such source, then the
prior day's valuation of the security shall be used.

Redemption-in-Kind

The Fund intends to pay all redemptions in cash and is obligated to redeem
shares solely in cash up to the lesser of $250,000 or one percent of the net
assets of the Fund during any 90-day period for any one shareholder. However,
redemptions in excess of such limit may be paid wholly or partly by a
distribution in kind of securities or other Fund assets if Heartland Advisors
determines that existing conditions make cash payments undesirable. If
redemptions were made in kind, the redeeming shareholders may incur a gain or
loss for tax purposes and transaction costs.

ADDITIONAL INCOME TAX CONSIDERATIONS

The 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. The Fund also intends to make distributions as required by the
Code to avoid the imposition of a 4% excise tax.

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.

To the extent the Fund invests in foreign securities, it may be subject to
withholding and other taxes imposed by foreign countries. Tax treaties between
certain countries and the United States may reduce or eliminate such taxes.
Investors may be entitled to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in the Code.

<PAGE>

PERFORMANCE INFORMATION

General

From time to time the 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 the Fund refers to the income generated by an investment in the 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 Fund refers to the annual average return for 1-, 5-, and 10-year periods (or
for the periods the Fund has been in operation). Total return is the change in
redemption value of shares purchased with an initial $1,000 investment, assuming
the reinvestment of dividends and capital gain distributions and the redemption
of the shares at the end of the period.

Performance information should be considered in light of the 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 the Fund's
performance to performance figures published for other investment vehicles.

Total Return

Average annual total return is computed by finding the average annual compounded
rates of return over the 1-, 5-, and 10-year periods (or for the periods the
Fund has been in operation) ended on the date of the Fund's balance sheet that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:

P(?+T)/n/ = ERV

Where:

P = a hypothetical initial payment of $1,000;

T = average annual total return;

n = number of years; and

ERV = ending redeemable value for a hypothetical $1,000 payment
made at the beginning of the 1-, 5-, or 10-year periods at the
end of the 1-, 5-, or 10-year periods (or fractional portion).

In some circumstances the 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 Fund may also advertise its cumulative total return, which represents the
simple change in value of an investment in the Fund over a stated period and may
be quoted as a percentage or as a dollar amount. Total returns and cumulative
total returns may be broken down into their components of income and capital
(including capital gains and changes in share price) in order to illustrate the
relationship between these factors and their contributions to total return.

Since the Fund first commenced the public offering of its shares on the date of
this SAI, no total return or cumulative return information is quoted herein.

37
<PAGE>

Yield

Yield quotations are based on a 30-day (or one-month) period, and are computed
by dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:

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

Where:

a = dividends and interest earned during the period;

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

c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and

d = the maximum offering price per share on the last day of the
period.

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

Since the Fund first commenced the public offering of its shares on the date of
this SAI, no yield or taxable equivalent yield quotations are included herein.
When advertising yield, the 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.

Comparisons

The Fund may, from time to time, compare its performance to other mutual funds
with similar investment objectives and to the industry as a whole, as quoted by
ranking services and publications, such as Lipper Analytical Services, Inc.,
Morningstar, Inc., CDA Technologies, Forbes, Fortune, Money, Business Week,
Value Line, Inc., Kiplinger's, Smart Money, Financial World, Barron's and The
Wall Street Journal. These rating services and magazines rank the performance
of the Fund against all funds over specified periods and in specified
categories. The Fund also may compare its performance to a wide variety of
indices or averages. There are similarities and differences between the
investments that the Fund may purchase and the investments measured by the
indices or averages and the composition of the indices or averages will differ
from that of the Fund.

From time to time, marketing materials may portray the historical returns of
various asset classes. Such presentations will typically compare the average
annual rates of return of inflation, U.S. Treasury bills, long-term corporate
bonds, long-term government bonds, intermediate-term government bonds, common
stocks and small stocks. There are important differences between each of these
investments that should be considered in viewing any such comparison. The market
value of stocks will fluctuate with market conditions, and investments in
smaller-capitalization companies involves investment risks in addition to those
presented by investments in larger-capitalization companies, including the
potential or greater price volatility and lower market liquidity. In exchange
for greater volatility, stocks have generally performed better than bonds or
cash over time. Bond prices generally will fluctuate inversely with interest
rates and other market conditions, and the prices of bonds with longer
maturities generally will fluctuate more than those of shorter-maturity bonds.
Interest rates for bonds may be fixed at the time of issuance, and payment of
principal and interest may be guaranteed by the issuer and, in the case of U.S.
Treasury obligations, backed by the full faith and credit of the U.S. Treasury.

38
<PAGE>

Part C. Other Information.

Item 23. Exhibits
--------

See Exhibit Index following the signature page of this registration
statement, which index is incorporated herein by this reference.

Item 24. Persons Controlled by or Under Common Control with the Fund
-----------------------------------------------------------

Not Applicable. See "Control Persons and Principal Holders of
Securities" in Part B.

Item 25. Indemnification
---------------

Reference is made to Article IX of the Fund's Amended and Restated By-Laws filed
as Exhibit (b) to this Post-Effective Amendment to the Fund's Registration
Statement with respect to the indemnification of the Fund'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

C-1
<PAGE>

(2) absent such a decision, a reasonable determination is
made, based upon a review of the facts, by (i) the vote of a
majority of a quorum of the Directors of the Corporation who
are neither interested persons of the Corporation as defined
in the Investment Company Act of 1940 nor parties to the
Proceeding, or (ii) if such quorum is not obtainable, or
even if obtainable, if a majority of a quorum of Directors
described in paragraph (b)(2)(i) above so directs, by
independent legal counsel in a written opinion, that such
person was not liable by reason of disabling conduct.

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), if:

(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.

Reference is made to Section 14 of the Distribution Agreement with Heartland
Advisors, Inc. relating to the Heartland Taxable Municipal Fund, the form of
which is filed as Exhibit (e)(5) to this Post-Effective Amendment to the Fund's
Registration Statement with respect to the indemnification of the Fund's
directors and officers, which is set forth below:

C-2
<PAGE>

Section 14. Indemnification.
---------------

(a) Distributor agrees to indemnify and hold harmless the Fund,
HGI, HGI's present or former directors, officers, employees,
representatives, and each person, if any, who controls or previously
controlled the Fund within the meaning of Section 15 of the 1933 Act
against any and all losses, liabilities, damages, claims or expenses
(including the reasonable costs of investigating or defending any alleged
loss, liability, damage, claims or expense and reasonable legal counsel
fees incurred in connection therewith) to which the Fund, HGI, or any such
person may become subject under the 1933 Act, under any other statute, at
common law, or otherwise, arising out of the acquisition of any Fund Shares
by any person which (i) may be based upon any wrongful act by Distributor
or any of Distributor's directors, officers, employees, agents, or
representatives, or (ii) may be based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement, any shareholder report, or other information covering Fund
Shares filed or made public by the Fund or HGI, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was made in
reliance upon information furnished to the Fund by the Distributor. In no
case (i) is Distributor's indemnity in favor of the Fund, HGI, or any
person indemnified to be deemed to protect HGI or such indemnified person
against any liability to which the Fund, HGI, or such person would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of his or her duties or by reason of his or
her reckless disregard of his or her obligations and duties under this
Agreement, or (ii) is Distributor to be liable under its indemnity
agreement contained in this paragraph with respect to any claim made
against the Fund, HGI, or any person indemnified unless the Fund, HGI, or
such person, as the case may be, shall have notified Distributor in writing
of the claim within a reasonable time after the summons or other first
written notification giving information of the nature of the claim shall
have been served upon the Fund, HGI, or upon such person (or after the
Fund, HGI, or such person shall have received notice of such service on any
designated agent). However, failure to notify Distributor of any such claim
shall not relieve Distributor from any such liability which Distributor may
have to the Fund, HGI, or any person against whom such action is brought
otherwise than on account of Distributor's indemnity agreement contained in
this Paragraph.

(b) Distributor shall be entitled to participate, at its own
expense, in the defense, or, if Distributor so elects, to assume the
defense of any suit brought to enforce any such claim, but, if Distributor
elects to assume the defense, such defense shall be conducted by legal
counsel chosen by Distributor and satisfactory to HGI, to the persons
indemnified who are defendants in the suit. In the event that the
Distributor elects to assume the defense of any such suit and retain such
legal counsel, HGI and the persons indemnified who are defendants in the
suit shall bear the fees and expenses of any additional legal counsel
retained by them. If Distributor does not elect to assume the defense of
any such suit, Distributor will reimburse the Fund, HGI, and the persons
indemnified who are defendants in such suit for the reasonable fees and
expenses of any legal

C-3
<PAGE>

counsel retained by them. In any event, Distributor shall not be
responsible for any claim settled or compromised, or for any confession of
judgment, without its prior written consent, which consent shall not be
unreasonably withheld. Distributor agrees promptly to notify HGI of the
commencement of any litigation or proceedings against it or any of its
officers, employees, or representatives in connection with the issue or
sale of any Fund Shares.

In addition, the Fund maintains an Investment Advisor/Mutual Fund Professional
Liability insurance policy with a $10 million limit of liability under which the
Fund and its affiliate, Heartland Advisors, Inc., and each of their respective
directors and officers are named insureds.

The Fund undertakes that insofar as indemnification for liability arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

Item 26. Business and Other Connections of the Investment Adviser
--------------------------------------------------------

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 Heartland Advisors, Inc. through continued ownership
of a majority of its outstanding voting stock.

Set forth below is a list of the officers and directors of Heartland
Advisors, Inc. as of September 30, 1998, together with information as
to any other business, profession, vocation or employment of a
substantial nature of those officers and directors during the past two
years:

C-4
<PAGE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
POSITIONS AND OFFICES WITH
--------------------------
NAME HEARTLAND ADVISORS, INC. OTHER
- ---- ----------------------- -----
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
William J. Nasgovitz Director and President President and Director, Heartland
Group, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Patrick J. Retzer Director and Senior Vice President Vice President, Treasurer and
Director, Heartland Group, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Kevin D. Clark Senior Vice President, Trading None
- ----------------------------------------------------------------------------------------------------------------------
Kenneth J. Della Senior Vice President and Vice President, Heartland Group,
Treasurer Inc.
- ----------------------------------------------------------------------------------------------------------------------
Jilaine Hummel Bauer Senior Vice President and General Vice President, Heartland Group,
Counsel Inc., since January 1997; Senior Vice
President, Stein Roe & Farnham
Incorporated, 1992 to 1997
- ----------------------------------------------------------------------------------------------------------------------
Paul T. Beste Senior Vice President - Investment Vice President, Heartland Group,
Operations Inc., since September 1998;
Investment Operations Officer,
Heartland Group, Inc., 1997 to
1998; Director of
Taxes/Compliance, Strong Capital
Management, Inc., 1992 to 1997
- ----------------------------------------------------------------------------------------------------------------------
Lois J. Schmatzhagen Secretary Secretary, Heartland Group, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Eric J. Miller Director and Senior Vice President None
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

Item 27. Principal Underwriters
----------------------

(a) Heartland Advisors, Inc. acts as the Distributor of the shares of
each of the Heartland Funds. 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 26 above.

C-5
<PAGE>

Item 28. Location of Accounts and Records
--------------------------------

(a) Heartland Group, Inc.
790 North Milwaukee Street
Milwaukee, Wisconsin 53202

(b) Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201-0701

Item 29. Management Services
-------------------

Not applicable

Item 30. Undertakings
------------

Not applicable

C-6
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Fund has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned, duly
authorized, in the City of Milwaukee, and State of Wisconsin, on the 15th day of
October, 1998.

HEARTLAND GROUP, INC.

/s/ Patrick J. Retzer
By:______________________________________
Patrick J. Retzer
Vice President and Treasurer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below on this 15th day of October,
1998, by or on behalf of the following persons in the capacities indicated.

Signature Title
- --------- -----
<S> <C>
/s/ William J. Nasgovitz* Director and President (Chief Executive Officer)
- ------------------------
William J. Nasgovitz

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

/s/ Paul T. Beste Vice President and Principal Accounting Officer
- ------------------------ (Chief Accounting Officer)
Paul T. Beste

/s/ Hugh F. Denison* Director
- ------------------------
Hugh F. Denison

/s/ A. Gary Shilling* Director
- ------------------------
A. Gary Shilling

/s/ Willard H. Davidson* Director
- ------------------------
Willard H. Davidson

/s/ Jon D. Hammes* Director
- ------------------------
Jon D. Hammes

/s/ Linda F. Stephenson* Director
- ------------------------
Linda F. Stephenson
</TABLE>

*By: /s/ Patrick J. Retzer
---------------------
Patrick J. Retzer

Pursuant to Power of Attorney
dated April 27, 1998.
C-7

<PAGE>

EXHIBIT INDEX
-------------

<TABLE>
<CAPTION>
Exhibit Numbered
Number Description Page
- ------ ----------- --------
<S> <C> <C>
(a)(1) Articles of Incorporation (previously filed as
Exhibit (a)(1) to Post-Effective Amendment No. 35
to this Registration Statement)

(a)(2) 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 (previously filed as Exhibit 1(b)
to Post-Effective Amendment No. 29 to this
Registration Statement)

(a)(3) 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 Small Cap Contrarian Fund,
and to create a series known as the Heartland
Taxable Municipal Fund

(b) Amended and Restated By-Laws (previously filed
as Exhibit (b) to Post-Effective Amendment No. 35
to this Registration Statement)

(c)(1) Articles Sixth through Eighth and Article
Tenth of the Articles of Incorporation
(see Exhibit (a)(1))

(c)(2) Articles Supplementary (previously filed as
Exhibit 1(b) to Post-Effective Amendment No.
29 to this Registration Statement)

(c)(3) Articles II, VI, IX and X of the Bylaws
(see Exhibit (b))

(d)(1) Investment Advisory Agreement for the
Heartland Value Fund (previously filed as
Exhibit (d)(1) to Post-Effective Amendment
No. 35 to this Registration Statement)

(d)(2) Investment Advisory Agreement for Heartland
U.S. Government, Wisconsin Tax Free, Value
Plus, Mid Cap Value and Large Cap Value Funds
(previously filed as Exhibit 5(b) to Post-
Effective Amendment No. 26 to this
Registration Statement)

(d)(3) Amended Schedule A to Investment Advisory
Agreement adding Heartland Short Duration
High-Yield Municipal and Heartland High-Yield
Municipal Bond Funds (previously filed as
Exhibit 5(c) to Post-Effective Amendment No.
28 to this Registration Statement)

(d)(4) Form of Investment Management Agreement
for the Heartland Taxable Municipal Fund

(e)(1) Distribution Agreement between Heartland
Group, Inc. and Heartland Advisors, Inc.
(previously filed as Exhibit 6(a)(i) to Post-
Effective Amendment No. 26 to this
Registration Statement)

(e)(2) Amendment No. 1 to Distribution Agreement
between Heartland Group, Inc. and Heartland
Advisors, Inc. (previously filed as Exhibit
6(a)(ii) to Post-Effective Amendment No. 26
to this Registration Statement)

(e)(3) Form of Selected Dealer Agreement (previously
filed as Exhibit (e)(3) to Post-Effective
Amendment No. 35 to this Registration Statement)

(e)(4) Form of Selling Agreement for Banks (previously
filed as Exhibit (e)(4) to Post-Effective
Amendment No. 35 to this Registration Statement)

(e)(5) Form of Distribution Agreement for the
Heartland Taxable Municipal Fund

(f) Not applicable

(g) Custodian Agreement (previously filed as
Exhibit (g) to Post-Effective Amendment
No. 35 to this Registration Statement)

(h)(1) Transfer Agent/Dividend Disbursing Agent
Agreement (previously filed as Exhibit (h)(1)
to Post-Effective Amendment No. 35 to this
Registration Statement)

(h)(2) Heartland Group, Inc.'s Rule 10f-3 Plan
(previously filed as Exhibit (h)(2) to
Post-Effective Amendment No. 35 to this
Registration Statement)

(h)(3) Heartland Value Fund, Inc.'s Rule 10f-3 Plan
(previously filed as Exhibit (h)(3) to
Post-Effective Amendment No. 35 to this
Registration Statement)

(h)(4) Form of Administrative Agreement for the
Heartland Taxable Municipal Fund

(h)(5) Form of Accounting and Bookkeeping Agreement
for the Heartland Taxable Municipal Fund

(i) Not applicable

(j) Not applicable

(k) Not applicable

(l) Not applicable

(m)(1) The Value Fund's Rule 12b-1 Plan (previously
filed as Exhibit (m)(1) to Post-Effective
Amendment No. 35 to this Registration
Statement)

(m)(2) Heartland Group Inc.'s Amended and Restated
Rule 12b-1 Plan (previously filed as Exhibit
15(b) to Post-Effective Amendment No. 26 to
this Registration Statement)

(m)(3) Form of Related Distribution Agreement for
Rule 12b-1 Plan (previously filed as
Exhibit (m)(3) to Post-Effective Amendment
No. 35 to this Registration Statement)

(n) Not applicable

(o) Not applicable
</TABLE>

<PAGE>

Exhibit (a)(3)
ARTICLES SUPPLEMENTARY
OF
HEARTLAND GROUP, INC.

The Board of Directors of Heartland Group, Inc. ("Heartland Group"), a
corporation organized and existing under the laws of the State of Maryland and
registered as an open-end investment company under the Investment Company Act of
1940, by resolutions unanimously adopted on ________ , 199_____ and ___________,
199____, respectively, has taken action (i) to withdraw the designation of, and
to discontinue, its series known as the Heartland Small Cap Contrarian Fund (the
"Small Cap Fund") and (ii) to redesignate such series as a new series, effective
as of _______, 199___, to be known as the Heartland Taxable Municipal Fund. The
shareholders of the Small Cap Fund, voting separately, approved such withdrawal
and discontinuance at a special meeting held on November 4, 1998. Heartland
Group, having been authorized to issue one billion (1,000,000,000) shares of
capital stock with a par value of one-tenth of one cent ($.001) per share, or an
aggregate par value of one million dollars ($1,000,000), has the following nine
series in existence as of the effective date hereof:

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

All of such designated series of shares have the relative preferences,
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption as set forth in Section 7.2 of Heartland
Group's Articles of Incorporation.

The Board of Directors has taken this action pursuant to the powers
conferred upon it under Section 7.1 of Heartland Group's Articles of
Incorporation and Sections 2-105(a)(9), 2-105(c) and 2-208 of the Maryland
General Corporation Law, and with respect to the withdrawal and discontinuation
of the series known as the Small Cap Fund only, subject to approval by the
Fund's shareholders, which shareholder approval has been obtained.
<PAGE>

HEARTLAND GROUP, INC.

By: ____________________________
William J. Nasgovitz, President

Attest:

By: ______________________________
Lois J. Schmatzhagen, Secretary

Dated: ______________, 199___

STATE OF WISCONSIN )
) SS
COUNTY OF MILWAUKEE )

On this ________ day of _____________, 199___, before me, a Notary Public
for the State and County set forth above, personally came William J. Nasgovitz,
as President of Heartland Group, Inc., and Lois J. Schmatzhagen, as Secretary of
Heartland Group, Inc., and in their said capacities each acknowledged the
foregoing Articles Supplementary to be the act and deed of said corporation and
further acknowledged that, to the best of their knowledge, the matters and facts
set forth therein are true in all material respects under the penalties of
perjury.

IN WITNESS WHEREOF, I have signed below in my own hand and attached my
official seal on the day and year set forth above.

__________________________________________
Notary Public

My Commission Expires_____________________

(SEAL)

<PAGE>

Exhibit(d)(4)

INVESTMENT MANAGEMENT AGREEMENT

1. Appointment. HGI hereby appoints Manager to furnish investment advisory and
portfolio management services with respect to the portion of its assets
represented by the shares of common stock issued in each series listed in
Schedule A hereto, as such schedule may be amended from time to time (each
such series hereinafter referred to as a "Fund"). Manager accepts such
appointment and agrees to perform the services described herein. Manager
shall use its best efforts and judgment in rendering the advice and
performing the services contemplated by this Agreement. Manager shall for
all purposes be deemed to be an independent contractor and not an agent of
HGI and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent HGI in any way.

2. Investment Management Services.

(a) Manager shall manage the investment operations of HGI and each Fund,
subject to the terms of this Agreement and to the supervision and
control of HGI's Board of Directors. Manager agrees to perform, or
arrange for the performance of, the following services with respect to
each Fund:

(1) to obtain and evaluate such information relating to economies,
industries, and businesses; securities and commodities markets;
individual securities, commodities, and indices; and any other
information deemed appropriate, whether economic or non-economic
in nature, as it may deem necessary or useful in discharging its
responsibilities hereunder;

(2) to formulate and maintain a continuing investment program in a
manner consistent with and subject to (i) HGI's articles of
incorporation and bylaws; (ii) the Fund's investment objectives,
policies, and restrictions as set forth in written documents
furnished by HGI to Manager; (iii) all securities, commodities,
and tax laws and regulations applicable to the Fund and HGI; and
(iv) any other written limits or directions furnished by HGI's
Board of Directors to Manager;

<PAGE>

(3) unless otherwise directed by HGI's Board of Directors, to
determine from time to time securities, commodities interests, or
other investments to be purchased, sold, retained, or lent by the
Fund, to effect borrowings on behalf of the Fund, and to
implement those decisions, including the selection of entities
with or through which such purchases, sales, loans, or borrowings
are to be effected;

(4) to use reasonable efforts to manage the Fund so that it will
qualify as a regulated investment company under subchapter M of
the Internal Revenue Code of 1986, as amended;

(5) to make recommendations as to the manner in which voting rights,
rights to consent to HGI or Fund action, and any other rights
pertaining to HGI or the Fund shall be exercised; and

(6) to the extent required by law, to furnish to regulatory
authorities any information or reports relating to the services
provided pursuant this Agreement.

(b) Custody of Fund assets will be maintained by a custodian bank (the
"Custodian") designated by HGI. HGI will authorize the Custodian to
honor orders and instructions from duly authorized employees of
Manager. No assets may be withdrawn from the Custodian other than for
settlement of investment transactions on behalf of the Fund, except
upon the written authorization of duly authorized officers of HGI.

(c) Manager shall supervise the business and affairs of HGI and each Fund,
and shall provide such services and facilities as may be required for
effective administration of HGI and Funds as are not provided by
employees or other agents engaged by HGI; provided that Manager shall
not have any obligation to provide under this Agreement any such
services which are the subject of a separate agreement or arrangement
between HGI and Manager, any affiliate of Manager, or any other third
party.

3. Execution of Investment Transactions.

(a) Except as otherwise instructed from time to time by HGI's Board of
Directors, and in conformity with any policies regarding investment
transactions set forth in HGI's registration statement filed with the
Securities and Exchange Commission ("SEC"), with respect to execution
of investment transactions for HGI on behalf of a Fund, Manager shall
place, or arrange for the placement of, all orders for purchases,
sales, loans, borrowings, or other transactions either directly with
the issuer or with a broker or dealer, or other counterparty or agent
selected by Manager.

<PAGE>

(b) Investment transactions may be effected through Manager and its
affiliates to the extent permitted by applicable law and subject to
such policies and procedures established by HGI's Board of Directors
from time to time. In connection with the selection of all such
parties for the placement of all such orders, Manager shall attempt to
obtain most favorable execution and price, but may nevertheless in its
sole discretion as a secondary factor, purchase and sell portfolio
securities from and to brokers or dealers who provide research and
analysis to Manager which Manager may lawfully and appropriately use
in its investment management and advisory capacities, whether or not
such research and analysis may also be useful to Manager in connection
with its services to other clients. In recognition of such services or
brokerage services provided by a broker or dealer, Manager is hereby
authorized to pay such broker or dealer a commission or spread in
excess of that which might be charged by another broker or dealer for
the same transaction if Manager determines in good faith that the
commission or spread is reasonable in relation to the value of the
services so provided. Subject to the provisions of this subparagraph
and such policies and procedures as shall be established by HGI's
Board of Directors from time to time, Manager may also consider sales
of shares of a Fund as a factor in the selection of a broker or dealer
to effect investment transactions for that Fund.

(c) Manager may, where it deems to be advisable, aggregate orders for its
other clients together with any securities of the same type to be sold
or purchased for one or more Funds in order to obtain best execution
or lower brokerage commissions. In such event, Manager shall allocate
the shares so purchased or sold, as well as the expense incurred in
the transaction, in a manner it considers to be equitable and fair,
and consistent with its fiduciary obligations to HGI, the Funds, and
Manager's other clients. Manager may also effect agency cross-
transactions by and among one or more Funds and other clients of
Manager subject to such policies and procedures as shall be
established by HGI's Board of Directors from time to time.

4. Use of Affiliated Companies and Subcontractors; Retention of Subadviser.

(a) In connection with the services to be provided by Manager under this
Agreement, Manager may, to the extent it deems appropriate, and
subject to compliance with the requirements of applicable laws and
regulations and upon receipt of written approval of HGI's Board of
Directors, make use of (i) its affiliated companies, if any, and their
directors, officers, and employees and (ii) subcontractors selected by
Manager, provided that Manager shall supervise and remain fully
responsible for the services of all such third parties in accordance
with and to the extent provided by this Agreement. All costs and
expenses associated with services provided by any such third parties
shall be borne by Manager or such parties.

<PAGE>

(b) Subject to obtaining the initial and periodic approvals required under
Section 15 of the 1940 Act, Manager may retain one or more subadvisers
at Manager's own cost and expense for the purpose of furnishing one or
more of the services described in Section 2 hereof with respect to HGI
or one or more Funds. Retention of a subadviser shall in no way reduce
the responsibilities or obligations of Manager under this Agreement,
and Manager shall be responsible to HGI and its Funds for all acts or
omissions of any subadviser in connection with the performance of
Manager's duties hereunder.

5. Expenses Borne by HGI. Except to the extent expressly assumed by Manager
herein or under a separate agreement between HGI and Manager and except to
the extent required by law to be paid by Manager, Manager shall not be
obligated to pay any costs or expense incidental to the organization,
operations, or business of HGI. Without limitation, such costs and expense
shall include, but not be limited to:

(a) all charges of depositories, custodians, and other agencies for the
safekeeping and servicing of its cash, securities, and other property;

(b) all expenses of maintaining and servicing shareholder accounts,
including all charges for transfer, shareholder recordkeeping,
dividend disbursing, redemption, and other agents for the benefit of
the Funds (including, without limitation, fund accounting and
administration agents);

(c) all charges for equipment or services used for obtaining price
quotations or for communication between Manager and HGI and the
custodian, transfer agent, or any other agent selected by HGI;

(d) all charges for administrative and accounting services provided to HGI
by Manager, or any other provider of such services;

(e) all charges for services of HGI's independent auditors and for
services to HGI by legal counsel;

(f) all compensation of directors and officers of HGI, other than those
employed by Manager, all expenses of HGI's directors and officers
incurred in connection with their services to HGI, and all expenses of
meetings of the Board of Directors or committees thereof;

(g) all expenses incidental to holding meetings of shareholders of the
Fund ("Shareholders"), including printing and supplying to each
record-date Shareholder notice and proxy solicitation material, and
all other proxy solicitation expense;

<PAGE>

(h) all expenses of printing of annual or more frequent revisions of HGI
prospectus(es), statements of additional information, and shareholder
reports, and of supplying to each then existing Shareholder copies of
such materials as required by applicable law;

(i) all expenses related to preparing and transmitting certificates, if
any, representing shares of HGI;

(j) all expenses of bond and insurance coverage required by law or deemed
advisable by the Board of Directors;

(k) all brokers' commissions and other normal charges incident to the
purchase, sale, or lending of portfolio securities;

(l) all taxes and governmental fees payable to federal, state, or other
governmental agencies, domestic or foreign, including all stamp or
other transfer taxes;

(m) all expenses of registering and maintaining the registration of HGI
under the 1940 Act and, to the extent no exemption is available,
expenses of registering shares under the Securities Act of 1933, and
of registration and qualification of HGI under all other laws
applicable to HGI or its business activities;

(n) all interest on indebtedness and commitment fees for lines of credit,
if any, incurred by HGI or a Fund; and

(o) all fees, dues, and other expenses incurred by HGI in connection with
membership of HGI in any trade association or other investment company
organization.

6. Allocation of Expenses Borne by HGI. Any expenses borne by HGI that are
attributable solely to the organization, operation, or business of a Fund
shall be paid solely out of Fund assets. Any expense borne by HGI which is
not solely attributable to a Fund, nor solely to any other series of shares
of HGI, shall be apportioned in such manner as Manager determines is fair
and appropriate, or as otherwise specified by the Board of Directors.

7. Expenses Borne by Manager.

(a) Manager at its own expense shall furnish all executive and other
personnel, office space, and office facilities required to render the
services set forth in this Agreement. However, Manager shall not be
required to pay or provide any credit for services provided by HGI's
custodian or other agents without additional cost to HGI.

<PAGE>

(b) In the event that Manager pays or assumes any expense of HGI or a Fund
not required to be paid or assumed by Manager under this Agreement,
Manager shall not be obligated hereby to pay or assume the same or
similar expense in the future; provided, however, that nothing
contained herein shall be deemed to relieve Manager of any obligation
to HGI or a Fund under any separate agreement or arrangement between
the parties.

8. Management Fee. For the services rendered, personnel and facilities
provided, and charges assumed and paid by Manager hereunder, HGI shall pay
to Manager out of the assets of each Fund fees at the annual rate for such
Fund set forth in Schedule B to this Agreement. For each Fund, the
management fee shall accrue on each calendar day, and shall be payable
monthly on the first business day of the next succeeding calendar month.
The daily fee accrual shall be computed by multiplying the fraction of one
divided by the number of days in the calendar year by the applicable annual
rate of fee, and multiplying this product by the net assets of the Fund,
determined in the manner established by the Board of Directors, as of the
close of business on the last preceding business day on which the Fund's
net asset value was determined.

9. Nonexclusivity. The services of Manager to HGI hereunder are not to be
deemed exclusive, and Manager shall be free to render similar services to
others.

10. Standard of Care. Neither Manager, nor any of its directors, officers,
shareholders, agents, or employees shall be liable to HGI or its
Shareholders for any error of judgment, mistake of law, loss arising out of
any investment, or any other act or omission in the performance by Manager
of its duties under this Agreement, except for loss or liability resulting
from willful misfeasance, bad faith, or gross negligence on Manager's part
or from reckless disregard by Manager of its obligations and duties under
this Agreement. Nothing in this Agreement shall be construed to protect any
officer of Manager from liability for violation of Section 17(h) or (i) of
the 1940 Act.

11. Ownership of Records; Delivery of Information.

(a) All records required to be maintained and preserved by HGI pursuant to
the provisions of rules or regulations of the Securities and Exchange
Commission under Section 31(a) of the 1940 Act or other applicable
laws or regulations that are maintained and preserved by Manager on
behalf of HGI, and any other records the parties mutually agree shall
be maintained by Manager on behalf of HGI, are the property of HGI and
shall be surrendered by Manager promptly on request by HGI; provided,
however, that Manager may at its own expense make and retain copies of
any such records.

<PAGE>

(b) HGI shall furnish Manager, from time to time, with copies, properly
certified or otherwise authenticated, of all amendments of or
supplements to the articles of incorporation, by-laws, and
registration statements of HGI and any other documents relating to
each Fund's investment program. Any such amendments, supplements, or
documents will not be deemed effective with respect to Manager until
Manager's receipt thereof. HGI shall provide Manager such additional
information as Manager may reasonably request in order to discharge
its obligations under this Agreement.

(c) Manager shall prepare and furnish to HGI its Form ADV as filed with
the SEC, its Code of Ethics, Fund statistical data, and such other
information in such form at such intervals as HGI may reasonably
request.

12. Amendment. This Agreement may be amended at any time by mutual agreement of
the parties in writing, subject to the requirements of the 1940 Act, and
rules and regulations promulgated and orders for exemptive relief granted
thereunder.

13. Effective Date and Termination. This Agreement shall become effective with
respect to any Fund as of the effective date for that Fund specified in
Schedule A hereto. This Agreement may be terminated at any time, without
payment of any penalty, as to any Fund by the Board of Directors of HGI, or
by a vote of a majority of the outstanding shares of that Fund, upon at
least sixty (60) days' written notice to Manager. This Agreement may be
terminated by Manager at any time upon at least sixty (60) days' written
notice to HGI. This Agreement shall terminate automatically in the event of
its "assignment" (as defined in the 1940 Act), subject to such exceptions
as may be granted by the SEC by rule, regulation, or order. Unless
terminated as hereinbefore provided, this Agreement shall continue in
effect with respect to any Fund until the end of the initial term
applicable to that Fund specified in Schedule A and thereafter from year to
year only so long as such continuance is specifically approved with respect
to the Fund at least annually (a) by a majority of those Directors who are
not interested persons of HGI or Manager, voting in person at a meeting
called for the purpose of voting on such approval, and (b) by either the
Board of Directors or HGI, or by a "vote of a majority of the outstanding
shares" of the Fund.

<PAGE>

14. Headings. Headings are placed herein for convenience of reference only and
shall not be taken as a part hereof or control or affect the meaning,
construction or effect of this Agreement.

15. Governing Law. This Agreement shall be governed by the laws of the State of
Wisconsin.

<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the day and year first above written.

HEARTLAND GROUP, INC.

By:
------------------------------
William J. Nasgovitz
President

Attest:

- ----------------------------
Lois J. Schmatzhagen
Secretary

HEARTLAND ADVISORS, INC.

By:
------------------------------
William J. Nasgovitz
President

Attest:

- ----------------------------
Lois J. Schmatzhagen
Secretary

<PAGE>

HEARTLAND GROUP, INC.
INVESTMENT MANAGEMENT AGREEMENT

SCHEDULE A

The Funds of Heartland Group, Inc. currently subject to this Agreement are:

<TABLE>
<CAPTION>
Effective End of
Date Initial Term
--------- ------------
<S> <C> <C>
Heartland Taxable Municipal Fund _________ ____________
</TABLE>

Dated: _________________________

HEARTLAND GROUP, INC.

By:
------------------------------
William J. Nasgovitz
President

Attest:

- ----------------------------
Lois J. Schmatzhagen
Secretary

HEARTLAND ADVISORS, INC.

By:
------------------------------
William J. Nasgovitz
President

Attest:

- ----------------------------
Lois J. Schmatzhagen
Secretary

10
<PAGE>

HEARTLAND GROUP, INC.
INVESTMENT MANAGEMENT AGREEMENT

SCHEDULE B

Compensation pursuant to Section 7 of this Agreement shall be calculated in
accordance with the following schedule applicable to average daily net assets of
the Funds:

Schedule for Heartland Taxable Municipal Fund
---------------------------------------------
0.__% on first $500 million
0.__% on next $500 million
0.__% on next $500 million
0.__% thereafter

Dated: _______________________

HEARTLAND GROUP, INC.

By:
------------------------------
William J. Nasgovitz
President

Attest:

- ----------------------------
Lois J. Schmatzhagen
Secretary

HEARTLAND ADVISORS, INC.

By:
------------------------------
William J. Nasgovitz
President

Attest:

- ----------------------------
Lois J. Schmatzhagen
Secretary

<PAGE>

Exhibit (e)(5)

DISTRIBUTION AGREEMENT

This Agreement is made this ____ day of _________, 1998, by and between
Heartland Group, Inc. ("HGI"), a Maryland corporation registered under the
Investment Company Act of 1940 (the "1940 Act") as an open-end management
investment company, and Heartland Advisors, Inc. ("Distributor"), a Wisconsin
corporation which is registered as a broker-dealer under the Securities Exchange
Act of 1934 and the laws of each state or other jurisdiction in which it engages
in business to the extent such law requires, and is a member of the National
Association of Securities Dealers, Inc. ("NASD") (such registrations and
membership are hereinafter collectively referred to as the "Registrations").

1. Appointment. HGI hereby appoints Distributor as its exclusive agent to
sell and to arrange for the sale of shares of its common stock ("Shares"),
including both issued and treasury shares, of the series listed in Schedule
A hereto (as such schedule may be amended from time to time), on the terms
and for the period set forth in this Agreement. Each such series is
hereinafter referred to as the "Fund." No person other than Distributor is
authorized to act as "principal underwriter," as defined in the 1940 Act,
for the Funds. Distributor accepts such appointment and agrees to perform
the services described herein.

2. Solicitation of Orders for Purchase of Shares.

(a) Subject to the provisions of Paragraphs 6, 7, and 9 hereof, and to
such minimum purchase requirements as may be indicated in the Fund's
prospectus or otherwise specified in writing to Distributor by HGI,
Distributor is authorized to solicit, as agent on behalf of the Fund,
unconditional orders for purchases of the Fund's Shares authorized for
issuance and registered under the Securities Act of 1933 (the "1933
Act"), provided that:

(1) Distributor shall act solely as a disclosed agent on behalf of
and for the account of the Fund;

(2) HGI, its transfer agent, or agents of its transfer agent duly
authorized by HGI shall receive directly from investors all
payments for the purchase of the Fund's Shares, and also shall
pay directly to shareholders amounts due to them for the
redemption or repurchase of all the Fund's Shares with
Distributor having no rights or duties to accept such payment or
to effect such redemptions or repurchases;
<PAGE>

(3) Distributor shall cause to be confirmed all orders received for
purchase of the Fund's Shares which confirmation shall clearly
state (i) that Distributor is acting as agent of the Fund in the
transaction (ii) that all certificates for redemption,
remittances, and registration instructions should be sent
directly to the Fund or its transfer agent, and (iii) the Fund's
mailing address;

(4) Distributor shall have no liability for payment for purchases of
the Fund's Shares it sells as agent; and

(5) Each order to purchase Shares of the Fund received by Distributor
shall be subject to acceptance by an officer of HGI and entry of
the order on the Fund's records of shareholder accounts and is
not binding until so accepted and entered.

The purchase price to the public of the Fund's Shares shall be the
public offering price as defined in Paragraph 8 hereof.

(b) In consideration of the rights granted to the Distributor under this
Agreement, Distributor will use its best efforts, but only in
jurisdictions in which Distributor may lawfully do so, to solicit from
investors unconditional orders to purchase Shares of the Fund. HGI
shall make available to the Distributor without cost to the
Distributor such number of copies of the Fund's currently effective
prospectus and statement of additional information and copies of all
information, financial statements, and other papers which the
Distributor may reasonably request for use in connection with the
distribution of the Shares.

3. Compensation of the Distributor. Distributor shall receive a fee duly
authorized and approved by HGI in accordance with the Fund's 12b-1 Plan.

4. Expenses. The Fund shall pay all charges of its transfer, shareholder
recordkeeping, dividend disbursing, and redemption agents, if any; all
expenses of notices, proxy solicitation material, and reports to
shareholders; all expenses of preparation and printing of annual or more
frequent revision of the Fund's prospectus and statement of additional
information and of supplying copies thereof to existing shareholders; all
expenses of registering and maintaining the registration of the Fund under
the 1940 Act and of the Fund's Shares under the 1933 Act; all expense of
qualifying and maintaining qualification of such Fund and of the Fund's
Shares, whether by registration, perfection of an exemption from
registration, or notice filing, under the securities laws of the
jurisdictions in which Fund Shares will be offered and of registration and
qualification of the Fund under all laws applicable to the Fund or its
business activities. Expenses incurred in the sale and promotion of the
Fund shall be paid by the Fund, except in accordance with the Fund's Rule
12b-1 Plan. Any expenses borne by HGI that are attributable solely to the
organization, operation, or business of a Fund shall be paid solely out of
Fund assets. Any expense borne by HGI which is not solely attributable to a
Fund, nor solely to any other series of shares

2
<PAGE>

of HGI, shall be apportioned in such manner as Administrator determines is
fair and appropriate, or as otherwise specified by HGI's Board of
Directors.

5. Selling Agreements. Distributor is authorized as agent on behalf of each
Fund to enter into agreements with other broker-dealers, banks, and other
financial intermediaries providing for the solicitation of unconditional
orders for purchases of the Fund's Shares authorized for issuance and
registered under the 1933 Act. All such agreements shall be either in the
form of agreement attached hereto or in such other form as may be approved
by the officers of HGI ("Selling Agreement"). All solicitations made by
other broker-dealers pursuant to a Selling Agreement shall be subject to
the same terms of this Agreement which apply to solicitations made by
Distributor.

6. Solicitation of Orders to Purchase Shares by Fund. The rights granted to
Distributor shall be nonexclusive in that the Fund reserves the right to
solicit purchases from, and sell its Shares to, investors. Further, the
Fund reserves the right to issue Shares in connection with the merger or
consolidation of any other investment company, trust, or personal holding
company with the Fund, or the Fund's acquisition, by the purchase or
otherwise, of all or substantially all of the assets of an investment
company, trust, or personal holding company, or substantially all of the
outstanding shares or interests of any such entity. Any right granted to
Distributor to solicit purchase of Shares will not apply to Shares that may
be offered by the Fund to shareholders by virtue of their being
shareholders of the Fund.

7. Shares Covered by This Agreement. This Agreement relates to the
solicitation of orders to purchase Shares that are duly authorized and
registered, and available for sale by the Fund, including redeemed or
repurchased Shares if and to the extent that they may be legally sold and
if, but only if, the Fund authorizes Distributor to sell them.

8. Public Offering Price. All solicitations by Distributor pursuant to this
Agreement shall be for orders to purchase Shares of the Fund at the public
offering price. Except as otherwise provided in any schedule with respect
to one or more Funds attached to this Agreement, the public offering price
for each accepted subscription for the Fund's Shares will be the net asset
value per share next determined by the Fund after it accepts such
subscription. The net asset value per share shall be determined in the
manner provided in HGI's Articles of Incorporation as now in effect or as
they may be amended, and as reflected in the Fund's then current prospectus
and statement of additional information.

9. Suspension of Sales. If and whenever the determination of the Fund's net
asset value is suspended and until such suspension is terminated, no
further orders for Shares shall be accepted by the Fund except such
unconditional orders placed with the Fund and accepted by it before the
suspension. In addition, the Fund reserves the right to suspend sales of
Shares if, in the judgment of HGI's Board of Directors (the

3
<PAGE>

"Board"), it is in the best interest of the Fund to do so, such suspension
to continue for such period as may be determined by the Board; and in that
event, (i) at the direction of HGI, Distributor shall suspend its
solicitation of orders to purchase Shares of the Fund until otherwise
instructed by HGI and (ii) no orders to purchase Shares shall be accepted
by the Fund while such suspension remains in effect unless otherwise
directed by the Board.

10. Authorized Representations.

(a) HGI is not authorized by Distributor to give on behalf of Distributor
any information or to make any representations other than the information
and representations concerning Distributor in the registration statement of
HGI filed with the Securities and Exchange Commission ("SEC") under the
1933 Act or the 1940 Act, or both, including the prospectus which is a part
thereof, as either or both may be amended from time to time (the
"Registration Statement").

(b) Distributor is not authorized by HGI to give on behalf of the Fund any
information or to make any representations in connection with the sale of
Shares of the Fund other than the information and representations contained
in the Registration Statement or contained in reports to shareholders of
the Fund or other material that may be prepared by HGI or approved by HGI
for Distributor's use.

11. Registration of Additional Shares. HGI hereby agrees to register either
(i) an indefinite number of Fund Shares pursuant to Rule 24f-2 under the
1940 Act or (ii) such definite number of Fund Shares as HGI shall deem
advisable pursuant to Rule 24e-2 under the 1940 Act. HGI will, in
cooperation with Distributor, take such action as may be necessary from
time to time to register or qualify, or perfect an exemption from
registration for, the Fund Shares so registered for sale under the 1933 Act
in any jurisdiction mutually agreeable to Distributor and HGI, and to
maintain such registration, qualification, or exemption from registration;
provided, however, that nothing herein shall be deemed to prevent HGI from
registering Fund Shares without approval of Distributor in any jurisdiction
it deems appropriate.

12. Conformity with Law. Distributor agrees that in soliciting orders to
purchase Fund Shares it shall duly conform in all respects with applicable
federal and state laws and the rules and regulations of the NASD.
Distributor will use its best efforts to maintain its Registrations in good
standing during the terms of this Agreement and will promptly notify HGI in
the event of the suspension or termination of any of the Registrations.

13. Independent Contractor. Distributor shall be an independent contractor and
neither Distributor, nor any of its officers, directors, employees, agents,
or representatives is or shall be an employee of the Fund in the
performance of Distributor's duties hereunder. Distributor shall be
responsible for its own conduct and the employment, control, and conduct of
its agents and employees, and for injury to such agents or

4
<PAGE>

employees or to others through its agents and employees and agree to pay
all employees taxes thereunder.

14. Indemnification.

(a) Distributor agrees to indemnify and hold harmless the Fund, HGI, HGI's
present or former directors, officers, employees, representatives, and
each person, if any, who controls or previously controlled the Fund or
HGI within the meaning of Section 15 of the 1933 Act against any and
all losses, liabilities, damages, claims, or expenses (including the
reasonable costs of investigating or defending any alleged loss,
liability, damage, claims, or expense and reasonable legal counsel
fees incurred in connection therewith) to which the Fund, HGI, or any
such person may become subject under the 1933 Act, under any other
statute, at common law, or otherwise, arising out of the acquisition
of any Fund Shares by any person which (i) may be based upon any
wrongful act by Distributor or any of Distributor's directors,
officers, employees, agents, or representatives, or (ii) may be based
upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, any shareholder report,
or other information covering Fund Shares filed or made public by the
Fund or HGI, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance upon
information furnished to HGI by Distributor. In no case (i) is
Distributor's indemnity in favor of the Fund, HGI, or any person
indemnified to be deemed to protect HGI or such indemnified person
against any liability to which the Fund, HGI, or such person would
otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of his or her duties or by reason
of his or her reckless disregard of his or her obligations and duties
under this Agreement, or (ii) is Distributor to be liable under its
indemnity agreement contained in this paragraph with respect to any
claim made against the Fund, HGI, or any person indemnified unless the
Fund, HGI, or such person, as the case may be, shall have notified
Distributor in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the
nature of the claim shall have been served upon the Fund, HGI, or upon
such person (or after the Fund, HGI, or such person shall have
received notice of such service on any designated agent). However,
failure to notify Distributor of any such claim shall not relieve
Distributor from any liability which Distributor may have to the Fund,
HGI, or any person against whom such action is brought otherwise than
on account of Distributor's indemnity agreement contained in this
paragraph.

5
<PAGE>

the persons indemnified who are defendants in the suit. In the event
that Distributor elects to assume the defense of any such suit and
retain such legal counsel, HGI and the persons indemnified who are
defendants in the suit shall bear the fees and expenses of any
additional legal counsel retained by them. If Distributor does not
elect to assume the defense of any such suit, Distributor will
reimburse the Fund, HGI, and the persons indemnified who are
defendants in such suit for the reasonable fees and expenses of any
legal counsel retained by them. In any event, Distributor shall not
be responsible for any claim settled or compromised, or for any
confession of judgment, without its prior written consent, which
consent shall not be unreasonably withheld. Distributor agrees
promptly to notify HGI of the commencement of any litigation or
proceedings against it or any of its officers, employees, or
representatives in connection with the issuance or sale of any Fund
Shares.

(c) The Fund agrees to indemnify and hold harmless Distributor and each of
its present or former directors, officers, employees, agents, or
representatives, and each person, if any, who controls or previously
controlled Distributor within the meaning of Section 15 of the 1933
Act against any and all losses, liabilities, damages, claims, or
expenses (including the reasonable costs of investigating or defending
any alleged loss, liability, damage, claim, or expense, and reasonable
legal counsel fees incurred in connection therewith) to which
Distributor or any such person may become subject under the 1933 Act,
under any other statute, at common law, or otherwise, arising out of
the acquisition of any Fund Shares by any person which (i) may be
based upon any wrongful act by HGI or any of HGI's directors,
officers, employees, agents, or representatives, or (ii) may be based
upon any untrue statement or alleged untrue statement, prospectus,
shareholder report, or other information covering Fund Shares filed or
made public by HGI or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading unless such statement or omission was made in
reliance upon information furnished to HGI by Distributor. In no case
(i) is the Fund's indemnity in favor of Distributor or any person
indemnified to be deemed to protect Distributor or such indemnified
person against any liability to which Distributor or such person would
otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of his or her duties or by reason
of his or her reckless disregard of his or her obligations and duties
under this Agreement, or (ii) is the Fund to be liable under its
indemnity agreement contained in this paragraph with respect to any
claim made against Distributor, or person indemnified unless
Distributor, or such person, as the case may be, shall have notified
HGI in writing of the claim within a reasonable time after the summons
or other first written notification giving information of the nature
of the claim shall have been served upon Distributor or upon such
person (or after Distributor or such person shall have received notice
of such service on any designated agent). However, failure to notify
HGI of any such claim shall not relieve the Fund from any liability
which the Fund may have

6
<PAGE>

to Distributor or any person against whom such action is brought other
than on account of the Fund's indemnity agreement contained in this
paragraph.

(d) The Fund shall be entitled to participate, at its own expense, in the
defense, or, if HGI so elects on behalf of the Fund, to assume the
defense of any suit brought to enforce any such claim, but if HGI
elects to assume the defense, such defense shall be conducted by legal
counsel chosen by HGI and satisfactory to Distributor and to the
persons indemnified who are defendants in the suit. In the event that
HGI elects to assume the defense of any such suit and retain such
legal counsel, Distributor and the persons indemnified who are
defendants in the suit shall bear the fees and expenses of any
additional legal counsel retained by them. If HGI does not elect to
assume the defense of any such suit, the Fund will reimburse
Distributor and the persons indemnified who are defendants in such
suit for the reasonable fees and expenses of any legal counsel
retained by them. In any event, HGI shall not be responsible for any
claim settled or compromised, or for any confession of judgment,
without its prior written consent, which consent shall not be
unreasonably withheld. HGI agrees promptly to notify Distributor of
the commencement of any litigation or proceedings against it or any of
its directors, officers, employees, agents, or representative in
connection with the issuance or sale of any Fund Shares.

15. Effective Date, Duration, Termination, and Assignment. This Agreement
shall become effective as to any Fund on the date set forth in Schedule A
to this Agreement and unless terminated as provided herein, shall remain in
effect through June 30 of the year next following the effective date and
from year to year thereafter, but only so long as such continuance is
specifically approved at least annually (a) by the vote of a majority of
the members of the Board who are not interested persons of Distributor or
its affiliates, voting in person at a meeting called for the purpose of
voting on such approval, and (b) by the vote of either the Board or a
majority of the outstanding shares of the Fund. This Agreement may be
terminated by and between an individual Fund and Distributor at any time,
without the payment of any penalty (a) on 60 days' written notice by the
Board or by a vote of a majority of the outstanding Shares of the Fund, or
by Distributor, or (b) immediately, on written notice by the Board, in the
event of termination or suspension of any of the Registrations. This
Agreement will automatically terminate in the event of its assignment. The
definitions contained in Section 2(a) of the 1940 Act, particularly the
definitions of "interested person," "assignment," and "majority of the
outstanding shares," shall be applied in interpreting the provisions of
this Paragraph 15.

16. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged, or terminated orally, but only by an
instrument in writing signed by each party against which enforcement of the
change, waiver, discharge, or termination is sought. If HGI should at any
time deem it necessary or advisable in the best interests of HGI or the
Fund that any amendment of this Agreement be made in order to comply with
the recommendations or requirements of the SEC or any other

7
<PAGE>

governmental authority or to obtain any advantage under state or federal
tax laws and notifies Distributor of the form of such amendment, and the
reasons therefor, and if Distributor should decline to assent to such
amendment, HGI may terminate this Agreement forthwith. If Distributor
should at any time request that a change be made in HGI's Articles of
Incorporation or Bylaws or in its methods of doing business, in order to
comply with any requirement of federal law or regulations of the SEC, or of
a national securities association of which Distributor is or may be a
member, relating to the sale of Fund Shares, and HGI should not make such
necessary changes within a reasonable time, Distributor may terminate this
Agreement forthwith.

17. Notice. Any notice under this Agreement shall be in writing, addressed and
delivered or sent by certified mail, postage prepaid, to the other party at
such address as such other party may designate for the receipt of such
notices. Until further notice, it is agreed that the address of both HGI
and Distributor is 790 North Milwaukee Street, Milwaukee, Wisconsin 53202,
Attention: Secretary. With respect to any notice given hereunder to HGI, a
copy of such notice shall be delivered to Quarles & Brady, 411 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202, Attention: Conrad G.
Goodkind, Esq., and with respect to any notice given hereunder to
Distributor, a copy of such notice shall be delivered to Heartland
Advisors, Inc., 790 North Milwaukee Street, Milwaukee, Wisconsin 53202,
Attention: General Counsel.

18. Headings. Headings are placed herein for convenience of reference only and
shall not be taken as part hereof or control or affect the meaning,
construction, or effect of this Agreement.

19. Governing Law. This Agreement shall be governed by the laws of the State
of Wisconsin.

8
<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the day and year first above written.

HEARTLAND GROUP, INC.

By: ________________________________
William J. Nasgovitz
President
Attest:

__________________________________
Lois J. Schmatzhagen
Secretary

HEARTLAND ADVISORS, INC.

By: ________________________________
William J. Nasgovitz
President
Attest:

__________________________________
Lois J. Schmatzhagen
Secretary

9
<PAGE>

DISTRIBUTION AGREEMENT

SCHEDULE A

The Funds of Heartland Group, Inc. subject to this Agreement are:

Effective Date
--------------

Heartland Taxable Municipal Fund No Load Class ________

Dated: __________________

HEARTLAND GROUP, INC.

By: ________________________________
William J. Nasgovitz
President
Attest:

__________________________________
Lois J. Schmatzhagen
Secretary

HEARTLAND ADVISORS, INC.

By: ________________________________
William J. Nasgovitz
President
Attest:

__________________________________
Lois J. Schmatzhagen
Secretary

<PAGE>

Exhibit (h)(4)

ADMINISTRATIVE AGREEMENT

1. Appointment. HGI hereby appoints Administrator to furnish certain
administrative services with respect to HGI and the series of HGI listed in
Schedule A hereto, as such schedule may be amended from time to time. Each such
series is hereinafter referred to as a "Fund." Administrator accepts such
appointment and agrees to perform the services described herein.

2. Administrative Services. Subject to the terms of this Agreement and the
supervision and control of HGI's Board of Directors, Administrator shall provide
the following services:

(a) Preparation and maintenance of HGI's registration statement or
statements with the Securities and Exchange Commission ("SEC");

(b) Preparation and periodic updating of the prospectus and statement of
additional information for each Fund (collectively, the "Prospectus");

(c) Preparation, filing with appropriate regulatory authorities, and
dissemination of various reports for each Fund, including but not
limited to semiannual reports to shareholders under Section 30(d) of
the 1940 Act, annual and semiannual reports on Form N-SAR, and notices
pursuant to Rule 24f-2;

(d) Arrangements for all meetings of shareholders required by law,
including the collection of all information required for preparation
of proxy statements, the preparation and filing with appropriate
regulatory agencies of such proxy statements, the supervision of
solicitation of shareholders and shareholder nominees in connection
therewith, tabulation (or supervision of the tabulation) of votes,
response to all inquiries regarding such meetings from shareholders,
the public and the media, and preparation and retention of all minutes
and all other records required to be kept in connection with such
meetings;

(e) Maintenance and retention of all HGI charter documents and the filing
of all documents required to maintain HGI's status as a Maryland
corporation and as a registered open-end investment company;
<PAGE>

(f) Arrangement and preparation and dissemination of all materials for
meetings of HGI's Board of Directors and committees thereof and
preparation and retention of all minutes and other records thereof;

(g) Preparation and filing of HGI's federal, state, and local income tax
returns and calculation of any tax required to be paid in connection
therewith;

(h) Calculation of all HGI and Fund expenses and arrangement for the
payment thereof;

(i) After consultation with the officers of HGI, preparation and
submission of such filings as shall be required by the jurisdictions
in which shares of each Fund ("Shares") may be sold, including, but
not limited to, preparation and maintenance of the registration,
qualification, or notice filings with respect to the Shares for sale
under the securities laws of each such jurisdiction;

(j) Provision of the services of persons who may be appointed as officers
of HGI by HGI's Board of Directors, it being agreed that some person
or persons may be officers of both HGI and the Administrator or of any
affiliate of either of them, and that the existence of any such dual
interest shall not affect the validity of this Agreement except as
otherwise provided by specific provision of applicable law;

(k) Preparation and, subject to approval of HGI's Chief Accounting
Officer, dissemination of HGI's and each Fund's quarterly financial
information to HGI's Board of Directors and preparation of such other
reports relating to the business and affairs of HGI and each Fund as
the officers and HGI's Board of Directors may from time to time
reasonably request;

(l) Administration of HGI's Code of Ethics and periodic reporting to HGI's
Board of Directors concerning compliance therewith by directors and
officers;

(m) Provision of internal legal, compliance, audit, and risk management
services and periodic reporting to HGI's Board of Directors with
respect to such services;

(n) Negotiation, administration, and oversight of third party services to
HGI including, but not limited to, custody, tax, accounting and
bookkeeping, transfer agency, audit, and legal services;

(o) Negotiation and arrangement for insurance desired or required of HGI
and administering all claims thereunder;

(p) Response to all inquiries by regulatory agencies, the press, and the
general public concerning the business and affairs of HGI, including
the oversight of all

2
<PAGE>

periodic inspections of the operations of HGI and its agents by
regulatory authorities and responses to subpoenas and tax levies;

(q) Handling and resolution of any complaints registered with HGI by
shareholders, regulatory authorities, and the general public;

(r) Monitoring legal, tax, regulatory, and industry developments related
to the business affairs of HGI and communicating such developments to
HGI's officers and Board of Directors as they may reasonably request
or as the Administrator believes appropriate;

(s) Administration of operating policies of HGI and recommendation to
HGI's officers and Board of Directors of modifications to such
policies to facilitate the protection of the shareholders or market
competitiveness of HGI and each Fund and to the extent necessary to
comply with new legal or regulatory requirements;

(t) Responding to surveys conducted by third parties and reporting of each
Fund's performance and other portfolio information; and

(u) Filing of claims, class actions involving portfolio securities, and
handling administrative matters in connection with the litigation or
settlement of such claims with respect to each Fund.

2. Use of Affiliated Companies and Subcontractors. In connection with the
services to be provided by Administrator under this Agreement,
Administrator may, to the extent it deems appropriate, and subject to
compliance with the requirements of applicable laws and regulations and
upon receipt of approval of HGI's Board of Directors, make use of (i) its
affiliated companies, if any, and their directors, officers, and employees
and (ii) subcontractors selected by Administrator, provided that
Administrator shall supervise and remain fully responsible for the services
of all such third parties in accordance with and to the extent provided by
this Agreement. All costs and expenses associated with services provided by
any such third parties shall be borne by Administrator or such parties.

3. Instructions, Opinions of Counsel, and Signatures. At any time
Administrator may request instructions regarding HGI from any duly
authorized agent of HGI, and may consult counsel for HGI or its own
counsel, in respect of any matter arising in connection with this
Agreement, and it shall not be liable for any action taken or omitted by it
in good faith in accordance with such instructions or with the advice or
opinion of such counsel. Administrator shall be protected in acting upon
any such instruction, advice, or opinion and upon any other paper or
document delivered by HGI or such counsel believed by Administrator to be
genuine and to have been signed by the proper person or persons, and shall
not be held to have notice of any change of authority of any officer or
agent of HGI, until receipt of written notice thereof from HGI.

3
<PAGE>

4. Expenses Borne by HGI. Except to the extent expressly assumed by
Administrator herein or under a separate agreement between HGI and
Administrator and except to the extent required by law to be paid by
Administrator, HGI shall pay all costs and expenses incidental to the
organization, operations, and business of HGI and each Fund. Without
limitation, such costs and expenses shall include, but not be limited to:

(a) All charges of depositories, custodians, and other agencies for the
safekeeping and servicing of its cash, securities, and other property;

(b) All charges for equipment or services used for obtaining price
quotations or for communication between Administrator or HGI and the
custodian, transfer agent, or any other agent selected by HGI;

(c) All charges for investment advisory, portfolio management, and
accounting services provided to HGI by the Administrator, or any other
provider of such services;

(d) All charges for services of HGI's independent auditors and for
services to HGI by legal counsel;

(e) All compensation of directors and officers, other than those employed
by Administrator or its affiliates, all expenses of HGI's officers and
directors incurred in connection with their services to HGI, and all
expenses of meetings of the directors or committees thereof;

(f) All expenses incidental to holding meetings of shareholders, including
expenses of printing and supplying to each record-date shareholder
notice and proxy solicitation material, and all other proxy
solicitation expenses;

(g) All expenses of printing of annual or more frequent revisions of HGI
prospectus(es) and of supplying each existing shareholder with a copy
of a revised prospectus;

(h) All expenses related to preparing and transmitting certificates
representing Fund shares, if any;

(i) All expenses of bond and insurance coverage required by law or deemed
advisable by HGI's Board of Directors;

(j) All brokers' commissions and other normal charges incident to the
purchase, sale, or lending of Fund securities;

(k) All taxes and governmental fees payable to federal, state, or other
governmental agencies, domestic or foreign, including all stamp or
other transfer taxes;

4
<PAGE>

(l) All expenses of registering and maintaining the registration of HGI
under the 1940 Act and, to the extent no exemption is available,
expenses of registering HGI shares under the 1933 Act, of qualifying
and maintaining qualification of HGI and of HGI shares for sale under
the securities laws of various states or other jurisdictions and of
registration and qualification of HGI under all other laws applicable
to HGI or its business activities;

(m) All interest on indebtedness or commitment fees for letters of credit,
if any, incurred by HGI or a Fund; and

(n) All fees, dues, and other expenses incurred by HGI in connection with
membership of HGI in any trade association or other investment company
organization.

5. Allocation of Expenses Borne by HGI. Any expenses borne by HGI that are
attributable solely to the organization, operation, or business of a Fund
shall be paid solely out of Fund assets. Any expense borne by HGI which is
not solely attributable to a Fund, nor solely to any other series of shares
of HGI, shall be apportioned in such manner as Administrator determines is
fair and appropriate, or as otherwise specified by HGI's Board of
Directors.

6. Expenses Borne by Administrator.

(a) Administrator at its own expense shall furnish all executive and other
personnel, office space, and office facilities required to render the
services set forth in this Agreement. However, Administrator shall not
be required to pay or provide any credit for services provided by
HGI's custodian, transfer agent, or other agents without additional
cost to HGI.

(g) In the event that Administrator pays or assumes any expenses of HGI or
a Fund not required to be paid or assumed by Administrator under this
Agreement, Administrator shall not be obligated hereby to pay or
assume the same or similar expense in the future.

7. Administration Fee. For the services rendered, facilities provided, and
charges assumed and paid by Administrator hereunder, HGI shall pay to
Administrator out of the assets of each Fund fees at the annual rate for such
Fund as set forth in Schedule B to this Agreement. For each Fund, the
administrative fee shall accrue on each calendar day, and shall be payable
monthly on the first business day of the next succeeding calendar month. The
daily fee accrual shall be computed by multiplying the fraction of one divided
by the number of days in the calendar year by the applicable annual rate of fee,
and multiplying this product by the net assets of HGI, determined in the manner
established by the Board of Directors, as of the close of

5
<PAGE>

business on the last preceding business day on which the Fund's net asset value
was determined.

8. Reduction of Compensation and Reimbursement of Expenses. Administrator may
voluntarily reduce any portion of the compensation or reimbursement of
expenses due to it pursuant to this Agreement and may agree to make
payments to limit the expenses which are the responsibility of a Fund under
this Agreement. Any such reduction or payment shall be applicable only to
such specific reduction or payment and shall not constitute an agreement to
reduce any future compensation due to Administrator or make any future
payment to limit expenses of a Fund hereunder. Any such reduction or
payment will be agreed upon prior to accrual of the related expense or fee
and will be estimated daily. Any fee withheld shall be voluntarily reduced,
and any Fund expense paid by Administrator voluntarily or pursuant to an
agreed expense limitation shall be reimbursed by the appropriate Fund to
Administrator in the first, second or third (or any combination thereof)
fiscal year next succeeding the fiscal year of the withholding, reduction,
or payment to the extent permitted by applicable law. No such reimbursement
shall be permitted which would cause aggregate expenses for the year of
reimbursement to exceed any expense limitation then in effect; provided,
however, that reimbursements may be paid prior to the Fund's payment of
current expenses if so requested by Administrator even if such payment
should require Administrator to waive or reduce its fees hereunder or to
pay current Fund expenses for the year of reimbursement in order not to
cause any expense limitation then in effect to be exceeded. Administrator
may also agree not to require payment of any portion of its fees or
reimbursement of expenses hereunder.

9. Nonexclusivity. The services of Administrator to HGI hereunder are not to
be deemed exclusive, and Administrator shall be free to render similar
services to others.

10. Standard of Care. Neither Administrator, nor any of its directors,
officers, shareholders, agents or employees shall be liable to HGI, any
Fund, or shareholders of either for any action taken or thing done by it,
or its subcontractors or agents, on behalf of HGI or the Fund in carrying
out the terms and provisions of this Agreement if done in good faith and
without negligence or misconduct on the part of Administrator, its
subcontractors, or agents. Nothing in this Agreement shall be construed to
protect any officer of Administrator from liability for violation of
Section 17(h) or (i) of the 1940 Act.

11. Liability and Indemnification.

(a) HAI shall not be liable to HGI for any action taken or thing done by
it or its employees or agents on behalf of HGI in carrying out the
terms and provisions of this Agreement if done in good faith and
without negligence or misconduct on the part of HAI, or its employees
or agents.

6
<PAGE>

(b) HGI shall indemnify and hold Administrator and its controlling
persons, if any, harmless from any and all claims, actions, suits,
losses, costs, damages, and expenses, including reasonable expenses
for counsel, incurred by it in connection with its acceptance of this
Agreement, in connection with any action or omission by it or its
employees, agents, or subcontractors in the performance of its duties
hereunder to HGI, or as a result of acting upon any instruction
believed by it to have been executed by a duly authorized agent of HGI
or as a result of acting upon information provided by HGI in form and
under policies agreed to by Administrator and HGI; provided, however,
that (i) to the extent such claims, actions, suits, losses, costs,
damages, or expenses relate solely to one or more Funds, such
indemnification shall be only out of the assets of that Fund or group
of Funds; (ii) this indemnification shall not apply to actions or
omissions constituting negligence or misconduct on the part of
Administrator or its employees, agents, or subcontractors, including,
but not limited to, willful misfeasance, bad faith, or gross
negligence in the performance of their duties, or reckless disregard
of their obligations and duties under this Agreement; and (iii)
Administrator shall give HGI prompt notice and reasonable opportunity
to defend against any such claim or action in its own name or in the
name of Administrator. In any event, HGI shall not be responsible for
any claim settled or compromised, or for any confession of judgment,
without its prior written consent, which consent shall not be
unreasonably withheld.

(c) Administrator shall indemnify and hold harmless HGI from and against
any and all claims, demands, expenses, and liabilities which HGI may
sustain or incur arising out of, or incurred because of, the
negligence or misconduct of Administrator, or its agents or
contractors, or the breach by Administrator of its obligations under
this Agreement, provided, however, that (i) this indemnification shall
not apply to actions or omissions constituting negligence or
misconduct on the part of HGI, or its other agents or contractors, and
(ii) HGI shall give Administrator prompt notice and reasonable
opportunity to defend against any such claim or action in its own name
or in the name of HGI. In any event, Administrator shall not be
responsible for any claim settled or compromised, or for any
confession of judgment, without its prior written consent, which
consent shall not be unreasonably withheld.

12. Effective Date, Amendment, and Termination.

(a) This Agreement shall become effective as to any Fund as of the
effective date for that Fund specified in Schedule A hereto and,
unless terminated as hereinafter provided, shall remain in effect with
respect to such Fund thereafter from year to year so long as such
continuance is specifically approved with respect to that Fund at
least annually by a majority of the directors who are not interested
persons of HGI or Administrator.

7
<PAGE>

(b) As to HGI or any Fund, this Agreement may be modified or amended from
time to time by mutual agreement between Administrator and HGI, and
may be terminated by Administrator or HGI on at least sixty (60) days'
written notice given by the terminating party to the other party.
Upon termination as to any Fund, HGI shall pay to Administrator such
compensation as may be due under this Agreement as of the date of such
termination and shall reimburse Administrator for its costs, expenses,
and disbursements payable under this Agreement to such date. In the
event that, in connection with a termination, a successor to any of
the duties or responsibilities of Administrator hereunder is
designated by HGI by written notice to Administrator, upon such
termination Administrator shall promptly, and at the expense of HGI or
the Fund with respect to which this Agreement is terminated, transfer
to such successor all relevant books, records, and data established or
maintained by Administrator under this Agreement and shall cooperate
in the transfer of such duties and responsibilities, including
provision, at the expense of such Fund, for assistance from personnel
of Administrator in the establishment of books, records, and other
data by such successor.

13. Assignment. Any interest of Administrator under this Agreement shall not
be assigned either voluntarily or involuntarily, by operation of law or
otherwise, without the prior written consent of HGI.

14. Books and Records.

(a) Administrator shall maintain, or oversee the maintenance by such other
persons as may from time to time be approved by the Board of Directors
to maintain, the books, documents, records, and data required to be
kept by HGI under the 1940 Act, the laws of the State of Maryland, or
such other authorities having jurisdiction over HGI, or as may
otherwise be required for the proper operation of the business and
affairs of HGI.

(b) Administrator will periodically send to HGI all books, documents,
records, and data of HGI and each of its Funds listed in Schedule A
that are no longer needed for current purposes or required to be
retained as set forth herein. Administrator shall have no liability
for loss or destruction of such books, documents, records, or data
after they are returned to HGI.

(c) Except as the parties otherwise agree, Administrator agrees that all
such books, documents, records, and data which it maintains shall be
maintained in accordance with Rule 31a-3 of the 1940 Act and that any
such items maintained by it shall be the property of HGI.
Administrator further agrees to surrender promptly to HGI any such
items it maintains upon request; provided, however, that Administrator
shall be permitted to retain a copy of all such items. Administrator
agrees to preserve all such items maintained under Rule 31a-1 for the
period prescribed under Rule 31a-2 of the 1940 Act.

8
<PAGE>

(d) HGI shall furnish or otherwise make available to Administrator such
copies of the financial statements, proxy statements, reports, and
other information relating to the business and affairs of each Fund or
of HGI as Administrator may, at any time or from time to time,
reasonably require in order to discharge its obligations under this
agreement.

15. Use of Administrator's Name. HGI may use its name and the names of its
Funds listed in Schedule A or any other name derived from the name
"Heartland," or any servicemark or trademark owned by Administrator, only
for so long as this Agreement or any extension, renewal, or amendment
hereof remains in effect, including any similar agreement with any
organization which shall have succeeded to the business of Administrator as
it relates to the services it has agreed to furnish under this Agreement.
At such time as this Agreement or any extension, renewal, or amendment
hereof, or such other similar agreement shall no longer be in effect, HGI
will cease to use any name derived from the name "Heartland" or otherwise
connected with Administrator, or with any organization which shall have
succeeded to Administrator's business herein described, and any servicemark
or trademark owned by Administrator.

16. Headings. Headings are placed herein for convenience of reference only and
shall not be taken as part hereof or control or affect the meaning,
construction, or effect of this Agreement.

17. Governing Law. This Agreement shall be governed by the laws of the State
of Wisconsin.

9
<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the day and year first above written.

HEARTLAND GROUP, INC.

By: ________________________________
William J. Nasgovitz
President
Attest:

__________________________________
Lois J. Schmatzhagen
Secretary

HEARTLAND ADVISORS, INC.

By: ________________________________
William J. Nasgovitz
President
Attest:

__________________________________
Lois J. Schmatzhagen
Secretary

10
<PAGE>

ADMINISTRATIVE AGREEMENT

SCHEDULE A

The Funds of Heartland Group, Inc. currently subject to this Agreement are:

Effective Date
--------------

Heartland Taxable Municipal Fund ________

Dated: __________________

HEARTLAND GROUP, INC.

By: ________________________________
William J. Nasgovitz
President
Attest:

__________________________________
Lois J. Schmatzhagen
Secretary
HEARTLAND ADVISORS, INC.

By: ________________________________
William J. Nasgovitz
President
Attest:

__________________________________
Lois J. Schmatzhagen
Secretary

11
<PAGE>

ADMINISTRATIVE AGREEMENT

SCHEDULE B

Compensation pursuant to Section 7 of this Agreement shall be calculated in
accordance with the following schedule applicable to average daily net assets of
the Funds:

Schedule for Heartland Taxable Municipal Fund
---------------------------------------------
0.__% on first $500 million
0.__% on next $500 million
0.__% on next $500 million
0.__% thereafter

Dated: __________________
HEARTLAND GROUP, INC.

By: ________________________________
William J. Nasgovitz
President
Attest:

__________________________________
Lois J. Schmatzhagen
Secretary
HEARTLAND ADVISORS, INC.

By: ________________________________
William J. Nasgovitz
President
Attest:

__________________________________
Lois J. Schmatzhagen
Secretary

<PAGE>

Exhibit (h)(5)

ACCOUNTING AND BOOKKEEPING AGREEMENT

1. Appointment. HGI hereby appoints HAI to act as its agent to perform the
services described herein with respect to each series of shares of HGI (the
"Fund") identified in and beginning on the date specified in Schedule A to
this Agreement, as may be amended from time to time. HAI hereby accepts
such appointment and agrees to perform the services described herein.

2. Accounting.

(a) Pricing. For each Fund of HGI, HAI shall value all securities owned by
the Fund and other assets of the Fund, and compute the net asset value
per share of such Fund, at such time and date, and in the manner and
by such methodology as is specified in the then currently effective
prospectus and statement of additional information for such Fund, and
pursuant to such other written procedures or instructions as shall be
furnished to HAI by HGI. To the extent procedures or instructions used
to value securities or other assets of a Fund under this Agreement are
at any time inconsistent with any applicable law or regulation, HGI
shall provide HAI with written instructions for valuing such
securities or assets in a manner which HGI represents to be consistent
with applicable law and regulations.

(b) Net Income. HAI shall calculate, with such frequency as HGI shall
direct, the net income of each Fund of HGI for dividend purposes and
on a per share basis. Such calculation shall be made at such times and
dates and in such manner as HGI shall instruct HAI in writing. For
purposes of such calculation, HAI shall not be responsible for
determining whether any dividend or interest accruable to HGI is or
will be actually paid, but will accrue such dividend and interest
unless otherwise instructed by HGI.

(c) Capital Gains and Losses. HAI shall calculate gains or losses of each
Fund of HGI from the sale or other disposition of assets of that Fund
as HGI shall direct and shall calculate and arrange for payment of all
income, capital gain, and other distributions to shareholders of each
Fund.
<PAGE>

(d) Yields and Distribution Rates. At the request of HGI, HAI shall
compute yields, distribution rates, total returns, and such other
performance information, including returns on indexes used for
comparative purposes, as the parties shall mutually agree for each
Fund of HGI for such periods and using such formulas as shall be
determined by HGI.

(e) Communication of Information. HAI shall provide HGI, HGI's transfer
agent, and such other parties as directed by HGI with the net asset
value per share, the net income per share, and yields and distribution
rates for each Fund of HGI at such time, in such manner and format,
and with such frequency as the parties shall mutually agree.

(f) Information Furnished by HGI. HGI shall furnish HAI with any and all
instructions, explanations, information, specifications, and
documentation deemed necessary by HAI in the performance of its duties
hereunder, including, without limitation, the amounts or written
formula, or both, for calculating the amounts and times of accrual of
liabilities and expenses of each Fund of HGI. HGI shall also at any
time and from time to time furnish HAI with bid, offer and/or market
values of securities owned by HGI if the same are not available to HAI
from a pricing or similar service designated by HGI for use by HAI to
value securities or other assets. HAI shall at no time be required to
commence or maintain any utilization of, or subscriptions to, any such
service, which shall be the sole responsibility and expense of HGI.

3. Recordkeeping.

(a) HAI shall, as agent for HGI, maintain and keep current and preserve
the general ledger and other accounts, books, and financial records of
HGI relating to activities and obligations under this Agreement
pursuant to provisions of rules or regulations of the Securities and
Exchange Commission under Section 31(a) of the 1940 Act (the "Rules").

(b) All records maintained and preserved by HAI pursuant to this Agreement
which HGI is required to maintain and preserve in accordance with the
Rules shall be and remain the property of HGI and shall be surrendered
to HGI promptly upon request in the form in which such records have
been maintained and preserved; provided, however, that HAI shall be
permitted to retain a copy of all such items.

(c) HAI shall make available on its premises during regular business hours
all records of HGI for reasonable audit, use, and inspection by HGI,
its agents, and any regulatory agency having authority over HGI.

2
<PAGE>

4. Instructions, Opinion of Counsel, and Signatures.

(a) At any time, HAI may request instructions regarding HGI from any duly
authorized agent of HGI, and may consult counsel for HGI or its own
counsel, in respect of any matter arising in connection with this
Agreement, and it shall not be liable for any action taken or omitted
by it in good faith in accordance with such instructions or with the
advice or opinion of such counsel. HAI shall be protected in acting
upon any such instructions, advice, or opinion, and upon any other
paper or document delivered by HGI or such counsel believed by HAI to
be genuine and to have been signed by the proper person or persons,
and HAI shall not be held to have notice of any change of authority of
any officer or agent of HGI, until receipt of written notice thereof
from HGI.

(b) HAI may receive and accept a certified copy of a vote of the Board of
Directors of HGI as conclusive evidence of (i) the authority of any
person to act in accordance with such vote or (ii) any determination
or any action by the Board of Directors pursuant to HGI's Articles of
Incorporation as described in such vote, and such vote may be
considered as in full force and effect until receipt by HAI of written
notice to the contrary.

5. Compensation. HGI shall reimburse HAI from the assets of the respective
applicable Fund of HGI for any and all out-of-pocket expenses and charges
in performing services under this Agreement and such compensation as is
provided in Schedule B to this Agreement, as amended from time to time. HAI
shall invoice HGI as soon as practicable after the end of each calendar
month, with allocation among the respective Funds and full detail, and HGI
shall promptly pay HAI the invoiced amount.

6. Ownership and Confidentiality of Records.

(a) Except as otherwise permitted by HGI, HAI agrees not to disclose any
information received from HGI to any other client of HAI or to any
other person, except its employees and agents, and shall use its best
efforts to maintain such information as confidential. Upon termination
of this Agreement, HAI shall return to HGI all records in the
possession and control of HAI related to HGI's activities, other than
HAI's own business records, it being also understood and agreed that
any programs and systems used by HAI to provide the services rendered
hereunder will not be given to HGI.

(b) Upon request, HAI shall be permitted to retain copies of all records
it requires to document the calculation of yield, total return, or the
performance of any Fund for any period during which HAI served as
investment adviser to the Fund. HAI shall be further permitted to
present such performance information to any other client of HAI or
other person in connection with its investment advisory or brokerage
businesses.

3
<PAGE>

7. Liability and Indemnification

(b) HGI shall indemnify and hold HAI and its controlling persons, if any,
harmless from any and all claims, actions, suits, losses, costs,
damages, and expenses, including reasonable expenses for counsel,
incurred by it in connection with its acceptance of this Agreement, in
connection with any action or omission by it or its employees or
agents in the performance of its duties hereunder to HGI, or as a
result of acting upon any instruction believed by it to have been
executed by a duly authorized agent of HGI or as a result of acting
upon information provided by HGI in form and under policies agreed to
by HAI and HGI; provided, however, that (i) to the extent such claims,
actions, suits, losses, costs, damages, or expenses relate solely to
one or more Funds, such indemnification shall be only out of the
assets of that Fund or group of Funds; (ii) this indemnification shall
not apply to actions or omissions constituting negligence or
misconduct on the part of HAI or its employees or agents, including,
but not limited to, willful misfeasance, bad faith, or gross
negligence in the performance of their duties, or reckless disregard
of their obligation and duties under this Agreement; and (iii) HAI
shall give HGI prompt notice and reasonable opportunity to defend
against any such claim or action in its own name or in the name of
HAI. In any event, HGI shall not be responsible for any claim settled
or compromised, or for any confession of judgment, without its prior
written consent, which consent shall not be unreasonably withheld.

(c) HAI shall indemnify and hold harmless HGI from and against any and all
claims, demands, expenses, and liabilities which HGI may sustain or
incur arising out of, or incurred because of, the negligence or
misconduct of HAI, or its agents or contractors, or the breach by HAI
of its obligations under this Agreement, provided, however, that (i)
this indemnification shall not apply to actions or omissions
constituting negligence or misconduct on the part of HGI, or its other
agents or contractors, and (ii) HGI shall give HAI prompt notice and
reasonable opportunity to defend against any such claim or action in
its own name or in the name of HGI. In any event, HAI shall not be
responsible for any claim settled or compromised, or for any
confession of judgment, without its prior written consent, which
consent shall not be unreasonably withheld.

8. Further Assurances. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.

9. Dual Interests. It is understood and agreed that some person or persons may
be directors, officers, or shareholders of both HGI and HAI, and that the
existence of

4
<PAGE>

any such dual interest shall not affect the validity hereof or of any
transaction hereunder except as otherwise provided by specific provision of
applicable law.

10. Amendment and Termination. This Agreement may be modified or amended from
time to time, or terminated, by mutual agreement between the parties hereto
and may be terminated by at least one hundred eighty (180) days' written
notice given by one party to the other. Upon termination hereof, HGI shall
pay to HAI such compensation as may be due from it as of the date of such
termination, and shall reimburse HAI for its costs, expenses, and
disbursements payable under this Agreement to such date. In the event that,
in connection with termination, a successor to any of the duties or
responsibilities of HAI hereunder is designated by HGI by written notice to
HAI, HAI shall promptly upon such termination and at the expense of HGI,
deliver to such successor all relevant books, records, and data established
or maintained by HAI under this Agreement and shall cooperate in the
transfer of such duties and responsibilities, including provision, at the
expense of HGI, for assistance from personnel of HAI in the establishment
of books, records, and other data by such successor.

11. Assignment. Any interest of HAI under this Agreement shall not be assigned
or transferred either voluntarily or involuntarily, by operation of law or
otherwise, without prior written notice to HGI.

12. Notice. Any notice under this Agreement shall be in writing, addressed and
delivered or sent by registered mail, postage prepaid to the other party at
such address as such other party may designate for the receipt of such
notices. Until further notice, it is agreed that the address of both HGI
and HAI is 790 North Milwaukee Street, Milwaukee, Wisconsin 53202,
Attention: General Counsel.

13. Allocation of Liability. In connection with the discharge and claim of any
claim made by HAI against HGI involving more than one Fund, HGI shall have
the exclusive right to determine the appropriate allocation of liability
for any such claim between or among the Funds.

14. Headings. Headings are placed herein for convenience of reference only and
shall not be taken as part hereof or control or affect the meaning,
construction, or effect of this Agreement.

15. Governing Law. This Agreement shall be governed by the laws of the State of
Wisconsin.

5
<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the day and year first above written.

HEARTLAND GROUP, INC.

By:
-------------------------------
William J. Nasgovitz
President

Attest:

- -------------------------------
Lois J. Schmatzhagen
Secretary

HEARTLAND ADVISORS, INC.

By:
-------------------------------
William J. Nasgovitz
President

Attest:

- -------------------------------
Lois J. Schmatzhagen
Secretary

6
<PAGE>

ACCOUNTING AND BOOKKEEPING AGREEMENT

SCHEDULE A

The Funds of Heartland Group, Inc. currently subject to this Agreement are as
follows:

<TABLE>
<CAPTION>
Fund Effective Date
---- --------------
<S> <C>
Heartland Taxable Municipal Fund
----------------------
</TABLE>

Dated:
----------------

HEARTLAND GROUP, INC.

By:
-------------------------------
William J. Nasgovitz
President

Attest:

- -------------------------------
Lois J. Schmatzhagen
Secretary

HEARTLAND ADVISORS, INC.

By:
-------------------------------
William J. Nasgovitz
President

Attest:

- -------------------------------
Lois J. Schmatzhagen
Secretary

7
<PAGE>

ACCOUNTING AND BOOKKEEPING AGREEMENT

SCHEDULE B

Each of the Funds of Heartland Group, Inc. currently subject to this Agreement
is listed in Schedule I to this Agreement and shall pay to HAI an annual fee of
$______ plus .____% of average daily net assets in excess of $__ million.

Dated:
----------------

HEARTLAND GROUP, INC.

By:
-------------------------------
William J. Nasgovitz
President

Attest:

- -------------------------------
Lois J. Schmatzhagen
Secretary

HEARTLAND ADVISORS, INC.

By:
-------------------------------
William J. Nasgovitz
President

Attest:

- -------------------------------
Lois J. Schmatzhagen
Secretary