<PAGE>
As filed with the Securities and Exchange Commission on October 13, 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. 35 [X]
-------
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 37 [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)
[X] on November 9, 1998, pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
===============
<PAGE>
HEARTLAND GROUP, INC.
FORM N-1A
CROSS-REFERENCE SHEET
TO POST-EFFECTIVE AMENDMENT NO. 35
_________________________________________
HEARTLAND LARGE CAP VALUE FUND
HEARTLAND MID CAP VALUE FUND
HEARTLAND VALUE PLUS FUND
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
HEARTLAND VALUE FUND
<TABLE>
<CAPTION>
Form N-1A
Item No. Prospectus Heading
-------- ------------------
<S> <C> <C>
PART A
1. Cover Page............................... Cover Page
2. Synopsis................................. Fund Expenses
3. Condensed Financial
Information.............................. Financial Highlights
4. General Description of
Registrant............................... Description of Fund Shares;
Investment Objectives and
Policies; Appendix A - Asset
Composition
5. Management of the Fund................... The Funds and the Heartland
Organization; How to Buy
Shares; Net Asset Value
Calculation; Portfolio
Transactions
5A. Management's Discussion
of Fund Performance...................... Not applicable. See Annual
Report
6. Capital Stock and Other
Securities............................... Description of Fund Shares;
Dividends, Capital Gains
Distributions and Taxes;
Shareholder Services
7. Purchase of Securities Being
Offered.................................. How to Buy Shares; Net Asset
Value How to Redeem Shares
Calculation;
8. Redemption or Repurchase................. How to Redeem Shares
9. Pending Legal Proceedings................ None
</TABLE>
<PAGE>
<TABLE>
PART B
<S> <C> <C>
10. Cover Page............................... Cover Page
11. Table of Contents........................ Cover Page
12. General Information and
History.................................. Introduction to the Funds
13. Investment Objectives and
Policies................................. Investment Policies and
Methods; Investment
Restrictions; Appendix A -
Securities Ratings
14. Management of the Fund................... Management
15. Control Persons and Principal
Holders of Securities.................... Control Persons and
Principal Holders of
Securities
16. Investment Advisory and
Other Services........................... The Investment Advisor
17. Brokerage Allocation..................... Portfolio Transactions
18. Capital Stock and Other
Securities............................... Description of Shares
19. Purchase, Redemption and
Pricing of Securities
Being Offered............................ Determination of Net Asset
Value Per Share
20. Tax Status............................... Tax Status
21. Underwriters............................. Distribution of Shares
22. Calculation of Performance
Data..................................... Performance Information
23. Financial Statements..................... Financial Statements
</TABLE>
<PAGE>
HEARTLAND LARGE CAP VALUE FUND
HEARTLAND MID CAP VALUE FUND
HEARTLAND VALUE PLUS FUND
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
HEARTLAND VALUE FUND
Prospectus
November 9, 1998
Heartland Large Cap Value Fund, Heartland Mid Cap Value Fund, Heartland Value
Plus Fund, Heartland U.S. Government Securities Fund, and the Heartland Value
Fund (collectively, the "Funds") are separate mutual fund portfolios of
Heartland Group, Inc. ("Heartland"). This Prospectus contains information you
should know about the Funds before you invest. Please keep it for reference. A
Statement of Additional Information for the Funds (dated November 9, 1998) has
been filed with the Securities and Exchange Commission and is incorporated by
reference into this Prospectus. It is available at no charge by calling the
Funds' investment advisor and distributor, Heartland Advisors, Inc. ("Heartland
Advisors"), at 1-800-432-7856 or (414) 289-7000.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
INVESTMENT SUMMARY
HEARTLAND LARGE CAP VALUE FUND's investment objective is long-term capital
appreciation. The Fund seeks to achieve its objective through value investing in
large cap stocks, those of companies with market capitalizations over $1
billion.
HEARTLAND MID CAP VALUE FUND's investment objective is long-term capital
appreciation. The Fund seeks to achieve its objective through value investing in
mid-cap stocks, those of companies with market capitalizations between $750
million and $5 billion.
HEARTLAND VALUE PLUS FUND's investment objectives are capital appreciation and
current income. The Fund seeks to achieve its objectives primarily through
investment in income-producing equity securities of smaller companies selected
on a value basis, and the Fund may also invest in debt securities.
HEARTLAND U.S. GOVERNMENT SECURITIES FUND's investment objectives are a high
level of current income, liquidity and safety of principal.
HEARTLAND VALUE FUND's investment objective is long-term capital appreciation.
The Fund seeks to achieve its objective through investment in small company
stocks selected on a value basis.
2
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Fund Expenses 4
Financial Highlights 5
Investment Objectives and Policies 10
How to Buy Shares 22
How to Redeem Shares 25
Shareholder Services 27
Dividends, Capital Gains Distributions and Taxes 29
The Funds and the Heartland Organization 30
The Distribution Plan 33
Net Asset Value Calculation 33
Description of Fund Shares 34
Portfolio Transactions 34
Performance Information 34
Asset Composition 35
</TABLE>
3
<PAGE>
FUND EXPENSES
The expense summary format below was developed for use by all mutual funds to
help you make your investment decisions. Of course, you should consider this
expense information along with other important information, including each
Fund's investment objective and performance.
<TABLE>
<CAPTION>
LARGE CAP MID CAP VALUE U.S. GOVT. VALUE
VALUE VALUE PLUS SECURITIES
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales load on purchases None None None None None
Sales load on reinvested dividends None None None None None
Exchange fees None None None None None
Redemption fees /(1)/ None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management fees (after waivers) .00%/(2)/ .75% .70% .25%/(3)/ .75%
Rule 12b-1 fees (after waivers) .00%/(2)/ .25% .25% .25% .25%
Other expenses (after .00%/(2)/ .25%/(4)/ .17% .30% .12%
reimbursement)
TOTAL FUND OPERATING EXPENSES .00%/(2)/ 1.25%/(4)/ 1.12% .80%/(3)/ 1.12%
</TABLE>
(1) The Agent charges a wire fee for the return of redemption proceeds
requested by wire transfer. The fee is currently $12.00. See "HOW TO REDEEM
SHARES."
(2) The Annual Fund Operating Expenses shown in the table for the Large Cap
Value Fund give effect to Heartland Advisors' voluntary undertaking to waive the
entire management and Rule 12b-1 fees and to reimburse all other expenses.
Without such waivers and reimbursement, the Management Fee, Rule 12b-1 fees and
Other Expenses for 1997 would have been .75%, .25% and 1.00%, respectively, for
a total of 2.00%. Heartland Advisors expects to continue the waivers and
reimbursement for the current fiscal year; however, it may reinstate all or a
portion of such fees or discontinue reimbursement at any time.
(3) The expense information for the U.S. Government Securities Fund has been
restated to give effect to the voluntary waiver by Heartland Advisors of a
portion of its Management fee equal to 0.40 of 1% of average net assets. Without
any waivers, the Management fees and Total Fund Operating Expenses for 1997
would have been .65% and 1.20% of average net assets, respectively. Heartland
Advisors expects to continue the waiver for the current fiscal year; however, it
may reinstate all or a portion of the fee at any time.
4
<PAGE>
(4) The expense information for the Mid Cap Value Fund has been restated to
give effect to Heartland Advisors' voluntary undertaking to reimburse the Fund
to the extent that annual Total Fund Operating Expenses would exceed 1.25%.
Without this reimbursement, Other Expenses and Total Fund Operating Expenses for
1997 would have been .32% and 1.32% of average assets, respectively. Heartland
Advisors expects to continue the reimbursement for the current fiscal year;
however, it may discontinue such reimbursement at any time.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming: (1) 5%
annual return; (2) redemption at the end of each time period; and (3) the
voluntary fee waivers and expense reimbursements discussed above:
<TABLE>
<CAPTION>
LARGE MID CAP VALUE U.S. GOVT. VALUE
CAP VALUE PLUS SECURITIES
VALUE
<S> <C> <C> <C> <C> <C>
One year $0 $ 13 $ 11 $ 8 $ 11
Three years $0 $ 40 $ 36 $26 $ 36
Five years $0 $ 69 $ 62 $44 $ 62
Ten years $0 $151 $136 $99 $136
</TABLE>
The purpose of this expense information is to assist in understanding the
various costs and expenses an investor will bear directly or indirectly in each
of the Funds. More detailed information concerning these expenses is set forth
in the sections of this Prospectus entitled "How To Buy Shares," "The
Distribution Plan" and "The Funds and the Heartland Organization." THE ABOVE
EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The following Financial Highlights table has been examined by
PricewaterhouseCoopers LLP, independent public accountants, with respect to the
fiscal year ended December 31, 1997, whose reports on the financial statements
of the Large Cap Value, Mid Cap Value, Value Plus, U.S. Government Securities,
and Value Funds for the fiscal year ended December 31, 1997 are included in the
Funds' Annual Report to Shareholders for such period, and incorporated by
reference into the Statement of Additional Information. The Financial Highlights
table has been examined by Arthur Andersen LLP, independent public accountants,
with respect to the fiscal years ended December 31, 1988, December 31, 1989,
December 31, 1990, December 31, 1991, December 31, 1992, December 31, 1993,
December 31, 1994, December 31, 1995 and December 31, 1996. The information
presented in the table for the six month period ended June 30, 1998 is
unaudited. The table should be read in conjunction with the audited financial
statements and related notes appearing in the Funds' Annual Report to
Shareholders as of December 31, 1997, and for the fiscal year or period then
ended and with the unaudited financial statements and related notes included in
the Funds' Semi-Annual Report to Shareholders as of June 30, 1998, and for the
six months then ended, which are incorporated by reference into the Statement of
Additional Information. Additional information about the Funds' performance is
contained in the Annual and Semi-Annual Reports, which may be obtained without
charge by writing or calling Heartland Advisors.
5
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LARGE CAP VALUE FUND
------------------------------------------------------------
FOR THE SIX MONTHS OCT. 11, 1996/(1)/
ENDED JUNE 30, 1998 YEAR ENDED THROUGH
(UNAUDITED) DEC. 31, 1997 DEC. 31, 1996
------------------- ------------- ------------------
<S> <C> <C> <C>
PER SHARE DATA............................. $12.30 $ 10.50 10.00
Net asset value, beginning of period
Income from investment operations:
Net investment income..................... 0.17 0.11 -
Net realized and unrealized gains
on investments........................... 0.54 2.28 0.50
------ ------- -------
Total income from investment
operations.............................. 0.71 2.39 0.50
Less distributions from:
Net investment income..................... - (0.11) -
Net realized gains on investments......... - (0.48) -
------ ------- -------
Total distributions...................... - (0.59) -
------ ------- -------
Net asset value, end of period............. $ 13.01 $ 12.30 10.50
======= ======= =======
TOTAL RETURN............................... 5.8%/(2)/ 22.9% 5.0%/(2)/
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in thousands)........................... $ 9,317 $ 7,665 2,441
Ratio of net expenses to average
net assets............................... 0.0096%/(4)/ 1.36%/(4)/ 2.73%/(3)/
Ratio of net investment income (loss)
to average net assets.................... 2.68 %/(3)//(4)/ 1.14%/(4)/ (0.25)%/(3)/
Portfolio turnover rate................... 17 % 30% 1 %
<CAPTION>
MID CAP VALUE FUND
------------------------------------------------------------
FOR THE SIX MONTHS OCT. 11 1996/(1)/
ENDED JUNE 30, 1998 YEAR ENDED THROUGH
(UNAUDITED) DEC. 31, 1997 DEC. 31, 1996
------------------- ------------- ------------------
<S> <C> <C> <C>
PER SHARE DATA............................. $12.78 $ 10.66 $ 10.00
Net asset value, beginning of period
Income from investment operations:
Net investment income..................... 0.02 0.05 -
Net realized and unrealized gains
on investments........................... 1.13 2.38 0.66
------ ------- --------
Total income from investment
operations.............................. 1.15 2.43 0.66
Less distributions from:
Net investment income..................... - (0.05) -
Net realized gains on investments......... - (0.26) -
------ ------- --------
Total distributions...................... - (0.31) -
------ ------- --------
Net asset value, end of period............. $ 13.93 $ 12.78 $ 10.66
======= ======= ========
TOTAL RETURN............................... 9.0%/(2)/ 22.8% 6.6%/(2)/
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in thousands)........................... $48,449 $36,558 $ 6,934
Ratio of net expenses to average
net assets............................... 1.18 %/(4)/ 1.29%/(4)/ 1.94%/(1)/
Ratio of net investment income (loss)
to average net assets.................... 0.30 %/(3)//(4)/ 0.54%/(4)/ (0.16)%/(3)/
Portfolio turnover rate................... 17 % 48% 4 %
</TABLE>
(1) Commencement of operations.
(2) Not annualized.
(3) Annualized.
(4) If there had been no expense reimbursement or management fee waiver by the
Advisor, the ratio of net expenses to average net assets for the period
ended June 30, 1998 and for the year ended December 31, 1997 would have been
1.62% and 2.00%, respectively, and the ratio of net investment income to
average net assets would have been 1.06% and 0.50%, respectively.
(5) If there had been no expense reimbursement or management fee waiver by the
Advisor, the ratio of net expenses to average net assets for the year ended
December 31, 1997 would have been 1.32% and the ratio of net investment
income to average net assets would have been 0.51%.
The accompanying Notes to Financial Statements are an integral part of these
Statements.
6
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Value Plus Fund
--------------------------------------------------------------------------------
For the six months Oct. 26, 1993(1)
ended June 30, 1998 For the year ended December 31, through
(Unaudited) 1997 1996 1995 1994 Dec. 31, 1993
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period......... $ 16.13 $ 13.73 $ 11.17 $ 9.53 $ 10.45 $ 10.00
Income (loss) from investment operations:
Net investment income..................... 0.33 0.48 0.38 0.41 0.41 0.07
Net realized and unrealized gains (losses)
on investments.......................... (0.43) 3.66 3.33 1.89 (0.92) 0.45
------- ------- ------- ------- ------- -------
Total income (loss) from investment
operations............................ (0.10) 4.14 3.71 2.30 (0.51) 0.52
Less distributions from:
Net investment income..................... (0.33) (0.48) (0.38) (0.41) (0.41) (0.07)
Net realized gains on investments......... (0.03) (1.26) (0.77) (0.25) -- --
------- ------- ------- ------- ------- -------
Total distributions...................... (0.36) (1.74) (1.15) (0.66) (0.41) (0.07)
------- -------- -------- -------- ------- -------
Net asset value,end of period................. $ 15.67 $ 16.13 $ 13.73 $ 11.17 $ 9.53 $ 10.45
======= ======== ======== ======== ======= =======
TOTAL RETURN.................................. (0.7)%(2) 30.6% 33.8% 24.4% (4.9)% 5.2%(2)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period(in thousands).... $ 293,443 $ 336,281 $ 66,582 $ 19,123 $ 9,884 $ 5,811
Ratio of operating expenses to average
net assets............................... 1.09%(3) 1.12% 1.45% 1.54% 1.80% 1.30%(3)
Ratio of interest expense to average
net assets............................... 0.02%(3) -- -- -- -- --
Ratio of net investment income to average
net assets............................... 3.75%(3) 3.32% 3.23% 3.90% 4.39% 6.52%(3)
Portfolio turnover rate.................... 38% 74% 73% 150% 127% 6%
</TABLE>
(1) Commencement of operations.
(2) Not annualized.
(3) Annualized.
(4) The contingent deferred sales charge in effect for the Fund prior to June 1,
1994 is not reflected in Total Return as set forth in the table.
The accompanying Notes to Financial Statements are an integral part of these
Statements.
7
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
U.S. Government Securities Fund
----------------------------------------------------------------------------------
For the six
months ended
June 30, 1998 For the year ended December 31,
(Unaudited) 1997 1996 1995 1994
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period.......... $ 9.85 $ 9.54 $ 9.96 $ 8.91 $ 10.50
Income (loss) from investment operations:
Net investment income....................... 0.29 0.58 0.59 0.60 0.59
Net realized and unrealized gains (losses)
on investments............................. 0.10 0.31 (0.42) 1.05 (1.59)
------- ------- ------- ------- -------
Total income (loss) from investment
operations................................. 0.39 0.89 0.17 1.65 (1.00)
Less distributions from:
Net investment income....................... (0.29) (0.58) (0.59) (0.60) (0.59)
Net realized gains on investments........... -- -- -- -- --
------- ------- ------- ------- -------
Total distributions........................ (0.29) (0.58) (0.59) (0.60) (0.59)
------- ------- ------- ------- -------
Net asset value, end of period............... $ 9.95 $ 9.85 $ 9.54 $ 9.96 $ 8.91
======= ======= ======= ======= =======
TOTAL RETURN/(1)/............................ 4.0%/(2)/ 9.7% 2.0% 19.0% (9.6)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).... $53,018 $48,562 $51,713 $66,261 $64,807
Ratio of net expenses to average
net assets/(4)/............................ 0.76%/(3)/ 0.87% 1.06% 1.07% 1.07%
Ratio of net investment income to
average net assets/(4)/.................... 5.83%/(3)/ 6.12% 6.36% 6.31% 6.30%
Portfolio turnover rate..................... 38% 143% 30% 97% 95%
<CAPTION>
-------------------------------------------------------------
1993 1992 1991 1990 1989 1988
-------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period.......... $ 9.93 $ 9.97 $ 9.39 $ 9.25 $ 9.04 $ 9.22
Income (loss) from investment operations:
Net investment income....................... 0.56 0.66 0.69 0.73 0.77 0.76
Net realized and unrealized gains (losses)
on investments............................. 1.18 0.30 0.83 0.14 0.21 (0.18)
------- ------- ------- ------- ------- -------
Total income (loss) from investment
operations................................. 1.74 0.96 1.52 0.87 0.98 0.58
Less distributions from:
Net investment income....................... (0.56) (0.66) (0.69) (0.73) (0.77) (0.76)
Net realized gains on investments........... (0.61) (0.34) (0.25) -- -- --
------- ------- ------- ------- ------- -------
Total distributions........................ (1.17) (1.00) (0.94) (0.73) (0.77) (0.76)
------- ------- ------- ------- ------- -------
Net asset value, end of period............... $ 10.50 $ 9.93 $ 9.97 $ 9.39 $ 9.25 $ 9.04
======= ======= ======= ======= ======= =======
TOTAL RETURN/(1)/............................ 17.8% 10.1% 17.0% 10.0% 11.3% 6.4%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).... $ 66,789 $ 28,378 $ 29,101 $ 16,424 $ 11,595 $ 12,414
Ratio of net expenses to average
net assets/(4)/............................ 1.06% 0.92% 0.92% 0.86% 0.89% 0.95%
Ratio of net investment income to
average net assets/(4)/.................... 5.09% 6.71% 7.06% 7.98% 8.45% 8.25%
Portfolio turnover rate..................... 200% 149% 185% 127% 142% 136%
</TABLE>
(1) The contingent deferred and initial sales charges in effect for the Fund
prior to June 1, 1994 are not reflected in Total Return as set forth in the
table.
(2) Not annualized.
(3) Annualized.
(4) If there had been no expense reimbursement or management fee waiver by the
Advisor, the ratios of net expenses to average net assets for the period
ended June 30, 1998 and the years ended December 31, 1997, 1996, 1995, 1994,
1993, 1992, 1991, 1990, 1989, and 1988 would have been 1.16%, 1.20%, 1.21%,
1.22%, 1.22%, 1.21%, 1.22%, 1.32%, 1.48%, 1.54%, and 1.55%, respectively,
and the ratios of net investment income to average net assets would have
been 5.43%, 5.79%, 6.21%, 6.16%, 6.15%, 4.94%, 6.41%, 6.66%, 7.36%, 7.80%,
and 7.65%, respectively.
The accompanying Notes to Financial Statements are an integral part of these
Statements.
8
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Value Fund
--------------------------------------------------------------------------
For the six
months ended For the year ended December 31,
June 30, 1998
(Unaudited) 1997 1996 1995 1994 1993
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period......... $ 33.87 $ 31.65 $ 27.95 $ 22.72 $ 23.22 $ 20.41
Income (loss) from investment operations:
Net investment income (loss)............... 0.04 0.17 0.06 0.13 (0.09) (0.12)
Net realized and unrealized gain (losses)
on investments .......................... 1.28 7.09 5.78 6.63 0.47 3.95
-------- -------- ------- ------- -------- --------
Total income (loss) from investment
operations............................... 1.32 7.26 5.84 6.76 0.38 3.83
Less distribution from:
Net investment income...................... -- (0.17) (0.06) (0.13) -- --
Net realized gains on investment........... -- (4.87) (2.08) (1.40) (0.88) (1.02)
-------- -------- ------- ------- -------- --------
Total distributions...................... -- (5.04) (2.14) (1.53) (0.88) (1.02)
-------- -------- ------- ------- -------- --------
Net assets value,end of period........... $ 35.19 $ 33.87 $ 31.65 $ 27.95 $ 22.72 $ 23.22
======== ======== ======= ======= ======== ========
TOTAL RETURNS(1) 3.9%(2) 23.2% 21.0% 29.8% 1.7% 18.8%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period(in thousands).... $2,147,599 $2,126,715 $1,626,760 $1,190,926 $339,364 $186,518
Ratio of net expenses to average
net assets............................... 1.11%(3) 1.12% 1.23% 1.29% 1.39% 1.51%
Ratio of net investment income (loss) to
average net assets....................... 0.23%(3) 0.49% 0.22% 0.61% (0.52)% (0.71)%
Portfolio turnover rate.................... 14% 55% 31% 31% 35% 51%
<CAPTION>
-------------------------------------------------------------
1992 1991 1990 1989 1988
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period......... $ 16.06 $ 11.32 $ 13.82 $ 14.35 $ 11.74
Income (loss) from investment operations:
Net investment income (loss)............... (0.09) (0.08) 0.02 0.13 0.13
Net realized and unrealized gain (losses)
on investments .......................... 6.91 5.66 (2.38) 0.81 3.04
------- ------- ------- ------- -------
Total income (loss) from investment
operations............................... 6.82 5.58 (2.36) 0.94 3.17
Less distribution from:
Net investment income...................... -- -- (0.02) (0.13) (0.13)
Net realized gains on investment........... (2.47) (0.84) (0.12) (1.34) (0.43)
------- ------- ------- ------- -------
Total distributions...................... (2.47) (0.84) (0.14) (1.47) (0.56)
------- ------- ------- ------- -------
Net assets value,end of period........... $ 20.41 $ 16.06 $ 11.32 $ 13.82 $ 14.35
======= ======= ======= ======= =======
TOTAL RETURNS(1) 42.5% 49.4% (17.1)% 6.6% 27.1%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period(in thousands).... $ 48,391 $ 29,880 $ 19,943 $ 30,798 $ 28,499
Ratio of net expenses to average
net assets............................... 1.48% 1.69% 1.74% 1.65% 1.71%
Ratio of net investment income (loss) to
average net assets....................... (0.49)% (0.54)% 0.14% 0.86% 0.85%
Portfolio turnover rate.................... 76% 79% 76% 88% 50%
</TABLE>
(1) The contingent deferred and initial sales charges in effect for the Fund
prior to June 1, 1994 are not reflected in Total Return as set forth in the
table.
(2) Not annualized.
(3) Annualized.
The accompanying Notes to Financial Statements are an integral part of these
Statements.
9
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
The investment objectives of each of the Funds are fundamental and may not be
changed without shareholder approval. The investment policies of the Funds,
unless otherwise specified, are not fundamental policies, and therefore may be
changed by the affirmative vote of a majority of the directors of Heartland. In
view of the risks inherent in all investments in securities, there is no
assurance that the investment objectives of the Funds will be achieved.
The LARGE CAP VALUE FUND seeks long-term capital appreciation through value
investing in large companies.
The MID CAP VALUE FUND seeks long-term capital appreciation through value
investing in mid-size companies.
The VALUE PLUS FUND's investment objectives are capital appreciation and current
income. In pursuit of its objectives, the Fund seeks a yield that exceeds the
yield of securities comprising the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500").
The U.S. GOVERNMENT SECURITIES FUND's investment objectives are a high level of
current income, liquidity and safety of principal.
The VALUE FUND seeks long-term capital appreciation through value investing in
small companies.
HEARTLAND'S VALUE CRITERIA FOR INVESTING IN STOCKS
In selecting equity securities for the Value, Mid Cap Value, Large Cap Value and
Value Plus Funds, Heartland Advisors considers whether the security is
undervalued relative to a set of factors, including:
. price/earnings ratio . management capabilities
. market price to book value . undervalued assets
. price/cash flow ratio . potential for favorable developments
. earnings growth . insider and institutional ownership
. long-term debt/capital . technical analysis
WHAT IS MEANT BY MARKET CAP?
"Market Cap" (market capitalization) is a measure of the value of a company's
equity as determined by multiplying the company's current stock price by the
number of shares it has outstanding. While every equity investment involves
some degree of risk, in general, companies with larger market capitalizations
tend to be more established and their securities may have greater liquidity and
may be subject to lower volatility than those of smaller companies.
Investments in equity securities of companies with smaller market
capitalizations may involve a higher degree of risk than investments in the
general equity markets. However, Heartland Advisors believes that the relative
lack of attention from investment analysts and institutional investors to small
and mid-cap companies may result in opportunities to purchase the securities of
those companies at attractive valuations. In general, the prices of small and
mid-cap companies may be more volatile than those of larger companies, the
securities of smaller companies may
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have less market liquidity, and smaller companies may be more likely to be
adversely affected by poor economic or market conditions.
It is anticipated that certain of the portfolio securities held by the Value
Fund, Value Plus Fund, and, to a more limited extent, the Mid Cap Value Fund may
not be widely traded and that a Fund's position in such securities may be
substantial in relation to the market for such securities. Accordingly, it may
be difficult at times for the Fund to dispose of such securities at prevailing
market prices in order to meet redemptions or other cash needs.
LARGE CAP VALUE FUND
The Large Cap Value Fund seeks to achieve long-term capital appreciation by
investing in attractively priced companies with market capitalizations over $1
billion. Under normal market conditions, the Fund will invest at least 65% of
its total assets in equity securities of companies with market capitalizations
in excess of $1 billion selected on a value basis. Heartland Advisors' value
parameters for investing in stocks are discussed under "Heartland's Value
Criteria for Investing in Stocks." While the Fund will also invest in
securities that do not produce income, Heartland Advisors generally will look
for securities with relatively higher dividend yields when selecting securities
it considers undervalued for the Large Cap Value Fund.
Equity securities in which the Fund may invest include common stock, preferred
stock, convertible debt, warrants or other securities exchangeable for shares of
common stock, and other equity securities, including real estate investment
trusts. The Large Cap Value Fund may also invest up to 35% of its total assets
in debt securities, including up to 15% of its total assets which may be
invested in non-investment grade debt securities, provided the Fund may not
invest in securities rated below B, or judged by Heartland Advisors to be of
comparable quality, at the time of purchase. For information regarding non-
investment grade securities, see "Investment Quality."
As a matter of fundamental policy, the Large Cap Value Fund will not purchase
the securities of any issuer if, as a result: (i) with respect to 75% of the
Fund's total assets, more than 5% of its total assets would be invested in such
issuer or the Fund would own more than 10% of the outstanding voting securities
of such issuer; or (ii) more than 25% of its assets would be concentrated in
any one industry. These limitations do not apply to U.S. government securities.
MID CAP VALUE FUND
The Mid Cap Value Fund seeks to achieve long-term capital appreciation through
investing in mid-size companies that are attractively priced. Under normal
market conditions, the Fund will invest at least 65% of its total assets in
equity securities of companies with market capitalizations between $750 million
and $5 billion selected on a value basis. Heartland Advisors' value criteria
for investing in stocks are discussed above. In addition, Heartland Advisors
will consider a relatively higher dividend yield as a favorable factor in
selecting equity securities for the Mid Cap Value Fund.
Equity securities in which the Fund may invest include common stock, preferred
stock, convertible debt, warrants or other securities exchangeable for shares of
common stock, and other equity securities, including real estate investment
trusts. The Mid Cap Value Fund may also invest up to 35% of its total assets in
debt securities, including up to 15% of its total assets which may be invested
in non-investment grade debt securities, provided the Fund may not invest in
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<PAGE>
securities rated below B, or judged by Heartland Advisors to be of comparable
quality, at the time of purchase. For information regarding non-investment
grade securities, see "Investment Quality."
As a matter of fundamental policy, the Mid Cap Value Fund will not purchase the
securities of any issuer if, as a result: (i) with respect to 75% of the Fund's
total assets, more than 5% of its total assets would be invested in such issuer
or the Fund would own more than 10% of the outstanding voting securities of such
issuer; or (ii) more than 25% of its assets would be concentrated in any one
industry. These limitations do not apply to U.S. government securities.
VALUE PLUS FUND
To achieve its objectives, the Value Plus Fund primarily invests in income-
producing equity securities of smaller companies, those with market
capitalizations of less than $750 million. The Fund seeks a yield that is
greater than the yield of the S&P 500. The Fund expects to realize income from
dividends earned on equity investments and interest earned on debt securities.
Under normal market conditions, the Value Plus Fund will invest at least 65% of
its total assets in equity securities of value companies selected by Heartland
Advisors in accordance with the factors listed under "Heartland's Value Criteria
for Investing in Stocks" above.
While the Value Plus Fund may invest in securities of companies with market
capitalizations in excess of $750 million, a majority of the Fund's investments
will be in stocks with smaller market capitalizations. As of September 30,
1998, the median market capitalization of the companies in the Value Plus Fund's
portfolio was approximately $125 million, with a weighted average market
capitalization for the Fund's portfolio of approximately $573 million.
Equity securities in which the Fund may invest include common stock, convertible
debt, preferred stock, warrants or other securities exchangeable for shares of
common stock, and other equity securities, including real estate investment
trusts. Heartland Advisors attempts to reduce the volatility of the Fund
relative to the S&P 500 through the income-producing features of the Fund;
however, there is no assurance the Fund will achieve this goal.
The Value Plus Fund may invest up to 35% of its total assets in debt securities,
including up to 25% of its assets in non-investment grade debt securities,
provided that the Fund may not invest in securities rated below B, or judged by
Heartland Advisors to be of comparable quality, at the time of purchase. See
"Investment Quality." While Heartland Advisors will look to the conversion
feature of convertible debt securities and consider them as "equity securities,"
those securities will be subject to the above 25% limitation on investments in
non-investment grade securities.
As a matter of fundamental policy, the Value Plus Fund will not purchase the
securities of any issuer if, as a result: (i) the Fund would own more than 10%
of the outstanding voting securities of such issuer; (ii) with respect to 75%
of the Fund's total assets, more than 5% of its total assets would be invested
in such issuer; (iii) with respect to its total portfolio, more than 10% of the
total assets would be invested in such issuer; or (iv) more than 25% of its
assets would be concentrated in any one industry. These limitations do not
apply to U.S. government securities.
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U.S. GOVERNMENT SECURITIES FUND
As a fundamental policy, the U.S. Government Securities Fund will invest at
least 65% of its total assets in obligations issued or guaranteed by the U.S.
Government or by its agencies or instrumentalities ("U.S. Government
securities"). Under normal market conditions and with the exception of those
assets invested in short-term liquid reserves or options and futures, the Fund
intends to invest all of its assets in U.S. Government securities.
Some U.S. Government securities, such as Treasury bills, notes and bonds and
securities guaranteed by the Government National Mortgage Association ("GNMA")
are supported by the full faith and credit of the United States. Others, such as
obligations of the Federal Home Loan Banks and Tennessee Valley Authority, are
backed by the right of the issuer to borrow from the Treasury. Still others,
such as those of the Federal National Mortgage Association ("FNMA"), are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations. In addition, obligations of certain agencies or
instrumentalities, such as those of the Student Loan Marketing Association, are
supported only by the credit of the agency or instrumentality issuing the
obligations. Current market prices for U.S. Government securities are not
guaranteed and the value of such securities will fluctuate.
Heartland Advisors buys and sells securities after considering economic
conditions, liquidity factors and interest rate trends. Heartland Advisors also
considers certain factors, including sector rotation, security selection,
duration management and yield-curve positioning in its value-based investment
process for the Fund. It may be expected that a decline in interest rates
generally will increase the value of securities held by the U.S. Government
Securities Fund, and an increase in interest rates will generally have the
opposite effect. Thus, interest rate fluctuations will affect the value of the
Fund's portfolio and, as a result, the Fund's net asset value per share. The
impact of interest rate fluctuations on fixed income securities is often
referred to as "market risk." The Fund may employ hedging techniques to reduce
the effects of such interest rate fluctuations; however, there can be no
assurance that such techniques will be successful.
Although there are no duration restrictions for the Fund or the individual
obligations in its portfolio, under normal market conditions, it is anticipated
that the Fund will maintain an average portfolio duration within three to six
years.
VALUE FUND
To achieve long-term capital appreciation, the Value Fund invests primarily in
equity securities of small companies with market capitalizations of less than
$750 million selected on a value basis. The Value Fund will invest at least 65%
of its total assets in equity securities of value companies as determined by
Heartland Advisors in accordance with the factors listed under "Heartland's
Value Criteria for Investing in Stocks."
While the Value Fund may invest in securities of companies with market
capitalizations in excess of $750 million, a majority of the Fund's investments
will be in stocks with smaller market capitalizations. As of September 30, 1998,
the median market capitalization of the companies in the Value Fund's portfolio
was approximately $76 million, with a weighted average market capitalization for
the Fund's portfolio of approximately $352 million. The Value Fund may also
invest in convertible securities and debt securities rated B or above or judged
by Heartland Advisors to be of comparable quality, and warrants, each up to 5%
of the Fund's net assets.
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As a matter of fundamental policy, the Value Fund will not purchase the
securities of any company if, as a result: (i) it would own more than 10% of the
outstanding voting securities of such company; (ii) such holdings would amount
to more than 5% of the Value Fund's total assets; or (iii) more than 25% of its
assets would be concentrated in any one industry. These limitations do not apply
to U.S. Government securities. The Value Fund may, from time to time purchase
securities issued by broker-dealers that sell or distribute its shares or that
execute portfolio brokerage transactions for the Value Fund; provided that any
such purchases will only be made in accordance with the limitations imposed on
such purchases by the Securities and Exchange Commission. The Value Fund will
not invest in securities issued by Heartland Advisors.
MATURITY AND DURATION
Maturity is a measure of the contractual term over which, or at the end of
which, a fixed income security must be repaid. In general, the longer the
maturity of a debt obligation, the higher its yield and the greater its
sensitivity to changes in interest rates. While the maturity of an obligation is
somewhat indicative of interest-rate risk, Heartland Advisors believes duration
is a more accurate measure. Duration incorporates a bond's yield, coupon
interest payments, final maturity and call features into a single measure.
Depending on the relative magnitude of these payments and features, the market
values of debt obligations may respond differently to changes in the level and
structure of interest rates. Based on underlying assumptions, duration measures
the approximate price sensitivity of a bond or bond portfolio to a one percent
rise or fall in interest rates. For example, if interest rates were to increase
by 1%, the market value of a bond with a duration of four years would be
expected to decrease by about 4%, with all other factors being constant. For any
fixed-income security with interest payments occurring prior to the payment of
principal, duration is always less than maturity. In general, all other things
being equal, the lower the stated or coupon rate of interest of a fixed-income
security, the longer the duration of the security; conversely, the higher the
stated or coupon rate of interest of a fixed-income security, the shorter the
duration of the security. Duration is not a static measure or a complete measure
of portfolio risk. Changing conditions and perceptions, including market
fluctuations and changing credit fundamentals, may modify an obligation's
duration and, independently, have other adverse or positive effects on the value
of a security.
Futures, options and options on futures have durations which, in general, are
closely related to the duration of the securities which underlie them. Holding
long futures or call option positions will lengthen a Fund's duration by
approximately the same amount that holding an equivalent amount of the
underlying securities would. Short futures or put option positions have
durations roughly equal to the negative duration of the securities that underlie
these positions, and have the effect of reducing portfolio duration by
approximately the same amount that selling an equivalent amount of the
underlying securities would have. See "Other Investment Practices - Options,
Futures Contracts and Options on Futures Contracts."
INVESTMENT QUALITY
INVESTMENT GRADE SECURITIES. Investment grade debt securities in which the Funds
may invest are considered by Heartland Advisors to include securities rated at
the time of purchase within the four highest rating categories assigned by
Moody's Investors Service, Inc. ("Moody's"), or Standard & Poor's Corporation
("S&P"), or securities which are unrated, provided that such securities are
judged by Heartland Advisors, at the time of purchase, to be of comparable
quality to securities rated within such four highest categories. Investment
grade debt obligations are generally believed to have relatively lower degrees
of credit risk. However, securities rated in the
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fourth highest rating category, while considered investment grade, may have some
speculative characteristics since their issuer's capacity for repayment may be
more vulnerable to adverse economic conditions or changing circumstances than
that of higher rated issuers.
HIGH YIELD SECURITIES. Non-investment grade securities (commonly known as "junk
bonds") in which each Fund, other than the U.S. Government Securities Fund, may
invest may be regarded, on balance, as predominantly speculative with respect to
the capacity to pay interest and repay principal in accordance with the terms of
the obligation. While such bonds typically offer higher rates of return, they
involve greater risk, including greater risk of default and loss of principal.
The prices of these lower rated bonds may be less sensitive to interest rate
changes than higher rated bonds, but more sensitive to adverse economic changes.
Periods of economic uncertainty and change may cause market price volatility in
these higher yielding bonds and corresponding volatility in the Fund's net asset
value. Furthermore, higher yielding bonds may contain redemption or call
provisions which, if exercised during a declining interest rate environment, may
require the Fund to replace the security with a lower yielding security,
resulting in a decreased return to the Fund. Finally, the secondary trading
market for higher yielding bonds may not be as active as for lower yielding
bonds. As a result, it may be difficult to accurately assess the value of such
bonds (and therefore the respective Fund's securities portfolio), and the Fund's
ability to dispose of such bonds may be limited. For a more detailed discussion
of the risks associated with investing in lower rated securities, see
"Investment Policies and Methods - Non-Investment Grade Securities" in the
Statement of Additional Information. Debt securities rated B, the lowest
category in which the Value, Mid Cap Value, Large Cap Value and Value Plus Funds
may invest, are regarded by S&P as having a greater vulnerability to default but
having the ability, at the time they are rated, to meet scheduled interest and
principal payments. Moody's notes that the assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small. All ratings are determined at the time of investment. Any
subsequent rating downgrade of a debt obligation will be monitored by Heartland
Advisors to consider what actions, if any, a Fund should take consistent with
its investment objective, but will not necessarily require the Fund to dispose
of the security. A description of the ratings assigned by Moody's and S&P is
contained in the Statement of Additional Information.
See "Appendix A - Asset Composition" for a summary of the dollar-weighted
averages of the Funds' month-end portfolio debt holdings during the year ended
December 31, 1997.
OTHER INVESTMENT PRACTICES
In addition to the investments described above for each Fund, the Funds may
invest in securities and employ investment techniques that may present special
risks as described below. Although there is no uniform definition of "derivative
securities," certain instruments in which the Funds may invest may be considered
derivative because the value of the instrument fluctuates depending upon the
value of another security, index, reference interest rate, or currency. These
instruments may include options, futures, options on futures, forward foreign
currency contracts, indexed securities, and certain stripped obligations and
mortgage-backed securities. A more complete discussion of the Funds' securities
and investment techniques and their associated risks, as well as further
investment restrictions to which the Funds may be subject, is contained in the
Statement of Additional Information.
OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Each Fund may
engage in transactions in options, futures contracts, and options on futures
contracts to hedge protectively against anticipated declines in the market value
of its portfolio securities, or against increases in
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<PAGE>
the market values of securities it intends to purchase, or to manage exposure
to changing interest rates or, with respect to each Fund other than the U.S.
Government Securities Fund, as a hedge against changes in prevailing levels of
currency exchange rates. The Funds will not use these instruments for
speculation. Some options and futures strategies, including selling futures,
buying puts and writing calls, tend to hedge a Fund's investments against price
fluctuations. Other strategies, including buying futures, writing puts, and
buying calls, tend to increase market exposure. Options and futures may be
combined with each other or with forward contracts in order to adjust the risk
and return characteristics of the Fund's overall strategy.
Each Fund may write covered call options and purchase put options that are
traded on recognized U.S. exchanges with respect to specific securities and
enter into closing transactions with respect to such options. The Value, Mid Cap
Value, Large Cap Value and Value Plus Funds also may sell covered call options
and purchase put options on foreign currencies and on stock indices composed of
securities of the same general character as each Fund's portfolio and may enter
into closing transactions with respect to such options. The Mid Cap Value and
Large Cap Value Funds may also purchase call options on any type of security
related to their respective investments.
The Value, Value Plus and U.S. Government Securities Funds each may purchase and
sell futures contracts, including interest rate futures, index futures and, with
respect to the Value Fund and the Value Plus Fund, currency futures, that are
traded on a recognized U.S. exchange, board of trade or similar entity, or
quoted on an automated quotation system. Each of those Funds may also write
covered call options and purchase put options on futures contracts and enter
into closing transactions with respect to such options. The Mid Cap Value and
Large Cap Value Funds each may buy and sell exchange-traded futures and options
on futures based on any type of security, index or currency related to its
investments, including futures and options on futures traded on foreign
exchanges.
Each Fund will limit its use of these hedging instruments so that: (i) no more
than 5% of the Fund's total assets would be committed to initial margin deposits
or premiums on futures contracts; (ii) no more than 25% of the Fund's net assets
would be subject to futures contracts; (iii) no more than 5% of the Fund's total
assets would be committed to premiums paid for options; and (iv) no more than
25% of the Fund's total assets would be subject to options. Each of these
limitations applies immediately after a purchase. A subsequent change in the
applicable percentage resulting from market fluctuations does not require
elimination of any security, option or future from the portfolio. Consequently,
a Fund's assets could be hedged in excess of the above percentages at a date
subsequent to the hedging transaction.
Options and futures can be highly volatile investments and involve certain
risks. Successful hedging strategies require the ability to predict future
movements in securities prices, interest rates and other economic factors.
Heartland Advisors' attempts to use such investments for hedging purposes may
not be successful and could result in reduction of a Fund's total return. A
Fund's potential losses from the use of futures extend beyond its initial
investment in such contracts. Each Fund could also experience losses if the
prices of its options or futures positions were poorly correlated with its other
investments, or if it was unable to close out its positions due to disruptions
in the market or lack of liquidity. Over-the-counter options and futures
generally involve greater credit and liquidity risks than exchange-traded
options and futures. Options and futures traded on foreign exchanges generally
are not regulated by U.S. authorities, and may offer less liquidity and less
protection to a Fund if the other party to the contract defaults.
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SHORT SALES. Each Fund other than the U.S. Government Securities Fund may engage
in short sales of securities under certain circumstances. Those Funds may engage
in "short sales against the box," a technique which involves selling a security
that the Fund owns (or has an unconditional right to purchase) for delivery at a
specified date in the future, to hedge protectively against anticipated declines
in the market price of its portfolio's securities. If the value of the
securities sold short increases prior to the scheduled delivery date, the Fund
loses the opportunity to participate in the gain. Those Funds may also engage in
short sales of securities of an issuer ("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. Each 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.
The Value, Mid Cap Value, Large Cap Value and Value Plus Funds will each limit
short sales against the box and of acquirer securities so that: (i) no more than
5% of its total assets would be subject to open short positions; and (ii) no
more than 10% of the Fund's net assets would be held as collateral for such
positions.
FOREIGN SECURITIES. The Value and Value Plus Funds may invest up to 15% of their
respective assets directly in the securities of foreign issuers traded outside
of the United States (Non-U.S. Traded Foreign Securities). The Mid Cap Value and
Large Cap Value Funds may invest up to 25% of their respective assets in Non-
U.S. Traded Foreign Securities. Each Fund other than the U.S. Government
Securities Fund may also invest in foreign securities in domestic markets
through depository receipts and securities of foreign issuers that are traded on
a registered U.S. stock exchange or the NASDAQ National Market System and
foreign securities guaranteed by a United States person without regard to the
above limitations. While investment in foreign securities is intended to reduce
risk by providing further diversification, such investments involve certain
risks in addition to the credit and market risks normally associated with
domestic securities. Such risks include: adverse political and economic
developments or social instability; the imposition of foreign withholding taxes
or exchange controls; expropriation or nationalization; currency blockage (which
could prevent cash from being brought back to the United States); the impact of
exchange rate and foreign currency fluctuations on the market value of foreign
securities; more limited availability of public information regarding security
issuers; the degree of governmental supervision regarding securities markets;
different accounting, auditing and financial standards; difficulties in
enforcing legal rights; and the potential for less liquidity and more volatility
of foreign securities markets.
Brokerage commissions, fees for custodial services, and other costs relating to
foreign investments generally are greater than in the U.S. Such markets may have
different clearance and settlement procedures, and in certain markets there have
been times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to settle certain transactions.
Inability to sell a portfolio security due to settlement problems could result
either in a loss to the Fund if the value of the portfolio security subsequently
declined, or, if the Fund had entered into a contract to sell the security,
could result in possible claims against the Fund.
The U.S. Government Securities Fund does not invest in foreign securities. No
other Fund expects to invest, nor did invest as of December 31, 1997, more than
5% of its assets in Non-U.S.
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Traded Foreign Securities as defined above. However, as of December 31, 1997,
the percentage of each Fund's assets invested in foreign securities was:
<TABLE>
<CAPTION>
FUND NON-U.S. TRADED U.S. TRADED/BACKED TOTAL FOREIGN
FOREIGN SECURITIES FOREIGN SECURITIES SECURITIES
(INCLUDING ADRS/GDRS)
<S> <C> <C> <C>
LARGE CAP VALUE - 20.16% 20.16%
MID CAP VALUE - 6.03% 6.03%
VALUE PLUS .08% 8.34% 8.42%
VALUE .09% 3.88% 3.97%
</TABLE>
FOREIGN CURRENCY TRANSACTIONS. Foreign securities are subject to currency risk,
that is, the risk that the U.S. dollar value of these securities may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations. To manage this risk and facilitate the purchase
and sale of foreign securities, each Fund other than the U.S. Government
Securities Fund may engage in foreign currency transactions involving the
purchase and sale of forward foreign currency exchange contracts (agreements to
exchange one currency for another at a future date), or they may engage in
transactions in options on foreign currencies, currency futures contracts, or
options on currency futures contracts. Although foreign currency transactions
will be used to protect such Funds from adverse currency movements, they involve
the risk that anticipated currency movements will not be accurately predicted
and a Fund's total return could be adversely affected as a result.
MORTGAGE-RELATED SECURITIES. The U.S. Government Securities Fund may invest up
to 65% of its assets in mortgage-related securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities. Mortgage-related securities
in which the Fund may invest include mortgage pass-through securities and
derivative mortgage securities, such as collateralized mortgage obligations and
stripped mortgage-backed securities, issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Mortgage-related securities are
subject to prepayment risk, that is, the possibility that prepayments on the
underlying mortgages will cause the principal and interest on the mortgage-
related securities to be paid prior to their maturities, and the value of these
securities may be significantly affected by changes in interest rates. The rate
of prepayments on underlying mortgages will affect the price and volatility of a
mortgage-related security and may have the effect of shortening or extending the
effective duration of the security beyond what was anticipated at the time of
purchase. Prepayments during a period of declining interest rates may shorten
the effective duration of the mortgage-related security, resulting in the Fund
having to invest the unanticipated proceeds in lower-yielding securities. To the
extent that unanticipated rates of prepayment on underlying mortgages increase
the effective duration of a mortgage-related security, the volatility of such
security can be expected to increase. During periods of increased interest-rate
volatility, the market for certain mortgage-related securities may be thinner
than the market for securities in general, which can adversely affect the
availability of market quotations and the prices at which such securities can be
sold.
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Mortgage pass-through securities are securities representing interests in
"pools" of mortgage loans secured by residential or commercial real property in
which payments of both interest and principal on the securities are generally
made monthly, in effect "passing through" payments made by the individual
borrowers on the underlying mortgage loans after deduction of servicing fees.
Payments of principal and interest on some mortgage pass-through securities (but
not the market value of the securities themselves) may be guaranteed by the full
faith and credit of the U. S. Treasury, such as securities guaranteed by GNMA.
Other securities are guaranteed by U.S. Government agencies or
instrumentalities, such as securities guaranteed by FNMA or the Federal Home
Loan Mortgage Corporation which are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations. The U.S. Government
Securities Fund may invest in adjustable rate mortgage securities ("ARMs"),
which are pass-through securities collateralized by mortgages with interest
rates that may be adjusted from time to time, rather than fixed rate mortgages.
ARMs may experience greater rates of prepayment than other mortgage pass-through
securities.
Collateralized Mortgage Obligations ("CMOs") are hybrid mortgage-related
instruments secured by pools of mortgage loans or other mortgage-related
securities, such as mortgage pass-through securities or stripped mortgage-backed
securities. CMOs may be structured into multiple classes, often referred to as
"tranches," with each class bearing a different stated maturity and entitled to
a different schedule for payments of principal and interest, including
prepayments. Principal prepayments on collateral underlying a CMO may cause it
to be retired substantially earlier than its stated maturity.
Stripped Mortgage-Backed Securities ("SMBS") are derivative mortgage-related
securities generally structured in classes with rights to receive varying
proportions of principal and interest. A common type of SMBS will have one class
receiving some of the interest and most of the principal from the underlying
mortgage loans, while the other class will receive most of the interest and the
remainder of the principal. In certain cases, one class will receive all of the
interest (the interest-only, or "IO" class), while the other class will receive
all of the principal (the principal-only, or "PO" class). The cash flows and
yields on IO and PO classes are extremely sensitive to the rate of principal
payments (including prepayments) on the underlying mortgage-related securities.
The U.S. Government Securities Fund will limit its aggregate investments in IO
and PO classes to 10% of net assets.
ZERO COUPON BONDS AND STRIPPED SECURITIES. Each Fund other than the Value Fund
may invest in zero coupon bonds, which do not pay current interest, but are
purchased at a discount from their face value with principal and accrued
interest paid at maturity. Those Funds may also invest in stripped obligations,
which are the separate income or principal components of a debt instrument,
issued by the U.S. Government or its agencies and instrumentalities. The market
value of zero coupon bonds and stripped obligations may be subject to greater
volatility in response to changes in interest rates than other debt securities.
INDEXED SECURITIES. Each Fund other than the Value Fund may invest in indexed
securities whose value is linked to currencies, interest rates, commodities,
indices, or other financial indicators. Many indexed securities are short to
intermediate term fixed-income securities whose values at maturity, or interest
rates, rise or fall according to the change in one or more specified underlying
instruments. Indexed securities may be positively or negatively indexed (i.e.,
their value may increase or decrease if the underlying instrument appreciates)
and may have return characteristics similar to direct investments in the
underlying instrument or to one or more options on the underlying instrument.
Indexed securities may be more volatile than the underlying instrument
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itself and the market for indexed securities may be thinner than the market for
securities in general, which can adversely affect the availability of market
quotations and the prices at which indexed securities are sold.
INVESTMENTS IN INVESTMENT COMPANIES. The Mid Cap Value and Large Cap Value
Funds may invest up to 10% of their respective total assets in securities of
other investment companies, including unit investment trusts or closed-end
management investment companies. As a shareholder of another investment
company, the Funds may bear service and other fees which are in addition to the
fees the Funds pay their service providers.
REAL ESTATE INVESTMENT TRUSTS. The Mid Cap Value, Large Cap Value, and Value
Plus Funds may invest up to 10% of their respective total assets in real estate
investment trusts ("REITs"). REITs are subject to volatility from risks
associated with investments in real estate and investments dependent on income
from real estate, such as fluctuating demand for real estate and sensitivity to
adverse economic conditions. In addition, the failure of a REIT in which the
Fund has invested to continue to qualify as a REIT for tax purposes would have
an adverse impact on the value of the Fund's investment.
LENDING PORTFOLIO SECURITIES. Each Fund may lend its portfolio securities to
institutional investors or broker-dealers to a maximum of 30% of its assets,
where such loans are callable at any time and are continuously secured by
collateral consisting of cash or liquid assets at least equal to the value of
the security loaned. The collateral received by a Fund will be invested in
short-term debt instruments. The respective Fund receives amounts equal to
earned income for having made the loans. The respective Fund is the beneficial
owner of the loaned securities in that any gain or loss in the market price
during the loan period inures to the Fund. Thus, when the loan is terminated,
the value of the securities may be more or less than their value at the
beginning of the loan. In determining whether to lend its portfolio securities,
each Fund takes into account the 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. Each Fund may pay a fee to placing brokers in connection with loans of
its portfolio securities.
REPURCHASE AGREEMENTS. Each Fund other than the Value Fund may enter into
repurchase agreements with banks and broker-dealers, under which the Fund
purchases securities and agrees to sell them back at a specified time and price.
The difference between the amount the Fund pays for the securities and the
amount it receives upon resale is accrued as interest and reflected in its net
income. In the event of a bankruptcy or default of certain sellers of repurchase
agreements, the Fund could experience costs and delays in liquidating the
underlying security, which is held as collateral, and the Fund might incur a
loss if the value of the collateral held declines during this period. In
determining whether to enter into a repurchase agreement, the respective Fund
will take into account the creditworthiness of the counterparty. Those Funds
will use repurchase agreements as a means of making short-term investments, and
will invest in repurchase agreements of a duration of seven days or less in an
amount not exceeding 25% of their respective net assets. Each Fund's ability to
invest in repurchase agreements that mature in more than seven days is subject
to an investment restriction that limits investment in "illiquid" securities,
including such repurchase agreements, to 10% of net assets.
REVERSE REPURCHASE AGREEMENTS. The Mid Cap Value and Large Cap Value Funds may
enter into reverse repurchase agreements with banks and broker-dealers, under
which the Fund sells a portfolio security to such party in return for cash and
the Fund agrees to repurchase the instrument
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at a particular price and time. While a reverse repurchase agreement is
outstanding, the Fund will maintain appropriate liquid assets in a segregated
custodial account to cover its obligations under the agreement. To the extent
that the value of the security the Fund agrees to repurchase declines, the Fund
may experience a loss. Reverse repurchase transactions may increase fluctuations
in the market value of the Fund's assets and may be viewed as a form of
leverage. In determining whether to enter into a reverse repurchase agreement,
the Fund will take into account the creditworthiness of the counterparty.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. Each Fund may purchase and sell
securities on a "when-issued" and "delayed delivery" basis, i.e., obligate
themselves to purchase or sell securities with delivery and payment to occur at
a later date in order to secure what is considered to be an advantageous price
and yield at the time of entering into the obligation. The market value of a
security may increase or decrease between the time that the Fund makes its
commitment and the time the security is delivered. Each Fund will make such
commitments only with the intention of actually acquiring the securities, but
may sell the securities before settlement date if it is deemed advisable for
investment reasons. At the time a Fund makes a commitment to purchase an
obligation, it will record the transaction and reflect the value of the
obligation in determining its net asset value. The custodian will maintain on a
daily basis a separate account consisting of cash or liquid securities with a
value at least equal to the amount of the Fund's commitments to purchase when-
issued obligations. There are no limitations on the percentage of the Fund's
assets which may be invested in such securities; however, it is not expected
that at any one time more than 25% of its assets would be so invested.
SHORT-TERM INVESTMENTS. Each Fund may invest a portion of its portfolio in
liquid reserves to meet its cash flow requirements. Under normal conditions, it
is not anticipated that such reserves will exceed 20% of the respective assets
of the Value or Value Plus Funds, or 15% of the respective assets of the Mid Cap
Value, Large Cap Value or U.S. Government Securities Funds. Liquid reserves may
be increased to enable a Fund to take advantage of buying opportunities or may
be increased up to 100% of a Fund's assets for temporary defensive purposes.
Such reserves will be invested in money market instruments, certificates of
deposit, commercial paper, short-term corporate debt securities, variable rate
demand notes, and U.S. Government securities.
BORROWINGS AND LEVERAGE. As a fundamental policy, none of the Funds will borrow
money or property except for temporary or emergency purposes. If a Fund ever
should borrow money, it would only borrow from banks and in an amount not
exceeding 10% of the market value of its total assets (not including the amount
borrowed). None of the Funds will pledge more than 15% of its net assets to
secure such borrowings. In the event a Fund's borrowings exceed 5% of the market
value of its total assets, the Fund will not invest in any additional portfolio
securities until its borrowings are reduced to below 5% of its total assets. For
purposes of these restrictions, collateral arrangements for premium and margin
payments in connection with a Fund's hedging activities are not deemed to be a
pledge of assets.
ILLIQUID INVESTMENTS. Under the supervision of, and pursuant to the guidelines
adopted by, the Board of Directors, Heartland Advisors determines which of a
Fund's investments are classified as illiquid. The absence of a trading market
can make it difficult to ascertain a market value for illiquid investments.
Disposing of illiquid investments may involve time-consuming negotiation and
legal expenses, and it may be difficult or impossible for a Fund to sell such an
investment promptly at an acceptable price. None of the Funds may invest more
than 10% of their respective net assets in illiquid investments. Certain
restricted securities which may be resold to institutional investors under Rule
144A under the Securities Act of 1933 may be determined to be liquid under
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the guidelines. 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. As such, they are not treated as being subject to the
limitation on illiquid securities.
PORTFOLIO TURNOVER. The Value Fund, Mid Cap Value, Large Cap Value and Value
Plus Funds will not trade portfolio securities for short-term profits, but when
circumstances warrant, securities may be sold without regard to their holding
period. During the fiscal years ended December 31, 1997 and 1996, the portfolio
turnover rates for the Value Fund were 55% and 31%, respectively; for the Value
Plus Fund the portfolio turnover rates were 74% and 73%, respectively; and for
the U.S. Government Securities Fund the portfolio turnover rates were 143% and
30%, respectively. The portfolio turnover rates for the Mid Cap Value Fund for
the fiscal year ended December 31, 1997 and for the period from October 11, 1996
(commencement of operations) to December 31, 1996 were 48% and 4%, respectively.
The portfolio turnover rates for the Large Cap Value Fund for the 1997 fiscal
year ended December 31, 1997 and for the period from October 11, 1996
(commencement of operations) to December 31, 1996 were 30% and 1%, respectively.
A high portfolio turnover rate may increase transaction costs and may affect
taxes paid by shareholders to the extent short-term gains are distributed.
HOW TO BUY SHARES
SHARE PRICE
The Funds' shares are sold without a sales charge. Each Fund's share price is
the net asset value per share next determined following receipt of an order in
proper form, or receipt of funds if purchase is made by wire, by the Fund or its
authorized service agent or sub-agent. Net asset value is calculated daily as
described under "Net Asset Value Calculation." Firstar Trust Company serves as
the Funds' transfer and dividend disbursing agent (the "Agent").
OPENING AN ACCOUNT AND PURCHASING SHARES
BY MAIL TO: BY OVERNIGHT MAIL TO:
Firstar Mutual Fund Services, LLC Firstar Mutual Fund Services, LLC
P.O. Box 701 3rd Floor
Milwaukee, WI 53201-0701 615 East Michigan Street
Milwaukee, WI 53202
To Open an Account:
Complete and sign the Account Application. Make your check payable to either
Heartland Value Fund, Heartland Mid Cap Value Fund, Heartland Large Cap Value
Fund, Heartland Value Plus Fund or Heartland U.S. Government Securities Fund and
mail to one of the addresses above.
If you are investing through a tax-sheltered retirement plan, such as an IRA,
you will need to use a special application. Please call 1-800-432-7856 for
special instructions on establishing an IRA for a minor.
To Add to an Account:
Make your check payable to the Fund you are invested in, indicate your Fund
account number on your check, and mail to one of the addresses above. You may
also include an "Additional Investment Form" from a prior account statement with
your check.
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______________________________________________________________________________
BY WIRE:
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 (name of Fund), (your account number and
the title of the account)
To Open an Account:
Call the Agent at 1-800-443-2862 prior to sending the wire. Specify Fund name,
include your name, and wire as described above. Then complete, sign and mail the
Account Application to one of the addresses above for mail or overnight mail.
To Add to an Account:
Specify Fund name, include your name and account number, and wire as described
above.
BY TELEPHONE:
1-800-432-7856 or 414-289-7000
To Open an Account:
Unless you have elected not to have this privilege on the Account Application,
you may call to exchange from another Heartland fund account with the same
registration, including name, address and taxpayer ID number. See "Shareholder
Services-Exchange Privilege."
To Add to an Account:
Unless you have elected not to have this privilege on the Account Application,
you may call to exchange from another Heartland fund account with the same
registration, including name, address and taxpayer ID. See "Shareholder
Services-Exchange Privilege." You may also make additional investments from $100
to $25,000 by Telephone from your bank checking or NOW account into your
Heartland fund account. Sign up for this service with a Telephone Purchase Form
when you open your account, or call 1-800-432-7856.
______________________________________________________________________________
AUTOMATICALLY:
To Open an Account:
Complete and sign the Account Application, as well as an Automatic Investment
Plan Application, and mail to one of the addresses above. Your purchase of Fund
shares will be made automatically in accordance with the Plan.
To Add to an Account:
Use Heartland's automatic investment plan. Sign up for this service on your
Account Application, or call 1-800-432-7856 for information on how to add this
service.
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______________________________________________________________________________
THROUGH SECURITIES REPRESENTATIVES:
To Open an Account:
You may purchase shares through a broker-dealer or financial institution which
must promptly forward the order, together with payment, to the Agent. The
broker-dealer or financial institution may charge a fee for such services.
To Add to an Account:
You may purchase shares through a broker-dealer or financial institution which
must promptly forward the order, together with payment, to the Agent. The
broker-dealer or financial institution may charge a fee for such services.
______________________________________________________________________________
CONDITIONS OF YOUR PURCHASE
MINIMUM INVESTMENTS. The minimum initial investment for the Value Fund is
$25,000. The minimum initial investment for each of the other Funds is $1,000.
Lower minimums apply for retirement plan investors and investors who elect to
invest through the automatic investment plan (see "SHAREHOLDER SERVICES"). The
minimum additional investment is $100.
PURCHASES THROUGH SERVICE PROVIDERS. If you purchase shares through a program of
services offered or administered by a broker-dealer, financial institution, or
other service provider, you should read the program materials provided by the
service provider, including information relating to fees, in conjunction with
this Prospectus. Certain features of a Fund may not be available or may be
modified in connection with the program of services provided. When shares are
purchased this way, the service provider, rather than its customer, may be the
shareholder of record of the shares. Certain service providers may receive
compensation from the Funds and/or Heartland Advisors for providing such
services. The Funds reserve the right not to accept purchases through any
intermediary arrangement that their officers determine employs investment
strategies which are not in the best interests of the Funds and their
shareholders.
Certain service providers have been authorized to designate other intermediaries
to accept purchase and redemption orders on the Funds' behalf. Each Fund will be
deemed to have received a purchase or redemption order when an authorized
service provider or, if applicable, a service provider's designee, accepts the
order.
OTHER CONDITIONS. All purchases must be made in U.S. dollars and checks must be
drawn on U.S. banks. Cash will not be accepted for the purchase of shares. If a
check fails to clear, the purchase to which the check relates will be canceled
and the prospective investor will be liable for any losses or fees incurred by
the Funds or the Funds' Agent, including without limitation a $20 fee to cover
bank handling charges for returning checks due to insufficient funds. When
purchases are made by check, a Fund can hold payment on redemption of shares so
purchased until the Fund is reasonably satisfied that the check has cleared. To
avoid such a delay, an investor can wire federal funds as described above from a
bank, which may charge a fee for that service. Wiring federal funds means that
the bank sends money to a bank account maintained by a Fund through the Federal
Reserve System.
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HOW TO REDEEM SHARES
Shareholders may have any or all of their shares redeemed as described below on
any day the Funds are open for business at the next determined net asset value
per share following receipt of a redemption in proper form (see "Net Asset Value
Calculation").
BY TELEPHONE:
1-800-432-7856 You may redeem by calling Heartland Advisors,
or unless you elected not to have this privilege
(414) 289-7000 on your account application.
____________________________________________________________________________
THROUGH SECURITIES REPRESENTATIVES:
You may redeem shares through a broker-dealer or financial institution, which
must promptly forward your instructions to the Agent. The broker-dealer or
financial institution may charge a fee for such services.
______________________________________________________________________________
BY MAIL TO:
Firstar Mutual Fund Services, LLC Send a written request specifying the name
P.O. Box 701 of the Mutual Fund, the number of shares
Milwaukee, WI 53201-0701 to be redeemed, your name, account number,
and any additional documents listed below
that apply to your particular account. The
BY OVERNIGHT Agent cannot accept requests submitted by
DELIVERY TO: fax or requests specifying a particular date
for redemption or other special conditions.
A signature guarantee is required for
Firstar Mutual Fund Services, LLC certain redemptions, including written
615 E. Michigan St., 3rd Floor redemp-tions over $25,000. For further
Milwaukee, WI 53202 information, see
"Signature Guarantees."
______________________________________________________________________________
TYPE OF REGISTRATION REQUIREMENTS
Individual, Joint Tenants, Letter of instruction signed by all persons
Sole Proprietorship, authorized to sign for the account, exactly
Custodial, General Partners as it is registered, accompanied by
signature guarantee(s) if required.
Corporations, Associations Letter of instruction accompanied by a
corporate resolution. The letter must be
signed by at least one individual authorized
(via corporate resolution) to act on the
account. The corporate resolution must
include a corporate seal or signature
guarantee.
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Trusts Letter of instruction signed by the
Trustee(s) (as Trustee(s)), with signature
guarantee(s). (If the Trustee's name is not
registered on the account, provide a copy of
the trust document, certified within the
last 60 days.)
If you do not fall into any of these registration categories (i.e., executors,
administrators, conservators, or guardians), please call Heartland Advisors for
further instructions.
______________________________________________________________________________
TELEPHONE REDEMPTIONS. Shares may be redeemed by telephone to Heartland
Advisors, unless the shareholder elects not to have this privilege on the
account application. By establishing the telephone redemption service, the
shareholder assumes some risks for unauthorized transactions. Heartland Advisors
has implemented procedures designed to reasonably assure that telephone
instructions are genuine. These procedures include recording telephone
conversations, requesting verification of various pieces of personal information
and providing written confirmation of such transactions. If the Agent, the
Funds, Heartland Advisors or any of their employees fails to abide by these
procedures, the Funds may be liable to a shareholder for losses he or she
suffers from any resulting unauthorized transaction(s). However, none of the
Agent, the Custodian, the Funds, Heartland Advisors or any of their employees
will be liable for losses suffered by a shareholder which result from following
telephone instructions reasonably believed to be genuine after verification
pursuant to these procedures.
There is currently no charge for telephone redemptions, although a charge may be
imposed in the future. Subject to waiver by the Funds in certain instances, the
minimum amount that may be redeemed by telephone is $1,000; all other
redemptions may be done in writing. During periods of substantial economic or
market changes, telephone redemptions may be difficult to implement. If a
shareholder is unable to contact Heartland Advisors or the Agent by telephone,
shares may also be redeemed by delivering the redemption request to the Agent in
person or by mail as described above. The Agent and the Funds reserve the right
to change, modify or terminate this telephone redemption service at any time.
SIGNATURE GUARANTEES. To protect your account, the Agent and the Funds from
fraud, signature guarantees are required for certain redemptions. Signature
guarantees enable the Agent to be sure that you are the person who has
authorized a redemption from your account. Signature guarantees are required
for: (1) any redemption by mail if the proceeds are to be paid to someone other
than the person(s) or organization in whose name the account is registered or
are to be sent to an address other than the address of the registered holder of
the shares; (2) any redemptions by mail which request that the proceeds be wired
to a bank; (3) any redemptions by mail where the redemption proceeds exceed
$25,000; and (4) requests to transfer the registration of shares to another
owner. These requirements may be waived by the Funds in certain instances.
The following institutions are acceptable guarantors: (a) commercial banks,
savings and loan associations and savings banks, which are members of the
Federal Deposit Insurance Corporation; (b) credit unions; (c) trust companies;
(d) firms which are members of a domestic stock exchange; and (e) foreign
branches of any of the above. The Agent cannot accept guarantees from notaries
public.
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SENDING REDEMPTION PROCEEDS. The Agent will not send redemption proceeds until
all payments for the shares being redeemed have cleared, which may take up to 15
days from the purchase date.
By Mail. The Agent mails checks for redemption proceeds typically within one or
two days, but not later than seven days, after it receives the request and all
necessary documents. The Agent will send redemption proceeds in accordance with
your instructions.
By Wire. The Agent will normally wire redemption proceeds to your bank the next
business day after receiving the redemption request and all necessary documents.
The signatures on any written request for a wire redemption must be guaranteed.
The Agent currently deducts a $12 wire charge from the redemption proceeds. This
charge is subject to change. You will be responsible for any charges which your
bank may make for receiving wires.
CERTAIN CONDITIONS. If, due to redemption or transfer, a shareholder's account
drops below $500 for three months or more, the Funds have the right to redeem
the shareholder's account, after giving 60 days notice, unless the shareholder
makes additional investments to bring the account value to $1,000.
Alternatively, the Funds may, after giving notice, impose a fee on accounts
maintained below the minimum investment level without an active automatic
investment plan.
A Fund may suspend the right to redeem shares for any period during which (a)
the New York Stock Exchange is closed or the Securities and Exchange Commission
determines that trading on the Exchange is restricted; (b) there is an emergency
as a result of which it is not reasonably practicable for the Fund to sell its
portfolio securities or to calculate the fair value of its net assets; or (c)
the Securities and Exchange Commission may permit for the protection of
shareholders.
SHAREHOLDER SERVICES
Each Fund offers a number of shareholder services designed to facilitate
investment in its shares. Full details of each of the services and instructions
as to how to participate in the various services can be obtained from the Funds
or Heartland Advisors.
INVESTMENT REPORTS.
Shareholder Reports. The Funds' portfolio managers review their strategies and
results in quarterly Value Reports. These reports also contain schedules of
investments and other financial data. If several members of a household own the
Fund, only one Value Report will be sent to that address. To receive additional
copies, please call Shareholder Services at 1-800-432-7856 or write to Heartland
Advisors at 790 North Milwaukee Street, Milwaukee, Wisconsin 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.
AUTOMATIC DIVIDEND REINVESTMENT. You may automatically reinvest all dividends
and distributions or elect to receive them in the form of a check. If your
dividends and distributions are reinvested, they will automatically purchase
additional shares of your current Fund, or shares of another Heartland fund, as
indicated on your account application, at the net asset value determined on the
dividend or distribution payment date. You may change your election at any time
by writing or calling Heartland Advisors. Heartland Advisors must receive any
change seven days prior to a payment date for it to be effective for that
payment.
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TAX-SHELTERED RETIREMENT PLANS. Shares of each Fund are available for purchase
in connection with the following tax-sheltered retirement plans: (i) Keogh Plans
(H.R. 10) for self-employed individuals; (ii) Qualified Corporate Pension and
Profit-Sharing Plans for employees; (iii) Individual Retirement Accounts; (iv)
Simplified Employee Pension Plans and SIMPLE retirement plans established by
employers for individual or employer contributions; and (v) 403(b) Plans for
employees of most non-profit organizations.
The minimum initial retirement plan investment in any Fund is $500 (there is no
minimum required for a SIMPLE IRA). Firstar Trust Company, as the trustee of the
Individual Retirement Account plan, charges a $12.50 annual maintenance fee with
a $25 maximum for multiple accounts with the same social security number
(subject to change by the trustee) for each Individual Retirement Account. The
IRA annual maintenance fee will be waived for investors with an aggregate of
$10,000 or more in Heartland fund accounts under the same social security
number. For other tax-sheltered retirement plans, the individual investor must
employ a self-directed plan. Detailed information concerning these plans and
copies of plans are available from Heartland Advisors. This information should
be read carefully and consultation with an attorney or tax advisor may be
advisable.
AUTOMATIC INVESTMENT PLAN. The automatic investment plan of each Fund offers a
simple way to maintain a regular investment program. By completing the automatic
investment portion of the account application attached to this Prospectus, you
may arrange automatic transfers (minimum $50 per transaction) from your checking
or savings account to your account in one of the Funds on a monthly or twice-
monthly basis. IRA contributions through the automatic investment plan apply as
a current year purchase and may not be applied as prior year contributions
unless the Fund receives written instructions to that effect on or before April
15th. The application must be accompanied by a "voided" check, and be received
at least 14 business days prior to the initial transaction. Once enrolled in the
automatic investment plan, you may change the monthly amount or terminate your
participation at any time by phoning or writing the Agent. Allow five business
days for a change to become effective. Your bank must be a member of Automated
Clearing House. If the automatic purchase cannot be made due to insufficient
funds or a stop payment, a $20 service fee will be assessed. If you stop making
automatic investments when your aggregate investment in a Fund is less than
$500, the Fund reserves the right to redeem your account after giving 60 days
notice, unless you make additional investments to bring your account value to
$1,000. The program will automatically be terminated upon redemption of all
shares, including an exchange of all shares to another fund. You will receive
quarterly confirmations of your transactions from the Agent and your regular
bank account statement will show the debit transaction each month.
SYSTEMATIC WITHDRAWAL PLAN. You can set up automatic withdrawals from your
account at monthly, quarterly, or annual intervals. To begin distributions, you
must have an initial balance of $25,000 in your account and withdraw at least
$100 per payment but no more than 2%, 6%, 12% or 24% of your initial account
balance each monthly, quarterly, semi-annual or annual payment, respectively.
Shares redeemed under the plan will be redeemed at their net asset value. To
establish the systematic withdrawal plan, request a form by calling 1-800-432-
7856. The systematic withdrawal plan may be terminated by you or by the Funds at
any time by written notice.
EXCHANGE PRIVILEGE. Shares of a Fund which have been registered in your name for
at least 15 days may be exchanged for shares of any other Heartland fund, or for
shares in the Firstar Money Market Fund, provided the fund into which you wish
to exchange is qualified for sale in the
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jurisdiction of residence which you state at the time you make the exchange.
Before initiating an exchange, you should obtain from Heartland Advisors and
carefully read the prospectus relating to the fund into which you wish to
exchange.
Exchanges Among Heartland Funds. Under the exchange privilege, each Heartland
fund offers to exchange its shares for shares of another Heartland fund on the
basis of relative net asset value per share. In order to qualify for the
exchange privilege without further approval of Heartland, it is required that
the shares being exchanged have a net asset value of at least $1,000, but not
more than $500,000. In addition, if you have certificates for any shares being
exchanged, you must surrender such certificates in the same manner as in
redemption of shares.
Exchanges with Firstar Money Market Fund. Shareholders may exchange all or a
portion of their shares in the Funds for shares of the Firstar Money Market Fund
at their relative net asset values and may also exchange back into a Heartland
fund without the imposition of any charges or fees. These exchanges are subject
to the minimum purchase and redemption amounts set forth in the prospectus for
the Firstar Money Market Fund. No charge to shareholders is imposed in
connection with this exchange; however, Heartland Advisors, as distributor, is
entitled to receive a fee from the Firstar Money Market Fund for certain
distribution and support services at the annual rate of .20 of 1% of the average
daily net asset value of the shares for which it is the holder or dealer of
record.
How to Exchange. To exercise the exchange privilege, you need to do one of the
following: (a) contact Heartland Advisors by telephone (1-800-432-7856 or 414-
289-7000) and request the exchange, unless you have elected not to have this
telephone privilege by so indicating on the Account Application; (b) complete an
Exchange Application available from Heartland Advisors and submit it to the
Agent; or (c) contact your broker-dealer or financial institution (either in
writing or by telephone) who will advise Heartland of the exchange, but who may
charge a fee for such service. See "HOW TO REDEEM SHARES - Telephone
Redemptions" for information on transactions by telephone.
Tax and Other Considerations. An exchange between funds is treated as a sale for
federal income tax purposes and, depending upon the circumstances, a short or
long-term capital gain or loss may be realized. If you have questions as to the
tax consequences of an exchange, you should consult your tax advisor. The
exchange privilege may be modified or terminated at any time upon 60 days prior
written notice. Although an investor may make up to four exchanges in any
calendar year, Heartland reserves the right to limit the number of exchanges
beyond that.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
DIVIDENDS. Substantially all of the Value Fund's, Mid Cap Value Fund's, and
Large Cap Value Fund's net investment income will be paid to shareholders
annually as a dividend. With respect to the Value Plus Fund, dividends will be
paid to shareholders quarterly. In the U.S. Government Securities Fund,
dividends will be declared daily and paid monthly. It is the intent of each Fund
to distribute substantially all of the Fund's net investment income. Dividends
may be taken in cash or additional shares at net asset value. Dividends and
capital gain distributions will be automatically reinvested in additional shares
of the same Fund or another Fund, unless a shareholder has notified Heartland
Advisors by telephone or in writing that he or she elects to receive dividends
and capital gain distributions in cash.
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CAPITAL GAINS DISTRIBUTIONS. If a Fund has net capital gains for the year it is
the intent of the Fund to generally distribute substantially all of the net
capital gain.
TAXES. Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code (the "Code") and, if so qualified,
will not be subject to federal income taxes to the extent its earnings are
timely distributed. Each Fund also intends to make distributions as required by
the Code to avoid the imposition of a 4% excise tax.
Each Fund will distribute substantially all of its net investment income and net
capital gains to investors. Distributions from a Fund's income and short-term
capital gains are taxed as dividends, and long-term capital gain distributions
are taxed at long-term capital gain rates. Distributions of long-term capital
gains will be taxable to the investor as long-term capital gains regardless of
the length of time shares have been held. If you realize a loss on the sale or
exchange of Fund shares held six months or less, your short-term loss will be
reclassified to long-term to the extent of any long-term capital gain
distribution received. A portion of each Fund's dividends may qualify for the
dividends received deduction for corporations. The Funds' distributions are
taxable when they are paid, whether a shareholder takes them in cash or
reinvests them in additional shares, except that distributions declared in the
last three months of the year and paid in January are taxable as if paid on
December 31. The federal income tax status of all distributions will be reported
to shareholders annually. If a Fund's taxable distributions exceed its current
and accumulated earnings and profits, all or a portion of those distributions
may be treated as a return of capital to shareholders for tax purposes.
"BUYING A DIVIDEND." On the date of a distribution by a Fund, its share price is
reduced by the amount of the distribution. If you buy shares just before the
record date ("buying a dividend"), you will pay the full price for the shares,
and then receive a portion of the price back as a taxable distribution.
OTHER TAX INFORMATION. Under federal tax law, some shareholders may be subject
to a 31% withholding on reportable dividends, capital gains distributions, and
redemption payments ("backup withholding"). Generally, investors subject to
backup withholding will be those for whom a taxpayer identification number is
not on file with the Fund or who, to the Fund's knowledge, have furnished an
incorrect number. In order to avoid this withholding requirement, an investor
must certify on the account application that the taxpayer identification number
provided is correct and that the investment is not otherwise subject to backup
withholding, or is exempt from backup withholding.
The foregoing tax discussion is general in nature and each investor is advised
to consult his or her tax advisor for additional information.
THE FUNDS AND THE HEARTLAND ORGANIZATION
The Board of Directors provides broad supervision over the affairs of each Fund,
and the officers are responsible for its operations.
HEARTLAND ADVISORS
Heartland Advisors provides the Funds with overall investment advisory and
administrative services under an Investment Advisory Agreement with Heartland.
Subject to policies established by Heartland's Board of Directors, Heartland
Advisors makes investment decisions on behalf of
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each Fund, makes available research and statistical data, and supervises the
acquisition and disposition of investments by each Fund. Heartland Advisors is
also the distributor for each Fund.
Heartland Advisors, founded in 1982, serves as the investment advisor for the
Heartland Short Duration High-Yield Municipal Fund, Heartland High-Yield
Municipal Bond Fund and Heartland Wisconsin Tax Free Fund, three additional
series of Heartland, and also provides investment management services for
individuals and institutional accounts, such as pension funds and profit-sharing
plans. As of March 31, 1998, Heartland Advisors had approximately $4.5 billion
in assets under management. Heartland Advisors' principal mailing address is 790
North Milwaukee Street, Milwaukee, Wisconsin 53202. William J. Nasgovitz, a
Director and President of Heartland and Heartland Advisors, is a controlling
person of Heartland Advisors through his ownership of a majority of its voting
common stock.
For the fiscal year ended December 31, 1997, the Value and Mid Cap Value Funds
paid advisory fees of $14,673,206 and $184,843, respectively, or approximately
0.75 of 1% of each Fund's average daily net assets during that year. For the
fiscal year ended December 31, 1997, the Value Plus Fund paid advisory fees of
$1,292,331, or approximately 0.70 of 1% of the Fund's average daily net
assets.
For the fiscal year ended December 31, 1997, the Large Cap Value Fund paid
advisory fees of $26,585, or approximately 0.49 of 1% of average daily net
assets. Heartland Advisors voluntarily waived a portion of its fee during that
year; had no fee waiver been effect, the Large Cap Value Fund would have paid
$40,359 in advisory fees, or 0.75 of 1% of average daily net assets for the
year. At present Heartland Advisors is voluntarily waiving its entire investment
advisory fee for the Large Cap Value Fund. Heartland Advisors may reinstate all
or a portion of the fee at any time.
For the fiscal year ended December 31, 1997, the U.S. Government Securities Fund
paid advisory fees of $146,128, or approximately 0.31 of 1% of average daily net
assets. Heartland Advisors voluntarily waived a portion of its fee during that
year; had no fee waiver been in effect, the U.S. Government Securities Fund
would have paid $301,650 in advisory fees, or 0.65 of 1% of average daily net
assets for the year. At present, Heartland Advisors is voluntarily waiving 0.40
of 1% of its investment advisory fee for the U.S. Government Securities Fund,
resulting in an annual rate of 0.25 of 1% of average daily net assets. Heartland
Advisors may reinstate all or a portion of the fee at any time.
PORTFOLIO MANAGERS. William J. Nasgovitz serves as co-portfolio manager for the
Value Fund and has managed or co-managed the Fund since commencement of its
operations. Mr. Nasgovitz also serves as co-manager of the Value Plus Fund and
has been in that position since commencement of the Fund's operations. Mr.
Nasgovitz has been President, Chief Executive Officer, and a Director of
Heartland Advisors, and President and a Director of Heartland since 1982, and
was Senior Vice President-Investments with Dain Bosworth Incorporated from 1988
to 1992.
Michael A. Berry, Ph.D., serves as portfolio manager for the Mid Cap Value Fund
and has managed the Fund since its inception. Since September 1998, Dr. Berry
has been a Vice President of Heartland Advisors. Prior to joining Heartland
Advisors in July 1996, Dr. Berry had been the portfolio manager of the Kemper-
Dreman Small Cap Value Fund, a Managing Director of Dreman Value Advisors, Inc.
and Chief Equity Strategist for Zurich Kemper Investments since September 1995.
Dr. Berry had been associated with Dreman Value Advisors' predecessor since
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<PAGE>
1984 and also served as a Professor in Finance at James Madison University and
at the University of Virginia.
James P. Holmes, CFA, serves as portfolio manager for the Large Cap Value Fund
and has managed the Fund since its inception. Since September 1998, Mr. Holmes
has been a Vice President of Heartland Advisors. Prior to joining Heartland
Advisors in July 1996, Mr. Holmes had been a Managing Director of Dreman Value
Advisors, Inc. and its predecessor since 1986, with responsibility for portfolio
management of institutional accounts.
Eric J. Miller, CMA, serves as co-portfolio manager of the Value Fund with Mr.
Nasgovitz. Mr. Miller, a Senior Vice President and a Director of Heartland
Advisors, has co-managed the Fund since July 1997. Mr. Miller has been a
director of Heartland Advisors since 1997 and a portfolio manager and research
analyst for advisory clients since January 1994. Prior to joining Heartland
Advisors, Mr. Miller had been with American Appraisal Associates, Inc. since
1986, serving as Vice President, Head of U.S. Appraisal Operations.
Patrick J. Retzer, CPA, serves as portfolio manager of the U.S. Government
Securities Fund and has managed or co-managed the Fund since October 1988. Mr.
Retzer also serves as co-manager of the Value Plus Fund with Mr. Nasgovitz and
has been in that position since July1997. Mr. Retzer, Senior Vice President of
Heartland Advisors, has been Vice President and Treasurer of Heartland since
1987, a Director of Heartland Advisors since 1988 and a Director of Heartland
since 1993.
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 perform accurately 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 and accounting for
securities portfolios.
Heartland Advisors has taken steps to help assure that their major computer
systems are capable of handling Year 2000 processing. Heartland Advisors is also
assessing the readiness of the Custodian, the Transfer and Dividend Disbursing
Agent and other third parties performing major Year 2000 processing services as
agents for the Funds and Heartland Advisors. Although Heartland Advisors expects
all major Fund computer systems to be ready in time, the Funds could be
adversely affected if Year 2000 processing systems are not properly modified in
a timely manner.
Issuers of securities or instruments in which the Funds may invest could be
affected by the Year 2000 processing issue, as could their service providers who
administer the payment of principal, or dividends or other distributions on
securities held by the Funds. At this time the degree of impact on the Funds
cannot be predicted. To the extent a portfolio holding is adversely affected by
a Year 2000 processing issue, one or more Funds' returns could be adversely
affected.
EUROPEAN ECONOMIC AND MONETARY UNION (EMU). Certain European countries have
agreed to enter into the EMU in an effort to, among other things, reduce
barriers between countries and eliminate fluctuations in their currencies. The
EMU establishes a single European currency, the euro, which will be introduced
on January 1, 1999, and is scheduled to replace the existing national currencies
of all initial EMU participants by July 1, 2002. Upon introduction of the euro,
certain securities, beginning with government and corporate bonds, will be
redenominated in the
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<PAGE>
euro and, thereafter, will trade and make dividend and other payments only in
euros. Like other investment companies and business organizations, including
companies in which the Funds may invest, the Funds could be adversely affected
if (i) the euro, or the EMU as a whole does not take effect as planned; (ii) if
a participating country withdraws from the EMU; or (iii) if the computer,
accounting and trading systems used by the Funds' service providers, or by other
entities with which the Funds or their service providers do business, are not
capable of recognizing the euro as a distinct currency at the time of and
following the conversion to the euro.
THE DISTRIBUTION PLAN
Each Fund has adopted a Distribution Plan which, among other things, requires it
to pay Heartland Advisors, as distributor, a quarterly distribution fee of up to
0.25 of 1% of its average daily net assets computed on an annual basis. Under
each Plan, the Fund is obligated to pay distribution fees only to the extent of
expenses actually incurred by Heartland Advisors, as distributor, for the
current year, and thus there will be no carry-over expenses from previous years.
These expenses may include expenses incurred for media advertising, the printing
and mailing of prospectuses to persons other than shareholders, the printing and
mailing of sales literature, answering routine questions relating to a Fund, and
payments to selling representatives, authorized securities dealers, financial
institutions, or other service providers for providing services in assisting
investors with their investments and/or for providing administrative, accounting
and other services with respect to a Fund's shareholders. No fee paid by a Fund
under the Plans may be used to reimburse Heartland Advisors for expenses
incurred in connection with another Fund. Each Distribution Plan will continue
in effect, if not sooner terminated in accordance with its terms, for successive
one-year periods, provided that each such continuance is specifically approved
by the vote of the Directors, including a majority of the Directors who are not
interested persons, of Heartland. During the fiscal year ended December 31,
1997, Heartland Advisors waived $4,591 of the distribution fee for the Large Cap
Value Fund pursuant to a voluntary fee waiver. For further information regarding
the Distribution Plans, see the Statement of Additional Information.
NET ASSET VALUE CALCULATION
Each Fund's share price or net asset value per share is computed daily by
dividing the total value of the investments and other assets of the Fund, less
any liabilities, by the total outstanding shares of the Fund. The net asset
value per share is determined as of the close of the New York Stock Exchange
regular trading (generally 4:00 p.m. Eastern time) on each day the New York
Stock Exchange is opened.
Securities owned by the Funds are valued on the basis of market quotations or at
their fair value. Fair value of any of the Funds' debt securities for which
market quotations are not readily available will be determined by a pricing
service approved by Heartland's Board of Directors, based primarily upon
information concerning market transactions and dealer quotations for similar
securities. Debt securities having maturities of 60 days or less may be valued
at acquisition cost, plus or minus any amortized discount or premium. Any
securities or other assets for which market quotations are not readily available
will be valued in good faith at their fair market value using methods determined
by Heartland's Board of Directors.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded, and are translated from the local currency into U.S.
dollars using current exchange rates. Fluctuations in the value of such
currencies in relation to the U.S. dollar may affect the net asset
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<PAGE>
value of Fund shares even if there has not been any change in the foreign
currency denominated values of such securities.
DESCRIPTION OF FUND SHARES
Heartland is a diversified open-end management investment company registered
under the Investment Company Act of 1940, which was organized in 1986 as a
Maryland corporation. The authorized common stock of Heartland consists of one
billion shares, $0.001 par value per share. Heartland is a series company, which
means the Board of Directors may establish additional series, and may increase
or decrease the number of shares in each series. Currently, eight series are
authorized and outstanding. 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 preemptive, cumulative voting, subscription or
conversion rights and are freely transferable. Although annual meetings of
shareholders are not required, special meetings may be called for purposes such
as electing or removing directors, changing fundamental policies or approving
investment advisory contracts.
PORTFOLIO TRANSACTIONS
As provided in its Investment Advisory Agreement, Heartland Advisors is
responsible for each Fund's portfolio decisions and the placing of portfolio
transactions. In executing such transactions, Heartland Advisors seeks to obtain
the best net results for each Fund, taking into account such factors as price
(including the brokerage commission or dealer spread), size of order,
competitive commissions on similar transactions, difficulty of execution and
operational facilities of the firm involved and the firm's risk in positioning a
block of securities. While Heartland Advisors seeks reasonably competitive
rates, it does not necessarily pay the lowest commission or spreads available.
Transactions in smaller companies may involve specialized services on the part
of the broker and thereby entail higher commissions or spreads than would be
paid in transactions involving more widely traded securities.
Heartland Advisors may serve as a broker for any Heartland fund; however, in
order for Heartland Advisors to effect any portfolio transactions for the funds,
the commissions, fees or other remuneration received by Heartland Advisors must
be reasonable and fair compared to, and will not ordinarily be larger than, the
commissions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities.
Allocation of transactions, including their frequency, to various dealers is
determined by Heartland Advisors in its best judgment and in a manner deemed
fair and reasonable to shareholders. The primary consideration is prompt and
efficient execution of orders in an effective manner at the most favorable
price. Subject to this primary consideration, Heartland Advisors may also
consider the provision of supplemental research services and sales of the shares
of any or all of the Heartland funds as factors in the selection of broker-
dealers to execute portfolio transactions.
PERFORMANCE INFORMATION
From time to time each Fund may advertise its "yield" and "total return." Yield
is based on historical earnings and total return is based on historical
distributions; neither is intended to indicate future performance. The "yield"
of a Fund refers to the income generated by an investment in that fund over a
one-month period (which period will be stated in the
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advertisement). This income is then "annualized." That is, the amount of income
generated by the investment during the month is assumed to be generated each
month over a 12-month period and is shown as a percentage of the investment.
"Total return" of a Fund refers to the average annual total return for one, five
and ten-year periods (or the portion thereof during which a Fund has been in
existence). Total return is the change in redemption value of shares purchased
with an initial $1,000 investment, assuming the reinvestment of dividends and
capital gain distributions and the redemption of the shares at the end of the
period.
Performance information should be considered in light of the particular Fund's
investment objectives and policies, characteristics and quality of its portfolio
securities and the market conditions during the applicable period, and should
not be considered as a representation of what may be achieved in the future.
Further information is contained in the Statement of Additional Information.
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APPENDIX A
ASSET COMPOSITION
The following table provides a summary of the Value Plus Fund's debt holdings,
including convertible debt securities, as rated by the higher of Moody's or S&P
or, in the case of unrated securities, as determined by Heartland Advisors.
These figures are dollar-weighted averages of month-end portfolio holdings
during the year ended December 31, 1997, presented as a percentage of total
portfolio holdings, and total to 22.1%. During the year ended December 31, 1997,
the Mid Cap Value and Large Cap Value Funds were not invested in long-term
corporate debt securities. Effective March 31, 1997, the U.S. Government
Securities Fund no longer invests in long-term corporate debt securities and the
Value Fund did not invest more than 5% of its assets in such securities. The
percentages are historical and are not necessarily indicative of the quality of
current or future Fund holdings, which may vary. Those securities assigned an
equivalent rating may include those rated by other nationally recognized rating
organizations, as well as unrated securities. Unrated securities are not
necessarily lower quality securities. Please refer to the Statement of
Additional Information for a more complete discussion of these ratings.
<TABLE>
<CAPTION>
MOODY'S /S&P RATING VALUE PLUS FUND PORTFOLIO HOLDING %
(DOLLAR-WEIGHTED AVERAGE)
<S> <C>
Aaa/AAA 2.9%
Aa/AA 0.0
A 0.0
Baa/BBB 1.0
Ba/BB 1.4
B 9.6
----
TOTAL 14.9%
</TABLE>
<TABLE>
<CAPTION>
HEARTLAND EQUIVALENT RATING VALUE PLUS FUND PORTFOLIO HOLDING%
(DOLLAR-WEIGHTED AVERAGE)
<S> <C>
Aaa/AAA 0.0%
Aa/AA 0.0
A 0.0
Baa/BBB 0.0
Ba/BB 1.5
B 5.7
----
TOTAL 7.2%
</TABLE>
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<PAGE>
HEARTLAND FUNDS
General Information and Account/Price Information (24 hours):
1-800-432-7856 or (414) 289-7000
Web Site: http://www.heartlandfunds.com
HEARTLAND FUNDS
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
INVESTMENT ADVISOR AND DISTRIBUTOR
Heartland Advisors, Inc.
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
CUSTODIAN
Firstar Bank Milwaukee, N.A.
615 East Michigan Street, 3rd Floor
P. O. Box 701
Milwaukee, Wisconsin 53201-0701
TRANSFER AND DIVIDEND DISBURSING AGENT
Firstar Mutual Fund Services, LLC
615 East Michigan Street, 3rd Floor
P. O. Box 701
Milwaukee, Wisconsin 53201-0701
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
COUNSEL
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DATED NOVEMBER 9, 1998
HEARTLAND LARGE CAP VALUE FUND
HEARTLAND MID CAP VALUE FUND
HEARTLAND VALUE PLUS FUND
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
HEARTLAND VALUE FUND
790 North Milwaukee Street, Milwaukee, Wisconsin 53202
414-289-7000 or 1-800-432-7856
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus dated November 9, 1998 and any
supplement thereto ("Prospectus"). A copy of the Prospectus and an account
application may be obtained without charge by telephone or written request to
the distributor, Heartland Advisors, Inc. ("Heartland Advisors"). Shareholder
inquiries should be directed to the Funds in writing or by telephone.
________________________________________________________________________________
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
----
<S> <C>
INTRODUCTION TO THE FUNDS 2
INVESTMENT POLICIES AND METHODS 2
INVESTMENT RESTRICTIONS 15
MANAGEMENT 20
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES 21
THE INVESTMENT ADVISOR 22
PERFORMANCE INFORMATION 23
DETERMINATION OF NET ASSET VALUE PER SHARE 25
DISTRIBUTION OF SHARES 26
DISTRIBUTION PLAN 26
TAX STATUS 27
DESCRIPTIONS OF SHARES 27
PORTFOLIO TRANSACTIONS 28
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT 31
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS 31
FINANCIAL STATEMENTS 32
APPENDIX A A-1
</TABLE>
<PAGE>
INTRODUCTION TO THE FUNDS
The Heartland family of funds consists of eight separate series of
Heartland Group, Inc. ("Heartland"), a Maryland corporation registered as an
open-end management investment company. This Statement of Additional
Information relates only to the Heartland Value Fund, the Heartland Mid Cap
Value Fund, the Heartland Large Cap Value Fund, the Heartland Value Plus Fund,
and the Heartland U.S. Government Securities Fund, (the "Value Fund," the "Mid
Cap Value Fund," the "Large Cap Value Fund," the "Value Plus Fund," and the
"U.S. Government Securities Fund," respectively, collectively referred to herein
as the "Funds"), each of which is a diversified Fund with distinct investment
objectives and programs. A separate Prospectus and related Statement of
Additional Information for the other Heartland funds are available from
Heartland Advisors.
INVESTMENT POLICIES AND METHODS
GENERAL
The following information supplements the discussion of each Fund's
investment objectives and policies discussed in the Prospectus. Unless
otherwise specified, the investment policies and restrictions of each Fund are
not fundamental policies and are therefore subject to change by the Board of
Directors of Heartland without shareholder approval. However, shareholders will
be notified prior to a material change in any such policy or restriction. The
fundamental policies of a Fund may not be changed without the approval of at
least a majority of the outstanding shares of the Fund or, if it is less, 67% of
the shares represented at a meeting of shareholders of the Fund at which the
holders of 50% or more of the shares are represented.
OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
WRITING COVERED CALL OPTIONS. Each Fund may write covered call options on
its portfolio securities and enter into closing transactions with respect to
such options. The Value, Mid Cap Value, Large Cap Value and Value Plus Funds
may also write covered call options on foreign currencies. In writing covered
call options, each Fund expects to generate additional premium income which
should serve to enhance the Fund's total return and reduce the effect of any
decline in the market price of the security involved in the option.
A call option gives the holder (buyer) the right to purchase a specified
security at a stated price (the exercise price) at any time before a specified
date (the expiration date). The term "covered" call option means that the Fund
will own the securities subject to the option or have an unconditional right to
purchase the same underlying security at a price equal to or less than the
exercise price of the "covered" option, or will establish and maintain for the
term of the option an account consisting of cash, or other liquid assets having
a value equal to the fluctuating market value of the optioned securities.
Through receipt of the option premium, a call writer mitigates the effects
of a price decline. At the same time, because a call writer must be prepared to
deliver the underlying security in return for the exercise price, even if its
current value is greater, a call writer gives up some ability to participate in
the price increases in the underlying security. If a call option which a Fund
has written expires, the Fund will realize a gain in the amount of the premium;
however, such gain may be offset by a decline in the market value of the
underlying security during the option period. If the call option is exercised,
the Fund will realize a gain or loss from the sale of the underlying security.
The premium received is the market value of an option. The premium a Fund
receives from writing a call option reflects, among other things, the current
market price of the underlying security, the relationship of the exercise price
to such market price, the historical price volatility of the underlying security
and the length of the option period. The premium received by a Fund for writing
covered call options will be recorded as a cash asset and a liability of the
Fund. The liability will be adjusted daily with a corresponding adjustment to
the Fund's total assets, to reflect the option's current market value, which
will be the latest sale price at the time at which the net asset value per share
of the Fund is computed (close of regular trading on the New York Stock
Exchange), or, in the
2
<PAGE>
absence of such sale, the latest asked price. The liability will be extinguished
and the net gain or loss on the option realized upon expiration of the option,
the purchase of an identical option in a closing transaction, or delivery of the
underlying security upon the exercise of the option. The Funds do not consider a
security covered by a call to be "pledged" as that term is used in the
respective Fund's policy limiting the pledging of its assets.
Closing transactions may be effected by purchasing a call option in order
to realize a profit on an outstanding call option, to prevent an underlying
security from being called, or, to permit the sale of the underlying security.
Furthermore, effecting a closing transaction may permit a Fund to write another
call option on the underlying security with either a different exercise price or
expiration date or both. If a Fund desires to sell a particular security from
its portfolio on which it has written a call option, it will seek to effect a
closing transaction prior to, or concurrently with, the sale of the security.
There is, of course, no assurance that a Fund will be able to effect such
closing transactions at a favorable price. A Fund may pay transaction costs in
connection with the writing or purchase of options to close out previously
written options, which costs are normally higher than the transaction costs
applicable to purchases and sales of portfolio securities.
PURCHASING PUT OPTIONS. Each Fund may purchase put options with respect to
its portfolio securities. As the holder of a put option, the Fund has the right
to sell the underlying security at the exercise price at any time during the
option period. A Fund may enter into closing transactions with respect to such
options, exercise them or permit them to expire. A Fund may purchase a put
option on an underlying security owned by the Fund as a defensive technique in
order to protect against an anticipated decline in the value of the security.
Such hedge protection is provided only during the life of the put option when
the Fund, as holder of the put option, is able to sell the underlying security
at the put exercise price regardless of any decline in the underlying security's
market price. The premium paid for the put option and any transaction costs
would reduce any gain otherwise available for distribution when the security is
eventually sold.
The premium paid by a Fund when purchasing a put option will be recorded as
an asset of the Fund. This asset will be adjusted daily to the option's current
market value, which will be the latest sale price at the time at which the net
asset value per share of the Fund is computed (close of regular trading on the
New York Stock Exchange), or, in the absence of such sale, the latest bid price.
This asset will be extinguished upon expiration of the option, the selling
(writing) of an identical option in a closing transaction, or the delivery of
the underlying security upon the exercise of the option.
PURCHASING CALL OPTIONS. The Mid Cap Value Fund and the Large Cap Value
Fund may purchase call options on any type of security related to their
respective investments, including options traded on foreign exchanges. As the
holder of a call option, a Fund has the right to purchase the underlying
security at the exercise price at any time during the option period. A Fund may
enter into closing sale transactions with respect to such options, exercise
them, or permit them to expire. A call buyer typically attempts to participate
in potential price increases of the underlying security with risk limited to the
cost of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to offset
the cost of the option.
INDEX OPTIONS. The Value Fund, the Mid Cap Value Fund, the Large Cap Value
Fund, and the Value Plus Fund may sell covered call options and purchase put
options on stock indices composed of securities of the same general character as
each Fund's portfolio and may enter into closing transactions with respect to
such options. Options on indices would be used in a manner similar to the use of
options on securities; however, upon the exercise of an index option, settlement
occurs in cash rather than by delivery of an underlying security, with the
exercising option holder receiving the difference between the closing level of
the index upon which the option is based and the exercise price of the option.
OPTIONS ON FUTURES CONTRACTS. The Value Fund, the Value Plus Fund, and the
U.S. Government Securities Fund may each write covered call options and purchase
put options on futures contracts and enter into closing transactions with
respect to such options. The Mid Cap Value Fund and the Large Cap Value Fund
may buy and sell options on futures based on any type of security, index, or
currency related to their respective investments. Options on futures would be
used in a manner similar to the use of options on securities. An option on a
futures
3
<PAGE>
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract (a long position if the option is a call
and a short position if the option is a put) at a specified exercise price at
any time during the option exercise. The writer of the option is required upon
exercise to assume an offsetting futures position at a specified exercise price
at any time during the period of the option. When writing an option on a futures
contract a Fund will be required to make margin payments as described below for
futures contracts.
FUTURES CONTRACTS. Each Fund may purchase and sell futures contracts,
including interest rate and index futures contracts, that are traded on a
recognized U.S. exchange, board of trade or similar entity, or quoted on an
automated quotation system. In addition, the Mid Cap Value Fund and the Large
Cap Value Fund may purchase and sell futures contracts based on any type of
security, index, or currency related to their respective investments, including
futures traded on foreign exchanges. Each Fund will engage in transactions in
futures contracts solely for bona fide hedging purposes.
When a Fund purchases a futures contract, it agrees to purchase a specified
underlying instrument at a specified future date. When a Fund sells a futures
contract, it agrees to sell the underlying instrument at a specified future
date. The price at which the purchase and sale will take place is fixed when
the Fund enters into the contract. The purchaser or seller of a futures contract
is not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, upon entering into a futures
contract, and to maintain an open position in futures contracts, a Fund would be
required to deposit "initial margin" in a segregated account in the name of the
executing futures commission merchant when the contract is entered into. The
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.
If the price of an open futures contract changes (by increase in the case
of a sale or by decrease in the case of a purchase) so that the loss of the
futures contract reaches a point at which the initial margin on deposit does not
satisfy margin requirements, the broker will require the payment of "variation
margin" to settle the change in value on a daily basis. If the value of a
position increases because of favorable price changes in the futures contract so
that the margin deposit exceeds the required margin, the broker will pay the
excess to the Fund. In computing daily net asset value, a Fund marks to market
the current value of its open futures contracts. The Funds expect to earn
interest income on their margin deposits.
Futures contracts can be held until their delivery dates, or can be closed
out before then if a liquid secondary market is available. If a Fund closes out
an open futures contract by entering into an offsetting futures contract, and
the offsetting purchase price is less than the original sale price, a Fund
realizes a gain; if it is more, a Fund realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The transaction costs
must also be included in these calculations. There can be no assurance,
however, that a Fund will be able to enter into an offsetting transaction with
respect to a particular futures contract at a particular time. If a Fund is not
able to enter into an offsetting transaction, the Fund will continue to be
required to maintain the margin deposits on the futures contract.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase a Fund's exposure to positive and negative price
fluctuations in the underlying instrument, much as if it had purchased the
underlying instrument directly. When a Fund sells a futures contract, by
contrast, the value of its futures position will tend to move in a direction
contrary to the market. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
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LIMITATIONS ON FUTURES AND OPTIONS ON FUTURES TRANSACTIONS
Each Fund will engage in transactions in futures contracts and options
thereon only for bona fide hedging and risk management purposes, in each case in
accordance with the rules and regulations of the Commodity Futures Trading
Commission, and not for speculation.
A Fund will not enter into any futures contract or option on a futures
contract if, as a result, the sum of initial margin deposits on futures
contracts and related options and premiums paid for options on futures contracts
the Fund has purchased, after taking into account unrealized profits and
unrealized losses on such contracts, would exceed 5% of the Fund's total assets;
provided, however, that in the case of an option which is in-the-money at the
time of purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The Value Fund and the U.S. Government Securities Fund will also be
subject to their fundamental investment restrictions regarding commodities,
futures, and options discussed herein.
In addition to the above limitations, the Mid Cap Value Fund, the Large Cap
Value Fund, and the Value Plus Fund will not: (a) purchase or sell futures and
options on futures or enter into closing transactions with respect thereto if,
as a result thereof, the then current aggregate futures market prices and
financial instruments required to be delivered under open futures contract sales
plus the then current aggregate purchase price of financial instruments required
to be purchased under open futures contract purchases would exceed 25% of the
respective Fund's net assets (taken at market value at the time of entering into
the contract and excluding the amount by which any of its options on futures are
in-the-money); (b) the aggregate value of all premiums paid for put and call
options purchased by the Fund would exceed 5% of the Fund's total assets (less
the amount by which any such positions are in-the-money); or (c) the aggregate
market value of all portfolio securities covering put and call options written
by the Fund would exceed 25% of the Fund's total assets. The above limitations
on the Mid Cap Value Fund's, the Large Cap Value Fund's, and the Value Plus
Fund's investments in futures contracts and options and the respective Fund's
policies regarding futures contracts and options discussed elsewhere in this
Statement of Additional Information are not fundamental policies of the Funds
and may be changed by Heartland's Board of Directors as permitted by applicable
regulatory authority.
COMBINED POSITIONS. The Funds may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, a Fund may purchase a put option and write a call option
on the same underlying instrument in order to construct a combined position
whose risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at one
exercise price and buying a call option at a lower price, in order to reduce the
risks of the written call option in the event of a substantial price increase.
Because combined positions involve multiple trades, they may result in higher
transaction costs and may be more difficult to open and close out.
RISKS IN OPTIONS AND FUTURES TRANSACTIONS
Options and futures can be highly volatile investments and involve certain
risks. A decision of whether, when, and how to hedge involves skill and
judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior, or market or interest rate trends.
Successful hedging strategies require the ability to predict future movements in
securities prices, interest rates, and other economic factors. There can be no
assurance that price movements in hedging vehicles and in the underlying
instruments will be directly correlated. Options and futures prices are
affected by such factors as current and anticipated short-term interest rates,
changes in volatility of the underlying instrument, and the time remaining until
expiration of the contract, which may not affect prices of the underlying
instruments the same way. Imperfect correlation may also result from different
levels of demand in the options and futures markets and the markets for the
underlying instruments, from structural differences in how options and futures
and securities are traded, or from imposition of daily price fluctuation limits
or trading halts by an exchange. If price changes in a Fund's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
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Because there are a limited number of types of exchange-traded options and
futures contracts, it is likely that the standardized contracts available will
not match a Fund's current or anticipated investments exactly. The Fund may
invest in options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures positions
will not track the performance of the Fund's other investments. The Funds may
purchase or sell options and futures contracts with a greater or lesser value
than the securities it wishes to hedge or intends to purchase in order to
attempt to compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases.
Because of the low margin deposits required, futures trading involves a
high degree of leverage. A relatively small price movement in futures contracts
could result in an immediate and substantial gain or loss to a Fund. Therefore,
a purchase or sale of a futures contract may result in losses in excess of the
amount invested in the futures contract by the Fund.
There can be no assurance that a liquid secondary market will exist for any
particular options or futures contracts at any particular time. On volatile
trading days when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for a Fund to enter into new positions or close
out existing positions. If the secondary market for a futures contract is not
liquid because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions and potentially require a Fund to continue
to hold the position until delivery or expiration regardless of changes in its
value. As a result, a Fund's access to other assets held to cover its options
or futures positions could also be impaired.
FOREIGN INVESTMENTS
The Value Fund and the Value Plus Fund may invest up to 15% of their
respective assets directly in the securities of foreign issuers traded outside
of the United States. The Mid Cap Value Fund and the Large Cap Value Fund may
invest up to 25% of their respective assets directly in the securities of
foreign issuers traded outside the United States. 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 generally have lower trading volume and less liquidity than
U.S. markets, and prices on some foreign markets can be highly volatile. Many
foreign countries lack uniform accounting and disclosure standards comparable to
those applicable to U.S. companies, and it may be more difficult to obtain
reliable information regarding a foreign issuer's financial condition and
operations. In addition, the costs of foreign investing, including withholding
taxes, brokerage commissions, and custodial costs, are generally higher than for
U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government regulation. 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,
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
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market capitalizations may involve a higher degree of risk than investments in
the general foreign equity markets and such securities may be subject to even
greater price volatility and may have less market liquidity than equity
securities of foreign issuers with larger market capitalizations.
The Value Fund, the Mid Cap Value Fund, the Large Cap Value Fund, and the
Value Plus Fund each may invest in foreign securities that impose restrictions
on transfer within the U.S. or to U.S. persons. Although securities subject to
transfer restrictions may be marketable abroad, they may be less liquid than
foreign securities of the same class that are not subject to such
restrictions.
American Depository Receipts and Global Depository Receipts ("ADRs" and
"GDRs") are certificates evidencing ownership of shares of a foreign-based
issuer held by a bank or similar financial institution as depository. Designed
for use in U.S. and global securities markets, respectively, ADRs and GDRs are
alternatives to the direct purchase of the underlying securities in their
national markets and currencies. The limitations as to a respective Fund's
investments in foreign securities do not apply to investments in ADRs and GDRs
or to securities of foreign issuers that are traded on a registered U.S. stock
exchange or the NASDAQ National Market System. A Depository Receipt may be
sponsored or unsponsored. In the case of a Fund 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.
FOREIGN CURRENCY TRANSACTIONS
FORWARD FOREIGN CURRENCY CONTRACTS. To manage the currency risk
accompanying investments in foreign securities and to facilitate the purchase
and sale of foreign securities, the Value Fund, the Mid Cap Value Fund, the
Large Cap Value Fund, and the Value Plus Fund may engage in foreign currency
transactions on a spot (cash) basis at the spot rate prevailing in the foreign
currency exchange market or through entering into contracts to purchase or sell
foreign currencies at a future date ("forward foreign currency" contracts or
"forward" contracts).
A forward foreign currency contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are principally traded in the interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. A forward contract generally has no deposit
requirement and no commissions are charged at any stage for trades.
When a Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in" the U.S. dollar
price of the security. By entering into a forward contract for the purchase or
sale, for a fixed amount of U.S. dollars, of the amount of foreign currency
involved in the underlying security transaction, the Fund will be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date the security is purchased or sold and the date on which
payment is made or received. This technique is sometimes referred to as a
"settlement hedge" or "transaction hedge." Heartland Advisors may enter into
settlement hedges in the normal course of managing a Fund's foreign investments.
When Heartland Advisors believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, it may enter
into a forward contract to sell for a fixed amount of U.S. dollars, the amount
of the foreign currency approximating the value of some or all of the respective
Fund's portfolio securities denominated in such foreign currency. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both positive
and negative currency fluctuations, but would not offset changes in security
values caused by other factors. The Value Fund, the Mid Cap Value Fund, the
Large Cap Value Fund, and the Value Plus Fund will not enter into such forward
contracts or maintain a net exposure to such contracts where the consummation of
the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the respective Fund's securities or other assets
denominated in that currency.
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The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult and the successful execution of a short-
term hedging strategy is highly uncertain. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the longer-term investment decisions made with regard to overall diversification
strategies. However, Heartland Advisors believes that it is important to have
the flexibility to enter into such forward contracts when it determines that the
best interests of a Fund will be served.
At the maturity of a forward contract, a Fund may either sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to purchase, on
the same maturity date, the same amount of the foreign currency.
If a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If a Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline during the period between the
Fund's entering into a forward contract for the sale of a foreign currency and
the date it enters into an offsetting contract for the purchase of the foreign
currency, the Fund will realize a gain to the extent the price of the currency
it has agreed to sell exceeds the price of the currency it has agreed to
purchase. Should forward prices increase, the Fund will suffer a loss to the
extent that the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
It is impossible to forecast with precision the market value of securities
at the expiration of a forward contract. Accordingly, it may be necessary for a
Fund to purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver and if a decision is
made to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security if its market value
exceeds the amount of foreign currency the Fund is obligated to deliver.
The Value Fund's, the Mid Cap Value Fund's, the Large Cap Value Fund's, and
the Value Plus Fund's dealings in forward foreign currency exchange contracts
will be limited to the transactions described above. Of course, the Funds are
not required to enter into such transactions with regard to their foreign
currency-denominated securities and will not do so unless deemed appropriate by
Heartland Advisors. This method of hedging against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices of the
securities. It simply establishes a rate of exchange which one can achieve at
some future point in time. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time, they tend to limit any potential gain which might result
should the value of such currency increase. Successful use of forward currency
contracts will depend on Heartland Advisors' skill in analyzing and predicting
currency values. Forward contracts may substantially change a Fund's investment
exposure to changes in currency exchange rates, and could result in losses to
the Fund if currencies do not perform as Heartland Advisors anticipates. For
example, if a currency's value rose at a time when Heartland Advisors had hedged
a Fund by selling that currency in exchange for U.S. dollars, the Fund would be
unable to participate in the currency's appreciation. Similarly, if Heartland
Advisors increases a Fund's exposure to a foreign currency, and that currency's
value declines, the Fund will realize a loss. There is no assurance that
Heartland Advisors' use of forward currency contracts will be advantageous to a
Fund or that it will hedge at an appropriate time.
Although each of the Value Fund, the Mid Cap Value Fund, the Large Cap
Value Fund, and the Value Plus Fund values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. It will do so from time to time and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies.
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Thus, a dealer may offer to sell a foreign currency to a Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. The policies described in this section regarding forward
foreign currency contracts and the respective Fund's policies regarding foreign
currency transactions discussed elsewhere in this Statement of Additional
Information are not fundamental policies of the Funds and may be changed by
Heartland's Board of Directors as permitted by applicable regulatory authority.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward foreign currency contracts, except that they
are traded on exchanges (and have margin requirements) and are standardized as
to contract size and delivery date. Most currency futures contracts call for
payment or delivery in U.S. dollars. The underlying instrument of a currency
option may be a foreign currency, which generally is purchased or delivered in
exchange for U.S. dollars, or may be a futures contract. The purchaser of a
currency call obtains the right to purchase the underlying currency, and the
purchaser of a currency put obtains the right to sell the underlying currency.
The uses and risks of currency options and futures are similar to options
and futures relating to securities or indices, as discussed above. Each of the
Value Fund, the Mid Cap Value Fund, the Large Cap Value Fund, and the Value Plus
Fund may purchase and sell currency futures and may purchase and write currency
options to increase or decrease its exposure to different foreign currencies.
The Value Fund, the Mid Cap Value Fund, the Large Cap Value Fund, and the Value
Plus Fund may also purchase and write currency options in conjunction with each
other or with currency futures or forward contracts. Currency futures and
options values can be expected to correlate with exchange rates, but may not
reflect other factors that affect the value of the respective Fund's
investments. A currency hedge, for example, should protect a Yen-denominated
security from a decline in the Yen, but will not protect the respective Fund
against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of the respective Fund's foreign-
denominated investments changes in response to many factors other than exchange
rates, it may not be possible to match the amount of currency options and
futures to the value of the respective Fund's investments exactly over time.
FEDERAL TAX TREATMENT OF OPTIONS, FUTURES CONTRACTS, AND FORWARD FOREIGN
EXCHANGE CONTRACTS
The Funds may enter into certain option, futures, and, with respect to the
Value Fund, the Mid Cap Value Fund, the Large Cap Value Fund, and the Value Plus
Fund, forward foreign exchange 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
transactions when determining the Fund's distribution requirements even though
it may not have closed the transaction and received cash to pay such
distribution.
Options, futures, and forward foreign exchange contracts which offset a
foreign dollar denominated bond or currency position may be considered straddles
for tax purposes in which case a loss on any position in a straddle will be
subject to deferral to the extent of unrealized gain in an offsetting position.
In order for a Fund to continue to qualify for federal income tax treatment
as a regulated investment company, at least 90% of its gross income for a
taxable year must be derived from qualifying income (i.e., dividends, interest,
income derived from loans of securities, and gains from the sale of securities
or currencies). Options, futures and foreign exchange contracts entered into for
an investment purpose are qualifying income.
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
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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.
NON-INVESTMENT GRADE SECURITIES
Non-investment grade debt securities (those rated below the four highest
categories by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P") or, if unrated, judged by Heartland Advisors to be of
comparable quality, commonly known as "junk bonds") are regarded, on balance, as
predominantly speculative with respect to the capacity of the issuer to pay
interest and repay principal in accordance with the terms of the obligation.
While such securities typically offer higher rates of return than investment
grade securities, they also involve greater risk, including greater risk of
default. An economic downturn could severely disrupt the market for such high
yield securities and adversely affect their value and the ability of the issuers
to repay principal and interest. The rate of incidence of default of non-
investment grade securities is likely to increase during times of economic
downturns and extended periods of increased interest rates. Yields on non-
investment grade securities will fluctuate over time, and are generally more
volatile than yields on investment grade securities.
The secondary trading market for non-investment grade securities may be
less well-established than for investment grade securities, and such securities
may therefore be only thinly traded. As a result, there may be no readily
ascertainable market value for such securities, in which case it will be more
difficult for the Funds to value accurately the securities, and consequently the
investment portfolio. Under such circumstances, the subjective judgment of the
Board of Directors will play a greater role in the valuation. Additionally,
adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidities of non-investment grade
securities, especially in a thinly traded market.
The Value Fund, Mid Cap Value Fund, Large Cap Value Fund and Value Plus
Fund will not invest in securities that are rated below the fifth or sixth
rating categories by Moody's or S&P (Ba and B for Moody's and BB and B for S&P)
or, if unrated, judged comparable by Heartland Advisors. Securities rated in
the higher of those categories have less near-term vulnerability to default than
other speculative issues, however they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. However,
business and financial alternatives available to obligors of such securities can
generally be identified which could assist them in satisfying their debt service
requirements. Securities rated in the lower of these two categories are
considered highly speculative. While the issuers of such securities currently
must be meeting debt service requirements in order to achieve this rating,
adverse business, financial, or economic conditions likely could impair the
issuer's capacity or willingness to pay interest and repay principal. A
detailed description of the characteristics associated with the various debt
credit ratings established by Moody's and S&P is set forth in Appendix A to this
Statement of Additional Information.
While rating categories help identify credit risks associated with debt
securities, they do not evaluate the market value risk of non-investment grade
securities. Additionally, the credit rating agencies may fail to promptly
change the credit ratings to reflect subsequent events. Accordingly,
Heartland's Board of Directors and Heartland Advisors continuously monitor the
issuers of non-investment grade securities held in each Fund's portfolio. Since
the risk of default is higher for non-investment grade debt securities,
Heartland Advisors' research and credit analysis are an especially important
part of managing securities of this type held by a Fund. In considering
investments for the Fund, Heartland Advisors will attempt to identify those
issuers of non-investment grade securities whose financial condition is adequate
to meet future obligations, has improved, or is expected to improve in the
future. Heartland Advisors' analysis focuses on relative values based on such
factors as interest or dividend coverage, asset coverage, earnings prospects,
and the experience and managerial strength of the issuer.
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A Fund may choose, at its expense or in conjunction with others, to pursue
litigation or otherwise to exercise its rights as a security holder to seek to
protect the interests of security holders if it determines this to be in the
best interests of the Fund's shareholders.
INDEXED SECURITIES
The Mid Cap Value Fund, the Large Cap Value Fund, the Value Plus Fund, and
the U.S. Government Securities Fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators. Indexed
securities typically, but not always, are debt securities or deposits whose
value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. For example, certain debt securities in which the
Funds may invest may include securities whose interest rates are determined by
reference to one or more specific financial indicators, such as LIBOR, resulting
in a security whose interest payments tend to rise and fall together with the
financial indicator. Gold-indexed securities, for example, typically provide for
a maturity value that depends on the price of gold, resulting in a security
whose price tends to rise and fall together with gold prices. Currency-indexed
securities typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values of
one or more specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed
securities may also have prices that depend on the values of a number of
different foreign currencies relative to each other. Indexed securities may be
positively or negatively indexed; that is, their maturity value may increase
when the specified underlying instrument's value increases, resulting in a
security that performs similarly to the underlying instrument, or their maturity
value may decline when the underlying instrument increases, resulting in a
security whose price characteristics are similar to a put on the underlying
instrument.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
government agencies.
The market for indexed securities may be thinner and less active than the
market for securities in general, which can adversely affect the prices at which
indexed securities are sold. If market quotations are not available, indexed
securities will be valued in accordance with procedures established by the Board
of Directors of Heartland, including the use of outside pricing services.
Judgment plays a greater role in valuing certain indexed securities than is the
case for securities for which more external sources for quotations and last-sale
information are available. Adverse publicity and changing investor perceptions
may affect the ability of outside pricing services to value indexed securities
and the Fund's ability to dispose of these securities.
INFLATION - INDEXED BONDS
Each Fund may invest in inflation-indexed bonds issued by the U.S.
Government, its agencies or instrumentalities. Inflation-indexed bonds are
fixed income securities whose principal value is periodically adjusted according
to the rate of inflation. The interest rate on these bonds is generally fixed
at issuance at a rate 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. However, the amount of the loss that a Fund may
record for any tax year is limited to the amount by which the total taxable
income realized by the Fund with respect to the particular bond in prior tax
years exceeds the total ordinary losses recorded by the Fund on the bond in
prior tax years. If the reduction in the
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<PAGE>
principal value of the bond for any tax year exceeds this limit, the excess can
be carried forward to offset interest income on the bond in future tax years.
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. At present, the U.S. Treasury has only recently begun
issuing inflation-indexed bonds. As such, there is no trading history of these
securities, and there can be no assurance that a liquid market in these
instruments will develop, although one is expected.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
Each of the Mid Cap Value and Large Cap Value Funds may invest in the
securities of other investment companies as permitted under the 1940 Act. At
present, the 1940 Act provisions limit each Fund so that (a) no more than 10% of
its total assets may be invested in securities of other investment companies,
(b) it may not own securities of any one investment company having a value in
excess of 5% of the Fund's total assets, and (c) it may not own more than 3% of
the total outstanding voting stock of any one investment company. As a
shareholder of another investment company, each Fund would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses of the Fund.
RESTRICTED SECURITIES
Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is
required, a Fund may be obligated to pay all or part of the registration expense
and a considerable period may elapse between the time it decides to seek
registration and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to seek registration of the security. The Mid Cap
Value, Large Cap Value and Value Plus Funds may invest without limitation in
restricted securities that are eligible for resale to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933, provided that
such securities have been determined to be liquid pursuant to the guidelines
adopted by the Board of Directors.
VALUE FUND - DEBT SECURITIES
The Value Fund may invest up to 5% of its net assets in debt securities
rated at least B by Moody's or S&P, or, if unrated, judged comparable by
Heartland Advisors. See "Non-Investment Grade Securities" above. Debt
securities in which the Value Fund may invest include corporate debt securities,
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and money market instruments, such as certificates of deposit
and commercial paper. This percentage limitation is in addition to assets that
may be invested in short-term instruments as described in the Prospectus.
U.S. GOVERNMENT SECURITIES FUND - MORTGAGE-RELATED SECURITIES
Mortgage-related securities in which the U.S. Government Securities Fund
may invest include mortgage pass-through securities and derivative mortgage
securities, such as collateralized mortgage obligations and stripped mortgage-
backed securities, issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
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<PAGE>
In general, mortgage-related securities have yield and maturity
characteristics corresponding to the underlying assets. Unlike traditional debt
securities, which may pay a fixed rate of interest until the entire principal
amount comes due at maturity, payments on certain mortgage-related securities
include both interest and a partial repayment of principal. Besides the
scheduled repayment of principal, repayments of principal on mortgage-related
securities may result from the voluntary prepayment, refinancing, or foreclosure
of the underlying mortgage loans. If property owners make unscheduled
prepayments of their mortgage loans, these prepayments may result in early
payment of the applicable mortgage-related securities. In that event, the Fund
may be unable to invest the proceeds from the early payment of the mortgage-
related securities in an investment that provides as high a yield as the
mortgage-related securities. Consequently, early payment associated with
mortgage-related securities may cause these securities to experience
significantly greater price and yield volatility than that experienced by
traditional fixed-income securities. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. During periods of falling interest rates, the rate of
mortgage prepayments generally tends to increase, thereby tending to decrease
the life of mortgage-related securities. During periods of rising interest
rates, the rate of mortgage prepayments generally decreases, thereby tending to
increase the life of mortgage-related securities. If the life of a mortgage-
related security is inaccurately predicted, the Fund may not be able to realize
the rate of return it expected.
Mortgage-related securities are less effective than other types of
securities as a means of "locking in" attractive long-term interest rates. One
reason is the need to reinvest prepayments of principal; another is the
possibility of significant unscheduled prepayments resulting from declines in
interest rates. During periods of declining interest rates, these prepayments
likely would have to be reinvested at lower rates. As a result, these
securities may have less potential for capital appreciation during periods of
declining interest rates than other securities of comparable maturities,
although they may have a similar risk of decline in market value during periods
of rising interest rates.
Prepayments may cause losses in securities purchased at a premium. At
times, some of the mortgage-related securities in which the Fund may invest may
have higher than market yields and, therefore, will be purchased at a premium
above their par value. Unscheduled prepayments, which are made at par, will
cause the Fund to experience a loss equal to any unamortized premium. In
addition, the value of mortgage-related securities may change due to changes in
the market's perception of the creditworthiness of the federal agency that
issued them, and the mortgage-related securities market in general may be
adversely affected by changes in governmental regulation or tax policies.
Certain characteristics of adjustable rate mortgage securities ("ARMs") may
make them more susceptible to prepayments than other mortgage-related
securities. Unlike fixed rate mortgages, the interest rates on adjustable rate
mortgages are adjusted at regular intervals, generally based on a specified,
published interest rate index. Investments in ARMs allow the Fund to participate
in changing interest rate levels through regular adjustments in the coupons of
the underlying mortgages, resulting in more variable current income, and
potentially shorter duration characteristics than longer-term fixed rate
mortgage securities. The extent to which the values of ARMs fluctuate with
changes in interest rates will depend on the frequency of the interest resets on
the underlying mortgages, and the specific indexes underlying the ARMs, as
certain indexes closely mirror market interest rate levels and others tend to
lag changes in market rates.
ARMs will frequently have caps and floors which limit the maximum amount by
which the interest rate on the underlying mortgage loans may move up or down
during each adjustment period, and over the life of the loan. Interest rate caps
on ARMs may cause them to decrease in value in an increasing interest rate
environment and may also prevent their income from increasing to levels
commensurate with prevailing interest rates. Conversely, interest rate floors
on ARMs may cause their income to remain higher than prevailing interest rate
levels and result in an increase in the value of such securities. However, this
increase may be tempered by an acceleration of prepayments. In general, ARMs
tend to experience higher levels of prepayment than other mortgage-related
securities. During favorable interest rate environments, holders of adjustable
rate mortgages have greater incentives to refinance with fixed rate mortgages in
order to avoid interest rate risk. In addition, significant increases in the
13
<PAGE>
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 securities. Stripped mortgage-backed securities are commonly structured
with two classes that receive different portions of the interest and principal
distributions on a pool of mortgage loans. The Fund may invest in both the
interest-only or "IO" class and the principal-only or "PO" class. The yield to
maturity on an IO class of stripped mortgage-backed securities is extremely
sensitive not only to changes in prevailing interest rates but also to the rate
of principal payments (including prepayments) on the underlying assets. A rapid
rate of principal prepayments may have a measurable adverse effect on the Fund's
yield to maturity to the extent it invests in IOs. If the assets underlying the
IO experience greater than anticipated prepayments of principal, the Fund may
fail to recoup fully its initial investment in these securities. Conversely,
POs tend to increase in value if prepayments are greater than anticipated and
decline if prepayments are slower than anticipated.
The secondary market for stripped mortgage-backed securities may be more
volatile and less liquid than that for other mortgage-related securities,
potentially limiting the Fund's ability to obtain market quotations for those
securities or to buy or sell those securities at any particular time.
The U.S. Government Securities Fund anticipates that governmental and
government-related entities may create mortgage loan pools offering pass-through
investments in addition to the types discussed above, including securities with
underlying pools of derivative mortgage-related securities. As new types of
mortgage-related securities are developed and offered to investors, Heartland
Advisors will, consistent with the Fund's objective and investment policies,
consider making investments in such new types of securities.
PORTFOLIO TURNOVER
Portfolio turnover for each Fund is the ratio of the lesser of annual
purchases or sales of portfolio securities by the Fund to the average monthly
value of portfolio securities owned by the Fund, not including securities
maturing in less than twelve months. A 100% portfolio turnover rate would
occur, for example, if the lesser of the value of purchases or sales of a Fund's
portfolio securities for a particular year were equal to the average monthly
value of the portfolio securities owned by the Fund during the year. For the
fiscal years ended December 31, 1997 and 1996, the portfolio turnover rates for
the Value Fund were 55% and 31%, respectively; for the Value Plus Fund, the
portfolio turnover rates were 74% and 73%, respectively;; and for the U.S.
Government Securities Fund, the portfolio turnover rates were 143% and 30%,
respectively. The turnover rate for the U.S. Government Securities Fund was
relatively high in 1997, in part due to the sector rotation strategy employed by
the Fund. In addition to pursuing such a strategy, effective March 31, 1997 the
Fund eliminated its positions in corporate bonds pursuant to a change in
investment policy, thereby increasing portfolio turnover. The portfolio
turnover rates for the Mid Cap Value Fund for the 1997 fiscal year and for the
period from October 11, 1996 (commencement of operations) to December 31, 1996
were 48% and 4%, respectively. The portfolio turnover rates for the Large Cap
Value Fund for the 1997 fiscal year and for the period from October 11, 1996
(commencement of operations) to December 31, 1996 were 30% and 1%,
respectively.
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<PAGE>
INVESTMENT RESTRICTIONS
Each Fund has adopted investment restrictions and fundamental policies
which cannot be changed without the approval of the holders of the lesser of (i)
a majority of the outstanding shares of the Fund or (ii) 67% of the shares
represented at a meeting of shareholders at which the holders of 50% or more of
the outstanding shares of the Fund are represented. Operating policies are
subject to change by the Board of Directors without shareholder approval.
However, no Fund will change materially any operating policy without notice to
shareholders. Any investment policy or restriction which involves a maximum
percentage of securities or assets will not be considered to be violated unless
an excess over the percentage occurs immediately after, and is caused by, an
acquisition of securities or assets of, or borrowing by, a Fund.
VALUE FUND AND U.S. GOVERNMENT SECURITIES FUND
The fundamental investment restrictions and policies of the Value Fund and
the U.S. Government Securities Fund provide that such Funds may not:
(1) Invest more than 5% of the fair market value of its assets in
securities of any one issuer except for United States Government agency
securities and securities backed by the United States Government, its agencies
or instrumentalities, which may be purchased without limitation. For the
purposes of this limitation, the Funds will regard the entity which has the
ultimate responsibility for payment of principal and interest as the issuer.
(2) Purchase more than 10% of the outstanding voting securities of an
issuer, or invest in a company to get control or manage it.
(3) Invest more than 25% of its total assets, based on current market value
at the time of purchase, in securities of issuers in any single industry;
provided that there shall be no limitation on the purchase of securities issued
or guaranteed by the United States Government, its agencies or
instrumentalities.
(4) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(5) Invest in securities of other investment companies except as they may
be acquired as part of a merger, consolidation, reorganization or acquisition of
assets.
(6) Buy or sell real estate, real estate investment trusts, or oil and gas
interests, but this shall not prevent the Funds from investing in securities of
companies whose business involves the purchase or sale of real estate, except
that the U.S. Government Securities Fund will not invest in real estate limited
partnerships.
(7) Borrow money or property except for temporary or emergency purposes.
If a Fund ever should borrow money it would only borrow from banks and in an
amount not exceeding 10% of the market value of its total assets (not including
the amount borrowed). Neither Fund will pledge more than 15% of its net assets
to secure such borrowings. In the event a Fund's borrowing exceeds 5% of the
market value of its total assets the Fund will not invest in any additional
portfolio securities until its borrowings are reduced to below 5% of its total
assets. For purposes of these restrictions, collateral arrangements for premium
and margin payments in connection with a Fund's hedging activities are not to be
deemed to be a pledge of assets.
(8) Make loans, except that it may (i) acquire publicly distributed bonds,
debentures, notes and other debt securities and (ii) lend portfolio securities
provided that no such loan may be made if as a result the aggregate of such
loans would exceed 30% of the value of the Fund's total assets.
(9) Underwrite the securities of other issuers except where it might
technically be deemed to be an underwriter for purposes of the Securities Act of
1933 upon the disposition of certain securities.
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<PAGE>
(10) Except with respect to investments in repurchase agreements by the U.
S. Government Securities Fund, purchase securities with legal or contractual
restrictions on resale.
(11) Issue senior securities.
(12) Purchase securities on margin or effect short sales of securities,
except that the Value Fund may sell securities short where it either: (a) holds
a long position in the same security which equals or exceeds the number of
shares sold short; or (b) holds a long position in a security with respect to
which there has been a public announcement of a proposed transaction that would
result in the conversion of the securities so held into an equal or greater
number of shares of the securities sold short; provided that the Value Fund may
not effect any such short sale of securities if, as a result thereof, the
aggregate value of all of its open short positions would exceed 5% of the Value
Fund's total assets, or if more than 10% of the Value Fund's net assets would be
held as collateral for such short positions.
(13) Buy or sell commodities or commodity contracts or enter into an
interest rate futures contract or an option thereon, except that a Fund may
purchase or sell futures and options on futures and enter into closing
transactions with respect thereto unless, as a result thereof: (a) the then
current aggregate futures market prices and financial instruments required to be
delivered under open futures contract sales plus the then current aggregate
purchase price of financial instruments required to be purchased under open
futures contract purchases would exceed 25% of the Fund's net assets (taken at
market value at the time of entering into the contract and excluding the amount
by which any of its options on futures are in-the-money); and (b) more than 5%
of the Fund's total assets (taken at market value at the time of entering into
the contract and excluding the amount by which any of its options on futures are
in-the-money) would be committed to initial margin and premiums paid on such
futures contracts.
(14) Write, purchase or sell puts, calls, straddles, spreads or any
combination thereof, except that a Fund may write covered call options and
purchase put options on portfolio securities or securities indexes and enter
into closing transactions with respect to such options, and, subject to
restriction (13) above, a Fund may write covered call options and purchase put
options on futures contracts and enter into closing transactions with respect to
such options on futures, unless, as a result of any of the foregoing
transactions: (a) the aggregate market value of all portfolio securities
covering call options written by the Fund would exceed 25% of the Fund's total
assets; or (b) the aggregate value of all premiums paid for put options
purchased by the Fund would exceed 5% of the Fund's total assets (less the
amount by which any such positions are in-the-money), excluding puts purchased
on closing transactions.
(15) Invest in illiquid securities, except that the U.S. Government
Securities Fund may invest up to 10% of its net assets in illiquid securities,
including investments in repurchase agreements which mature in more than seven
days.
(16) Purchase warrants, except that the Value Fund may purchase warrants
which, when valued at lower of cost or market, do not exceed 5% of the value of
the Fund's net assets; included within the 5%, but not in excess of 2% of the
Fund's net assets, may be warrants which are not listed on the New York or
American Stock Exchanges.
(17) With respect to the U.S. Government Securities Fund, purchase or
retain the securities of any issuer if the officers, directors, advisors or
managers of the fund owning beneficially more than one and one-half of one
percent of the securities of such issuer together own beneficially 5% of such
securities; provided no officer or director shall be deemed to own beneficially
securities held in other accounts managed by such person or held in employee or
similar plans for which such person acts as trustee.
MID CAP VALUE FUND AND LARGE CAP VALUE FUND
The fundamental investment restrictions and policies of the Mid Cap Value
Fund and the Large Cap Value Fund provide that each such Fund may not:
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(1) With respect to 75% of its total assets, invest more than 5% of the
fair market value of its assets in securities of any one issuer, other than
securities issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities;
(2) Invest in a company to get control or manage it or, with respect to
75% of its total assets, purchase more than 10% of the outstanding voting
securities of an issuer;
(3) Invest more than 25% of its total assets, based on current market
value at the time of purchase, in securities of issuers in any single industry;
provided that there shall be no limitation on the purchase of securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.
(4) Buy or sell real estate or oil and gas interests or leases, but this
shall not prevent the Fund from investing in securities secured by real estate
or real estate interests or issued by companies, including real estate
investment trusts, that invest in real estate or real estate interests or whose
business involves the purchase or sale of real estate.
(5) Borrow money or property except for temporary or emergency purposes.
If the Fund ever should borrow money it would only borrow from banks and in an
amount not exceeding 10% of the market value of its total assets (not including
the amount borrowed). No Fund will pledge more than 15% of its net assets to
secure such borrowings. In the event the Fund's borrowing exceeds 5% of the
market value of its total assets the Fund will not invest in any additional
portfolio securities until its borrowings are reduced to below 5% of its total
assets. For purposes of these restrictions, collateral arrangements for premium
and margin payments in connection with the Fund's hedging activities are not to
be deemed to be a pledge of assets.
(6) Mortgage, hypothecate, or pledge any of its assets as security for any
of its obligations, except as required for otherwise permissible borrowings
(including reverse repurchase agreements), short sales, futures, options, and
other hedging activities.
(7) Make loans, except that it may: (i) acquire publicly distributed
bonds, debentures, notes, and other debt securities; (ii) lend portfolio
securities provided that no such loan may be made if as a result the aggregate
of such loans would exceed one-third of the value of the Fund's total assets;
and (iii) enter into repurchase agreements.
(8) Underwrite the securities of other issuers, although it may invest in
companies that engage in such businesses if it does so in accordance with
policies established by Heartland's Board of Directors, and except where it
might technically be deemed to be an underwriter for purposes of the Securities
Act of 1933 upon the disposition of certain securities.
(9) Purchase a security if, as a result, more than 10% of the value of the
Fund's total assets would be invested in: (a) securities that are not readily
marketable or that would require registration under the Securities Act of 1933,
as amended, upon disposition; and (b) repurchase agreements which do not provide
for payment within 7 days.
(10) Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from making any otherwise
permissible borrowings, mortgages or pledges, or entering into permissible
reverse repurchase agreements, or hedging activities.
(11) Invest in commodities, but the Fund may purchase or sell futures
contracts, options on futures, and options.
In accordance with the following non-fundamental policies, which may be
changed without shareholder approval, the Mid Cap Value Fund and the Large Cap
Value Fund each may not:
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<PAGE>
(1) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(2) Invest in securities of other investment companies except as permitted
by the 1940 Act or as part of a merger, consolidation, acquisition of assets, or
similar reorganization transaction.
(3) Purchase warrants (other than those that have been acquired in units or
attached to other securities), except that the Fund may purchase warrants which,
when valued at lower of cost or market, do not exceed 5% of the value of the
Fund's net assets; included within the 5%, but not in excess of 2% of the Fund's
net assets, may be warrants which are not listed on the New York or American
Stock Exchanges.
(4) Purchase or retain the securities of any issuer if the officers,
directors, advisors or managers of the Fund owning beneficially more than 0.5%
of the securities of such issuer together own beneficially 5% of such
securities; provided no officer or director shall be deemed to own beneficially
securities held in other accounts managed by such person or held in employee or
similar plans for which such person acts as trustee.
(5) Purchase securities on margin or effect short sales of securities,
except that the Fund may obtain short-term credit necessary for the clearance of
purchases and sales of its portfolio securities, and except as required in
connection with permissible options, futures, short selling and leverage
activities as described elsewhere in the Prospectus and Statement of Additional
Information.
(6) Invest more than 10% of its total assets in real estate investment
trusts.
For the Mid Cap Value Fund's and Large Cap Value Fund's limitations on
futures and options transactions, see "Investment Policies and Methods -
Limitations on Futures and Options Transactions."
VALUE PLUS FUND
The fundamental investment restrictions and policies of the Value Plus Fund
provide that such Fund may not:
(1) With respect to 75% of the Fund's total assets, invest more than 5% of
the fair market value of its assets in securities of any one issuer, other than
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities;
(2) Invest more than 10% of the fair market value of its total assets in
securities of any one issuer, other than securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities;
(3) Purchase more than 10% of the outstanding voting securities of an
issuer, or invest in a company to get control or manage it.
(4) Invest more than 25% of its total assets, based on current market value
at the time of purchase, in securities of issuers in any single industry;
provided that there shall be no limitation on the purchase of securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.
(5) Buy or sell real estate or oil and gas interests or leases, but this
shall not prevent the Fund from investing in securities secured by real estate
or real estate interests or issued by companies, including real estate
investment trusts, that invest in real estate or real estate interests or whose
business involves the purchase or sale of real estate.
(6) Borrow money or property except for temporary or emergency purposes.
If the Fund ever should borrow money it would only borrow from banks and in an
amount not exceeding 10% of the market value of its total assets (not including
the amount borrowed). The Fund will not pledge more than 15% of its net assets
to
18
<PAGE>
secure such borrowings. In the event the Fund's borrowing exceeds 5% of the
market value of its total assets the Fund will not invest in any additional
portfolio securities until its borrowings are reduced to below 5% of its total
assets. For purposes of these restrictions, collateral arrangements for premium
and margin payments in connection with the Fund's hedging activities are not to
be deemed to be a pledge of assets.
(7) Make loans, except that it may: (i) acquire publicly distributed
bonds, debentures, notes and other debt securities; (ii) lend portfolio
securities provided that no such loan may be made if as a result the aggregate
of such loans would exceed 30% of the value of the Fund's total assets; and
(iii) enter into repurchase agreements.
(8) Underwrite the securities of other issuers except where it might
technically be deemed to be an underwriter for purposes of the Securities Act of
1933 upon the disposition of certain securities.
(9) Purchase a security if, as a result, more than 10% of the value of the
Fund's total assets would be invested in: (a) securities with legal or
contractual restrictions on resale (other than investments in repurchase
agreements); (b) securities for which market quotations are not readily
available; and (c) repurchase agreements which do not provide for payment within
7 days.
(10) Issue senior securities.
(11) Invest in commodities, but the Fund may invest in futures contracts,
options on futures, and options.
In accordance with the following non-fundamental policies, which may be
changed without shareholder approval, the Value Plus Fund may not:
(1) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(2) Invest in securities of other investment companies except as they may
be acquired as part of a merger, consolidation, reorganization or acquisition of
assets.
(3) Purchase warrants, except that the Fund may purchase warrants which,
when valued at lower of cost or market, do not exceed 5% of the value of the
Fund's net assets; included within the 5%, but not in excess of 2% of the Fund's
net assets, may be warrants which are not listed on the New York or American
Stock Exchanges.
(4) Purchase or retain the securities of any issuer if the officers,
directors, advisors or managers of the Fund owning beneficially more than 0.5%
of the securities of such issuer together own beneficially 5% of such
securities; provided no officer or director shall be deemed to own beneficially
securities held in other accounts managed by such person or held in employee or
similar plans for which such person acts as trustee.
(5) Purchase securities on margin or effect short sales of securities,
except as required in connection with permissible options and futures activities
as described elsewhere in the Prospectus and Statement of Additional Information
and except that the Fund may sell securities short where it either: (a) holds a
long position in the same security which equals or exceeds the number of shares
sold short; or (b) holds a long position in a security with respect to which
there has been a public announcement of a proposed transaction that would result
in the conversion of the securities so held into an equal or greater number of
shares of the securities sold short; provided that the Fund may not effect any
such short sale of securities if, as a result thereof, the aggregate value of
all of its open short positions would exceed 5% of the Fund's total assets, or
if more than 10% of the Fund's net assets would be held as collateral for such
short positions.
(6) Invest more than 10% of its total assets in real estate investment
trusts.
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<PAGE>
For the Value Plus Fund's limitations on futures and options transactions,
see "Investment Policies and Methods - Limitations on Futures and Options
Transactions."
MANAGEMENT
The Board of Directors of Heartland provides broad supervision over the
affairs of each Fund, and the officers are responsible for its operations. The
Directors and officers are listed below, together with their principal
occupations during the past five years. Subject to the direction of the Board
of Directors, Heartland Advisors is responsible for investment management of the
assets of each Fund. Although each Fund is offering only its own shares, it is
possible that one Fund might become liable for any misstatement in the
Prospectus about another Fund. The Board of Directors has considered this factor
in approving the use of a single combined prospectus.
<TABLE>
<CAPTION>
Name and Address Position with Heartland During Past Five Years
- ---------------- ----------------------- ----------------------
<S> <C> <C>
William J. Nasgovitz President and Director* President and Director, Heartland
790 North Milwaukee Street Advisors, Inc. since 1982; Director,
Milwaukee, WI 53202 Capital Investments, Inc. since
1989 (small business investment
company).
Willard H. Davidson Director Director of Artos Engineering
3726 North Lake Drive Company since 1984; financial and
Milwaukee, WI 53211 business consultant since 1984.
Hugh F. Denison 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 Director President, The Hammes Company
Suite 305 since 1991.
18000 West Sarah Lane
Brookfield, WI 53045
Patrick J. Retzer Vice President, Treasurer Senior Vice President and Director
790 North Milwaukee Street and Director* of Heartland Advisors, Inc. since 1987;
Milwaukee, WI 53202 Treasurer, Heartland Advisors, 1987
to September 1998.
A. Gary Shilling Director President, A. Gary Shilling &
500 Morris Avenue Company, Inc. (economic consultants
Springfield, NJ 07081-1020 and investment advisors) since 1978.
Allen H. Stefl Director Senior Vice President,
800 North Brand Boulevard Communications, Nestle USA since
Glendale, CA 91203 1993.
Linda F. Stephenson Director President and Chief Executive
100 East Wisconsin Avenue Officer, Zigman Joseph Stephenson
Milwaukee, WI 53202 (a public relations and marketing
communications firm) since 1989.
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C>
Jilaine Hummel Bauer Vice President Senior Vice President and General
790 North Milwaukee Street Counsel, Heartland Advisors, Inc.
Miwlaukee, WI 53202 since January 1998; Senior Vice
President, Stein Roe & Farnham
Incorporated, 1992 to 1997.
Paul T. Beste Vice President and Senior Vice President--Investment
790 North Milwaukee Street Principal Operations, Heartland Advisors, Inc.
Milwaukee, WI 53202 Accounting Officer 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 Vice President Senior Vice President and Treasurer,
790 North Milwaukee Street Heartland Advisors, Inc. since
Milwaukee, WI 53202 September 1998; Chief Financial
Officer, Heartland Advisors, 1995 to
1998; employed by Heartland
Advisors since 1992.
Lois J. Schmatzhagen Secretary Secretary, Heartland Advisors, Inc.
790 North Milwaukee Street 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. Mr. Stefl joined the Board in
October 1998. 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, 1997:
<TABLE>
<CAPTION>
ESTIMATED TOTAL
AGGREGATE ACTUAL COMPENSATION
COMPENSATION PENSION OR BENEFITS FROM HEARTLAND
FROM RETIREMENT UPON AND FUND
DIRECTOR HEARTLAND BENEFITS RETIREMENT COMPLEX
- -------- --------- -------- ---------- -------
<S> <C> <C> <C> <C>
Willard H. Davidson $16,000 None None $16,000
Jon D. Hammes $16,000 None None $16,000
A. Gary Shilling $16,000 None None $16,000
Linda F. Stephenson $16,000 None None $16,000
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
At September 30, 1998, the Directors and officers of Heartland Group, Inc.
as a group (12 persons) owned less than 1% of the outstanding shares of the
Value Fund and the Value Plus Fund, and owned 2.5% of the U.S. Government
Securities Fund, 1.1% of the Mid Cap Value Fund and 4.2% of the Large Cap Value
Fund. At such date, no person was known to management to own, beneficially or
of record, 5% or more, of the outstanding shares of any of the Funds, except
that Charles Schwab & Co., Inc., ATTN: Mutual Funds, 101 Montgomery Street, San
Francisco, CA 94104-4122 held of record 9,935,247 shares (or 18.1%) of the Value
Fund; 3,471,632 shares (or 24.1%) of the Value Plus Fund; 1,666,684 shares (or
50.7%) of the Mid Cap Value Fund; 83,868 shares (or 12.0%) of the Large Cap
Value Fund; and 623,806 shares (or 10.9%) of the U.S. Government Securities
Fund. In addition,
21
<PAGE>
Heartland Advisors, Inc., ATTN: Ken Della, 790 North Milwaukee Street,
Milwaukee, WI 53202-3712 held of record 41,529 shares (or 6.0%) of the Large Cap
Value Fund. Catherine J. Polaski, 5329 Highway 38, Franksville, WI 53126, held
of record 39,969 shares (or 5.7%) of the Large Cap Value Fund. The Trust Company
of Knoxville, P.O. Box 789, Knoxville, TN 37901, held of record 1,286,225 shares
(or 8.9%) of the Value Plus Fund.
THE INVESTMENT ADVISOR
Each Fund is managed by Heartland Advisors, pursuant to an Investment
Advisory Agreement with respect to the Value Fund and a separate Investment
Advisory Agreement with respect to the Mid Cap Value Fund, the Large Cap Value
Fund, the Value Plus Fund, and the U.S. Government Securities Fund (the
"Agreements"). The Agreements, with respect to the Value Plus Fund, the U.S.
Government Securities Fund, the Mid Cap Value Fund, the Large Cap Value Fund,
and the Value Fund, were most recently approved by the Board of Directors,
including a majority of the Directors who are not Interested Persons of the Fund
or of Heartland Advisors, on July 23,1998.
Heartland Advisors is controlled by William J. Nasgovitz, a Director and
the President of Heartland, by virtue of his ownership of a majority of its
outstanding capital stock. In addition to serving as investment advisor,
Heartland Advisors also serves as the distributor for the shares of each Fund.
Heartland Advisors, founded in 1982, serves as the investment adviser for the
Heartland Short Duration High-Yield Municipal Fund, Heartland High-Yield
Municipal Bond Fund and Heartland Wisconsin Tax Free Fund, three additional
series of Heartland, and also provides investment management services for
individuals, and institutional accounts, such as pension funds and profit-
sharing plans. As of 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.
Heartland Advisors provides each Fund with overall investment advisory and
administrative services. Subject to such policies as the Board of Directors may
determine, Heartland Advisors makes investment decisions on behalf of each Fund,
makes available research and statistical data in connection therewith, and
supervises the acquisition and disposition of investments by each Fund,
including the selection of broker-dealers to carry out portfolio and hedging
transactions. Heartland Advisors will permit any of its officers or employees
to serve without compensation from the Funds as directors or officers of
Heartland if elected to such positions.
Heartland Advisors bears all of its own expenses in providing services
under the Agreements and pays all salaries, fees, and expenses of the officers
and directors of Heartland who are affiliated with Heartland Advisors. Each Fund
bears all its other expenses including, but not limited to, necessary office
space, telephone and other communications facilities and personnel competent to
perform administrative, clerical and shareholder relations functions; a pro rata
portion of salary, fees, and expenses (including legal fees) of those directors,
officers, and employees of Heartland who are not officers, directors, or
employees of Heartland Advisors; interest expenses; fees and expenses of the
Custodian, Agent, and Dividend Disbursing Agent; fees of shareholder
recordkeeping agents; taxes and governmental fees; brokerage commissions and
other expenses incurred in acquiring or disposing of portfolio securities,
expenses of registering and qualifying shares for sale with the Securities and
Exchange Commission and with various state securities commissions; accounting
and legal costs; insurance premiums; expenses of maintaining the Fund's legal
existence and of shareholder meetings; expenses of preparation and distribution
to existing shareholders of reports, proxies, and prospectuses; and fees and
expenses of membership in industry organizations.
Each of the Value Fund, the Mid Cap Value Fund, and the Large Cap Value
Fund pays Heartland Advisors an annual fee for its services at the rate of 0.75
of 1% of the respective Fund's average daily net assets. While the advisory fee
is larger than the fee paid by most mutual funds, it is consistent with the fee
paid by funds with investment characteristics and objectives similar to that of
the referenced Funds. The Value Plus Fund pays Heartland Advisors an annual fee
for its advisory services at the rate of 0.70 of 1% of the Fund's average daily
net assets. The advisory fee for the U.S. Government Securities Fund is 0.65 of
1% of the first $100 million of the Fund's average daily net assets, 0.50 of 1%
of the next $400 million of assets, and 0.40 of 1% on assets in excess of $500
million. The advisory fees for the Funds are payable in monthly
installments.
22
<PAGE>
For the fiscal years ended December 31, 1995, 1996, and 1997 the Value Fund
paid advisory fees of, $6,452,487, $10,877,255, and $14,673,206 respectively.
For the period from October 11, 1996 (commencement of operations) to December
31, 1996, and for the fiscal year ended December 31, 1997, the Mid Cap Value
Fund paid advisory fees of $6,087 and $184,843, respectively. For the period
from October 11, 1996 (commencement of operations) to December 31, 1996, and for
the fiscal year ended December 31, 1997, the Large Cap Value Fund paid advisory
fees of $2,325 and $26,585, respectively. During the fiscal year ended
December 31, 1997, advisory fees provided under the Large Cap Value Fund's
Agreement totaled $40,359, but Heartland Advisors voluntarily waived $13,774 of
the fees during this period. For the fiscal years ended December 31, 1995,
1996, and 1997, the Value Plus Fund paid advisory fees of $102,311, $218,448,
and $1,292,331, respectively. For the years ended December 31, 1995, 1996, and
1997, the U.S. Government Securities Fund paid advisory fees of $325,124,
$291,423 and $146,128, respectively. During those periods, advisory fees
provided under the U.S. Government Securities Fund's Agreement totaled $422,661,
$378,850, and $301,650, respectively, but Heartland Advisors voluntarily waived
$97,537, $87,427, and $155,522 of the fees during those respective
periods.
The Agreements provide that Heartland Advisors' fee will be reduced, or
Heartland Advisors will reimburse a Fund (up to the amount of its fee), by an
amount necessary to prevent the total expenses of a Fund (excluding taxes,
interest, brokerage commissions or transactions costs, distribution fees and
extraordinary expenses) from exceeding limits applicable to the Fund in any
state in which its shares are then qualified for sale. Presently the most
restrictive expense ratio limitation imposed by any state is 2-1/2% of the first
$30 million of a Fund's average net assets, 2% of the next $70 million and 1-
1/2% of the remaining assets. For the purposes of these tests, average net
assets will be computed in the same manner as average daily net assets are
computed in determining the investment advisory fee. Such reimbursements would
be made monthly, subject to annual adjustment.
Each of the Agreements will continue in effect from year to year, as long
as it is approved at least annually by the Board of Directors or by a vote of
the outstanding voting securities of the appropriate Fund and in either case by
a majority of the Directors who are not parties to the Agreement or interested
persons of any such party. Each Agreement terminates automatically if it is
assigned and may be terminated without penalty by either party on not more than
60 nor less than 30 days' notice. Each Agreement provides that neither
Heartland Advisors nor its personnel shall be liable for any error of judgment
or mistake of law or for any loss arising out of any investment or for any act
or omission in the execution and management of the Fund, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of its obligations and duties under the
Agreement.
PERFORMANCE INFORMATION
From time to time the Funds may advertise their "yield" and "total return."
Yield is based on historical earnings and total return is based on historical
distributions; neither is intended to indicate future performance. The "yield"
of a Fund refers to the income generated by an investment in that Fund over a
one-month period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during the month is assumed to be generated each month over a twelve-
month period and is shown as a percentage of the investment. "Total return" of
the Funds refers to the annual average return for 1, 5, and 10-year periods (or
the portion thereof during which a Fund has been in existence). Total return is
the change in redemption value of shares purchased with an initial $1,000
investment, assuming the reinvestment of dividends and capital gain
distributions and the redemption of the shares at the end of the period. Prior
to June 1, 1994, shares of the Value, Value Plus and U.S. Government Securities
Funds had been sold subject to a contingent deferred sales charge and prior to
February 12, 1993, shares of the Value and U.S. Government Securities Funds had
been sold subject to an initial sales charge, neither of which is reflected in
the total return figures, rather the figures reflect the current no-load sales
structure.
Performance information should be considered in light of the particular
Fund's investment objectives and policies, characteristics and quality of its
portfolio securities, and the market conditions during the applicable
23
<PAGE>
period, and should not be considered as a representation of what may be achieved
in the future. Investors should consider these factors and possible differences
in the methods used in calculating performance information when comparing a
Fund's performance to performance figures published for other investment
vehicles.
Average annual total return is computed by finding the average annual
compounded rates of return over the 1, 5, and 10-year periods (or the portion
thereof during which a Fund has been in existence) ended on the date of the
respective Fund's balance sheet that would equate the initial amount invested to
the ending redeemable value, according to the following formula:
P(1+T{)} SUP {n}=ERV
Where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value for a hypothetical $1,000 payment made at
the beginning of the 1, 5 and 10-year periods at the end of the 1, 5 and 10-year
period (or fractional portion thereof).
In some circumstances a Fund may advertise its total return for a 1, 2, or
3-year period, or the total return since the Fund commenced operations. In such
circumstances the Fund will adjust the values used in computing return to
correspond to the length of the period for which the information is provided.
The average annual total return for the Funds for the one, five, and ten-year
periods or, if less, from commencement of operations through September 30, 1998
are as follows:
<TABLE>
<CAPTION>
FUND 1 YEAR 5 YEARS 10 YEARS OR, IF LESS,
---- ------- -------- FROM COMMENCEMENT OF
OPERATIONS
----------
<S> <C> <C> <C>
Heartland Value Fund -20.4% 11.5% 14.2%
Heartland Mid Cap Value -15.1% N/A 6.9%
Fund (10/11/96)
Heartland Large Cap -13.6% N/A 7.2%
Value Fund (10/11/96)
Heartland Value Plus -11.9% N/A 13.6%
Fund (10/26/93)
Heartland U.S. 12.2% 5.4% 9.3%
Government Securities
Fund
</TABLE>
24
<PAGE>
Yield quotations are based on a 30-day (or one-month) period, and are
computed by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
Yield=2[({a-b} OVER {cd}+1{)} SUP {6}-1]
Where:
a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of the
period.
Since the Value Fund's investment objective is long-term capital
appreciation, the Fund will typically not calculate or advertise its yield.
Similarly, the Mid Cap Value and Large Cap Value Funds will not typically
calculate their yields. The yield for the Value Plus Fund for the thirty days
ended September 30, 1998 was 3.92%. The yield for the U.S. Government Securities
Fund for the thirty days ended September 30, 1998 was 5.44%. When advertising
yield, a Fund will not advertise a one-month or a 30-day period which ends more
than 45 days before the date on which the advertisement is published.
Each Fund may, from time to time, compare its performance to other mutual
funds with similar investment objectives and to the industry as a whole, as
quoted by ranking services and publications, such as Lipper Analytical Services,
Inc., Morningstar, Inc., CDA Technologies, Forbes, Fortune, Money, Business
Week, Value Line, Inc. and The Wall Street Journal. These rating services and
magazines rank the performance of the Funds against all funds over specified
periods and in specified categories. In general, the Value Fund would appear in
the Small Value, Small Cap or Capital Appreciation categories, the Mid Cap
Value Fund would appear in the Mid-Cap Value, Mid Cap or General Equity
categories, the Large Cap Value Fund would appear in the Large Value, General
Equity or Growth and Income categories and the Value Plus Fund would appear in
the Domestic Hybrid or Equity Income categories. The U.S. Government Securities
Fund would generally appear in the Fixed Income, Intermediate-Term Government or
General U.S. Government categories. Each Fund may also compare its performance
to recognized stock and bond market indices, including the S&P 500, the Standard
& Poor's Mid-Cap Index, the Russell 2000 Stock Index, the Lipper General U.S.
Government Fund Index, and the Lehman Intermediate and Long-Term Government Bond
Indices.
DETERMINATION OF NET ASSET VALUE PER SHARE
Each Fund's shares are sold at their next determined net asset value per
share. Each Fund determines the net asset value per share by subtracting the
Fund's liabilities (including accrued expenses and dividends payable) from the
Fund's total assets (the value of the securities a Fund holds plus cash or other
assets, including interest accrued but not yet received) and dividing the result
by the total number of shares outstanding.
The next determined net asset value per share will be calculated as of the
close of regular trading on the New York Stock Exchange at least once every
weekday, Monday through Friday, except on (i) customary national business
holidays which result in the closing of the New York Stock Exchange which are
New Year's Day, Martin Luther King, Jr. Day, Washington's Birthday, Good Friday,
Memorial Day, Independence Day, Labor Day,
25
<PAGE>
Thanksgiving, and Christmas; (ii) days when no security is tendered for
redemption and no customer order is received; or (iii) days when changes in the
value of the investment company's portfolio securities do not affect the current
net asset value of the Fund's redeemable securities. Portfolio securities which
are traded on stock exchanges are valued at the last sale price as of the close
of business on the day the securities are being valued, or, lacking any sales,
at the latest bid price. Each over-the-counter security for which the last sale
price on the day of valuation is available from NASDAQ. All other securities
traded in the over-the-counter market are valued at the most recent bid prices
as obtained from one or more dealers that make markets in the securities.
Portfolio securities which are traded both in the over-the-counter market and on
a stock exchange are valued according to the broadest and most representative
market.
Foreign securities are valued at the last sale price in the principal
market where they are traded, or, if last sale prices are unavailable, at the
last bid price available prior to the time the Fund's net asset value is
determined. Foreign securities prices may be furnished by quotation services who
express the value of securities in their local currency. Heartland Advisors
translates the value of foreign securities from the local currency into U.S.
dollars at current exchange rates. Any changes in the value of forward
contracts due to exchange rate fluctuations are included in the determination of
net asset value. Because foreign securities markets may close prior to the time
a Fund determines its net asset value, events affecting the value of portfolio
securities occurring between the time securities prices are determined and the
time the Fund calculates its net asset value may not be reflected in the Fund's
calculation.
Securities and other assets for which quotations are not readily available
will be valued at their fair value as determined by the Board of Directors.
DISTRIBUTION OF SHARES
Heartland Advisors, each Fund's investment advisor, also acts as the
distributor of the shares of each Fund. Heartland Advisors has agreed to use its
"best-efforts" to distribute each Fund's shares, but has not committed to
purchase or sell any specific number of shares. The Distribution Agreement for
the Funds is renewable annually by the vote of the directors at a meeting called
for such purpose and may be terminated upon 60 days' written notice by either
party. The Distribution Agreement will automatically terminate in the event of
its assignment. Under the Agreement, Heartland Advisors will pay for the costs
and expenses of preparing, printing and distributing materials not prepared by
the Fund and used by Heartland Advisors in connection with its offering of
shares for sale to the public, including the additional costs of printing copies
of the prospectus and of annual and interim reports to shareholders other than
copies required for distribution to shareholders or for filing under the federal
securities laws, and any expenses of advertising incurred by Heartland Advisors
in connection with the offering of the shares.
For the fiscal year ended December 31, 1997, Heartland Advisors received
contingent deferred sales charges with respect to redemption of shares of the
Value Fund, the Value Plus Fund, and the U.S. Government Securities Fund in the
amounts of $10,491, $285, and $3,268, respectively. For the fiscal year ended
December 31, 1996, Heartland Advisors received contingent deferred sales charges
with respect to redemptions of shares of the Value Fund, Value Plus Fund, and
the U.S. Government Securities Fund in the amounts of $91,223, $7,812, and
$32,254, respectively. For the fiscal year ended December 31, 1995, Heartland
Advisors received contingent deferred sales charges with respect to redemptions
of shares of the Value Fund, the Value Plus Fund, and the U.S. Government
Securities Fund in the amounts of $205,943, $12,134, and $82,882, respectively.
DISTRIBUTION PLAN
Each Fund has adopted a Distribution Plan, which is described in the
Prospectus (see "The Distribution Plan"). Under each Plan, Heartland Advisors
provides the Directors for their review promptly after the end of each quarter a
written report setting forth all amounts expended under the Plan, including all
amounts paid to dealers as distribution or service fees. In approving the Plan
in accordance with the requirements of Rule 12b-1, the Directors considered
various factors, including the amount of the distribution fee. The Directors
determined that there is a reasonable likelihood that the Plan of each
respective Fund will benefit the Fund and the shareholders of the Fund.
26
<PAGE>
Each Plan may be terminated by vote of a majority of the Directors who are
not interested persons, or by vote of a majority of the outstanding voting
securities of the Fund. Any change in the Plan that would materially increase
the distribution cost to the Fund requires shareholder approval; otherwise, it
may be amended by the Directors, including a majority of the Directors who are
not interested persons, by vote cast in person at a meeting called for the
purpose of voting upon such amendment. So long as a Distribution Plan is in
effect, the selection or nomination of the Directors who are not interested
persons is committed to the discretion of such Directors.
The Distribution Plan of a Fund may be terminated by the Directors at any
time on 60 days written notice without payment of any penalty by Heartland
Advisors, by vote of a majority of the outstanding voting securities of the
Fund, or by vote of a majority of the Directors who are not interested persons.
Each Distribution Plan will continue in effect for successive one-year
periods, if not sooner terminated in accordance with its terms, provided that
each such continuance is specifically approved by the vote of the Directors,
including a majority of the Directors who are not interested persons.
During the fiscal year ended December 31, 1997, the Funds paid the
following amounts under their respective Plans, all of which were spent on
compensation to dealers, financial institutions, and other service providers,
including Heartland Advisors: $4,891,069 for the Value Fund; $61,614 for the
Mid Cap Value Fund; $461,547 for the Value Plus Fund; $116,354 for the U.S.
Government Securities Fund; and $8,862 for the Large Cap Value Fund. During the
fiscal year ended December 31, 1997, Heartland Advisors voluntarily waived a
portion of its fee; had no fee waiver been in effect, the Large Cap Fund would
have paid $13,453 pursuant to its Distribution Plan.
TAX STATUS
The information in this section supplements that in the Prospectus (see
"Dividends, Capital Gains Distributions And Taxes").
Each series of a series company, such as Heartland, is treated as a single
entity for federal income tax purposes so that the net realized capital gains
and losses of one series are not combined with those of another series in the
same company.
Gain or loss on the sale of securities held by a Fund for more than 12
months will generally be long-term capital gain or loss. Currently, the
Internal Revenue Code provides for long-term capital gains or losses to be taxed
at either 28% or 20% depending on when the trade was executed and the holding
period. In September 1998 the U.S. House of Representatives approved a bill
adopting a single long-term capital gains tax rate of 20% for 1998. There are no
assurances, however, that the provision will become law. Gain or loss on the
sale of securities held for one year or less will be short-term capital gain or
loss.
If a shareholder exchanges shares of one Fund for shares of another Fund,
the shareholder will recognize gain or loss for federal income tax purposes.
That gain or loss will be measured by the difference between the shareholder's
basis in the shares exchanged and the value of the shares acquired.
It is possible that each Fund's income dividends may, to the extent such
dividends consist of interest from obligations of the U.S. Government and
certain of its agencies and instrumentalities, be exempt from all state and
local income taxes. Each Fund intends to advise shareholders of the proportion
of its dividends which consist of such interest. Shareholders are urged to
consult their tax advisers regarding the possible exclusion of such portion of
their dividends for state and local income tax purposes.
DESCRIPTION OF SHARES
In the interest of economy and convenience, certificates representing
shares purchased are not ordinarily issued. However, such purchases are
confirmed to the investor and credited to their accounts on the books
27
<PAGE>
maintained by Firstar Mutual Fund Services, LLC (the "Agent"), Milwaukee,
Wisconsin. The investor will have the same rights of ownership with respect to
such shares as if certificates had been issued. Investors may receive a
certificate representing whole shares by specifically requesting one by letter
to the Agent. If a stock certificate is requested, it will not be sent for at
least 14 days. The Directors require payment of any lost instrument bond
premiums or federal and state taxes due in connection with the replacement of
certificates and may require a fee for each new stock certificate that is issued
by the Fund not connected with the purchase of new shares.
Shareholders have the right to vote on the election of directors at each
meeting of shareholders at which directors are to be elected and on other
matters as provided by law or the Articles of Incorporation or Bylaws of
Heartland. Heartland's Bylaws do not require that meetings of shareholders be
held annually. However, special meetings of shareholders may be called for
purposes such as electing or removing directors, changing fundamental policies,
or approving investment advisory contracts. Shareholders of each series of a
series company, such as Heartland, vote together with each share of each series
in the company on matters affecting all series (such as election of directors),
with each share entitled to a single vote. On matters affecting only one series
(such as a change in that series' fundamental investment restrictions), only the
shareholders of that series are entitled to vote. On matters relating to all the
series but affecting the series differently (such as a new Investment Advisory
Agreement), separate votes by series are required.
PORTFOLIO TRANSACTIONS
The information in this section supplements the information in the
Prospectus under "Portfolio Transactions."
Allocation of the portfolio brokerage transactions, including their
frequency, to various dealers is determined by Heartland Advisors in its best
judgment and in a manner deemed fair and reasonable to shareholders. The primary
consideration is prompt and efficient execution of orders in an effective manner
at the most favorable price. Subject to this consideration, dealers who provide
supplemental investment research, statistical or other services to Heartland
Advisors may receive orders for transactions by the Funds. Information so
received will enable Heartland Advisors to supplement its own research and
analysis with the views and information of other securities firms, and may be
used for the benefit of clients of Heartland Advisors other than one of the
Funds. Research services may include advice as to the value of securities; the
advisability of investing in, purchasing or selling securities; the availability
of securities or purchasers or sellers of securities; furnishing analyses and
reports concerning issues, industries, securities, economic factors and trends,
portfolio strategy and performance of accounts; and effecting securities
transactions and performing functions incidental thereto (such as clearance and
settlement). Some broker-dealers may indicate that the provision of research
services is dependent upon the generation of certain specified levels of
commissions by Heartland Advisors' clients, including the Funds. In addition,
some broker-dealers may supply research from third party service providers in
consideration of their receipt of brokerage commissions from transactions
allocated by Heartland Advisors. Each Fund may also consider sales of its own
shares as a factor in the selection of broker-dealers to execute portfolio
transactions, subject to the policy of obtaining best price and execution.
For particular transactions, the Funds may pay higher commissions to
brokers (other than Heartland Advisors) than might be charged if a different
broker had been selected, if, in Heartland Advisor's opinion, this policy
furthers the objective of obtaining best price and execution. The allocation of
orders among brokers and the commission rates paid will be reviewed periodically
by Heartland's Board of Directors.
Subject to the above considerations, Heartland Advisors may itself effect
portfolio transactions as a broker for the Funds. The commissions, fees, or
other remuneration received by Heartland Advisors must be reasonable and fair
compared to the commissions, fees, or other remuneration paid to other brokers
in connection with comparable transactions involving similar securities being
purchased or sold on a securities or commodities ex change, or on the National
Association of Securities Dealers Automated Quotation System during a comparable
period of time. This standard would allow Heartland Advisors to receive no more
than the remuneration which would be expected to be received by an unaffiliated
broker in a commensurate arms'-length transaction.
28
<PAGE>
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 Funds will not deal with Heartland Advisors in any transaction in which
Heartland Advisors acts as a principal. However, Heartland Advisors may serve
as broker to a Fund in over-the-counter transactions conducted on an agency
basis. Pursuant to plans adopted by Heartland's Board of Directors for each of
the Funds under, and subject to, the provisions of Rule 10f-3 under the
Investment Company Act of 1940, the Funds may purchase securities in an offering
from an underwriter which is a member of an underwriting syndicate of which
Heartland Advisors is also a member. The plans and Rule 10f-3 limit the
securities that may be so purchased, the time and manner of purchase, the
underwriting discount and amount of purchase, and require a review by the Board
of Directors of any such transactions at least quarterly.
During the fiscal year ended December 31, 1995, the aggregate brokerage
commissions on portfolio transactions paid by the Funds were as follows: the
Value Fund paid $2,619,410; the Value Plus Fund paid $140,980; and the U.S.
Government Securities Fund paid $676. Of such brokerage commissions, amounts
paid to Heartland Advisors as broker were: $438,094 for the Value Fund ;
$29,768 for the Value Plus Fund; and $0 for the U.S. Government Securities Fund.
During the fiscal year ended December 31, 1996, the aggregate brokerage
commissions on portfolio transactions paid by the Funds, were as follows: the
Value Fund paid $2,822,252; the Value Plus Fund paid $149,195; and the U.S.
Government Securities Fund paid $75. Of such brokerage commissions, amounts
paid to Heartland Advisors as broker were: $285,057 for the Value Fund; $4,028
for the Value Plus Fund; and $0 for the U.S. Government Securities Fund. For
the period from October 11, 1996 (commencement of operations) to December 31,
1996, the Mid Cap Value Fund paid aggregate brokerage commissions of $18,036 on
portfolio transactions. For the period from October 11, 1996 (commencement of
operations) to December 31, 1996, the Large Cap Value Fund paid aggregate
brokerage commissions of $4,995 on portfolio transactions. None of the
commissions paid by the Mid Cap Value and Large Cap Value Funds were paid to
Heartland Advisors.
During the fiscal year ended December 31, 1997, the aggregate brokerage
commissions paid by the Funds, and the total dollar amount of portfolio
transactions on which brokerage commissions were paid, were as follows: the
Value Fund paid $3,925,925 on portfolio transactions of $854,023,965; the Value
Plus Fund paid $830,002 on portfolio transactions of $216,388,591; the Mid Cap
Value Fund paid $120,274 on portfolio transactions of $216,388,591; the Large
Cap Value Fund paid $16,006 or portfolio transactions of $7,060,824; and the
U.S. Government Securities Fund paid $6,222 on portfolio transactions of
$18,219,526. Of such brokerage commissions, amounts paid to Heartland Advisors
as broker were: $159,609 in commissions (or 2.59% of total commissions) on
$49,766,663 of transactions (or 3.14% of total transactions) for the Value Fund;
$306 in commissions (or less than 1% of total commissions) on $74,281 of
transactions (or less than 1% of total transactions) for the Mid Cap Value Fund;
$12,093 in commissions (or 0.19% of total commissions) or $2,450,592 of
transactions (or 0.15% of total transactions) for the Value Plus Fund; and no
brokerage commissions were paid to Heartland Advisors by the Large Cap Value
and U.S. Government Securities Funds. All such transactions were effected in
accordance with the procedures adopted by the Board with respect to commissions
paid to Heartland Advisors.
29
<PAGE>
The following tables show commissions paid by the Funds on futures
transactions during the past three fiscal years:
Fiscal year ended December 31, 1995:
<TABLE>
<CAPTION>
Fund Commissions Paid # of Contracts # of Contracts
- ---- ----------------
Sold Short Covered
---------- -------
<S> <C> <C> <C>
Value Plus $974 (37) 37
Value $32,405 (1,221) 1,221
U.S. Govt. Securities $42,679 (1,760) 1,760
</TABLE>
Fiscal year ended December 31, 1996:
<TABLE>
<CAPTION>
Fund Commissions Paid # of Contracts # of Contracts
- ---- ----------------
Sold Short Covered
---------- -------
<S> <C> <C> <C>
Value Plus $974 (37) 37
Value $21,232 (800) 800
U.S. Govt. Securities $46,113 (1,715) 1,715
</TABLE>
Fiscal year ended December 31, 1997:
<TABLE>
<CAPTION>
Fund Commissions Paid # of Contracts # of Contracts
- ---- ----------------
Sold Short Covered
---------- -------
<S> <C> <C> <C>
Value $24,549 (925) 925
U.S. Govt. Securities $ 2,372 (135) 135
</TABLE>
The table below shows information on brokerage commissions paid by the Funds to
brokers or dealers who supplied research services to Heartland Advisors during
the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
Amount of Commissions paid to brokers or dealers Total Dollar amount involved
Fund who supplied research services to Heartland Advisors in such transactions (000 omitted)
---- ---------------------------------------------------- ----------------------------------
<S> <C> <C>
Mid Cap Value $ 115,073 $ 38,265
Value Plus $ 688,931 $172,593
Value $2,751,057 $508,421
Large Cap Value $ 16,006 $ 7,060
</TABLE>
Under the Investment Company Act of 1940, Stifel Financial Corporation
("Stifel") and Advest Group, Inc. ("Advest") may have been deemed affiliated
persons of Heartland Advisors since Heartland Advisors may have been deemed to
hold or control more than 5% of the outstanding voting securities of Stifel and
Advest in Heartland Advisors' capacity as investment advisor to the Funds and
other investment advisory accounts. During the fiscal year ended December 31,
1997, the Value Fund paid $59,453 in brokerage commissions (or 1.5% of total
commissions paid) to Stifel for effecting $6,797,071 of transactions, or
approximately 0.8% of the dollar value of portfolio transactions for which a
brokerage commission was paid; and the Value Plus Fund paid $20,576 in
brokerage commissions (or 2.9% of total commissions paid) to Stifel for
effecting $4,015,273 of transactions, or approximately 1.9% of the dollar value
of portfolio transactions for which a brokerage commission was paid. During the
fiscal year ended December 31, 1997 the Value Fund paid $17,570 in brokerage
commissions (or 0.4% of total commissions paid) to Advest for effecting
$4,527,731 of transactions, or approximately 0.5% of the dollar
30
<PAGE>
value of portfolio transactions for which brokerage commissions were paid; and
the Value Plus Fund paid $5,250 in brokerage commissions (or 0.6% of total
commissions paid) to Advest for effecting $1,448,229 of transactions, or
approximately 0.7% of the dollar value of portfolio transactions for which
brokerage commissions were paid.
During the fiscal year ended December 31, 1996, the Value Fund paid $40,974
in brokerage commissions (or 1.5% of total commissions paid) to Stifel for
effecting $10,567,489 of transactions, or approximately 1.8% of the dollar value
of portfolio transactions for which a brokerage commission was paid; and the
Value Plus Fund paid $2,100 in brokerage commissions (or 1.4% of total
commissions paid) to Stifel for effecting $441,215 of transactions, or
approximately 1.2% of the dollar value of portfolio transactions for which a
brokerage commission was paid.
During the fiscal year ended December 31, 1996 the Value Fund paid $19,486
in brokerage commissions (or 0.7% of total commissions paid) to Advest for
effecting $5,167,636 of transactions, or approximately 0.9% of the dollar value
of portfolio transactions for which brokerage commissions were paid; and the
Value Plus Fund paid $1,400 in brokerage commissions (or 0.9% of total
commissions paid) to Advest for effecting $340,000 of transactions, or
approximately 0.9% of the dollar value of portfolio transactions for which
brokerage commissions were paid.
During the fiscal year ended December 31, 1995, the Value Fund paid $38,996
in brokerage commissions (or 1.5% of total commissions paid) to Stifel for
effecting $5,930,376 of transactions, or approximately 1.6% of the dollar value
of portfolio transactions for which a brokerage commission was paid. During the
fiscal year ended December 31, 1995, the Value Plus Fund paid $1,050 in
brokerage commissions (or 0.7% of total commissions paid) to Stifel for
effecting $1,175,390 of transactions, or approximately 3.4% of the dollar value
of portfolio transactions for which a brokerage commission was paid.
The portfolio holdings of the Funds may include the securities of certain
publicly traded brokerage firms. At December 31, 1997, the Value Fund held
224,900 shares, with a market value of $15,518,100, of Dain Rauscher
Corporation, the parent corporation of Dain Bosworth, Inc. and Rauscher Pierce
Refsnes, Inc., which were among the Funds' regular brokers or dealers for 1997
as defined in Rule 10b-1 under the Investment Company Act of 1940. At December
31, 1997, the Mid Cap Value and Large Cap Value Funds held 16,500 and 1,600
shares, respectively, with a market value of $841,500 and $81,600, respectively,
of Lehman Brothers Holdings, Inc., the parent corporation of Lehman Brothers,
Inc., which was among the Funds' regular brokers or dealers for 1997 as defined
in Rule 10b-1 under the Investment Company Act of 1940.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Firstar Bank Milwaukee, N.A.acts as Custodian of each Fund's investments,
and Firstar Mutual Funds Services, LLC acts as Transfer and Dividend Disbursing
Agent (the "Custodian" and the "Agent," respectively). The address for both the
Custodian and the Agent is P.O. Box 701, Milwaukee, Wisconsin 53201-0701.
Subcustodians provide custodial services for assets of the Funds held outside
the U.S.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Quarles & Brady serves as legal counsel for the Funds. Arthur Anderson LLP,
independent public accountants, served as auditors of the Funds through calendar
year 1996. PricewaterhouseCoopers LLP have been selected as independent public
accountants for the Funds beginning with fiscal year 1997.
31
<PAGE>
FINANCIAL STATEMENTS
- --------------------
The financial statements, related notes and related reports of
PricewaterhouseCoopers LLP, independent public accountants, contained in the
Annual Report to Shareholders of the Funds as of December 31, 1997 and for the
fiscal year or period then ended, together with the unaudited financial
statements and related notes contained in the Semi-Annual Report to Shareholders
of the Funds as of June 30, 1998 and for the six months then ended, are hereby
incorporated by reference. Copies of the Annual Report and Semi-Annual Report
may be obtained without charge by writing to Heartland Advisors, Inc., 790 North
Milwaukee Street, Milwaukee, Wisconsin 53202, or by calling 1-800-432-7856 or
(414) 289-7000.
32
<PAGE>
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 Bylaws 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 6 of the Fund's Distribution Agreement with
Heartland Advisors, Inc. filed as Exhibit (e)(1) 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 6. Indemnification.
---------------
(a) The Distributor agrees to indemnify and hold harmless the
Fund and each of its present or former directors, officers, employees,
representatives and each person, if any, who controls or previously
controlled the Fund within the meaning of Section 15 of the 1933 Act
against any and all losses, liabilities, damages, claims or expenses
(including the reasonable costs of investigating or defending any alleged
loss, liability, damage, claims or expense and reasonable legal counsel
fees incurred in connection therewith) to which the Fund or any such person
may become subject under the 1933 Act, under any other statute, at common
law, or otherwise, arising out of the acquisition of any Shares by any
person which (i) may be based upon any wrongful act by the Distributor or
any of the Distributor's directors, officers, employees or representatives,
or (ii) may be based upon any untrue statement or alleged untrue statement
of a material fact contained in a registration statement, prospectus,
shareholder report or other information covering Shares filed or made
public by the Fund or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance upon
information furnished to the Fund by the Distributor. In no case (i) is a
Distributor's indemnity in favor of the Fund, or any person indemnified to
be deemed to protect the Fund or such indemnified person against any
liability to which the Fund or such person would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in the
performance of his duties or by reason of his reckless disregard of his
obligations and duties under this Agreement or (ii) is the Distributor to
be liable under its indemnity agreement contained in this Paragraph with
respect to any claim made against the Fund or any person indemnified unless
the Fund or such person, as the case may be, shall have notified the
Distributor in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the
nature of the claim shall have been served upon the Fund or upon such
person (or after the Fund or such person shall have received notice to such
service on any designated agent). However, failure to notify the
Distributor of any such claim shall not relieve the Distributor from any
such liability which the Distributor may have to the Fund or any person
against whom such action is brought otherwise than on account of the
Distributor's indemnity agreement contained in this Paragraph.
The Distributor shall be entitled to participate, at its own
expense, in the defense, or, if the Distributor so elects, to assume the
defense of any suit brought to enforce any such claim, but, if the
Distributor elects to assume the defense, such defense shall be conducted
by legal counsel chosen by the Distributor and satisfactory to the Fund, to
the persons indemnified defendant or defendants, in the suit. In the event
that the Distributor elects to assume the defense of any such suit and
retain such legal counsel, the Fund, the persons indemnified defendant or
defendants in the suit, shall bear the fees and expenses of any additional
legal counsel retained by them. If the Distributor does not elect to assume
the defense of any such suit, the Distributor will reimburse the Fund and
the persons indemnified defendant or defendants in such suit for the
reasonable fees and expenses of any legal
C-3
<PAGE>
counsel retained by them. The Distributor agrees promptly to notify the
Fund 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 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) Not applicable.
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
(c) Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
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 certifies that it meets all of the
requirements for effectiveness of this Registration Statement under Rule 485(b)
under the Securities Act of 1933 and has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned, duly
authorized, in the City of Milwaukee, and State of Wisconsin, on the 13th 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 13th day of October,
1998, by or on behalf of the following persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ William J. Nasgovitz* Director and President (Chief Executive Officer)
- ------------------------
William J. Nasgovitz
/s/ Patrick J. Retzer Director, Vice President and Treasurer (Chief
- ------------------------ Financial 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
(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)
(b) Amended and Restated By-Laws
(c)(1) Articles Sixth through Eighth and Article
Tenth of the Articles of Incorporation, filed
as Exhibit (a)(1) herewith
(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, filed
as Exhibit (b) herewith
(d)(1) Investment Advisory Agreement for Heartland
Value Fund
(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)
(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 Agreements
(e)(4) Form of Selling Agreement for Banks
(f) None
(g) Custodian Agreement
(h)(1) Transfer Agent/Dividend Disbursing Agent
Agreement
(h)(2) Heartland Group, Inc.'s Rule 10f-3 Plan
(h)(3) Heartland Value Fund, Inc.'s Rule 10f-3 Plan
(i) None
(j) Consent of Independent Accountants
(k) None
(l) Subscription Agreements
(m)(1) The Value Fund's Rule 12b-1 Plan
(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
(n) Financial Data Schedules
(o) None
</TABLE>
<PAGE>
EXHIBIT (a)(1)
ARTICLES OF INCORPORATION
-------------------------
OF
--
HEARTLAND GROUP, INC.
---------------------
FIRST: The undersigned, Conrad G. Goodkind, whose post office address is
411 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, being at least eighteen
years of age, under and by virtue of the General Laws of the State of Maryland
authorizing the formation of corporations, is acting as sole incorporator with
the intention of forming a corporation.
SECOND: The name of the corporation is Heartland Group, Inc. (the
"Corporation").
THIRD: The duration of the Corporation shall be perpetual.
FOURTH: The purposes for which the Corporation is formed are:
(a) To hold, invest and reinvest its funds, and in connection therewith to
hold part or all of its funds in cash, and to purchase, subscribe for or
otherwise acquire, hold for investment or otherwise, to trade and deal in,
write, sell, assign, negotiate, transfer, exchange, lend, pledge or
otherwise dispose of or turn to account or realize upon, securities (which
term "securities" shall, for the purposes of these Articles of
Incorporation, without limiting the generality thereof, be deemed to
include any bonds, debentures, stocks, shares, bills, notes, mortgages,
financial futures contracts or other obligations or evidences of
indebtedness, and any options, certificates, receipts, warrants or other
instruments representing rights to receive, purchase or subscribe for the
same or indices thereof, or evidencing or representing any other rights or
interests therein, or in any property or assets; and any negotiable or non-
negotiable instruments and money market instruments, including bank
certificates of deposit, finance paper, commercial paper, bankers'
acceptances and all kinds of repurchase or reverse repurchase agreements)
created or issued by any United States or foreign issuer (which term
"issuer" shall, for the purpose of these Articles of Incorporation, without
limiting the generality thereof, be deemed to include any persons, firms,
associations, partnerships, corporations, syndicates, combinations,
organizations, governments or subdivisions, agencies or instrumentalities
of any government); and to exercise, as owner or holder of any securities,
all rights, powers and privileges in respect thereof; and to do any and all
acts and things for the preservation, protection, improvement and
enhancement in value of any and all such securities.
(b) To apply for, obtain, purchase or otherwise acquire, any copyrights,
licenses, trademarks, trade names, patents and the like, which may be
capable of being used for any of the purposes of the Corporation; and to
use, exercise, develop, grant licenses in respect of, sell and otherwise
turn to account, the same.
<PAGE>
(c) To issue and sell shares of its own capital stock and securities
convertible into such capital stock in such amounts and on such terms and
conditions, for such purposes and for such amount or kind of consideration
(including without limitation thereto, securities) now or hereafter
permitted by the laws of the State of Maryland, by the Investment Company
Act of 1940 (the "1940 Act") and by these Articles of Incorporation, as its
Board of Directors may authorize and approve.
(d) To purchase or otherwise acquire, hold, dispose of, resell, transfer,
reissue, retire or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its capital stock in any manner
and to the extent now or hereafter permitted by the laws of the State of
Maryland, by the 1940 Act and by these Articles of Incorporation.
(e) To conduct its business in all its branches at one or more offices in
Maryland and elsewhere in any part of the world, without restriction or
limit as to extent.
(f) To exercise and enjoy, in Maryland and in any other states,
territories, districts and United States dependencies and in foreign
countries, all of the powers, rights and privileges granted to, or
conferred upon, corporations by the General Laws of the State of Maryland
now or hereafter in force.
(g) In general to carry on any other business in connection with or
incidental to its corporate purposes, to do everything necessary, suitable
or proper for the accomplishment of such purposes or for the attainment of
any object or the furtherance of any power hereinbefore set forth, either
alone or in association with others, to do every other act or thing
incidental or appurtenant to or growing out of or connected with its
business or purposes, objects or powers, and, subject to the foregoing, to
have and exercise all the powers, rights and privileges conferred upon
corporations by the laws of the State of Maryland as in force from time to
time.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference from,
the terms of any other clause of this or any other Article of these Articles of
Incorporation, and shall each be regarded as independent and construed as a
power as well as an object and a purpose, and the enumeration of specific
purposes, objects and powers shall not be construed to limit or restrict in any
manner the meaning of general terms or the general powers of the Corporation now
or hereafter conferred by the laws of Maryland, nor shall the expression of one
thing be deemed to exclude another though it be of like nature, not expressed;
provided however, that the Corporation shall not have power to carry on any
business whatsoever the carrying on of which would preclude it from being
classified as an ordinary business corporation under the laws of the State of
Maryland.
FIFTH: The post office address of the principal office of the Corporation
in the State of Maryland is 32 South Street, Baltimore, Maryland 21202. The
name of the resident agent of the
-2-
<PAGE>
Corporation in the State of Maryland is The Corporation Trust Incorporated, and
the post office address of the resident agent is 32 South Street, Baltimore,
Maryland 21202.
SIXTH: The total number of shares of capital stock of all classes which
the Corporation shall have authority to issue is one billion (1,000,000,000)
shares, of the par value of one-tenth of one cent ($.001) (the "Shares"), and of
the aggregate par value of one million dollars ($1,000,000). One hundred
million of such Shares may be issued in the following class, such class
comprising the number of shares and having the designation indicated; subject,
however, to the authority herein granted to the Board of Directors to increase
or decrease any such number of Shares:
Heartland U.S. Government High Yield Fund 100,000,000 Shares
The balance of nine hundred million Shares may be issued by the Board of
Directors in such initial classes, or in any new class or classes, each
comprising such number of Shares and having such preferences, rights, voting
powers, restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption as shall be fixed and determined from time to time by
resolution or resolutions providing for the issuance of such Shares adopted by
the Board of Directors, to whom authority so to fix and determine the same is
hereby expressly granted. In addition, the Board of Directors is hereby
expressly granted authority to increase or decrease the number of Shares of any
class, but the number of Shares of any class shall not be decreased by the Board
of Directors below the number of Shares thereof then outstanding.
The Board of Directors may classify or reclassify any unissued Shares into
one or more classes that may be established and designated from time to time.
The Corporation may hold as treasury Shares, reissue for such consideration and
on such terms as the Board of Directors may determine, or cancel, at its
discretion from time to time, any Shares of any class reacquired by the
Corporation.
SEVENTH: Section 7.1. Procedure for Designation. The establishment and
---------------------------------------
designation of any class of Shares in addition to the class established and
designated in Article Sixth shall be effective upon (i) the authorization of
such class by vote of a majority of the Board of Directors, including the
establishment and designation of the preferences, rights, voting powers, restric
tions, limitations as to dividends, qualifications, and terms and conditions of
redemption of such class, and (ii) the filing for record of the articles
supplementary required by Section 2-208 of the Maryland General Corporation Law
with the State Department of Assessments and Taxation of Maryland. At any time
when there are no Shares outstanding or subscribed for a particular class
previously established and designated by the Board of Directors, the class may
be liquidated by similar means.
Section 7.2. Establishment and Designation of Classes. Without
------------------------------------------------------
limiting the authority of the Board of Directors set forth herein to establish
and designate any further classes, there is hereby established and designated
one class of stock to be known as, the
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<PAGE>
Heartland U.S. Government High Yield Fund. The Shares of said class and any
Shares of any further class that may from time to time be established and
designated by the Board of Directors (unless provided otherwise by the Board of
Directors with respect to such further class at the time of establishing and
designating such further class) shall have the following relative preferences,
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption.
(a) Assets Belonging to Classes. All consideration received by the
---------------------------
Corporation for the issue or sale of Shares to a particular class, together
with all assets in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to that class for
all purposes, subject only to the rights of creditors, and shall be so
recorded upon the books and accounts of the Corporation. Such
consideration, assets, income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of
such assets, and any funds or payments derived from any reinvestment of
such proceeds, in whatever form the same may be, together with any General
Items allocated to that class as provided in the following sentence, are
herein referred to as "assets belonging to" that class. In the event that
there are any assets, income, earnings, profits, and proceeds thereof,
funds, or payments which are not readily identifiable as belonging to any
particular class (collectively "General Items"), such General Items shall
be allocated by or under the supervision of the Board of Directors to and
among any one or more of the classes established and designated from time
to time in such manner and on such basis as the Board of Directors, in its
sole discretion, deems fair and equitable, and any General Items so
allocated to a particular class shall belong to that class. Each such
allocation by the Board of Directors shall be conclusive and binding for
all purposes.
(b) Liabilities Belonging to Class. The assets belonging to each
------------------------------
particular class shall be charged with the liabilities of the Corporation
in respect of that class and all expenses, costs, charges and reserves
attributable to that class, and any general liabilities, expenses, costs,
charges or reserves of the Corporation which are not readily identifiable
as belonging to any particular class shall be allocated and charged by or
under the supervision of the Board of Directors to and among any one or
more of the classes established and designated from time to time in such
manner and on such basis as the Board of Directors, in its sole discretion,
deems fair and equitable. The liabilities, expenses, costs, charges and
reserves allocated and so charged to a class are herein referred to as
"liabilities belonging to" that class. Each allocation of liabilities,
expenses, costs, charges and reserves by the Board of Directors shall be
conclusive and binding for all purposes.
-4-
<PAGE>
(c) Income Belonging to Class. The Board of Directors shall have full
-------------------------
discretion, to the extent not inconsistent with the Maryland General
Corporation Law and the 1940 Act, to determine which items shall be treated
as income and which items as capital; and each such determination and
allocation shall be conclusive and binding. "Income belonging to" a class
includes all income, earnings and profits derived from assets belonging to
that class, less any expenses, costs, charges or reserves belonging to that
class, for the relevant time period.
(d) Dividends. Dividends and distributions on Shares of a particular
---------
class may be declared and paid with such frequency, in such form and in
such amount as the Board of Directors may from time to time determine.
Dividends may be declared daily or otherwise pursuant to a standing
resolution or resolutions adopted only once or with such frequency as the
Board of Directors may determine, after providing for actual and accrued
liabilities belonging to that class.
All dividends on Shares of a particular class shall be paid only out
of the income belonging to that class and capital gains distributions on
Shares of a particular class shall be paid only out of the capital gains
belonging to that class. All dividends and distributions on Shares of a
particular class shall be distributed pro rata to the holders of that class
in proportion to the number of Shares of that class held by such holders at
the date and time of record established for the payment of such dividends
or distributions, except that in connection with any dividend or
distribution program or procedure the Board of Directors may determine that
no dividend or distribution shall be payable on Shares as to which the
Shareholder's purchase order and/or payment have not been received by the
time or times established by the Board of Directors under such program or
procedure.
The Board of Directors shall have the power, in its sole discretion,
to distribute in any fiscal year as dividends, including dividends
designated in whole or in part as capital gains distributions, amounts
sufficient, in the opinion of the Board of Directors, to enable the
Corporation to qualify as a regulated investment company under the Internal
Revenue Code of 1986, or any amended version thereof or any successor or
comparable statute thereto, and regulations promulgated thereunder, and to
avoid liability of the Corporation for Federal income tax in respect of
that year. However, nothing in the foregoing shall limit the authority of
the Board of Directors to make distributions greater than or less than the
amount necessary to qualify as a regulated investment company and to avoid
liability of the Corporation for such tax.
Dividends and distributions may be paid in cash, property or Shares,
or a combination thereof, as determined by the Board of Directors or
pursuant to any program that the Board of Directors may have in effect at
the time. Any such dividend or distribution paid in Shares will be paid at
the current net asset value thereof as defined in Subsection (h) of this
Section 7.2.
-5-
<PAGE>
(e) Liquidation. In the event of the liquidation of the Corporation
-----------
or of a particular class, the Shareholders of each class that has been
established and designated and is being liquidated shall be entitled to
receive, as a class, when and as declared by the Board of Directors, the
excess of the assets belonging to that class over the liabilities belonging
to that class. The holders of Shares of any class shall not be entitled
thereby to any distribution upon liquidation of any other class. The
assets so distributable to the Shareholders of any particular class shall
be distributed among such Shareholders in proportion to the number of
Shares of that class held by them and recorded on the books of the
Corporation. The liquidation of any particular class in which there are
Shares then outstanding may be authorized by vote of a majority of the
Board of Directors then in office, subject to the approval of a majority of
the outstanding securities of that class, as defined in the 1940 Act.
(f) Voting. On each matter submitted to a vote of the Shareholders,
------
each holder of a Share shall be entitled to one vote for each Share
standing in his name on the books of the Corporation, irrespective of the
class thereof, and all Shares of all classes shall vote as a single class
("Single Class Voting"); provided, however, that (i) as to any matter with
respect to which a separate vote of any class is required by the 1940 Act
or by the Maryland General Corporation Law, such requirement as to a
separate vote by that class shall apply in lieu of Single Class Voting as
described above; (ii) in the event that the separate vote requirements
referred to in (i) above apply with respect to one or more classes, then,
subject to (iii) below, the Shares of all other classes shall vote as a
single class; and (iii) as to any matter which does not affect the interest
of a particular class, only the holders of Shares of the one or more
affected classes shall be entitled to vote.
(g) Redemption by Shareholder. Each holder of Shares of a particular
-------------------------
class shall have the right at such times as may be permitted by the
Corporation to require the Corporation to redeem all or any part of his
Shares of that class at a redemption price per share equal to the net asset
value per Share of that class next determined (in accordance with
Subsection (h) of this Section 7.2) after the Shares are properly tendered
for redemption less such contingent deferred sales charge or other charge
as is determined by the Board of Directors and described in the
Corporation's then effective registration statement under the Securities
Act of 1933. Payment of the redemption price shall be in cash unless the
Board of Directors determines, which determination shall be conclusive,
that conditions exist which make payment wholly in cash unwise or
undesirable. In the event of such a determination, the Corporation may make
payment wholly or partly in securities or other assets belonging to the
class of which the Shares being redeemed are part at the value of such
securities or assets used in such determination of net asset value.
Notwithstanding the foregoing, the Corporation may postpone payment of the
redemption price and may suspend the right of the holders of Shares of any
class to require the Corporation to redeem Shares of that class during any
period or at any time when and to the extent permissible under the 1940
Act.
-6-
<PAGE>
(h) Net Asset Value per Share. The net asset value per Share of any
-------------------------
class shall be the quotient obtained by dividing the value of the net
assets of that class (being the value of the assets belonging to that class
less the liabilities belonging to that class) by the total number of Shares
of that class outstanding.
The Board of Directors may determine to maintain the net asset value
per Share of any class at a designated constant dollar amount and in
connection therewith may adopt procedures not inconsistent with the 1940
Act for the continuing declarations of income attributable to that class as
dividends payable in additional Shares of that class at the designated
constant dollar amount and for the handling of any losses attributable to
that class.
(i) Equality. All Shares of each particular class shall represent an
--------
equal proportionate interest in the assets belonging to that class (subject
to the liabilities belonging to that class), and each Share of any
particular class shall be equal to each other Share of that class. The
Board of Directors may from time to time divide or combine the Shares of
any particular class into a greater or lesser number of Shares of that
class without thereby changing the proportionate beneficial interest of
such shareholders in the assets belonging to that Class or in any way
affecting the rights of Shares of any other class.
(j) Conversion or Exchange Rights. Subject to compliance with the
-----------------------------
requirements of the 1940 Act, the Board of Directors shall have the
authority to provide that holders of Shares of any class shall have the
right to convert or exchange said Shares into Shares of one or more other
classes of Shares of this Corporation, or into shares of one or more
classes of shares of capital stock of any other registered investment
company selected in the discretion of the Board of Directors and identified
in this Corporation's then effective registration statement under the
Securities Act of 1933 as qualifying for such exchange transactions all in
accordance with such requirements and procedures as may be established by
the Board of Directors.
(k) Redemption by the Corporation. The Board of Directors may cause
-----------------------------
the Corporation to redeem at current net asset value the Shares of any
class from a Shareholder where such Shares have an aggregate current net
asset value of less than Five Thousand Dollars ($5,000), or such lesser
minimal amount as determined from time to time by the Board of Directors.
No such redemption shall be effected unless the Corporation has given the
Shareholder at least sixty (60) days' notice of its intention to redeem the
Shares and an opportunity to purchase a sufficient number of additional
Shares to bring the aggregate current net asset value of his Shares to Five
Thousand Dollars ($5,000), or such lesser minimal amount as determined,
from time to time, by the Board of Directors. Upon redemption of Shares
pursuant to this Subsection (k), the Corporation shall promptly cause
payment of the full redemption price to be made to the holder of Shares so
redeemed.
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<PAGE>
EIGHTH: Section 8.1. Issuance of New Stock. The Board of Directors is
-----------------------------------
authorized to issue and sell or cause to be issued and sold from time to time
(without the necessity of offering the same or any part thereof to existing
shareholders) all or any portion or portions of the entire authorized but
unissued Shares of the Corporation, and all or any portion or portions of the
Shares of the Corporation from time to time in its treasury, for cash or for any
other lawful consideration or considerations and on or for any terms,
conditions, or prices consistent with the provisions of law and of the Articles
of Incorporation at the time in force; provided, however, that in no event shall
Shares of the Corporation having a par value be issued or sold for a
consideration or considerations less in amount or value than the par value of
the Shares so issued or sold, and provided further that in no event shall any
Shares of the Corporation be issued or sold for a consideration (which shall be
net to the Corporation after underwriting discounts or commissions) less in
amount or value than the net asset value of the Shares so issued or sold
determined next after an order to purchase such Shares is accepted, except that
Shares may be sold to an underwriter at (a) the net asset value determined next
after such orders are received by a dealer with whom such underwriter has a
sales agreement or (b) the net asset value determined at a later time.
Section 8.2. Fractional Shares. The Corporation may issue and sell
-------------------------------
fractions of Shares having pro rata all the rights of full Shares, including,
without limitation, the right to vote and to receive dividends, and wherever the
words "Share" or "Shares" are used in these Articles or in the Bylaws they shall
be deemed to include fractions of Shares, where the context does not clearly
indicate that only full Shares are intended.
NINTH: The number of directors constituting the Board of Directors shall
be six, which number may be changed in accordance with the Bylaws of the
Corporation, but shall never be less than three. The names of the persons who
shall act as directors until the first annual meeting of the Corporation and
until their successors have been duly chosen and qualified are: William J.
Nasgovitz, Robert A. Cooper, Thomas A. Bausch, Jon D. Hammes, Charles C.
McMullen and Robert F. Benz.
TENTH: Section 10.1. Except as otherwise provided by law, the presence in
------------
person or by proxy of the holders of one third of the shares of capital stock of
the Corporation entitled to vote thereat shall constitute a quorum at any
meeting of the Shareholders. Notwithstanding any provision of the laws of the
State of Maryland requiring any action to be taken or authorized by the
affirmative vote of the holders of more than a majority of the total number of
shares of the Corporation entitled to vote thereon, that action shall, except to
the extent otherwise required by the Investment Company Act of 1940, be
effective and valid if taken or authorized by the affirmative vote of the
holders of a majority of the total number of shares entitled to vote thereon.
Section 10.2. Notwithstanding any provision of law requiring a
------------
greater proportion than a majority of the votes of all classes (or of any class
entitled to vote thereon as a separate class) to take or authorize any action,
in accordance with the authority granted by Section 2-104(b)(5) of the Maryland
General Corporation Law, the Corporation is hereby
-8-
<PAGE>
authorized to take such action upon the concurrence of a majority of the
aggregate number of Shares entitled to vote thereon (or of a majority of the
aggregate number of Shares of a class entitled to vote thereon as a separate
class). The right to cumulate votes in the election of directors is expressly
prohibited.
ELEVENTH: Except as may otherwise be provided in the Bylaws, the Board of
Directors of the Corporation is expressly authorized to make, alter, amend and
repeal Bylaws or to adopt new Bylaws of the Corporation, without any action on
the part of the Shareholders; but the Bylaws made by the Board of Directors and
the power so conferred may be altered or repealed by the Shareholders.
TWELFTH: The Corporation reserves the right from time to time to make any
amendment of these Articles of Incorporation, now or hereafter authorized by
law, including any amendment which alters contract rights, as expressly set
forth in these Articles of Incorporation, of any outstanding Share. Any
amendment to these Articles of Incorporation may be adopted at either an annual
or special meeting of the Shareholders upon receiving an affirmative majority
vote of all outstanding Shares and an affirmative majority of the outstanding
Shares of each class entitled to vote thereon separately as a class in
accordance with Subsection (f) of Section 7.2 hereof.
IN WITNESS WHEREOF, the undersigned incorporator of Heartland Group, Inc.,
who executed the foregoing Articles of Incorporation, hereby acknowledges the
same to be his act and further acknowledges that, to the best of his knowledge,
the matters and facts set forth therein are true in all material respects under
the penalties of perjury.
Dated this 17th day of December, 1986.
/s/Conrad G. Goodkind
-------------------------------------
Conrad G. Goodkind, Sole Incorporator
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<PAGE>
EXHIBIT (b)
AMENDED AND RESTATED BY-LAWS
(through January 26, 1995 amendments)
OF
HEARTLAND GROUP, INC.
--------------------
(A Maryland Corporation)
ARTICLE I
---------
NAME OF CORPORATION, LOCATION OF
OFFICES AND SEAL
--------------------------------
Section 1.1. Name. The name of the Corporation is Heartland Group, Inc.
- ----------- ----
Section 1.2. Principal Offices. The principal office of the Corporation in the
- ----------- -----------------
State of Maryland shall be located in Baltimore, Maryland. The Corporation may,
in addition, establish and maintain such other offices and places of business as
the Board of Directors may, from time to time, determine.
Section 1.3. Seal. The corporate seal of the Corporation shall be circular in
- ----------- ----
form and shall bear the name of the Corporation, the year of its incorporation,
and the word "Maryland." The form of the seal shall be subject to alteration by
the Board of Directors and the seal may be used by causing it or a facsimile to
be impressed or affixed or printed or otherwise reproduced. Any officer or
Director of the Corporation shall have authority to affix the corporate seal of
the Corporation to any document requiring the same.
ARTICLE II
----------
STOCKHOLDERS
------------
Section 2.1. Place of Meetings. All meetings of the Stockholders shall be held
- ----------- -----------------
at such place within or outside the State of Maryland as the Board of Directors
may determine.
Section 2.2. Annual Meeting. The annual meeting of the Stockholders of the
- ----------- --------------
Corporation shall be held in April or May of each year on a day selected by the
Board of Directors at l0:00 a.m., or at such other date and time as may be
authorized by the Board of Directors and set forth in the notice of meeting.
Any business of the Corporation may be transacted at the annual meeting without
being specifically designated in the notice except as otherwise provided by
statute or in
<PAGE>
or in the Articles of Incorporation or these By-Laws. After the annual meeting
of Stockholders to be held April 27, 1995 for the fiscal year of the Corporation
ended December 31, 1994, for so long as the Corporation is registered under the
federal Investment Company Act of 1940, as amended, the Corporation shall not be
required to hold an annual meeting of shareholders in any year in which the
election of directors is not required to be acted on by shareholders under the
Investment Company Act of 1940, as amended.
Section 2.3. Special Meetings. Special Meetings of the Stockholders for any
- ----------- ----------------
purpose or purposes, unless otherwise prescribed by statute or by the Articles
of Incorporation, may be called at any time by resolution of the Board of
Directors or by the President. Special Meetings of the Stockholders shall be
called by the Secretary: (1) for the purpose of considering the removal of a
Director from office upon the written request of Stockholders entitled to vote
not less than 10% of all the votes entitled to be cast at such meeting, and the
Corporation shall cooperate with and assist the Stockholders of record who
notify the Corporation that they wish to communicate with the other Stockholders
for the purpose of obtaining signatures to request such a meeting, all pursuant
to and in accordance with Section 16(c) of the Investment Company Act of 1940,
as amended; and (2) for any other purpose upon the written request of
Stockholders entitled to vote not less than 25% of all of the votes entitled to
be cast at such meeting. In either case, such request shall state the
purpose(s) of such meeting and the matter(s) proposed to be acted upon, and the
Corporation may condition the calling of the meeting on payment by the
Stockholders of the reasonably estimated cost of preparing and mailing the
notice of the meeting, in which case the Secretary shall determine and specify
the estimated cost to such Stockholders. No special meeting shall be called upon
the request of the Stockholders pursuant to clause (2) above if the purpose is
to consider any matter which is substantially the same as a matter voted upon at
any special meeting of the Stockholders held during the preceding 12 months,
unless requested by the holders of a majority of all shares entitled to be voted
at such meeting.
Section 2.4. Notice of Meetings. The Secretary shall cause notice of the
- ----------- ------------------
place, date and hour, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, to be served, either personally or by
mail, not less than 10 nor more than 90 days before the date of the meeting, to
each Stockholder entitled to vote at such meeting. If mailed (1) such notice
shall be directed to a Stockholder at his address as it shall appear on the
books of the Corporation (unless he shall have filed with the Transfer Agent of
the Corporation a written request that notices intended for him be mailed to
some other address, in which case it shall be mailed to the address designated
in such request) and (2) such notice shall be deemed to have been given as of
the date when it is deposited in the United States mail with first class postage
thereon prepaid. Irregularities in the notice or in the giving thereof, as well
as the accidental omission to give notice of any meeting to, or the non-receipt
of any such notice by, any of the Stockholders shall not invalidate any action
otherwise properly taken by or at any such meeting.
Notice of any Stockholders' meeting need not be given to any
Stockholder who shall sign a written waiver of such notice whether before or
after the time of such meeting, which waiver shall be filed with the record of
such
-2-
<PAGE>
meeting, or to any Stockholder who is present at such meeting in person or by
proxy. Notice of adjournment of a Stockholders' meeting to another time or place
need not be given if such time and place are announced at the meeting.
Section 2.5. Quorum. The presence at any Stockholders' meeting, in person or
- ----------- ------
by proxy, of Stockholders entitled to cast one third of the votes shall be
necessary and sufficient to constitute a quorum for the transaction of business,
except as otherwise provided by statute, by the Articles of Incorporation or by
these By-Laws. In the absence of a quorum, the holders of a majority of shares
entitled to vote at the meeting and present in person or by proxy, or, if no
Stockholder entitled to vote is present in person or by proxy, any officer
present entitled to preside or act as Secretary of such meeting may adjourn the
meeting sine die or from time to time without further notice to a date not more
---- ---
than 120 days after the original record date. Any business that might have been
transacted at the meeting originally called may be transacted at any such
adjourned meeting at which a quorum is present.
Section 2.6. Voting. At each Stockholders' meeting, each Stockholder entitled
- ----------- ------
to vote shall be entitled to one vote for each share of stock of the Corporation
validly issued and outstanding and standing in his name on the books of the
Corporation on the record date fixed in accordance with Section 6.3 of Article
VI hereof. Except as otherwise specifically provided in the Articles of
Incorporation or these By-Laws or as required by provisions of the Investment
Company Act of 1940, as amended from time to time, all matters shall be decided
by a vote of the majority of the votes validly cast. The vote upon any question
shall be by ballot whenever requested by any person entitled to vote, but,
unless such a request is made, voting may be conducted in any way approved by
the meeting.
Section 2.7. Stockholders Entitled to Vote. If the Board of Directors sets a
- ----------- -----------------------------
record date for the determination of Stockholders entitled to notice of or to
vote at any Stockholders' meeting in accordance with Section 6.3 of Article VI
hereof, each Stockholder of the Corporation shall be entitled to vote, in person
or by proxy, each share of stock standing in his name on the books of the
Corporation on such record date. If no record date has been fixed, the record
date for the determination of Stockholders entitled to notice of or to vote at a
meeting of Stockholders shall be the later of the close of business on the day
on which notice of the meeting is mailed or the thirtieth day before the
meeting, or, if notice is waived by all Stockholders, at the close of business
on the tenth day next preceding the day on which the meeting is held.
Section 2.8. Proxies. The right to vote by proxy shall exist only if the
- ----------- -------
instrument authorizing such proxy to act shall have been signed by the
Stockholder or by his duly authorized attorney. Unless a proxy provides
otherwise, it is not valid more than eleven months after its date. Proxies
shall be delivered prior to the meeting to the Secretary of the Corporation or
to the person acting as Secretary of the meeting before being voted. A proxy
with respect to stock held in the name of two or more persons shall be valid if
executed by one of them unless at or prior to exercise of such proxy the
Corporation receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a Stockholder shall
be deemed valid unless challenged at or prior to its exercise.
-3-
<PAGE>
ARTICLE III
-----------
BOARD OF DIRECTORS
------------------
Section 3.1. Powers. Except as otherwise provided by law, by the Articles of
- ----------- ------
Incorporation or by these By-Laws, the business and affairs of the Corporation
shall be managed under the direction of and all the powers of the Corporation
shall be exercised by or under authority of its Board of Directors.
Section 3.2. Number and Term. The Board of Directors shall consist of not
- ----------- ---------------
fewer than three nor more than twelve Directors, as specified by a resolution of
a majority of the entire Board of Directors, provided that at least a majority
of the entire Board of Directors shall be persons who are not interested persons
of the Corporation as defined in the Investment Company Act of 1940. Each
Director (whenever selected) shall hold office until his successor is elected
and qualified or until his earlier death, resignation or removal.
Section 3.3. Election. At any annual meeting of Stockholders called and held
- ----------- --------
for the purpose of electing Directors pursuant to the requirements of the
Investment Company Act of 1940, as amended, the Corporation's Articles of
Incorporation or these By-Laws, Directors shall be elected by vote of the
holders of a majority of the shares present in person or by proxy and entitled
to vote thereon.
Section 3.4. Vacancies and Newly Created Directorships. If any vacancies shall
- ----------- -----------------------------------------
occur in the Board of Directors by reason of death, resignation, removal or
otherwise, or if the authorized number of Directors shall be increased, the
Directors then in office shall continue to act, and such vacancies (if not
previously filled by the Stockholders) may be filled by a majority of the
Directors then in office, although less than a quorum, except that a newly
created Directorship may be filled only by a majority vote of the entire Board
of Directors; provided, however, that immediately after filling such vacancy, at
least two-thirds (2/3) of the Directors then holding office shall have been
elected to such office by the Stockholders of the Corporation. In the event
that at any time, other than the time preceding the first annual Stockholders'
meeting, less than a majority of the Directors of the Corporation holding office
at that time were elected by the Stockholders, a meeting of the Stockholders
shall be held promptly and in any event within 60 days for the purpose of
electing Directors to fill any existing vacancies in the Board of Directors,
unless the Securities and Exchange Commission or any court of competent
jurisdiction shall by order extend such period.
Section 3.5. Removal. At any meeting of Stockholders duly called and at which
- ----------- -------
a quorum is present, the Stockholders may, by the affirmative votes of the
holders of a majority of the votes entitled to be cast thereon, remove any
Director or Directors from office, with or without cause, and may elect a
successor or successors to fill any resulting vacancies for the unexpired terms
of the removed Directors.
-4-
<PAGE>
Section 3.6. Annual and Regular Meetings. The Board of Directors from time to
- ----------- ---------------------------
time may provide by resolution for the holding of regular and annual meetings of
the Board of Directors and fix their time and place within or outside the State
of Maryland. At the annual meeting of the Board of Directors, the Board shall
choose officers and transact other proper business for an annual meeting.
Notice of such annual and regular meetings of the Board of Directors need not be
in writing, provided that written notice of any change in the time or place of
such meetings shall be sent promptly to each Director not present at the meeting
at which such change was made in the manner provided in Section 3.7 of this
Article III for notice of special meetings of the Board of Directors. Except as
provided by the Investment Company Act of 1940, as amended, members of the Board
of Directors or any committee designated thereby may participate in a meeting of
such Board or committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and participation by such means
shall constitute presence in person at the meeting.
Section 3.7. Special Meetings. Special meetings of the Board of Directors may
- ----------- ----------------
be held at any time or place and for any purpose when called by the Chairman of
the Board or by a majority of the Directors. Notice of special meetings,
stating the time and place, shall be (1) mailed to each Director at his
residence or regular place of business at least five days before the day on
which a special meeting is to be held or (2) delivered to him personally or
transmitted to him by telegraph, cable or wireless at least one day before the
meeting.
Section 3.8. Waiver of Notice. No notice of any meeting need be given to any
- ----------- ----------------
Director who is present at the meeting or who waives notice of such meeting in
writing (which waiver shall be filed with the records of such meeting), whether
before or after the time of the meeting.
Section 3.9. Quorum and Voting. At all meetings of the Board of Directors, the
- ----------- -----------------
presence of one-third of the total number of Directors then in office (but not
less than two Directors) shall constitute a quorum and shall be sufficient for
the transaction of business. In the absence of a quorum, a majority of the
Directors present may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present. The
action of a majority of the Directors present at a meeting at which a quorum is
present shall be the action of the Board of Directors, unless the concurrence of
a greater proportion is required for such action by law, by the Articles of
Incorporation or by these By-Laws.
Section 3.10. Action Without a Meeting. Any action required or permitted to be
- ------------ ------------------------
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if a written consent to such action is signed by all
members of the Board or of such committee, as the case may be, and such written
consent is filed with the minutes of proceedings of the Board or committee.
Section 3.11. Compensation of Directors. The Board of Directors may, by
- ------------ -------------------------
resolution, determine what compensation and reimbursement of expenses of
attendance at meetings, if any, shall be paid to Directors in connection with
their service on the Board. Nothing herein contained shall
-5-
<PAGE>
be construed to preclude any Director from serving the Corporation in any other
capacity or from receiving compensation therefor.
ARTICLE IV
----------
COMMITTEES
----------
Section 4.1. Organization. By resolution adopted by the Board of Directors,
- ----------- ------------
the Board may designate one or more committees, including an Executive
Committee. The Chairmen of such committees shall be elected by the Board of
Directors. Each member of a committee shall be a Director and shall hold office
at the pleasure of the Board. The Board of Directors shall have the power at
any time to change the members of such committees and to fill vacancies in the
committees. The Board may delegate to these committees any of its powers,
except the power to declare a dividend, authorize the issuance of stock,
recommend to Stockholders any action requiring Stockholders' approval, amend
these By-Laws, or approve any merger or share exchange which does not require
Stockholder approval.
Section 4.2. Executive Committee. There may be an Executive Committee of two
- ----------- -------------------
or more Directors appointed by the Board who may meet at stated times or on
notice to all by any of their own number. The Executive Committee shall consult
with and advise the officers of the Corporation in the management of its
business and exercise such powers of the Board of Directors as may be lawfully
delegated by the Board of Directors. The Executive Committee shall keep regular
minutes of its proceedings and report the same to the Board when required.
Section 4.3. Other Committees. The Board of Directors may appoint other
- ----------- ----------------
committees which shall have such powers and perform such duties as may be
delegated from time to time by the Board.
Section 4.4. Proceedings and Quorum. In the absence of an appropriate
- ----------- ----------------------
resolution of the Board of Directors, each committee may adopt such rules and
regulations not inconsistent with law, the Articles of Incorporation or these
By-Laws to govern its proceedings, quorum and manner of acting as it shall deem
proper and desirable. In the event any member of any committee is absent from
any meeting, the members thereof present at the meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
-6-
<PAGE>
ARTICLE V
---------
OFFICERS
--------
Section 5.1. General. The officers of the Corporation shall be a President, a
- ----------- -------
Secretary and a Treasurer, and may include one or more Vice Presidents,
Assistant Secretaries or Assistant Treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 9 of this Article V. The
Board of Directors may, but shall not be required to, elect a Chairman of the
Board.
Section 5.2. Election, Tenure and Qualifications. The officers of the
- ----------- -----------------------------------
Corporation, except those appointed as provided in Section 9 of this Article V,
shall be elected by the Board of Directors at its first annual meeting or such
meetings as shall be held prior to its first annual meeting, and thereafter
annually at its annual meeting. If any officers are not chosen at any annual
meeting, such officers may be chosen at any subsequent regular or special
meeting of the Board. Except as otherwise provided in this Article V, each
officer chosen by the Board of Directors shall hold office until the next annual
meeting of the Board of Directors and until his successor shall have been
elected and qualified. Any person may hold one or more offices of the
Corporation except the offices of President and Vice President; however, a
person who holds more than one office may not act in more than one capacity to
execute, acknowledge or verify an instrument required by law to be executed,
acknowledged or verified by more than one officer. The Chairman of the Board
shall be elected from among the Directors of the Corporation and may hold such
office only as long as he continues to be a Director. No other officer need be
a Director.
Section 5.3. Removal and Resignation. Whenever in the Board's judgment the
- ----------- -----------------------
best interest of the Corporation will be served thereby, any officer may be
removed from office by the vote of a majority of the members of the Board of
Directors given at a regular meeting or any special meeting called for such
purpose. Any officer may resign his office at any time by delivering a written
resignation to the Board of Directors, the President, the Secretary, or any
Assistant Secretary. Unless otherwise specified therein, such resignation shall
take effect upon delivery.
Section 5.4. Chairman of the Board. The Chairman of the Board, if there be
- ----------- ---------------------
such an officer, shall preside at all Stockholders' meetings and at all meetings
of the Board of Directors and shall be ex officio a member of all committees of
-- -------
the Board of Directors. He shall have such powers and perform such other duties
as may be assigned to him from time to time by the Board of Directors.
Section 5.5. President. The President shall be the chief executive officer of
- ----------- ---------
the Corporation and, in the absence of the Chairman of the Board or if no
Chairman of the Board has been chosen, he shall preside at all Stockholders'
meetings and at all meetings of the Board of Directors and shall in general
exercise the powers and perform the duties of the Chairman of the Board.
Subject to the supervision of the Board of Directors, he shall have general
charge of the business, affairs,
-7-
<PAGE>
and property of the Corporation and general supervision over its officers,
employees and agents. Except as the Board of Directors may otherwise order, he
may sign in the name and on behalf of the Corporation all deeds, bonds,
contracts, or agreements. He shall exercise such other powers and perform such
other duties as from time to time may be assigned to him by the Board of
Directors.
Section 5.6. Vice President. The Board of Directors may from time to time
- ----------- --------------
elect one or more Vice Presidents who shall have such powers and perform such
duties as from time to time may be assigned to them by the Board of Directors or
the President. At the request or in the absence or disability of the President,
the Vice President (or, if there are two or more Vice Presidents, then the
senior of the Vice Presidents present and able to act) may perform all the
duties of the President and, when so acting, shall have all the powers of and be
subject to all the restrictions upon the President.
Section 5.7. Treasurer and Assistant Treasurers. The Treasurer shall be the
- ----------- ----------------------------------
principal financial and accounting officer of the Corporation and shall have
general charge of the finances and books of account of the Corporation. Except
as otherwise provided by the Board of Directors, he shall have general
supervision of the funds and property of the Corporation and of the performance
by the Custodian of its duties with respect thereto. He shall render to the
Board of Directors, whenever directed by the Board, an account of the financial
condition of the Corporation and of all his transactions as Treasurer; and as
soon as possible after the close of each financial year he shall make and submit
to the Board of Directors a like report for such financial year. He shall
perform all acts incidental to the office of Treasurer, subject to the control
of the Board of Directors.
Any Assistant Treasurer may perform such duties of the Treasurer as
the Treasurer or the Board of Directors may assign, and, in the absence of the
Treasurer, he may perform all the duties of the Treasurer.
Section 5.8. Secretary and Assistant Secretaries. The Secretary shall attend
- ----------- -----------------------------------
to the giving and serving of all notices of the Corporation and shall record all
proceedings of the meetings of the Stockholders and Directors in books to be
kept for that purpose. He shall keep in safe custody the seal of the
Corporation, and shall have charge of the records of the Corporation, including
the stock books and such other books and papers as the Board of Directors may
direct and such books, reports, certificates and other documents required by law
to be kept, all of which shall at all reasonable times be open to inspection by
any Director. He shall perform such other duties as appertain to his office or
as may be required by the Board of Directors.
Any Assistant Secretary may perform such duties of the Secretary as
the Secretary or the Board of Directors may assign, and, in the absence of the
Secretary, he may perform all the duties of the Secretary.
Section 5.9. Subordinate Officers. The Board of Directors from time to time
- ----------- --------------------
may appoint such other officers or agents as it may deem advisable, each of whom
shall have such title, hold office
-8-
<PAGE>
for such period, have such authority and perform such duties as the Board of
Directors may determine. The Board of Directors from time to time may delegate
to one or more officers or agents the power to appoint any such subordinate
officers or agents and to prescribe their respective rights, terms of office,
authorities and duties.
Section 5.10. Remuneration. The salaries or other compensation of the officers
- ------------ ------------
of the Corporation shall be fixed from time to time by resolution of the Board
of Directors, except that the Board of Directors may by resolution delegate to
any person or group of persons the power to fix the salaries or other
compensation of any subordinate officers or agents appointed in accordance with
the provisions of Section 9 of this Article V.
Section 5.11. Surety Bonds. The Board of Directors may require any officer or
- ------------ ------------
agent of the Corporation to execute a bond (including, without limitation, any
bond required by the Investment Company Act of 1940, as amended, and the rules
and regulations of the Securities and Exchange Commission) to the Corporation in
such sum and with such surety or sureties as the Board of Directors may
determine, conditioned upon the faithful performance of his duties to the
Corporation, including responsibility for negligence and for the accounting of
any of the Corporation's property, funds or securities that may come into his
hands.
ARTICLE VI
----------
CAPITAL STOCK
-------------
Section 6.1. Stock Ledgers. The stock ledgers of the Corporation, containing
- ----------- -------------
the names and addresses of the Stockholders and the number of shares held by
them respectively, shall be kept at the principal offices of the Corporation or
at the offices of the transfer agent of the Corporation.
Section 6.2. Transfer Agents and Registrars. The Board of Directors may from
- ----------- ------------------------------
time to time appoint or remove transfer agents and/or registrars of transfers of
shares of stock of the Corpora tion, and it may appoint the same person as both
transfer agent and registrar.
Section 6.3. Fixing of Record Date. The Board of Directors may fix in advance
- ----------- ---------------------
a date as a record date for the determination of the Stockholders entitled to
notice of or to vote at Stockholders' meeting or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or to receive
payment of any dividend or other distribution or allotment of any rights, or to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, provided that (1) such record
date shall be within 60 days prior to the date on which the particular action
requiring such determination will be taken, (2) the transfer books shall not be
closed for a period longer than 20 days, and (3) in the case of a meeting of
Stockholders, the record date or any closing of the transfer books shall be at
least 10 days before the date of the meeting.
-9-
<PAGE>
Section 6.4. Lost, Stolen or Destroyed Certificates. Before issuing a new
- ----------- --------------------------------------
certificate for stock of the Corporation alleged to have been lost, stolen or
destroyed, the Board of Directors or any officer authorized by the Board may, in
its discretion, require the owner of the lost, stolen or destroyed certificate
(or his legal representative) to give the Corporation a bond or other indemnity,
in such form and in such amount as the Board or any such officer may direct and
with such surety or sureties as may be satisfactory to the Board or any such
officer, sufficient to indemnify the Corporation against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
ARTICLE VII
-----------
FISCAL YEAR AND ACCOUNTANT
--------------------------
Section 7.1. Fiscal Year. The fiscal year of the Corporation shall be
- ----------- -----------
determined by resolution of the Board of Directors.
Section 7.2. Accountant. The Corporation shall employ an independent public
- ----------- ----------
accountant or a firm of independent public accountants as its Accountant to
examine the accounts of the Cor poration and to sign and certify financial
statements filed by the Corporation. The Accountant's certificates and reports
shall be addressed both to the Board of Directors and to the Stockholders of the
Corporation. The employment of the Accountant shall be conditioned upon the
right of the Corporation to terminate the employment forthwith without any
penalty by vote of a majority of the outstanding voting securities at any
meeting of the Stockholders' called for that purpose.
A majority of the members of the Board of Directors who are not
interested persons (as such term is defined in the Investment Company Act of
1940, as amended, and the Rules of the Securities and Exchange Commission
promulgated thereunder) of the Corporation shall select the Accountant: (a) at
any meeting held within 30 days before or 90 days after the beginning of the
fiscal year of the Corporation for fiscal years during which no annual meeting
of Stockholders is held; and (b) within 30 days before or after the beginning of
the fiscal year of the Corporation or before the annual meeting of Stockholders
for any fiscal year in which an annual meeting of Stockholders is held. With
respect to fiscal years during which an annual meeting of Stockholders is held,
the Board's selection of the Accountant shall be submitted for ratification or
rejection at such annual meeting of Stockholders. If the Stockholders shall
reject the Board's selection of the Accountant at such meeting, the Accountant
shall be selected by majority vote of the Corporation's outstanding voting
securities, either at the meeting at which the rejection oc curred or at a
subsequent meeting of Stockholders called for that purpose.
Any vacancy occurring due to the resignation of the Accountant may be
filled by the vote of a majority of the members of the Board of Directors who
are not interested persons of the Corporation (as that term is defined in the
Investment Company Act of 1940, as amended, and the Rules of the Securities and
Exchange Commission promulgated thereunder).
-10-
<PAGE>
ARTICLE VIII
------------
CUSTODY OF SECURITIES
---------------------
Section 8.1. Employment of Custodian. All assets of the Corporation shall be
- ----------- -----------------------
held by one or more custodian banks or trust companies meeting the requirements
of the Investment Company Act of 1940, as amended, and having capital, surplus
and undivided profits of at least $2,000,000 and may be registered in the name
of the Corporation, or any such custodian, or a nominee of either of them. The
terms of any custodian agreement shall be determined by the Board of Directors,
which terms shall be in accordance with the provisions of the Investment Company
Act of 1940, as amended.
Subject to such rules, regulations and orders as the Securities and
Exchange Commission may adopt, the Corporation may direct a custodian to deposit
all or any part of the securities owned by the Corporation in a system for the
central handling of securities established by a national securities exchange or
a national securities association registered with the Securities and Exchange
Commission, or otherwise in accordance with the Investment Company Act of 1940,
as amended, pursuant to which system all securities of any issuer deposited
within the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities, provided that
all such deposits shall be subject to withdrawal only upon the order of the
Corporation, a custodian, or pursuant to an agreement between a custodian and a
futures commission merchant to meet the margin requirements of a registered
securities exchange or contract market and in accordance with the Investment
Company Act of 1940, as amended.
ARTICLE IX
----------
INDEMNIFICATION AND INSURANCE
-----------------------------
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,
-11-
<PAGE>
bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office or under any contract or
agreement with the Corporation ("disabling conduct"); and
(b) the Corporation shall not indemnify any person unless:
(1) the court or other body before which the Proceeding was
brought (i) dismisses the Proceeding for insufficiency of
evidence of any disabling conduct, or (ii) reaches a final
decision on the merits that such person was not liable by reason
of disabling conduct; or
(2) absent such a decision, a reasonable determination is made,
based upon a review of the facts, by (i) the vote of a majority
of a quorum of the Directors of the Corporation who are neither
interested persons of the Corporation as defined in the
Investment Company Act of 1940 nor parties to the Proceeding, or
(ii) if such quorum is not obtainable, or even if obtainable, if
a majority of a quorum of Directors described in paragraph
(b)(2)(i) above so directs, by independent legal counsel in a
written opinion, that such person was not liable by reason of
disabling conduct.
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
-12-
<PAGE>
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.
ARTICLE X
---------
AMENDMENTS
----------
Section 10.1. By Stockholders. These By-Laws may be adopted, amended or
- ------------ ---------------
repealed by vote of the holders of a majority of the Corporation's stock, as
defined in the Investment Company Act of 1940, at any annual or special meeting
of the Stockholders at which a quorum is present or represented, provided that
notice of the proposed amendment shall have been contained in the notice of the
meeting.
Section 10.2. By Directors. The Directors may adopt, amend or repeal any By-
- ------------ ------------
Law by majority vote of all of the Directors in office at any regular meeting,
or at any special meeting if notice of the proposed By-Law, amendment or repeal
shall have been included in the notice of such meeting.
Section 10.3. Implied Amendments. Any action taken or authorized by the
- ------------ ------------------
Stockholders or by the Board of Directors which would be inconsistent with the
By-Laws then in effect, but which is taken or authorized by affirmative vote of
not less than the number of shares or the number of Directors required to amend
the By-Laws so that the By-Laws would be consistent with such action and which
is not in violation of applicable federal or state law, shall be given the same
effect as though the By-Laws had been temporarily amended or suspended so far,
but only so far, as is necessary to permit the specific action so taken or
authorized.
-13-
<PAGE>
EXHIBIT (d)(1)
INVESTMENT ADVISORY AGREEMENT
BETWEEN
HEARTLAND GROUP, INC.
AND
HEARTLAND ADVISORS, INC.
INVESTMENT ADVISORY AGREEMENT, made as of the 23rd day of October, 1984, by
and between the Heartland Value Fund Series (the "Fund") of Heartland Group,
Inc., a Maryland corporation (as successor in interest by merger of Heartland
Value Fund, Inc.), and Heartland Advisors, Inc. (the "Advisor"), a Wisconsin
corporation (formerly known as Milwaukee Asset Management, Inc. and, prior to
that, known as The Milwaukee Company Advisers, Inc.).
W I T N E S S E T H :
WHEREAS, the Fund will be engaged in business as an open-end investment
management company and registered as such under the Investment Company Act of
1940, as amended (the "1940 Act"); and
WHEREAS, the Advisor is engaged in the business of rendering investment
supervisory services and is registered as an investment advisor under the
Investment Advisors Act of 1940, as amended; and
WHEREAS, the Fund desires the Advisor to render investment supervisory
services to the Fund in the manner and on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. DUTIES AND RESPONSIBILITIES OF ADVISOR.
A. INVESTMENT ADVISORY SERVICES. The Advisor shall act as
investment adviser and shall supervise and direct the investments of the Fund in
accordance with the Fund's investment objectives, programs and restrictions as
provided in its Prospectus and Statement of Additional Information, as amended
from time to time, and such other limitations as the Fund may impose by notice
in writing to the Advisor. The Advisor shall obtain and evaluate such
information relating to the economy, industries, businesses, securities markets
and securities as it may deem necessary or useful in the discharge of its
obligations hereunder and shall formulate and implement a continuing program for
the management of the assets and resources of the Fund in a manner consistent
with its investment objective. In furtherance of this duty, the Advisor as
agent and attorney-in-fact with respect to the Fund, is authorized, in its
discretion and without prior consultation with the Fund, to:
(i) buy, sell, exchange, convert, lend, and otherwise trade in any stocks,
bonds, and other securities or assets;
<PAGE>
(ii) borrow on behalf of and in the name of the Fund, but only for the
purposes and to the extent described in the Fund's then current Prospectus; and
(iii) place orders and negotiate the commissions (if any) for the
execution of transactions in securities with or through such brokers, dealers,
underwriters or issuers as the Advisor may select.
B. FINANCIAL, ACCOUNTING, AND ADMINISTRATIVE SERVICES. The Advisor
shall maintain the corporate existence and corporate records of the Fund;
maintain the registrations and qualifications of Fund shares under federal and
state law; monitor the financial, accounting, and administrative functions of
the Fund; maintain liaison with the various agents employed by the Fund
(including the Fund's transfer agent, custodian, independent accountants and
legal counsel) and assist in the coordination of their activities on behalf of
the Fund.
C. REPORTS TO FUND. The Advisor shall furnish to or place at the
disposal of the Fund such information, reports, evaluations, analyses and
opinions as the Fund may, at any time or from time to time, reasonably request
or as the Advisor may deem helpful to the Fund.
D. REPORTS AND OTHER COMMUNICATIONS TO FUND SHAREHOLDERS. The
Advisor shall assist the Fund in developing all general shareholder
communications, including regular shareholder reports.
E. FUND PERSONNEL. The Advisor agrees to permit individuals who are
either officers or employees of the Advisor to serve (if duly elected or
appointed) as officers, directors, members of any committee of directors,
members of any advisory board, or members of any other committee of the Fund,
without remuneration from or other cost to the Fund.
F. PERSONNEL, OFFICE SPACE, AND FACILITIES OF ADVISOR. The Advisor
at its own expense shall furnish or provide and pay the cost of such office
space, office equipment, office personnel, and office services as it requires in
the performance of its investment advisory and other obligations under this
Agreement.
2. ALLOCATION OF EXPENSES.
A. EXPENSES PAID BY ADVISOR.
(1) SALARIES AND FEES OF OFFICERS. The Advisor shall pay all
salaries, expenses, and fees of the officers and directors of the Fund who are
affiliated with the Advisor.
(2) ASSUMPTION OF FUND EXPENSES BY ADVISOR. The payment or assumption
by the Advisor of any expense of the Fund that the Advisor is not required by
this Agreement to pay or assume shall not obligate the Advisor to pay or assume
the same or any similar expense of the Fund on any subsequent occasion.
-2-
<PAGE>
B. EXPENSES PAID BY FUND. The Fund shall bear all expenses of its
organization, operations, and business not specifically assumed or agreed to be
paid by the Advisor as provided in this Agreement. In particular, but without
limiting the generality of the foregoing, the Fund shall pay:
(1) CUSTODY AND ACCOUNTING SERVICES. All expenses of the transfer,
receipt, safekeeping, servicing and accounting for the Fund's cash, securities,
and other property, including all charges of depositories, custodians, and other
agents, if any;
(2) SHAREHOLDER SERVICING. All expenses of maintaining and servicing
shareholder accounts, including all charges of the Fund's transfer, shareholder
recordkeeping, dividend disbursing, redemption, and other agents, if any;
(3) SHAREHOLDER COMMUNICATIONS. All expenses of preparing, setting in
type, printing, and distributing reports and other communications to
shareholders;
(4) SHAREHOLDER MEETINGS. All expenses incidental to holding
meetings of Fund shareholders, including the printing of notices and proxy
material, and proxy solicitation therefor;
(5) PROSPECTUSES. All expenses of preparing, setting in type, and
printing of annual or more frequent revisions of the Fund's Prospectus and of
mailing them to shareholders;
(6) PRICING. All expenses of computing the Fund's net asset value
per share, including the cost of any equipment or services used for obtaining
price quotations;
(7) COMMUNICATION EQUIPMENT. All charges for equipment or services
used for communication between the Advisor or the Fund and the custodian,
transfer agent or any other agent selected by the Fund;
(8) LEGAL AND ACCOUNTING FEES AND EXPENSES. All charges for services
and expenses of the Fund's legal counsel and independent auditors;
(9) DIRECTORS' FEES AND EXPENSES. All compensation of directors,
other than those affiliated with the Advisor and all expenses incurred in
connection with their service;
(10) FEDERAL REGISTRATION FEES. All fees and expenses of
registering and maintaining the registration of the Fund under the 1940 Act and
the registration of the Fund's shares under the Securities Act of 1933, as
amended (the "1933 Act"), including all fees and expenses incurred in connection
with the preparation, setting in type, printing, and filing of any registration
statement and Prospectus under the 1933 Act or the 1940 Act, and any amendments
or supplements that may be made from time to time;
(11) STATE REGISTRATION FEES. All fees and expenses of qualifying and
maintaining qualification of the Fund and of the Fund's shares for sale under
securities laws of
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<PAGE>
various states or jurisdictions, and of registration and qualification of the
Fund under all other laws applicable to the Fund or its business activities;
(12) ISSUE AND REDEMPTION OF FUND SHARES. All expenses incurred in
connection with the issue, redemption, and transfer of Fund shares, including
the expense of confirming all share transactions, and of preparing and
transmitting the Fund's stock certificates;
(13) BONDING AND INSURANCE. All expenses of bond, liability, and
other insurance coverage required by law or deemed advisable by the Fund's Board
of Directors;
(14) BROKERAGE COMMISSIONS. All brokers' commissions and other
charges incident to the purchase, sale, or lending of the Fund's portfolio
securities;
(15) TAXES. All taxes or governmental fees payable by or with respect
of the Fund to Federal, state, or other governmental agencies, domestic or
foreign, including stamp or other transfer taxes;
(16) TRADE ASSOCIATION FEES. All fees, dues, and other expenses
incurred in connection with the Fund's membership in any trade association or
other investment organization; and
(17) NONRECURRING AND EXTRAORDINARY EXPENSES. Such nonrecurring
expenses as may arise, including the costs of actions, suits, or proceedings to
which the Fund is a party and the expenses the Fund may incur as a result of its
legal obligation to provide indemnification to its officers, directors, and
agents.
3. ADVISORY FEES.
The Fund shall pay the Advisor a fee computed as described below, based on
the value of the net assets of the Fund.
A. FEE RATE. The fee shall be payable in monthly installments, at
the rate of 0.75% of the Fund's average daily net assets.
B. METHOD OF COMPUTATION. The fee shall be accrued for each
calendar day and the sum of the daily fee accruals shall be paid monthly to the
Advisor on the first business day of the next succeeding calendar month. The
daily fee accruals will be computed by multiplying the fraction of one over the
number of calendar days in the year by the applicable annual rate described in
subparagraph (A) of this Paragraph 3, and multiplying this product by the net
assets of the Fund as determined in accordance with the Fund's Prospectus as of
the close of business on the previous business day on which the Fund was open
for business.
C. EXPENSE LIMITATION. To the extent that the aggregate expenses
of every character incurred by the Fund in any fiscal year, including but not
limited to fees of the Advisor computed as hereinabove set forth, but excluding
interest, taxes, brokerage, and other expenditures
-4-
<PAGE>
which are capitalized in accordance with generally accepted accounting
principles and extraordinary expenses, shall exceed the limit ("State Expense
Limit") prescribed by any state in which the Fund's shares are qualified for
sale, such excess amount shall be the liability of the Advisor to pay in the
manner specified below. To determine the Advisor's liability for the Fund's
expenses, the expenses of the Fund shall be annualized monthly as of the last
day of the month. If the annualized expenses for any month exceed the State
Expense Limit, the payment of the advisory fee for such month (if there be any)
shall be reduced by such excess ("Excess Amount") and in the event the Excess
Amount exceeds the amount due as the advisory fee, the Advisor shall remit to
the Fund the difference between the Excess Amount and the amount due as the
advisory fee; provided, however, that an adjustment shall be made on or before
the last day of the first month of the next succeeding fiscal year if the
aggregate expenses for the fiscal year do not exceed the State Expense Limit.
D. PRORATION OF FEE. If this Agreement becomes effective or
terminates before the end of any month, the fee for the period from the
effective date to the end of such month or from the beginning of such month to
the date of termination, as the case may be, shall be prorated according to the
proportion which such period bears to the full month in which such effectiveness
or termination occurs.
4. BROKERAGE.
Subject to the approval of the board of directors of the Fund or the
Advisor, in carrying out its duties under Paragraph l.A, may cause the Fund to
pay a broker-dealer which furnishes brokerage or research services (as such
services are defined under Section 28(e) of the Securities Exchange Act of 1934,
as amended (the "1934 Act")) a higher commission than that which might be
charged by another broker-dealer which does not furnish brokerage or research
services or which furnishes brokerage or research services deemed to be of
lesser value, if such commission is deemed reasonable in relation to the
brokerage and research services provided by the broker-dealer, viewed in terms
of either that particular transaction or the overall responsibilities of the
Advisor with respect to the accounts as to which it exercises investment
discretion (as such term is defined under Section 3(a)(35) of the 1934 Act). The
Fund may execute transactions through the Advisor or its affiliates on the terms
and subject to the conditions described in the Fund's most recent Prospectus.
5. ADVISOR'S USE OF THE SERVICES OF OTHERS.
The Advisor may (at its cost except as contemplated by Paragraph 4 of this
Agreement) employ, retain or otherwise avail itself of the services or
facilities of other persons or organizations for the purpose of providing either
it or the Fund with such statistical and other factual information, such advice
regarding economic factors and trends, such advice as to occasional transactions
in specific securities or such other information, advice or assistance as they
may deem necessary, appropriate or convenient for the discharge of their
obligations hereunder or otherwise helpful to the Fund, or in the discharge of
their overall responsibilities with respect to the other accounts which they
serve as investment adviser or commodity trading adviser.
-5-
<PAGE>
6. OWNERSHIP OF RECORDS.
All records required to be maintained and preserved by the Fund pursuant to
the provisions of rules or regulations of the Securities and Exchange Commission
under Section 31(a) of the 1940 Act and maintained and preserved by the Advisor
on behalf of the Fund are the property of the Fund and will be surrendered by
the Advisor promptly on request by the Fund.
7. REPORTS TO ADVISOR.
The Fund shall furnish or otherwise make available to the Advisor such
Prospectuses, financial statements, proxy statements, reports, and other
information relating to the business and affairs of the Fund as the Advisor may,
at any time or from time to time, reasonably require in order to discharge its
obligations under this Agreement.
8. SERVICES TO OTHER CLIENTS.
Nothing herein contained shall limit the freedom of the Advisor or any
affiliated person to render investment supervisory and corporate administrative
services to other investment companies, to act as investment adviser or
investment counselor to other persons, firms or corporations, or to engage in
other business activities; but so long as this Agreement or any extension,
renewal or amendment hereof shall remain in effect or until the Advisor shall
otherwise consent, the Advisor shall be the only investment adviser to the Fund.
9. LIMITATION OF LIABILITY OF ADVISOR.
Neither the Advisor nor any of its officers, directors, or employees, nor
any person performing executive, administrative, trading, or other functions for
the Fund (at the direction or request of the Advisor) or the Advisor in
connection with the Advisor's discharge of its obligations undertaken or
reasonably assumed with respect to this Agreement, shall be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which this Agreement relates, except for loss resulting from
willful misfeasance, bad faith, or gross negligence in the performance of its
duties on behalf of the Fund or from reckless disregard by the Advisor or any
such person of the duties of the Advisor under this Agreement.
10. TERM OF AGREEMENT.
The term of this Agreement shall begin on the date first above written, and
unless sooner terminated as hereinafter provided, this Agreement shall be
submitted for shareholder approval at the first meeting of shareholders
occurring after the effective date of the Fund's registration statement. The
Agreement, if approved at that meeting, will continue in effect from year to
year, subject to the termination provisions and all other terms and conditions
hereof, so long as: (a) such continuation shall be specifically approved at
least annually by the board of directors of the Fund or by vote of a majority of
the outstanding voting securities of the Fund and, concurrently with such
approval by the board of directors or prior to such approval by the holders of
the outstanding voting
-6-
<PAGE>
securities of the Fund, as the case may be, by the vote, cast in person at a
meeting called for the purpose of voting on such approval, of a majority of the
directors of the Fund who are not parties to this Agreement or interested
persons of any such party; and (b) the Advisor shall not have notified the Fund,
in writing, at least 60 days prior to December 31,1984 or prior to December 31
of any year thereafter, that it does not desire such continuation. The Advisor
shall furnish to the Fund, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment hereof.
11. AMENDMENT AND ASSIGNMENT OF AGREEMENT.
This Agreement may not be amended or assigned without the affirmative vote
of a majority of the outstanding voting securities of the Fund, and this
Agreement shall automatically and immediately terminate in the event of its
assignment.
12. TERMINATION OF AGREEMENT.
This Agreement may be terminated by either party, without the payment of
any penalty, upon 60 days' prior notice in writing to the other party; provided,
that in the case of termination by the Fund such action shall have been
authorized by resolution of a majority of the directors of the Fund who are not
parties to this Agreement or interested persons of any such party, or by vote of
a majority of the outstanding voting securities of the Fund.
13. MISCELLANEOUS.
A. CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
B. INTERPRETATION. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles of Incorporation or
By-Laws, or any applicable statutory or regulatory requirement to which it is
subject or by which it is bound, or to relieve or deprive the board of directors
of the Fund of its responsibility for and control of the conduct of the affairs
of the Fund.
C. DEFINITIONS. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations or orders of the Securities and Exchange Commission
validly issued pursuant to the 1940 Act. Specifically, the terms "vote of a
majority of the outstanding voting securities," "interested person,"
"assignment," and "affiliated person," as used in Paragraphs 2, 8, 10, 11, and
12 hereof, shall have the meanings assigned to them by Section 2(a) of the 1940
Act. In addition, where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is relaxed by a rule, regulation or order of the
Securities and Exchange Commission,
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<PAGE>
whether of special or of general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective corporate seals to be hereunto affixed, as of the day and year first
above written.
Attest: HEARTLAND GROUP, INC.
/s/Lois Schmatzhagen By:/s/William J. Nasgovitz
- -------------------------------------- -----------------------------------
Lois Schmatzhagen, Secretary William J. Nasgovitz, President
Attest: HEARTLAND ADVISORS, INC.
/s/Lois Schmatzhagen By:/s/William J. Nasgovitz
- -------------------------------------- -----------------------------------
Lois Schmatzhagen, Secretary William J. Nasgovitz, President
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<PAGE>
EXHIBIT (e)(3)
Date:_________________________
RE: CONTINUOUS OFFERING OF HEARTLAND FUNDS
SELECTED DEALER LETTER AGREEMENT
Ladies and Gentlemen:
Heartland Advisors, Inc. ("Company"), as the Distributor of the shares of
each series of Heartland Group, Inc. identified on Schedule A attached hereto
and any other series offered from time to time by Heartland Group, Inc. to which
the terms of this Agreement may be extended as provided herein (collectively,
the "Funds"), understands that you are a member in good standing of the National
Association of Securities Dealers, Inc. (your signature below constitutes a
representa tion of such membership in good standing) and, on the basis of such
understanding, invites you to become a Selected Dealer to distribute any or all
shares of these Funds on the following terms:
1. You and ourselves agree to abide by the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. ("NASD") and all other federal
and state rules and regulations that are now or may become applicable to
transactions hereunder. Your expulsion or suspension from the NASD will
automatically terminate this Agreement without notice. Company may terminate
this Agreement at any time upon notice either in its entirety or with respect to
any one or more of the Funds.
2. Orders for shares received from you and accepted by us will be at the
public offering price applicable to each order, as established by the then
effective prospectus of each Fund. The procedure relating to the handling of
orders shall be subject to instructions which we will forward from time to time
to all Selected Dealers. All orders are subject to acceptance by us at 790
North Milwaukee Street, Milwaukee, Wisconsin 53202, Attention: Patrick J.
Retzer, Vice President and Treasurer, and we reserve the right in our sole
discretion to reject any order. We also reserve the right to establish minimum
orders for individual purchasers as well as for Selected Dealers.
<PAGE>
________, 19__
Page 2
3. Selected Dealers will not be compensated by the Company for sales of
shares of a Fund where the prospectus, including any applicable supplements,
relating to the particular Fund provides that the shares will be offered to the
public without a sales load. The Company reserves the right to increase,
decrease or discontinue payment of compensation to Selected Dealers at any time
in its sole discretion upon written notice to you.
4. You agree that your transactions in shares of the Funds will be
limited to the purchase of shares from us for resale to your customers at the
public offering price then in effect or for your own bona fide investment and to
repurchases which are made in accordance with the procedures set forth in the
then current prospectus of the relevant Fund.
5. Except for sales pursuant to plans established by the Funds with an
agent and providing for the periodic investment of new monies, orders will not
be accepted for less than the minimum number of shares or dollar amounts set
forth in the then current prospectus of the relevant Fund.
6. You agree that you will not withhold placing customers' orders so as
to profit yourself as a result of such withholding.
7. You agree to sell shares only to your customers at the applicable
public offering price or to the Funds or us as Distributor for the Funds at net
asset value, in each case determined as set forth in the current prospectus of
the relevant Fund.
8. Where a front-end sales charge applies to the purchase of a Fund's
shares, an investor will be entitled to a reduction in the sales charge on
purchases made under a letter of intent in accordance with the current
prospectus of the relevant Fund. In such a case, your dealer's concession will
be paid based upon the reduced sales charge, but adjustment to a higher dealer's
concession will thereafter be made to reflect actual purchases by the investor
if he should fail to fulfill his letter of intent.
9. Settlement shall be made within three business days after our
acceptance of the order. If payment is not so received or made, we reserve the
right forthwith to cancel the sale, or, at our option, to sell the shares at the
then prevailing net asset value in which latter case you agree to be responsible
for any loss resulting to any Fund or to us from your failure to make payments
as aforesaid.
<PAGE>
________, 19__
Page 3
10. If any shares sold to you under the terms of this Agreement are
redeemed by a Fund or repurchased for the account of a Fund or are tendered to a
Fund for redemption or repurchase within seven business days after the date of
our confirmation to you of your original purchase order therefor, you agree to
pay forthwith to us the full amount of any dealer concession allowed or
commission paid to you on the original sale, and we agree to pay the amount of
any such dealer concession to the Fund when received by us. We also agree to
pay to the Fund the amount of our share of any front-end sales charge on the
original sale of such shares.
11. If any shares are repurchased from you by a Fund, or by us for the
account of a Fund, such shares shall be tendered in good order within ten
business days. If shares are not tendered within such time period the right is
reserved to cancel, at any subsequent time, the repurchase order, or, at our
option, to re-acquire such number of shares at the net asset value next
computed, in which latter case you will agree to be responsible for any loss
resulting from your failure to deliver such shares.
12. All sales will be subject to receipt of shares by us from the Fund.
We reserve the right in our discretion without notice to you to suspend sales or
withdraw any offering of shares entirely or with respect to one or more Funds,
or to change the public offering prices, sales charges and dealer concessions as
provided in the prospectuses. We further reserve the right upon written notice
to you to amend this Agreement to include one or more additional Funds, to
exclude from this Agreement one or more Funds then covered by this Agreement, to
increase or decrease the amount of any commissions to be paid to you by us on
the sale of shares of any of the Funds, or otherwise to amend or cancel this
Agreement. You agree that any order to purchase shares of a Fund placed by you
after your receipt of a revised or supplemented prospectus relating to such Fund
and reflecting any such amendment, or your receipt of written notice of any such
amendment, as the case may be, shall constitute your agreement to such
amendment. This Agreement shall be governed by and construed in accordance with
the laws of the State of Wisconsin.
13. No person is authorized to make any representation concerning any Fund
or its shares except those contained in its effective prospectus and any such
information as may be officially designated as information supplemental to the
prospectus. In purchasing shares from us you shall rely solely on the
representations contained in the relevant Fund's effective prospectus and sup
plemental information above mentioned.
14. We will supply to Selected Dealers additional copies of the then
effective prospectus for each Fund in reasonable quantities upon request. All
expenses incurred in connection with your activities under this Agreement shall
be borne by you.
15. In no transaction shall you have any authority whatsoever to act as
agent of a Fund or of us or of any other Selected Dealer and nothing in this
Agreement shall constitute either of us the agent of the other or shall
constitute you or the Fund the agent of the other. Except as otherwise
<PAGE>
________, 19__
Page 4
indicated herein, all transactions in these shares between you and us are as
principal, each for his own account. This Agreement shall not be assignable by
you.
16. Any notice to you shall be duly given if mailed or telegraphed to you
at your address as registered from time to time with the NASD. Any notice to
Company shall be sent to 790 North Milwaukee Street, Milwaukee, Wisconsin 53201,
Attention: Patrick J. Retzer, Vice President and Treasurer.
17. This Agreement shall become effective on the date accepted by you, as
reflected on the signature page hereof. This Agreement constitutes the entire
agreement between Company and the undersigned Selected Dealer and supersedes all
prior oral or written agreements between the parties hereto. This Agreement may
be amended as described in Section 12 above.
Sincerely,
HEARTLAND ADVISORS, INC.
William J. Nasgovitz, President
The undersigned has caused this Agreement to be executed by its duly authorized
officer as of this ___ day of ______________, 19___, to evidence its acceptance
of your invitation to become a selected dealer and agrees to abide by the
foregoing terms and conditions.
___________________________________
(Selected Dealer)
By: _______________________________
(Authorized Signature)
<PAGE>
SCHEDULE A
The Selected Dealer Letter Agreement to which this Schedule A is attached
shall be deemed to extend to and include the shares of the following series of
Heartland Group, Inc.:
1. Heartland Value Fund
2. Heartland Value Plus Fund
3. Heartland Mid Cap Value Fund
4. Heartland Large Cap Value Fund
5. Heartland U.S. Government Securities Fund
6. Heartland Wisconsin Tax Free Fund
7. Heartland Short Duration High-Yield Municipal Fund
8. Heartland High-Yield Municipal Bond Fund
<PAGE>
EXHIBIT (e)(4)
Date:_________________________
RE: LETTER AGREEMENT FOR CONTINUOUS OFFERING OF HEARTLAND FUNDS BY BANKS
Ladies and Gentlemen:
Heartland Advisors, Inc. (the "Company") desires to enter into an agreement
with you for making available to your customers and reselling to us shares of
each series of Heartland Group, Inc. of which we are, or may become, Distributor
(hereinafter collectively referred to as the "Funds" and individually as a
"Fund") and whose shares are offered to the public at an offering price which
may or may not include a sales charge (hereinafter referred to as "Shares").
Upon acceptance of this Agreement by you, you understand that you may offer
Shares and act as authorized agent for your customers' purchase of Shares from
us, subject, however, to all of the following terms and conditions, and to our
right, without notice, to suspend or terminate the sale of the Shares of any one
or more of the Funds:
1. Shares will be made available at the current offering price in effect
at the time the order of such Shares is confirmed and accepted by us at our
office in Milwaukee, Wisconsin. All purchase orders, resale orders and
applications of your customers submitted by you are subject to acceptance or
rejection in our sole discretion and, if accepted, each purchase will be deemed
to have been consummated at our office in Milwaukee, Wisconsin.
2. You represent and warrant to us that you are a "bank" as defined in
Section 3(a)(6) of the Securities Exchange Act of 1934, as amended. You agree
to abide by the provisions of the Investment Company Act of 1940, as amended
(the "1940 Act"), the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, and all applicable rules and regulations of
the Securities and Exchange Commission ("SEC") and the NASD, including without
limitation, the NASD Rules of Fair Practice, whether or not you are a broker-
dealer subject to the jurisdiction of the SEC and NASD. You further agree to
comply with all applicable state and Federal laws and the rules and regulations
of authorized regulatory agencies. You agree that you will not offer Shares in
any state or other jurisdiction where they have not been qualified for sale or
if we have not advised you in advance that such sale is exempt from such
qualification requirements. You are responsible under this Agreement for
inquiring of us as to the jurisdiction in which Shares have been qualified for
sale.
<PAGE>
3. You will make available to your customers Shares of any Fund only in
accordance with the terms and conditions of its then current Prospectus and
Statement of Additional Information (collectively referred to as the
"Prospectus") and you will make no representations about such Shares not
included in said Prospectus or in any authorized supplemental material supplied
or authorized by us. You will use reasonable efforts in the offer of Shares and
agree to be responsible for the proper instruction and training of all brokerage
personnel in this area employed by you, in order that the Shares will be offered
in accordance with the terms and conditions of this Agreement and all applicable
laws, rules and regulations. You agree to hold us harmless and indemnify us,
the Funds, and our and their respective officers, directors and employees in the
event that you, or any of your current or former employees or agents should
violate any law, rule or regulation, or any provision of this Agreement, which
violation may result in any loss or liability to us, our affiliates or any Fund.
If we determine to refund any amounts paid by an investor by reason of any such
violation, you shall promptly return to us on demand any agency commissions
previously paid by us to you with respect to the transaction for which the
refund is made. Furthermore, you agree to indemnify us, our affiliates and the
Funds against any and all claims, demands, controversies, actions, losses,
damages, liabilities, expenses, arbitrations, complaints or investigations,
including without limitation, reasonable attorneys' fees and court costs that
are the result of or arise directly or indirectly, in whole or in part, from us,
our affiliates or the Funds acting upon instructions for the purchase, exchange
or resale of uncertificated book shares received through our manual or automated
phone system or the Fund/SERV program of National Securities Clearing
Corporation; provided such loss, liability or damages are not the result of the
gross negligence, recklessness or intentional misconduct of us, our affiliates
or the Funds. All expenses which you incur in connection with your activities
under this Agreement shall be borne by you. In connection with all purchase or
resale orders, you are acting as agent for your customer and each transaction is
for the account of your customer and not for your own account. Termination or
cancellation of this Agreement shall not relieve you from the requirements of
this paragraph as to transactions or occurrences arising prior to such
termination.
4. You will not be paid agency commissions by the Company for sales of
Shares of a Fund where the prospectus, including any applicable supplements,
relating to the particular Fund provides that the Shares will be offered to the
public without a sales load.
5. The Company reserves the right to increase, decrease or discontinue
payment of agency commissions for sale of Shares at any time in its sole
discretion upon written notice to you and any orders placed after the effective
date of such change will be subject to the rate(s) of agency commissions in
effect at the time of receipt of the payment by us.
6. Payments for purchases of Shares made by telephone or wire order
(including purchase orders received through our manual or automated phone
system, or via the Fund/SERV program of National Securities Clearing
Corporation), and all necessary account information required by us to establish
an account or to settle a resale order, including, without limitation, the tax
identification number of the purchaser, certified either by the purchaser or by
you, shall be provided to us and received by us within three business days after
our acceptance of your order or such shorter time as may be required by law. If
such payment or other settlement information are
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<PAGE>
not timely received by us, you understand that we reserve the right, without
notice, to cancel the purchase or resale order, or, at our option in the case of
a purchase order, to sell the Shares ordered by you back to the Fund, and in
either case you may be held responsible for any loss, including loss of profit,
suffered by us or any Fund resulting from your failure to make the aforesaid
timely payment or settlement. If sales of any Fund's Shares are contingent upon
the Fund's receipt of Federal Funds in payment therefor, you will forward
promptly to us any purchase orders and/or payments received by you for such
Shares from your customers. With respect to purchase orders of uncertificated
book shares placed via Fund/SERV, you shall retain in your files all
applications and other documents required by us to establish an account or to
settle a resale order. You will provide us with the original of such documents
at our request.
7. You agree that you will act as agent with respect to Shares only if
they are purchased from us or repurchased by us from your customers. If Shares
are purchased from us by your customers, you warrant that such purchases are
only for investment. If Shares are purchased by you from your customers for
resale to us, you agree that such customers will be paid not less than the
applicable redemption or repurchase price then quoted by the Fund.
8. We may consider any order you place for Fund Shares to be the total
holding of Shares by the investor, and we may assume that the investor is not
entitled to any reduction in sales price beyond that accorded to the amount of
that purchase order as determined by the schedule set forth in the then current
Prospectus, unless you advise us otherwise when you place the order.
9. You may place resale orders with us for Shares owned by your
customers, but only in accordance with the terms of the applicable Fund
Prospectus. You understand and agree that by placing a resale order with us by
wire or telephone (including resale orders for uncertificated book shares placed
via our manual or automated phone system or via the Fund/SERV program of
National Securities Clearing Corporation), you represent to us that a request
for the redemption of the Shares covered by the resale order has been delivered
to you by the registered owner(s) of such Shares, and that such request has been
executed in the manner and with the signature(s) of such registered owner(s)
guaranteed as required by the then current Prospectus of the applicable Fund.
Such resale orders shall be subject to the following additional conditions:
(a) You shall furnish us with the exact registration and account
number to be redeemed at the time you place a resale order by
wire or telephone. Other than for resale orders of
uncertificated book shares placed via Fund/SERV, you shall
tender to us, within three business days of your placing such
resale order: (i) a stock power or letter, duly signed by the
registered owner(s) of the Shares which are the subject of the
order, duly guaranteed, (ii) any Share certificates required for
such redemption, and (iii) any additional documents which may be
required by the applicable Fund or its transfer agent, in
accordance with the terms of the then current Prospectus of the
applicable Fund and the policies of the transfer agent. With
respect to resale orders of uncertificated book shares placed
via Fund/SERV, you shall retain in your
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<PAGE>
files all documents required by us to effect such transaction.
You will provide us with the original of such documents at our
request.
(b) The resale price will be the next net asset value per share of
the Shares computed after our receipt, prior to the close of the
New York Stock Exchange ("NYSE"), of an order placed by you to
resell such Shares, except that orders placed by you after the
close of the NYSE on a business day will be based on the Fund's
net asset value per share determined that day, but only if such
orders were received by you from your customer prior to the
close of business of the NYSE that day and if you placed your
resale order with us prior to our normal close of business that
day.
(c) In connection with a resale order you have placed, if you fail
to make delivery of all required certificates and documents in a
timely manner, as stated above (other than for resale orders
placed via Fund/SERV), or if the registered owner(s) of the
Shares subject to the resale order redeems such Shares prior to
your settlement of the order, we have the right to cancel your
resale order. If any cancellation of a resale order or if any
error in the timing of the acceptance of a resale order placed
by you shall result in a loss to us or the applicable Fund, you
shall promptly reimburse us for such loss.
10. If any Shares sold to your customers under the terms of this Agreement
are redeemed by any of the Funds (including without limitation redemptions
resulting from an exchange for Shares of another Fund) or are repurchased by us
as agent for the Fund or are tendered to a Fund for redemption within seven
business days after our confirmation to your customers of your original purchase
order for such Shares, you shall promptly repay us the full amount of the agency
commission (including any supplemental commission) allowed to you on the
original sale, provided we notify you of such repurchase or redemption.
Termination amendment or cancellation of this Agreement shall not relieve you
from the requirements of this paragraph.
11. You will comply with, and conform your practices to, any and all
written compliance standards and policies and procedures that we may from time
to time provide to you.
12. You understand and agree that we are in no way responsible for the
manner of your performance of, or for any of your acts or omissions in
connection with, the services you provide under this Agreement. Nothing in this
Agreement shall be construed to constitute you or any of your agents, employees
or representatives as the agent or employee of us or any of the Funds.
13. You may terminate this Agreement by written notice to us, which
termination shall become effective ten days after the date of mailing such
notice to us. You agree that we have and reserve the right, in our sole
discretion without notice to you, to suspend sales of Shares of any of the
Funds, at any time, or to withdraw entirely the offering of Shares of any of the
Funds, at any time, or, in our sole discretion, to modify, amend or cancel this
Agreement upon written notice to
-4-
<PAGE>
you of such modification, amendment or cancellation, which shall be effective on
the date stated in such notice. Without limiting the foregoing, we may terminate
this Agreement if you violate any of the provisions of this Agreement, said
termination to become effective on the date we mail such notice to you. Without
limiting the foregoing, and any provision hereof to the contrary
notwithstanding, the appointment of a trustee for all or substantially all of
your business assets, or your violation of applicable state or Federal laws or
rules and regulations of authorized regulatory agencies will terminate this
Agreement effective upon the date we mail notice to you of such termination. Our
failure to terminate this Agreement for a particular cause shall not constitute
a waiver of our right to terminate this Agreement at a later date for the same
or any other cause. All notices hereunder shall be to the respective parties at
the addresses listed hereon, unless such address is changed by written notice
sent to the last address of the other party provided under this Agreement.
14. This Agreement shall become effective as of the date when it is
executed and dated by you below and shall be in substitution of any prior
agreement between you and us covering any of the Funds. This Agreement and all
the rights and obligations of the parties hereunder shall be governed by and
construed under the laws of the State of Wisconsin applicable to agreements to
be performed in Wisconsin, without giving effect to choice of law rules. This
Agreement is not assignable or transferable, except that we may without notice
or consent from you, assign or transfer this Agreement to any successor firm or
corporation which becomes the Distributor or Sub-Distributor of the Funds or
assign any of our duties under this Agreement to any entity under common control
with us.
Sincerely,
HEARTLAND ADVISORS, INC.
_______________________________
Accepted:
___________________________________
(Name of Bank)
___________________________________
(Address)
By:________________________________
(Authorized Signature of Bank)
___________________________________
(Name) (Title)
-5-
<PAGE>
EXHIBIT G
CUSTODIAN CONTRACT
Between
HEARTLAND GROUP, INC
and
FIRST WISCONSIN TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Employment of Custodian and Property to be
Held by It.............................................. 1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian ...................... 2
2.1 Holding Securities................................. 2
2.2 Delivery of Securities............................. 2
2.3 Registration of Securities......................... 6
2.4 Bank Accounts...................................... 6
2.5 Payments for Shares................................ 7
2.6 Investment and Availability of Federal Funds....... 7
2.7 Collection of Income............................... 8
2.8 Payment of Fund Moneys............................. 9
2.9 Liability for Payment in Advance of
Receipt of Securities Purchased.................... 11
2.10 Payments for Repurchases or Redemptions
of Shares of the Fund.............................. 11
2.11 Appointment of Agents.............................. 12
2.12 Deposit of Fund Assets in Securities Systems....... 12
2.13.Segregated Account................................. 15
2.14 Ownership Certificates for Tax Purposes............ 16
2.15 Proxies............................................ 16
2.16 Communications Relating to Fund Portfolio
Securities......................................... 16
2.17 Proper Instructions................................ 17
2.18 Actions Permitted without Express Authority........ 18
2.19 Evidence of Authority.............................. 18
3. Duties of Custodian with Respect to the Books of Account
and Calculation of Net Asset Value and Net Income....... 19
4. Records................................................. 19
5. Opinion of Fund's Independent Accountant................ 20
6. Reports to Fund by Independent Public Accountants....... 20
7. Compensation of Custodian............................... 20
8. Responsibility of Custodian............................. 20
9. Effective Period, Termination and Amendment............. 22
10. Successor Custodian..................................... 23
11. Interpretive and Additional Provisions.................. 24
12. Additional Series....................................... 25
13. Wisconsin Law to Apply.................................. 25
14. Prior Contracts......................................... 25
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between Heartland Group, Inc., a corporation organized and
existing under the laws of Maryland having its principal place of business at
250 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, hereinafter called the
"Fund", and First Wisconsin Trust Company, a Wisconsin corporation, having its
principal place of business at 777 East Wisconsin Avenue, P.O. Box 701,
Milwaukee, Wisconsin 53201-0701, hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in one series, the
Heartland U.S. Government Fund (such series together with all other series
subsequently established by the Fund and made subject to this Contract in
accordance with paragraph 12, being herein referred to as the "Series");
NOW, THEREFOR, that in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
The Fund hereby employs the Custodian as the custodian of its assets. The
Fund agrees to deliver to the Custodian all securities and cash owned by it, and
all payments of income, payments of principal or capital distributions received
by it with respect to all securities owned by the Fund from time to time, and
the cash consideration received by it for such new or treasury shares of capital
stock, $0.001 par value, ("Shares") of the Fund as may be issued or sold from
time to time. The Custodian shall not be responsible for any property of the
Fund held or
<PAGE>
received by the Fund and not delivered to the Custodian. With respect to the
custody and disposition of certain of the Fund's assets, the Custodian shall
enter into agreements substantially in the form of the Customer Agreement,
Procedural Agreement and Safekeeping Agreement attached as Exhibits A, B and C,
respectively.
The Custodian may from time to time employ one or more sub-custodians, but
only in accordance with an applicable vote by the Directors of the Fund, and
provided that the Custodian shall have no more or less responsibility or
liability to the Fund on account of any actions or omissions of any sub-
custodian so employed that any such sub-custodian has to the Custodian, provided
that the Custodian's agreement with any such sub-custodian imposes on such sub-
custodian responsibilities and liabilities similar in nature and scope to those
imposed by this Contract with respect to the functions to be performed by such
sub-custodian.
2. Duties of the Custodian with Respect to Property of the Fund Held by the
------------------------------------------------------------------------
Custodian
----------
2.1 Holding Securities. The Custodian shall hold and physically
------------------
segregate for the account of the Fund all non-cash property,
including all securities owned by the Fund, other than securities
which are maintained pursuant to Section 2.12 in a clearing agency
which acts as a securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury, collectively
referred to herein as "Securities System".
2.2 Delivery of Securities. The Custodian shall release and deliver
----------------------
securities owned by the Fund held by the Custodian or in a
Securities System account of the Custodian only upon receipt of
Proper Instructions, which may be continuing
2
<PAGE>
instructions when deemed appropriate by the parties, and only in the
following cases:
l) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered into
by the Fund;
3) In the case of a sale effected through a Securities System,
in accordance with the provisions of Section 2.12 hereof;
4) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee or nominees
of the Custodian or into the name or nominee name of any
agent appointed pursuant to Section 2.11 or into the name or
nominee name of any sub-custodian appointed pursuant to
Article l; or for exchange for a different number of bonds,
certificates or other evidence representing the same
aggregate face amount or number
3
<PAGE>
of units; provided that, in any such case, the new
--------
securities are to be delivered to the Custodian.
7) To the broker selling the same for examination in accordance
with the "street delivery" custom;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts
or temporary securities for definitive securities; provided
that, in any such case, the new securities and cash, if any,
are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Fund, but only against receipt of adequate collateral
--- ----
as agreed upon from time to time by the Custodian and the
Fund, which may be in the form of cash or obligations issued
by the United States government, its agencies or
instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the
4
<PAGE>
U.S. Department of the Treasury, the Custodian will not be
held liable or responsible for the delivery of securities
owned by the Fund prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings
by the Fund requiring a pledge of assets by the Fund, but
---
only against receipt of amounts borrowed;
----
12) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance
with the rules of The Options Clearing Corporation and of
any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or
other arrangements in connection with transactions by the
Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or
any similar organization or organizations, regarding account
deposits in
5
<PAGE>
connection with transactions by the Fund initially set forth
as Exhibits A, B and C;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such
Transfer Agent or to the holders of shares in connection
with distributions in kind, as may be described from time to
time in the Fund's currently effective prospectus, in
satisfaction of requests by holders of Shares for repurchase
or redemption; and
15) For any other proper corporate purpose, but only upon
receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board of Directors or of the
Executive Committee signed by an officer of the Fund and
certified by the Secretary or an Assistant Secretary,
specifying the securities to be delivered, setting forth the
purpose for which such delivery is to be made, declaring
such purposes to be proper corporate purposes, and naming
the person or persons to whom delivery of such securities
shall be made.
2.3 Registration of Securities. Securities held by the Custodian
--------------------------
(other than bearer securities) shall be registered in the name of
the Fund or in the name of any nominee of the Fund or of any
nominee of the Custodian or in the name or nominee name of any
agent appointed pursuant to Section 2.11 or in the name or
nominee name of any sub-custodian appointed pursuant to Article
1. All securities accepted by the Custodian on behalf
6
<PAGE>
of the Fund under the terms of this Contract shall be in "street
name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate
-------------
account or accounts in the name of the Fund, subject only to
draft or order by the Custodian acting pursuant to the terms of
this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or
for the account of the Fund, other than cash maintained by the
Fund in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940. Funds held
by the Custodian for the Fund may be deposited by it to its
credit as Custodian at First Wisconsin National Bank-Milwaukee or
in such other banks or trust companies as it may in its
discretion deem necessary or desirable; provided, however, that
--------
every such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and that each
such bank or trust company and the funds to be deposited with
each such bank or trust company shall be approved by vote of a
majority of the Board of Directors of the Fund. Such funds shall
be deposited by the Custodian in its capacity as Custodian and
shall be withdrawable by the Custodian only in that capacity.
2.5 Payments for Shares. The Custodian shall receive from the
-------------------
distributor for the Fund's Shares or from the Transfer Agent of
the Fund and deposit into
7
<PAGE>
the Fund's account such payments as are received for Shares of
the Fund issued or sold from time to time by the Fund. The
Custodian will provide timely notification to the Fund and the
Transfer Agent of any receipt by it of payments for Shares of the
Fund.
2.6 Investment and Availability of Federal Funds. Upon mutual
--------------------------------------------
agreement between the Fund and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions,
l) invest in such instruments as may be set forth in such
instructions on the same day as received all federal
funds received after a time agreed upon between the
Custodian and the Fund; and
2) make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment
for Shares of the Fund which are deposited into the
Fund's account.
2.7 Collection of Income. The Custodian shall collect on a timely
--------------------
basis all income and other payments with respect to registered
securities held hereunder to which the Fund shall be entitled
either by law or pursuant to custom in the securities business,
and shall collect on a timely basis all income and other payments
with respect to bearer securities if, on the date of payment by
the issuer, such securities are held by the Custodian or
8
<PAGE>
agent thereof and shall credit such income, as collected, to the
Fund's custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all
coupons and other income items requiring presentation as and when
they become due and shall collect interest when due on securities
held hereunder. Income due the Fund on securities loaned pursuant
to the provisions of Section 2.2 (10) shall be the responsibility
of the Fund. The Custodian will have no duty or responsibility in
connection therewith, other than to provide the Fund with such
information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income
to which the Fund is properly entitled.
2.8 Payment of Fund Moneys. Upon receipt of Proper Instructions,
----------------------
which may be continuing instructions when deemed appropriate by
the parties, the Custodian shall pay out monies of the Fund in
the following cases only:
1) Upon the purchase of securities, futures contracts or
options on futures contracts for the account of the
Fund but only (a) against the delivery of such
securities or evidence of title to futures contracts or
options on futures contracts to the Custodian (or any
bank, banking firm or trust company doing business in
the United States or abroad which is qualified under
the Investment Company Act of 1940, as
9
<PAGE>
amended, to act as a custodian and has been designated
by the Custodian as its agent for this purpose)
registered in the name of the Fund or in the name of a
nominee of the Custodian referred to in Section 2.3
hereof or in proper form for transfer; (b) in the case
of a purchase effected through a Securities System, in
accordance with the conditions set forth in Section 2.12
hereof or (c) in the case of repurchase agreements
entered into between the Fund and the Custodian, or
another bank, (i) against delivery of the securities
either in certificate form or through an entry crediting
the Custodian's account at the Federal Reserve Bank with
such securities or (ii) against delivery of the receipt
evidencing purchase by the Fund of securities owned by
the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities
from the Fund;
2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section
2.2 hereof;
3) For the redemption or repurchase of Shares issued by the
Fund as set forth in Section 2.10 hereof;
10
<PAGE>
4) For the payment of any expense or liability incurred by
the Fund, including but not limited to the following
payments for the account of the Fund: interest, taxes,
management, accounting, transfer agent and legal fees,
and operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or
treated as deferred expenses;
5) For the payment of any dividends declared pursuant to
the governing documents of the Fund;
6) For payment of the amount of dividends received in
respect of securities sold short;
7) For any other proper purpose, but only upon receipt of,
--- ----
in addition to Proper Instructions, a certified copy of
a resolution of the Board of Directors or of the
Executive Committee of the Fund signed by an officer of
the Fund and certified by its Secretary or an Assistant
Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to
be made, declaring such purpose to be a proper purpose,
and naming the person or persons to whom such payment
is to be made.
2.9 Liability for Payment in Advance of Receipt of Securities
---------------------------------------------------------
Purchased. In any and every case where payment for purchase of
---------
securities for the
11
<PAGE>
account of the Fund is made by the Custodian in advance of
receipt of the securities purchased in the absence of specific
written instructions from the Fund to so pay in advance, the
Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been
received by the Custodian, except that in the case of
------
repurchase agreements entered into by the Fund with a bank which
is a member of the Federal Reserve System, the Custodian may
transfer funds to the account of such bank prior to the receipt
of written evidence that the securities subject to such
repurchase agreement have been transferred by book-entry into a
segregated non-proprietary account of the Custodian or any sub-
Custodian maintained with the Federal Reserve Bank of Chicago or
of the safe-keeping receipt, provided that such securities have
in fact been so transferred by book-entry, or prior to receipt of
such written evidence upon notification that the transfer has
been approved through the book-entry delivery system.
2.10 Payments for Repurchases or Redemptions of Shares of the Fund.
-------------------------------------------------------------
From such funds as may be available for the purpose but subject
to the limitations of the Articles of Incorporation and any
applicable votes of the Board of Directors of the Fund pursuant
thereto, the Custodian shall, upon receipt of instructions from
the Transfer Agent, make funds available for payment to holders
of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with
12
<PAGE>
the redemption or repurchase of Shares of the Fund, the
Custodian is authorized upon receipt of instructions from the
Transfer Agent to wire funds to or through a commercial bank
designated by the redeeming shareholders. In connection with
the redemption or repurchase of Shares of the Fund, the
Custodian shall honor checks drawn on the Custodian by a holder
of Shares, which checks have been furnished by the Fund to the
holder of Shares, when presented to the Custodian in accordance
with such procedures and controls as are mutually agreed upon
from time to time between the Fund and the Custodian.
2.11 Appointment of Agents. The Custodian may at any time or
---------------------
times in its discretion appoint (and may at any time remove)
any other bank or trust company which is itself qualified under
the Investment Company Act of 1940, as amended, to act as a
custodian, as its agent to carry out such of the provisions of
this Article 2 as the Custodian may from time to time direct;
provided, however, that the appointment of any agent shall not
--------
relieve the Custodian of its responsibilities or liabilities
hereunder.
2.12 Deposit of Fund Assets in Securities Systems. The Custodian
--------------------------------------------
may deposit and/or maintain securities owned by the Fund in a
clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of
1934, which acts as a securities depository, or in the book-
entry system authorized by the U.S. Department of the Treasury
and certain federal agencies, collectively
13
<PAGE>
referred to herein as "Securities System" in accordance with
applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the
following provisions:
l) The Custodian may keep securities of the Fund in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in
the Securities System which shall not include any assets of
the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of
the Fund which are maintained in a Securities System shall
identify by book-entry those securities belonging to the
Fund;
3) The Custodian shall pay for securities purchased for the
account of the Fund upon (i) receipt of advice from the
Securities System that such securities have been transferred
to the Account, and (ii) the making of an entry on the
records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund upon
(i) receipt of advice from the Securities System that
payment for such securities has been transferred to the
Account, and
14
<PAGE>
(ii) the making of an entry on the records of the Custodian
to reflect such transfer and payment for the account of the
Fund. The Custodian shall identify all transfers of
securities to and from the Securities System which are for
the account of the Fund, and such reports shall be
maintained for the Fund by the Custodian and shall be made
available to the Fund at its request. The Custodian shall
furnish the Fund confirmation of each transfer to or from
the account of the Fund in the form of a written advice or
notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in the
Securities System for the account of the Fund;
4) The Custodian shall provide the Fund with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
5) The Custodian shall have received the initial or annual
certificate, as the case may be, required by Article 9
hereof;
6) Anything to the contrary in this Contract notwithstanding,
the Custodian shall be liable to the Fund for any loss or
damage to the Fund resulting from use of the Securities
15
<PAGE>
System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any
of its or their employees or from failure of the Custodian
or any such agent to enforce effectively such rights as it
may have against the Securities System; at the election of
the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claim against
the Securities System or any other person which the
Custodian may have as a consequence of any such loss or
damage if and to the extent that the Fund has not been made
whole for any such loss or damage.
2.13. Segregated Account. The Custodian shall upon receipt of
------------------
Proper Instructions establish and maintain a segregated
account or accounts for and on behalf of the Fund, into
which account or accounts may be transferred cash and/or
securities, including securities maintained in an account by
the custodian pursuant to Section 2.12 hereof, (i) in
accordance with the provisions of any agreement among the
Fund, the Custodian and a broker-dealer registered under the
Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading
Commission or any
16
<PAGE>
registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of
segregating cash or government securities in connection with
options purchased, sold or written by the Fund or commodity
futures contracts or options thereon purchased or sold by the
Fund, (iii) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666,
or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated
accounts by registered investment companies and (iv) for other
proper corporate purposes, but only, in the case of clause (iv),
--- ----
upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board of Directors or of the
Executive Committee signed by an officer of the Fund and
certified by the Secretary or an Assistant Secretary, setting
forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes. These
agreements are initially set forth as Exhibits A, B and C,
hereto.
2.14 Ownership Certificates for Tax Purposes. The Custodian shall
---------------------------------------
execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of
income or other payments with respect to securities of the Fund
held by it and in connection with transfers of securities.
17
<PAGE>
2.15 Proxies. The Custodian shall, with respect to the
-------
securities held hereunder, cause to be promptly executed by
the registered holder of such securities, if the securities
are registered otherwise than in the name of the Fund or a
nominee of the Fund, all proxies, without indication of the
manner in which such proxies are to be voted, and shall
promptly deliver to the Fund such proxies, all proxy
soliciting materials and all notices relating to such
securities.
2.16 Communications Relating to Fund Portfolio Securities. The
----------------------------------------------------
Custodian shall transmit promptly to the Fund all written
information (including, without limitation, pendency of
calls and maturities of securities and expirations of rights
in connection therewith, notice of exercise options
purchased or sold by the Fund, and of the maturity of
futures contracts purchased or sold by the Fund) received by
the Custodian from issuers of the securities being held for
the Fund. With respect to tender or exchange offers, the
Custodian shall transmit promptly to the Fund all written
information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the
party (or his agents) making the tender or exchange offer.
If the Fund desires to take action with respect to any
tender offer, exchange offer or any other similar
transaction, the Fund shall notify the Custodian at least
three business days prior to the date on which the Custodian
is to take such action.
18
<PAGE>
2.17 Proper Instructions. Proper Instructions as used throughout
-------------------
this Article 2 means a writing signed or initialed by one or
more person or persons as the Board of Directors shall have
from time to time authorized. Each such writing shall set
forth the specific transaction or type of transaction
involved, including a specific statement of the purpose for
which such action is requested. Oral instructions will be
considered Proper Instructions if the Custodian reasonably
believes them to have been given by a person authorized to
give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be
confirmed in writing. It is understood and agreed that the
Board of Directors has authorized Milwaukee Asset
Management, Inc., as investment advisor of the Fund pursuant
to an Investment Advisory Agreement dated January 12, 1987,
between it and the Fund, to deliver Proper Instructions with
respect to all matters for which Proper Instructions are
required by this Article 2. The Custodian may rely upon the
certificate of an officer of Milwaukee Asset Management,
Inc. with respect to the person or persons authorized on its
behalf to sign, initial or give Proper Instructions for the
purposes of this Article 2.
Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of
Directors of the Fund accompanied by a detailed description
of procedures approved by the Board of Directors, Proper
Instructions may include communications
19
<PAGE>
effected directly between electro-mechanical or electronic
devices provided that the Board of Directors and the
Custodian are satisfied that such procedures afford adequate
safeguards for the Fund's assets.
2.18 Actions Permitted without Express Authority. The Custodian
-------------------------------------------
may in its discretion, without express authority from the
Fund:
1) make payments to itself or others for minor
expenses of handling securities or other similar
items relating to its duties under this Contract,
provided that all such payments shall be accounted
for to the Fund;
2) surrender securities in temporary form for
securities in definitive form;
3) endorse for collection, in the name of the Fund,
checks, drafts and other negotiable instruments;
and
4) in general, attend to all non-discretionary details
in connection with the sale, exchange,
substitution, purchase, transfer and other dealings
with the securities and property of the Fund except
as otherwise directed by the Board of Directors of
the Fund.
2.19 Evidence of Authority. The Custodian shall be protected in
---------------------
acting upon any instructions, notice, request, consent,
certificate or other instrument or paper believed by it to
be genuine and to have been properly executed by or on
behalf of the Fund. The Custodian may receive and accept a
20
<PAGE>
certified copy of a vote of the Board of Directors of the Fund as
conclusive evidence (a) of the authority of any person to act in
accordance with such vote or (b) of any determination or of any
action by the Board of Directors pursuant to the Articles of
Incorporation as described in such vote, and such vote may be
considered as in full force and effect until receipt by the
Custodian of written notice to the contrary.
3. Duties of Custodian with Respect to the Books of Account and Calculation
------------------------------------------------------------------------
of Net Asset Value and Net Income.
---------------------------------
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors of the Fund to keep the
books of account of the Fund and/or compute the net asset value per share of the
outstanding shares of the Fund but shall not itself keep such books of account
or compute such net asset value per share.
4. Records
-------
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder,
applicable federal and state tax laws and any other law or administrative rules
or procedures which may be applicable to the Fund. All such records shall be the
property of the Fund and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the Securities and Exchange
Commission. The Custodian shall, at the Fund's request, supply the Fund with a
tabulation of securities owned by the Fund and held by the Custodian and
21
<PAGE>
shall, when requested to do so by the Fund and for such compensation as shall be
agreed upon between the Fund and the Custodian, include certificate numbers in
such tabulations.
5. Opinion of Fund's Independent Accountant
----------------------------------------
The Custodian shall cooperate with the Fund by taking all reasonable
action, as the Fund may from time to time request, in an effort to ensure from
year to year that the Fund's independent accountants are able to provide an
unqualified opinion with respect to the Custodian's activities hereunder in
connection with the preparation of the Fund's Form N-lA, and Form N-SAR or other
annual reports to the Securities and Exchange Commission (or to its
Shareholders) and with respect to any other requirements of such Commission.
6. Reports to Fund by Independent Public Accountants
-------------------------------------------------
The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports, which
shall be of sufficient scope and in sufficient detail, as may reasonably be
required by the Fund, to provide reasonable assurance that any material
inadequacies would be disclosed by such examination, and, if there are no such
inadequacies, shall so state.
7. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund and
the Custodian.
8. Responsibility of Custodian
---------------------------
22
<PAGE>
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties. The Custodian shall
be held to the exercise of reasonable care in carrying out the provisions of
this Contract, but shall be kept indemnified by and shall be without liability
to the Fund for any action taken or omitted by it in good faith without
negligence. It shall be entitled to rely on and may act upon advice of counsel
(who may be counsel for the Fund) on all matters, and shall be without liability
for any action reasonably taken or omitted pursuant to such advice.
In order that the indemnification provisions contained in this Article 8
shall apply, however, it is understood that if in any case the Fund may be asked
to indemnify or save the Custodian harmless, the Fund shall be fully and
promptly advised of all pertinent facts concerning the situation in question,
and it is further understood that the Custodian will use all reasonable care to
identify and notify the Fund promptly concerning any situation which presents or
appears likely to present the probability of such a claim for indemnification
against the Fund. The Fund shall have the option to defend the Custodian against
any claim which may be the subject of this indemnification, and in the event
that the Fund so elects it will so notify the Custodian, and thereupon the Fund
shall take over complete defense of the claim, and the Custodian shall in such
situations initiate no further legal or other expenses for which it shall seek
indemnification under this Article 8. The Custodian shall in no case confess any
claim or
23
<PAGE>
make any compromise in any case in which the Fund will be asked to indemnify the
Custodian except with the Fund's prior written consent.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
9. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; provided, however, that the
--------
Custodian shall not act under Section 2.12 hereof in the absence of receipt of
an initial certificate of the Secretary or an Assistant Secretary that the Board
of Directors of the Fund have approved the initial use of a particular
Securities System and the receipt of an annual certificate of the Secretary or
an Assistant Secretary that the Board of Directors have reviewed the use by the
Fund of such Securities System, as required in each case by Rule 17f-4 under the
Investment Company Act of 1940, as amended; provided further, however, that the
-------- -------
Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Articles of
Incorporation, and further provided, that the Fund may at any time by
24
<PAGE>
action of its Board of Directors (i) substitute another bank or trust company
for the Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
10. Successor Custodian
-------------------
If a successor custodian shall be appointed by the Board of Directors of
the Fund, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer, all securities then held by it hereunder and shall transfer to an
account of the successor custodian all of the Fund's securities held in a
Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of
25
<PAGE>
1940, doing business in Milwaukee, Wisconsin, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $2,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of vote referred to or of the
Board of Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
11. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Articles of Incorporation of the
26
<PAGE>
Fund. No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
12. Additional Series
-----------------
In the event that the Fund establishes one or more Series of Shares in
addition to Heartland U.S. Government Fund with respect to which it desires to
have the Custodian render services as custodian under the terms hereof, it shall
so notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such Series shall become a Fund hereunder, and shall be
maintained and accounted for by the Custodian on a discreet basis.
13. Wisconsin Law to Apply
----------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the State of Wisconsin.
14. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 10th day of February, 1987.
ATTEST HEARTLAND GROUP, INC.
/s/ Lois J. Schmatzhagen By /s/ David P. Weber
- ------------------------ -------------------
Secretary Vice President
ATTEST FIRST WISCONSIN TRUST COMPANY
/s/ Eugene R. Lee By /s/ James D. Hintz
- ----------------- -------------------
Assistant Secretary Vice President
27
<PAGE>
Exhibit A
CUSTOMER AGREEMENT
BETWEEN
_______________________________, AND
HEARTLAND GROUP, INC.
In consideration of acceptance by _____________________ ("Broker") of an
account for Heartland Group, Inc. ("Customer"), Broker and Customer agree as
follows:
1. Customer authorizes Broker to purchase and sell financial futures
contracts, options on financial contracts or options on financial cash contracts
regulated by a federal agency for Customer's account in accordance with
Customer's oral or written instructions. Customer hereby waives any defense
that any such instruction was not in writing as may be required by the Statute
of Frauds or any other law, rule, or regulation.
2. Customer shall pay Broker (l) brokerage and commission charges as
agreed upon by Broker and Customer from time to time, (2) any ordinary and
customary charges imposed on any transaction undertaken for Customer by the
exchange or clearinghouse through which it is executed and any tax or fee
imposed on such transactions by any competent authority or self-regulatory
organization, (3) the amount of any trading loss that may result from
transactions by Broker on Customer's instruction, and (4) interest and service
charges on any Customer deficit balances at the rates customarily charged by
Broker, together with Broker's costs and attorney's fees incurred in collecting
such deficit. Such payments shall be made to Broker at _______________, or at
such other addresses as the parties may designate
3. A detailed statement of all transactions for or on the Customer's
behalf shall be furnished to Customer on a monthly basis as of the last business
day of each calendar month and at such other times as may be agreed upon between
Broker and Customer.
<PAGE>
4. Customer shall timely deposit and maintain in the Safekeeping Account
at all times initial margin for Customer's account in accordance with the
Procedural Agreement. Customer shall timely pay to Broker the amount of any
additional or variation margin with respect to the Customer's open positions on
financial futures or options contracts in accordance with the Procedural
Agreement. If upon expiration of all notice periods set forth in the Procedural
Agreement Customer still fails to provide additional or variation margin or if
Customer fails to deposit or maintain in the Safekeeping Account required
initial margin, Broker may without further notice to Customer take any action
set forth in Sections 8 and 9 hereof.
5. Customer acknowledges that (a) any trading recommendations and market
or other information communicated to Customer by Broker are incidental to the
conduct of Broker's business as a broker and dealer and do not constitute an
offer to sell or the solicitation of an offer to buy any financial futures or
options contracts or financial instrument that is the subject of any financial
futures or options contract; (b) such recommendation and information, although
based upon information obtained from sources believed by Broker to be reliable,
may be incomplete, may not be verified, and may be changed without notice to
Customer; and (c) Broker makes no representation, warranty or guarantee as to
the accuracy or completeness of any market or other information or trading
recommendation furnished to Customer. Customer understands that officers,
employees, or affiliates of Broker may have a position in, may intend to, and
may, buy or sell, financial futures or options contracts or financial
instruments that are the subject of financial futures or options contracts,
including financial futures or options contracts which are the subject of
information or recommendations furnished to Customer, and that the position or
transactions of any such officer, employee, or affiliate may or may not be
consistent with the recommendations furnished by Broker to Customer.
-2-
<PAGE>
6. All transactions by Broker on Customer's behalf shall be subject to
the applicable constitution, by-laws, rules, regulations, customs, usages,
rulings, and interpretations of the contract market and its clearinghouse on
which such transactions are executed or cleared by Broker or its agents for
Customer's account, and to all applicable governmental acts and statutes (such
as the Commodity Exchange Act) and to rules and regulations made thereunder;
Broker shall not be liable to Customer as a result of any action taken by Broker
or its agents to comply with any such constitution, by-law, rule, regulation,
custom, usage, ruling, interpretation, act, or statute.
7. Broker shall have no responsibility for delays in the transmission of
orders due to (a) breakdown or failure of transmission or communication
facilities, or (b) any other cause beyond Broker's control. Broker shall have
no responsibility for compliance by Customer with any law or regulation
governing its conduct as a fiduciary.
8. In the event that (a) Customer shall be dissolved or in any other way
terminate, or (b) fail to deposit or maintain initial margin, or make payment of
additional or variation margin, as set forth in Section 4 hereof, Broker may
close out Customer's open positions in whole or in part, sell any or all of
Customer's property held by Broker, buy any securities or other property for
Customer's account, and cancel any outstanding orders and commitments made by
Broker on behalf of Customer. Subject to Broker's obligation to use best
efforts to obtain a fair and reasonable price, any such sale, purchase, or
cancellation may be made at Broker's discretion on the contract or other market
or through the clearinghouse where such business is then transacted, at public
auction or at private sale, without advertising the same and without notice to
Customer, and without prior tender, demand or call upon Customer. Customer
shall remain liable for and shall pay to Broker the amount of any deficiency
resulting from any transaction described above.
-3-
<PAGE>
9. If at any time Customer fails to deliver to Broker any property
previously sold by Broker on Customer's behalf or fails to deliver financial
instruments in compliance with financial futures or options contracts, Customer
authorized Broker in its discretion to borrow or to buy any property necessary
to make delivery thereof, and Customer shall pay Broker for any cost, loss and
damage which Broker may be required to pay thereon, and for any cost, loss and
damage which Broker may sustain from its inability to borrow or buy any such
property.
10. All communications to Customer shall be to Heartland Group, Inc.,
Attention: David P. Weber, Vice President, 250 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202, or to such other address as Customer may hereafter
direct Broker in writing to use. All communications to Broker shall be to its
offices at ____________________, or at such other addresses as the parties may
designate.
11. This Agreement, the Procedural Agreement, and the Safekeeping
Agreement referred to in the Procedural Agreement contain the entire agreement
between the parties and supersede any prior agreements between the parties as to
the subject matter of this Agreement. Subject to Section 6 hereof, no provision
of this Agreement shall in any respect be waived, altered, modified, or amended
unless such waiver, alteration, modification, or amendment be committed to in
writing and signed by Customer and duly authorized officer of Broker.
12. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by, the laws of the State of
____________________.
13. This Agreement shall inure to the benefit of Broker and Customer and
their respective successors and assigns.
14. If any term or provision hereof, or the application thereof to any
person or circumstances, shall to any extent be contrary to any exchange or
government regulation or otherwise invalid or unenforceable, the remainder of
this Agreement or the application of such
-4-
<PAGE>
term or provision to persons or circumstances other than those as to which it is
contrary, invalid, or unenforceable, shall not be affected thereby, and it shall
be enforced to the fullest extent permitted by regulation and law.
15. The rights and remedies conferred upon the parties hereto shall be
cumulative, and the exercise or waiver of any thereof shall not preclude or
inhibit the exercise of additional rights and remedies.
16. Customer represents that (a) Customer is duly registered under the
Investment Company Act of 1940, as amended, and is validly existing and
empowered to enter into this Agreement and to effectuate transactions in
financial futures contracts, and options on futures or cash contracts as
contemplated hereby; (b) Customer will promptly notify Broker in writing if any
of the above representations shall materially change or cease to be true and
correct; (c) Customer has received, read and understands the Commodity Futures
Trading Commission Risk Disclosure Statement and options Risk Disclosure
Statement; and (d) no person or entity has any interest in or control of the
account to which this Agreement pertains other than Customer.
17. Customer and Broker agree to furnish appropriate financial statements
to each other to show any material changes in their financial positions and to
furnish such other information concerning each other as each may reasonably
request.
18. Where the context hereof requires, the singular shall import the
plural and the masculine shall import the feminine and neuter.
-5-
<PAGE>
19. Broker shall be entitled to rely on any instruction received from any
person identified in writing to Broker by Customer and such instruction shall
bind Customer. Customer agrees to hold Broker harmless against any action taken
by Broker in reliance upon this provision.
20. This Agreement shall become a binding contract between Customer and
Broker when signed by both parties.
HEARTLAND GROUP, INC.
By: ___________________________________
David P. Weber, Vice President
Approve:
________________________________
By: ___________________________
Dated: ________________, 1987
-6-
<PAGE>
Exhibit B
PROCEDURAL AGREEMENT
BETWEEN ______________________________________, AND
HEARTLAND GROUP, INC.
AND FIRST WISCONSIN TRUST COMPANY
WHEREAS the undersigned Heartland Group, Inc . ( "Customer" ) has opened a
trading account with the undersigned ______________ ( "Merchant" ), a registered
futures commission merchant, for the purpose of trading financial futures
contracts options on futures or cash through said firm; and
WHEREAS in connection with the opening of the trading account, Customer and
Merchant have entered into a Customer Agreement which requires Customer to
deposit as collateral the initial margin with respect to each futures or options
contract as required by the rules and regulations of the Chicago Mercantile
Exchange, the Chicago Board of Trade, the Commodities Exchange, and such other
exchanges on which Merchant may effect or cause to be effected transactions as
broker for Customer; and
WHEREAS Customer, Merchant, and the undersigned First Wisconsin Trust
Company ("Bank" ) have entered into a Safekeeping Agreement establishing an
account entitled "________________________________________________________ for
the account of Heartland Group, Inc . (Customer Segregated Account)", pursuant
to which Bank agrees to maintain a Safekeeping Account for the custody of the
initial margin which Customer is required to deposit and maintain; and
WHEREAS the Customer Agreement and the Safekeeping Agreement both provide
that the rights and duties of the parties thereto are subject to the provisions
of this Agreement.
NOW, THEREFORE, IT IS AGREED THAT:
<PAGE>
1. Customer shall deposit and maintain as collateral in the Safekeeping
Account such initial margin as shall be required from time to time by the
Exchange on which transactions are effected or caused to be effected by Merchant
as broker for Customer. Customer may deposit amounts in excess of such
requirements. The designation "Customer Segregated Account" in the account
title is intended to indicate the status of the account under the Commodity
Exchange Act and Commodity Futures Trading Commission Regulations; however, the
provisions of this agreement shall be controlling as to the rights of the
parties in the collateral deposited in the account.
2. The initial margin deposited and maintained in the Safekeeping
Account, created pursuant to the Safekeeping Agreement, shall be in the form, as
Customer elects, of cash or of securities of the U.S. Government or of a
combination thereof. Customer may substitute U.S. Government securities of
equal or greater value upon prior approval of the Bank, which shall not be
unreasonably withheld. Any separate interest payments thereon shall be payable
to Customer when collected by Bank unless notice has been provided to Bank
pursuant to Paragraph (a) of Section 6 below, and such interest is required to
meet additional variation margin requirements in accordance with the procedure
provided in Paragraphs (a) and (b) of Section 6.
3. With respect to the deposit of initial margin, Bank shall be directed
by Customer's custodian order to segregate specified assets in the Safekeeping
Account, and Bank shall promptly provide Merchant and Customer with a written
confirmation of each transfer into the Safekeeping Account.
4. Withdrawals of initial margin from the Safekeeping Account shall be
effected upon receipt by the Bank of Customer's custodian order and Merchant's
prior written verification of such withdrawal. Merchant shall, as promptly as
practical but in any case monthly, inform Customer of the extent of any excess
initial margin in the Safekeeping Account.
-2-
<PAGE>
5. Payment to Merchant or Customer, as may be appropriate, of variation
margin due to variation in the value of one or more futures or options contracts
held in the trading account ("variation margin"), shall be governed by the
following provisions:
(a) If Merchant notifies Customer of the need for variation margin required
by any exchange on which transactions are effected by Merchant as broker for
Customer due to variation in the value of one or more futures or options
contracts held in the trading account prior to 11:30 A.M. New York time on a
business day for Customer, Customer shall promptly provide to Merchant such
variation margin but not later than the end of that business day. If Merchant
notifies Customer of the need for variation margin subsequent to 11:30 A.M. but
prior to 4:00 P.M. New York time on a business day for Customer, Customer shall
promptly provide to Merchant such variation margin but not later than 10:30 A.M.
New York time of the next succeeding business day for Customer. Merchant shall
promptly notify Customer of the receipt of variation margin.
(b) Merchant shall, as promptly as practical but in any case daily, inform
Customer of the extent of any variation margin due to Customer. Customer may at
any time request information as to the extent of such variation margin and
Merchant shall promptly respond to such request. If Merchant notifies Customer
of its right to variation margin permitted by any exchange on which transactions
are effected by Merchant as broker for Customer due to variation in the value of
one or more futures or options contracts held in the trading account prior to
11:30 A.M. New York time on a business day for Merchant, Merchant shall
promptly provide to Customer such variation margin but not later than the end of
that business day. If Merchant notifies Customer of its right to variation
margin subsequent to 11:30 A.M. but prior to 4:00 P.M. New York time on a
business day for Merchant, Merchant shall promptly provide to
-3-
<PAGE>
Customer such variation margin but not later than 10:30 A.M. New York time of
the next succeeding business day for Merchant.
6. In the event that Customer fails to make any required payment to
Merchant of variation margin, the following provisions shall apply:
(a) If Merchant has not timely received the requested variation margin as
provided in Paragraph 5(a), Merchant shall give notice ("Notice") to Bank and
Customer of Customer's failure to provide variation margin and the amount of
variation margin required. Bank shall immediately reconvey Merchant's Notice to
Customer. Bank shall not permit any new action to be taken with respect to the
initial margin held in the Safekeeping Account until further notice from
Merchant. Two hours after Merchant shall have given Notice to Bank of
Customer's failure to provide the variation margin, Merchant shall have access
to the initial margin held in the Safekeeping Account, and Bank shall upon
instruction of Merchant immediately transfer from the Safekeeping Account to or
for the account of Merchant such amount of the initial margin as Merchant shall
have specified in the Notice. Bank shall then promptly inform Customer of its
actions taken pursuant to the instruction of Merchant.
(b) As Merchant elects, it may instruct Bank pursuant to Paragraph (a)
either (i) to transfer to Merchant ownership of securities held in the
Safekeeping Account, valued by Merchant as of the closing market price on the
business day preceding the business day when the Notice was given, or (ii) to
sell at the prevailing market price securities in the Safekeeping Account and
transfer promptly to Merchant proceeds from such sales, or (iii) a combination
of (i) and (ii), in any case not to exceed the amount of required additional
variation margin specified in the Notice. Bank shall retain any balance in the
Safekeeping Account. Merchant shall give consideration to any timely request by
Customer with respect to particular securities to be transferred or sold.
-4-
<PAGE>
7. Unless otherwise provided, all notices or other communications called
for by this Agreement shall be given by the most expeditious means possible and
may be given by telephone. If a notice is not given in writing, a written copy
shall be provided to appropriate parties within a reasonable time after the
notice is given.
8. Any and all expenses of establishing, maintaining, or terminating the
Safekeeping Account, including without limitation any and all expenses incurred
by Bank in connection with the Safekeeping Account, shall be borne by Customer.
9. This Agreement and the Safekeeping Account shall terminate only upon
written consent of Customer and Merchant, at which time Bank shall transfer to
Customer all property held in the Safekeeping Account.
-5-
<PAGE>
10. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by, the laws of the State of
__________________________.
________________________________
By:_____________________________
Attest:_________________________
Heartland Group, Inc.
By: ___________________________
Attest:_________________________
Dated: _______________, 1987.
-6-
<PAGE>
Exhibit C
SAFEKEEPING AGREEMENT
Heartland Group, Inc. ("Depositor") and
__________________ ("Broker") have interests in the subject Safekeeping
Account pursuant to a certain Procedural Agreement among Broker,
Depositor, and First Wisconsin Trust Company ("Bank"), which
Procedural Agreement governs over any inconsistent provisions in this
Safekeeping Agreement
____________________, 1987
First Wisconsin Trust Company
777 East Wisconsin Avenue
P.O. Box 701
Milwaukee, WI 53201-0701
Gentlemen:
The Depositor hereby requests the Bank to open and maintain a Safekeeping
Account, which shall be a subaccount, under the Custodian Agreement between
Depositor and Bank, in the name of "_________________________ for the account of
Heartland Group, Inc. (Customer Segregated Account)", for all monies and
securities now or hereafter deposited with and accepted by you for the initial
margin in financial futures or options contracts transactions.
In such safekeeping capacity you are limited to holding the securities in
safekeeping for the Depositor and dealing with them as herein expressed unless
otherwise mutually agreed in writing.
You shall make purchases, sales, and deliveries of securities only as the
Depositor may direct, and you are authorized and directed to:
1. Collect income and principal on bearer securities in the account;
2. Dispose of the monies received from income collections, maturity,
redemption, sale or other disposition of the securities pursuant to said
Procedural Agreement;
<PAGE>
3. Send a daily confirmation of receipts and disbursements to the
Depositor;
4. Provide a monthly list of securities to the Depositor and to Broker.
5. On request, confirm to Broker and Depositor all account changes and
positions.
The general conditions of the Safekeeping Agreement shall be those of
the Custodian Agreement between Depositor and Bank.
The compensation of the Bank for its services hereunder shall be payable
quarterly and shall be in accordance with its present printed schedule, a copy
of which has been delivered to Depositor. No change in compensation shall be
applicable to this account without written notice to Depositor.
All communications from the Bank shall be sent to the Depositor pursuant to
the Custodian Agreement, and to Broker at the addresses shown below, or at such
other address as the Depositor or Broker shall from time to time direct.
The Depositor is an investment company duly registered under the Investment
Company Act of 1940, as amended, and is not a foreign citizen; if this
citizenship status changes, the Depositor will promptly notify the Bank in
writing.
Either the Depositor or the Bank may close this account at any time.
-2-
<PAGE>
Accepted: Very truly yours,
First Wisconsin HEARTLAND GROUP, INC.
Trust Company
By: ____________________________ By: ______________________________
David P. Weber, Vice President
Attest: _________________________
Acknowledged and approved:
_________________________________
By: ______________________________
______________________________
______________________________
______________________________
-3-
<PAGE>
EXHIBIT (h)(1)
HEARTLAND GROUP, INC.
250 East Wisconsin Avenue
Milwaukee, WI 53202
February 6, 1987
First Wisconsin Trust Company
777 East Wisconsin Avenue
P.O. Box 701
Milwaukee, WI 53201-0701
Dear Sir/Madam:
Heartland Group, Inc. (the "Fund") is engaged in the business of an investment
company. The Board of Directors of the Fund has selected you to act as Transfer
Agent, Dividend Disbursing Agent and Shareholders' Servicing Agent for the Fund
and Plan Agent and Escrow Agent for the Funds' shareholders, and you are willing
to act as such Agent and perform the respective duties and functions thereof in
the manner and on the conditions hereinafter set forth. Accordingly, the Fund
hereby agrees with you as follows:
1. Copies of Corporate Documents. The Fund will furnish you promptly with
-----------------------------
copies of any Registration Statements now in effect or hereafter filed
by it with the Securities and Exchange Commission under the Securities
Act of 1933, as amended, or the Investment Company Act of 1940, as
amended, together with any financial statements and Exhibits included
therein, and all amendments or supplements thereto hereafter filed.
2. Transfer of Shares. You are authorized to transfer on our records from
------------------
time to time Shares for which certificates are surrendered to you in
proper form for transfer, and, upon cancellation and destruction
thereof, to countersign, register and issue new certificates for the
same number of Shares and to deliver them pursuant to instructions
received from the transferor. You are authorized to transfer on our
records from time to time Shares for which no certificates are issued
upon surrender to you of sufficient documentation in proper form to
effect such transfer.
<PAGE>
First Wisconsin Trust Company
February 6, 1987
Page 2
3. Share Certificates. The Fund shall supply you with a sufficient supply
------------------
of blank share certificates representing the Shares, in the form
approved from time to time by the Board of Directors of the Fund, and,
from time to time, shall replenish such supply upon your request. Such
blank stock certificates shall be properly signed, manually or by
facsimile signature, by the duly authorized officers of the Fund, and
shall bear the corporate seal or facsimile thereof of the Fund; and
notwithstanding the death, resignation or removal of any officer of the
Fund authorized to sign such share certificates, you may continue to
countersign certificates which bear the manual or facsimile signature of
such officer until otherwise directed by the Fund.
4. Lost or Destroyed Certificates. In case of the alleged loss or
------------------------------
destruction of any certificate of stock, no new certificate shall be
issued in lieu thereof, unless there shall first be furnished an
appropriate bond satisfactory to you and the Fund, and issued by
Travelers Insurance Company or a surety company satisfactory to you.
5. Receipt of Funds for Investment. Upon receipt of any check drawn or
-------------------------------
endorsed to you as agent for, or otherwise identified as being for the
account of, the Fund, or The Milwaukee Company as the principal
underwriter of the Fund (hereinafter referred to as the "Principal
Underwriter"), you will stamp the check with the date of receipt,
determine the amount thereof due the Fund, and the Principal
Underwriter, respectively, deposit the portion due the Principal
Underwriter in its account with First Wisconsin Trust Company
(hereinafter referred to as "Custodian") or such other bank as may from
time to time be designated by the Principal Underwriter, deposit the net
amount due the Fund in its account with Custodian or any successor
thereto as custodian for the Fund, notify the Principal Underwriter and
Custodian respectively, of such deposits, such notification to be given
as soon as practicable on the next business day stating the total amount
deposited to said accounts during the previous business day. Such
notification shall be confirmed in writing.
6. Shareholder Accounts. Upon receipt of any check referred to in
--------------------
paragraph 5 hereof, you will compute the number of Shares due to the
shareholder according to the price of the Fund Shares in effect for
purchases made on the date of such receipt as set forth in the Funds'
current Prospectus, and:
(a) In the case of a new shareholder, open and maintain a
bookshare account for such shareholder in the name or names
set forth in the subscription application form.
2
<PAGE>
First Wisconsin Trust Company
February 6, 1987
Page 3
(b) If specifically requested in writing by the shareholder,
countersign, issue and mail, by first class mail, to the
shareholder at his address as set forth on such application,
a share certificate for full shares.
(c) Send to the shareholder a confirmation indicating the amount
of full and fractional shares purchased (in the case of
fractional shares, rounded to three decimal places), the
price per share and a historical confirmation of any
transactions made on the shareholder's account since the
inception of the calendar year in which such investment is
made; and
(d) In the case of a request to establish an accumulation plan,
group program, withdrawal plan or other plan or program being
offered by this Funds' current Prospectus, open and maintain
such plan or program for the shareholder in accordance with
the terms thereof;
all subject to any reasonable instructions which the Principal
Underwriter or the Fund may give to you with respect to rejection of
orders for Shares.
7. Unpaid Checks and Drafts. In the event that any check or other order
------------------------
for payment of money on the account of any shareholder or new investor
is returned unpaid for any reason, you will:
(a) Give prompt notification to the Fund of such non-payment and
(b) Take such other steps, including redepositing those checks in
excess of $2500 for collection or redelivering such check to
the shareholder or new investor and placing a stop transfer
order against any Shares held by him, as the Fund or the
Principal Underwriter may instruct you.
8. Sales Charge. In computing the number of Shares to credit the account
------------
of a shareholder pursuant to paragraph 6 hereof, you will calculate
the total of the applicable Principal Underwriter and representative
sales charges with respect to each purchase as set forth in the Fund's
current Prospectus and in accordance with any notification filed with
respect to combined and accumlated purchases; you will also determine
the portion of each sales charge payable by the Principal Underwriter
to the representative participating in the sale in accordance with
such schedules as are from time to time delivered by the Principal
Underwriter to you; provided, however, you shall have no liability
hereunder growing out of the incorrect selection by you of the gross
rate of sales charges except that this
3
<PAGE>
First Wisconsin Trust Company
February 6, 1987
Page 4
exculpation shall not apply in the event the rate is specified by the
Principal Underwriter or the Funds and you fail to select the rate
specified.
9. Dividends and Distributions. The Fund will promptly notify Transfer
--------- --- -------------
Agent of the declarations of any dividend or distribution with respect
to Shares. Transfer Agent will, seventy-two (72) hours prior to the
payment date of any such dividend or distribution, notify the Fund of
the total number of Shares issued and outstanding as of the record
date for such dividend or distribution and the amount of cash required
to pay such dividend or distribution. The Fund agrees that on or
before the mailing date of such dividend or distribution it will
instruct the Custodian Bank to make available to Transfer Agent
sufficient funds in the dividend and distribution account maintained
by the Fund with Transfer Agent to pay such dividend and distribution.
Transfer Agent will prepare and mail to shareholders any checks to
which they are entitled by reason of any dividend or distribution and,
in the case of shareholders entitled to receive additional Shares by
reason of any such dividend or distribution, Transfer Agent will make
appropriate credits to their bookshare accounts or prepare and mail to
shareholders certificates, if any, in accordance with their requests
submitted in writing. No later than 1:00 P.M. on any dividend or
distribution payment date, Transfer Agent shall inform the Fund of the
total number of full and fractional Shares reinvested by shareholders.
Each such shareholder shall be notified of any dividend and
distribution, including the amount of any reinvested Shares and copies
of such notices shall also be sent to such shareholders' dealers.
10. Repurchases and Redemptions. You will receive and stamp with the date
---------------------------
all certificates and requests delivered to you for repurchase or
redemption of Shares and you will process such repurchases as agent
for the Principal Underwriter and such redemptions as agent for the
Fund as follows:
(a) If such certificate or request complies with the standards
for repurchase or redemption as approved by the Fund, you
will, on or prior to the seventh calendar day succeeding the
receipt of any such request for repurchase or redemption in
good order, pay from funds available from time to time in the
repurchase and redemption account maintained by the Fund with
Custodian, the appropriate repurchase or redemption price, as
the case may be, to the shareholder as set forth in the
current Prospectus of the Fund.
(b) If such certificate or request does not comply with said
standards for repurchases or redemptions as approved by the
Fund, you will promptly notify the shareholder of such fact,
together with the
4
<PAGE>
First Wisconsin Trust Company
February 6, 1987
Page 5
reason therefor, and shall effect such repurchase or
redemption at the price in effect at the time of receipt of
documents complying with said standards, or, in the case of a
repurchase, at such other time as the Principal Underwriter
shall so direct. Notification shall be provided by first-
class mail for accounts of $5,000 or less, and by telephone,
confirmed by a first-class letter, for accounts in excess of
$5,000; and
(c) You shall notify the Fund and the Principal Underwriter as
soon as practicable of each business day of the total number
of Shares covered by requests for repurchase or redemption
which were received by you in proper form on the previous
business day, such notification to be confirmed in writing.
11. Systematic Withdrawal Plans. You will process systematic withdrawal
---------------------------
orders pursuant to the provisions of withdrawal plans duly executed by
shareholders and the current Prospectus of the Fund. Payment upon such
withdrawal orders shall be made by you from the appropriate account
maintained by the Fund with Custodian approximately the twenty-fifth
(25th) day of each month in which a payment has been requested, and
you, on or after the fifth business day prior to the payment date, will
withdraw from a shareholder's account and present for repurchase or
redemption as many Shares as shall be sufficient to make such
withdrawal payment pursuant to the provisions of the shareholder's
withdrawal plan and the current Prospectus of the Fund. From time to
time on new systematic withdrawal plans, a check for a payment date
already past may be issued upon request by the shareholder.
12. Letters of Intent. You will process such letters of intent for
-----------------
investing Shares as are provided for in the Funds' current Prospectus
and you will act as Escrow Agent pursuant to the terms of such letters
of intent (as incorporated from the Prospectus by the account
application form) duly executed by shareholders. You will make
appropriate deposits to the account of the Principal Underwriter for
the adjustment of sales charges as therein provided and will currently
report the same to the Principal Underwriter.
13. Wire-Order Purchases and Redemptions. Wire-Order redemption and sale
------------------------------------
orders will be incorporated into the Fund's clearance file with you.
You will send written confirmations to the participating dealers
containing all details of the wire-order purchases placed by each such
dealer by close of business on the business day following receipt of
such orders by you or the Principal Underwriter, with copies to the
Fund and the Principal Underwriter. Upon receipt of any check drawn or
5
<PAGE>
First Wisconsin Trust Company
February 6, 1987
Page 6
endorsed to the Fund (or you, as agent) or otherwise identified as
being payment of an outstanding wire-order, you will stamp said check
with the date of its receipt and deposit the amount represented by such
check to the Fund's deposit account maintained with you. No later than
9:30 A.M. on the third day following such deposit, you will by bank
wire transfer Federal Funds in an amount equal to the net asset value
of the Shares so purchased to the Fund's accounts at the Custodian
Bank. You will compute the respective portions of such deposit which
represent the sales charge and the net asset value of the Shares so
purchased and will notify the Fund and the Principal Underwriter before
noon of each business day of the total amount deposited in the Fund's
deposit account during the previous business day. You will remit to the
Principal Underwriter the commissions earned by the Principal
Underwriter as of the 15th and the last day of each calendar month.
Upon receipt of any such purchase order, you will compute the number of
Shares due to the investor and:
(a) upon receipt of payment and registration instructions, issue the
number of Shares to the investor; or
(b) in the absence of registration instructions, place the paid order
into a paid-and-waiting status; or
(c) in the case of an existing shareholder, credit the bookshare
account of said investor with such number of Shares; or
(d) in the case of a new investor, open a bookshare account for such
investor in the name or names and address set forth in the
instructions received from the participating dealer, and credit
the account with such number of Shares; or
(e) if specifically requested in writing by the dealer, countersign,
issue and mail, by first class mail, a stock certificate for full
Shares, together with a refund check equal to any excess of the
amount of payment over the total purchase price, if any, in
accordance with the participating dealer's instructions; and
(f) send to the shareholder a confirmation (copy to the participating
dealer) indicating the amount of full and fractional Shares
purchased (in case of fractional shares, rounded to three decimal
places), the price per share, and a historical confirmation of all
transactions made in the shareholder's account since the beginning
of the calendar year in which such investment was made; and
6
<PAGE>
First Wisconsin Trust Company
February 6, 1987
Page 7
(g) in the event that payment for a purchase order is not received by
you on the seventh business day following receipt of the order,
prepare a notification to the participating dealer that the trade
is in a warning status and forward such notification to the
Principal Underwriter; and in the event that payment for a
purchase order is not received by you on the tenth business day
following receipt of the order, prepare a NASD "notice of failure
of dealer to make payment" and forward such notification to the
Principal Underwriter.
14. Telephone Exchanges Between Funds. You shall execute exchanges of
---------------------------------
shares between the Fund and Heartland Value Fund, Inc. on a relative
net asset basis pursuant to telephone instructions received by you
directly from the shareholder of record of the subject shares, provided
the requested exchange is permitted under, and meets the requirements
set forth in the Fund's then current prospectus. You shall process and
record such an exchange as a redemption of the shares being exchanged
by the appropriate Fund and a contemporaneous purchase of the
appropriate number of shares of the other Fund. No commissions shall be
due on such exchanges.
15. Other Plans. You will process such accumulation plans, group programs
-----------
and other plans or programs for investing in Shares as are now provided
for in the Fund's current Prospectus and will act as plan agent for
shareholders pursuant to the terms of such plans and programs duly
executed by such shareholders.
16. Tax Returns and Reports. In the event that the Fund revises its
-----------------------
investment objectives and policies to provide for the payment of
dividends and other distributions to its shareholders, you will
prepare, file with the Internal Revenue Service and, if required, mail
to shareholders such returns for reporting dividends and distributions
paid by the Fund as are required to be so prepared, filed and mailed by
applicable laws, rules and regulations; and you will withhold such sums
as are required to be withheld under applicable Federal and State
income tax law, rules and regulations.
17. Record Keeping. You will maintain records, which at all times will be
--------------
the property of the Fund and available for inspection by the Fund and
Principal Underwriter, showing for each shareholder's account the
following:
(a) Name and address;
(b) Number of Shares held and number of Shares for which
certificates have been issued;
7
<PAGE>
First Wisconsin Trust Company
February 6, 1987
Page 8
(c) Historical information regarding the account of each
shareholder, including dividends and distributions paid and
the date and price for all transactions on a shareholder's
account;
(d) Any stop or restraining order placed against a shareholder's
account;
(e) Any instructions as to withdrawal orders under withdrawal
plans, letters of intent, dividend address, and any
correspondence or instructions relating to the current
maintenance of a shareholder's account.
You shall be obligated to maintain at your expense those records
necessary to carry out your duties hereunder. The remaining records
will be preserved by you, at our expense, in a manner that shall be
determined before any change in the status of said records is made by
you.
18. Other Information Furnished. You will furnish to the Fund and the
---------------------------
Principal Underwriter such other information, including shareholder
lists and statistical information as may be agreed upon from time to
time between you and the Fund. You shall notify the Fund of any
request or demand to inspect the stock books of the Fund and will act
upon the instructions of the Fund as to permitting or refusing such
inspection.
19. Correspondence. You will answer promptly that correspondence from
--------------
shareholders, representatives, the Fund and the Principal Underwriter
relating to your duties hereunder and such other correspondence as may
from time to time be mutually agreed upon between you and the Fund.
20. Communications to Shareholders and Meetings. You will address and
-------------------------------------------
mail communications by the Fund to their shareholders, including
financial reports to shareholders, proxy material for meetings of the
shareholders and periodic communications to shareholders.
21. Compensation. You will receive a fee payable at the rate of (See
------------
Attached -Schedule A) per month for each shareholder account existing
during such month for the performance of all your duties and
responsibilities hereunder; provided that you will be entitled to
reimbursement for postage expenses incurred in the mailing of all
shareholder communications; and provided further that you shall be
entitled to additional reasonable compensation on a time and materials
basis in connection with the annual proxy solicitation and any
shareholder
8
<PAGE>
First Wisconsin Trust Company
February 6, 1987
Page 9
communications in addition to those currently being distributed. From
time to time, the Fund may request additional reports, dates and/or
services which will be provided by you in accordance with our mutual
agreement as to additional reasonable fees. In addition, you will be
reimbursed by the Fund for any out-of-pocket expenses or disbursements
which you may reasonably incur in excess of your basic overhead
expenses incurred for providing such services.
22. Use of Your Name. The Fund will not use your name in any prospectus,
----------------
sales literature or other material relating to the Fund in a manner
not approved by you in writing before such use, provided, however,
that you hereby agree to consent to all uses of your name which merely
refer in accurate terms to your appointments hereunder or which are
required by the Securities and Exchange Commission or a state
securities commission, and provided, further, that in no case will
such approval be unreasonably withheld.
23. Duty of Care and Indemnification. You shall at all times use
--------------------------------
reasonable care and act in good faith in performing your duties
hereunder. Without limiting the generality of the foregoing, you shall
not be liable or responsible for delays or errors occuring by reason
of circumstances beyond your control, including acts of civil or
military authority, national or state emergencies, an announced
employee strike significant enough to cease mutual fund transfer
operations, fire, mechanical breakdown, flood or catastrophy, acts of
God, insurrection, war, riots or failure of transportation,
communication or power supply. The Fund will indemnify and hold you
harmless against any and all losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) resulting
from any claim, demand, action or suit not resulting from your bad
faith or negligence, and arising out of, or in connection with your
duties on behalf of the Fund hereunder. In addition, the Fund will
indemnify and hold you harmless against any and all losses, claims,
damages, liabilities or expenses (including reasonable counsel fees
and expenses) resulting from any claim, demand, action or suit as a
result of the negligence of the Fund or the Principal Underwriter
(unless contributed to by your negligence or bad faith), or as a
result of your acting upon telephone instructions relating to the
exchange of shares between the Fund and the Heartland Value Fund, Inc.
received by you and reasonably believed by you to have originated from
the record owner of the subject shares, or as a result of your acting
upon any instructions executed or orally communicated only by a duly
authorized officer or employee of the Fund or the Principal
Underwriter, according to such lists of authorized officers and
employees furnished you and as amended from time to time in writing by
the President or Executive Vice President, or as a result of acting in
reliance upon any genuine instrument or stock certificate signed,
counter-signed or executed by any person or persons authorized
9
<PAGE>
First Wisconsin Trust Company
February 6, 1987
Page 10
to sign, counter-sign or execute the same. In order for this paragraph
to apply, it is understood that if in any case the Fund may be asked
to indemnify or hold you harmless, the Fund shall be advised of all
pertinent facts concerning the situation in question, and it is
further understood that you will use reasonable care to identify and
notify the Fund promptly concerning any situation which presents or
appears likely to present a claim for indemnification against the
Fund. The Fund shall have the option to defend you against any claim
which may be the subject of this indemnification and in the event that
the Fund so elects, they will so notify you and thereupon the Fund
shall take over complete defense of the claim and you shall sustain no
further legal or other expenses in such situation for which you shall
seek indemnification under this paragraph. You will in no case confess
any claim or make any compromise in any case in which the Fund will be
asked to indemnify you except with the Fund's prior written consent.
24. Notices. Notices or other communications hereunder shall be in
-------
writing and shall be deemed effective when served or otherwise
delivered to either party hereto at the addresses set forth in this
Agreement, or at such other addresses as the parties hereto may
designate by notice to each other.
25. Further Assurances. Each party agrees to perform such further acts
------------------
and execute such further documents as are necessary to effectuate the
purposes hereof.
26. Termination, Etc. Neither this agreement nor any provisions hereof
----------------
may be changed, waived, discharged or terminated orally, but only by
an instrument in writing which shall make specific reference to this
agreement and which shall be signed by the party against which
enforcement of such change, waiver, discharge or termination is
sought. After the first full year, this agreement may be terminated
upon six months' written notice given by one party to the other.
Upon termination hereof, the Fund shall pay to you such compensation
as may be due to you as of the date of such termination, and shall
likewise reimburse you for any out-of-pocket expenses and
disbursements reasonably incurred by you to such date. In the event
that in connection with termination a successor to any of your duties
or responsibilities hereunder is designated by the Fund by written
notice to you, you shall, promptly upon such termination and at the
expense of the Fund, transfer to such successor a certified list of
the shareholders of the Fund (with name, address and tax
identification or Social Security number), a record of the account of
such shareholder and the status thereof, and all other relevant books,
10
<PAGE>
First Wisconsin Trust Company
February 6, 1987
Page 11
records and other data established or maintained by you under this
agreement and shall cooperate in the transfer of such duties and
responsibilities, including provision for assistance from you
cognizant personnel in the establishment of books, records and other
data by such successor.
27. Miscellaneous. This agreement shall be construed and enforced in
-------------
accordance with and governed by the laws of the State of Wisconsin.
The captions in this agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their constructon or effect. This agreement
may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
28. The Fund's sole and exclusive remedies under our arrangement with you,
in the event it is determined that you are in breach of your
responsibilities and not entitled to indemnification, shall be:
(a) termination; or
(b) to collect damages directly and actually incurred in a sum up
to but not in excess of fifty percentum (50%) of any fees
received during the period of 12 months immediately preceding
your performance or failure to perform which constituted a
material breach of this Agreement; or
(c) to submit a claim for damages directly incurred by the Fund
as a consequence of your failure to perform which constituted
a material breach of this Agreement, and which act, non-act
or event was covered under your Banker's Blanket Bond policy
or policies, in which event you agree to indemnify and save
us harmless solely to the extent of your best efforts to
include our claim as a Loss Payee under your filing of a
Proof of Loss under such policy; or
(d) at your own expense to reprocess and correct you
administrative errors.
IN NO EVENT SHALL YOU BE LIABLE TO US OR TO ANY THIRD PARTY, FOR ANY DAMAGES,
OTHER THAN THOSE IN CLAUSE (b) ABOVE, INCLUDING SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES, LOSS OF PROFITS OR A
11
<PAGE>
First Wisconsin Trust Company
February 6, 1987
Page 12
LOSS OF BUSINESS, ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT, EVEN IF
PREVIOUSLY INFORMED OF THE POSSIBILITY OF SUCH DAMAGES, AND REGARDLESS OF THE
FORM OF ACTION.
If you are in agreement with the foregoing, please sign the form of acceptance
on the accompanying counterpart of this letter and return such counterpart to
the Fund whereupon this letter shall become a binding contract.
Very truly yours,
HEARTLAND GROUP, INC.
By:/s/ David P. Weber
---------------------------------
Title:Vice President
------------------------------
Date: February 11, 1987
-------------------------------
The foregoing agreement is hereby accepted as of the date hereof.
ATTEST: FIRST WISCONSIN TRUST COMPANY
By: /s/ Eugene R. Lee By: /s/ James D. Hintz
---------------------------- --------------------------
Title: Assistant Secretary Title: Vice President
-------------------------- -----------------------
Date: February 9, 1987 Date: February 9, 1987
--------------------------- ------------------------
12
<PAGE>
EXHIBIT (h)(2)
PLAN OF ACQUISITION OF SECURITIES DURING
THE EXISTENCE OF AN UNDERWRITING SYNDICATE OF
HEARTLAND GROUP, INC.
WHEREAS, Heartland Group, Inc. (the "Fund") is engaged in business as an
open-end management investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Fund intends to rely on the exemption set forth in Rule 10f-3
under the Act from the restrictions contained in Section l0(f) of the Act on the
acquisition of certain securities;
WHEREAS, the Board of Directors of the Fund has determined that there is a
reasonable likelihood that adoption of this Plan will benefit the Fund and its
shareholders; and
WHEREAS, the Fund intends to employ Heartland Group, Inc. as the principal
underwriter and distributor of the securities of the Fund;
NOW THEREFORE, the Fund hereby adopts this Plan in accordance with Rule
10f-3 under the Act under the following terms and conditions;
1. The Fund may purchase or otherwise acquire, during the existence of
any underwriting or selling syndicate, any security (except a security of which
the Fund is the issuer) a principal underwriter of which is an officer,
director, member of advisory board, investment advisor, or employee of the Fund,
or is a person of which any such officer, director, member of advisory board,
investment advisor or employee is an affiliated person, if the securities to be
purchased are (a) either registered under the Securities Act of 1933 in a public
offering or are municipal securities as defined in Section 3(a)(29) of the
Securities Exchange Act of 1934; (b) purchased at not more than the public
offering price prior to the end of the first full business day after the first
date on which the issue is offered to the public; and (c) offered pursuant to a
firm commitment underwriting Agreement, and the commission, spread or profit,
received or to be received by the principal underwriters is reasonable and fair
compared to the commission, spread or profit received by other such persons in
connection with the underwriting of similar securities being sold during a
comparable period of time.
2. With respect to any issues of securities other than municipal
securities purchased pursuant to this Plan, the issuer of such securities to be
purchased shall have been in continuous operation for not less than three years,
including operations of any predecessors. With respect to any issue of
municipal securities, (i) such issue shall have received an investment grade
rating from at least one of the nationally recognized statistical rating
organizations, or (ii) if the issuer of the municipal securities to be
purchased, or the entity supplying the revenues from which the issue is to be
paid, shall have been in continuous operation for less than three years ,
including the operation of any predecessors, the issue shall have received one
of the three highest ratings from one such rating organization.
<PAGE>
3. The amount of securities of any class of such issue to be purchased by
the Fund, or by two or more investment companies having the same investment
advisor as the Fund, shall not exceed 4 percent of the principal amount of the
offering of such class or $500,000 in principal amount, whichever is greater,
but in no event greater than 10 percent of the principal amount of the offering.
4. The consideration to be paid by the Fund in purchasing the securities
being offered shall not exceed 3 percent of the total assets of the Fund.
5. This Plan does not permit the Fund to purchase securities directly or
indirectly from an officer, director, member of advisory board, investment
advisor or employee of the Fund, or from a person of which any such officer,
director, member of advisory board, investment advisor or employee is an
affiliated person, unless the securities are purchased from a syndicate manager,
and not from a specific underwriter, so long as that underwriter does not
benefit directly or indirectly from the transaction, and with respect to the
purchase of municipal securities, so long as such purchases are designated as
group sales or otherwise allocated to the account of persons described above.
6. The Fund shall report all transactions effected pursuant to this Plan
on Form N-SAR.
7. This Plan shall continue in effect unless modified or terminated by a
majority of those directors of the Fund who are not "interested persons" of the
Fund (as defined in the Act) voting in person at a meeting (or meetings) called
for the purpose of voting on this Plan or such related agreements.
8. The Fund's Advisor shall provide to the Fund's Board of Directors and
the Board shall review, at least quarterly, a written report of the securities
purchased and that such securities are purchased in compliance with the
procedure set forth in this Plan. With respect to each transaction effected
pursuant to this Plan the Directors shall review, and the Fund shall maintain, a
written record setting forth from whom the securities were acquired, the
identity of the underwriting syndicate's members, the terms of the transaction,
and the information or materials upon which the Directors determined that the
purchases made were effected in compliance with the procedures of this Plan. In
determining compliance with the provision of Paragraph 1, above, the Board of
Directors shall receive and review no less frequently than quarterly, a report
of all transactions effected pursuant to these procedures during the preceding
quarter and shall determine that the transactions were effected in compliance
with such procedures. The information to be provided to and reviewed by the
Board of Directors shall include a description of the security, the number of
shares or units involved, whether the transaction was a purchase or sale, the
unit cost, the price at which the transactions were effected, the total
commissions paid, the commissions as a percentage of the transaction, the
commissions per share, the exchange or market on which the transaction was
effected, and the name of the broker effecting the transaction. The Board of
Directors shall make a comparison
-2-
<PAGE>
of the remuneration paid to affiliated and unaffiliated brokers for comparable
transactions by the Fund. In addition, the Board will consider statistical
compilations of similar transactions. The Board shall determine whether all
transactions effected pursuant to this Plan during the preceding quarter were
effected in compliance with these procedures.
9. This Plan may be terminated at any time by vote of a majority of the
noninterested directors of the Fund.
10. The Fund shall preserve copies of this Plan and any reports or other
information or materials held or relied on to determine compliance with the
procedures set forth in this Plan, for a period of not less than six years from
the end of the fiscal year in which the transactions occurred, the first two
years in an easily accessible place.
-3-
<PAGE>
EXHIBIT (h)(3)
PLAN OF ACQUISITION OF SECURITIES DURING
THE EXISTENCE OF AN UNDERWRITING SYNDICATE OF
HEARTLAND VALUE FUND, INC.
WHEREAS, Heartland Value Fund, Inc. (the "Fund") intends to engage in
business as an open-end management investment company and register as such under
the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Fund intends to rely on the exemption set forth in Rule 10f-3
under the Act from the restrictions contained in Section 10(f) of the Act on the
acquisition of certain securities;
WHEREAS, the Board of Directors of the Fund has determined that there is a
reasonable likelihood that adoption of this Plan will benefit the Fund and its
shareholders; and
WHEREAS, the Fund intends to employ The Milwaukee Company as the principal
underwriter and distributor of the securities of the Fund;
NOW THEREFORE, the Fund hereby adopts this Plan in accordance with Rule
10f-3 under the Act under the following terms and conditions:
1. The Fund may purchase or otherwise acquire, during the existence of
any underwriting or selling syndicate, any security (except a security of which
the Fund is the issuer) a principal underwriter of which is an officer,
director, member of advisory board, investment advisor, or employee of the Fund,
or is a person of which any such officer, director, member of advisory board,
investment advisor or employee is an affiliated person, if the securities to be
purchased are (a) either registered under the Securities Act of 1933 in a public
offering or are municipal securities as defined in Section 3(a)(29) of the
Securities Exchange Act of 1934; (b) purchased at not more than the public
offering price prior to the end of the first full business day after the first
date on which the issue is offered to the public; and (c) offered pursuant to a
firm commitment underwriting agreement, and the commission, spread or profit,
received or to be received by the principal underwriters is reasonable and fair
compared to the commission, spread or profit received by other such persons in
connection with the underwriting of similar securities being sold during a
comparable period of time.
2. With respect to any issues of securities other than municipal
securities purchased pursuant to this Plan, the issuer of such securities to be
purchased shall have been in continuous operation for not less than three years,
including operations of any predecessors.
3. The amount of securities of any class of such issue to be purchased by
the Fund, or by two or more investment companies having the same investment
advisor as the Fund, shall not exceed 4 percent of the principal amount of the
offering of such class or $500,000 in principal amount, whichever is greater,
but in no event greater than 10 percent of the principal amount of the offering.
<PAGE>
4. The consideration to be paid by the Fund in purchasing the securities
being offered shall not exceed 3 percent of the total assets of the Fund.
5. This Plan does not permit the Fund to purchase securities directly or
indirectly from an officer, director, member of advisory board, investment
advisor or employee of the Fund, or from a person of which any such officer,
director, member of advisory board, investment advisor or employee is an
affiliated person, unless the securities are purchased from a syndicate manager,
and not from a specific underwriter, so long as that underwriter does not
benefit directly or indirectly from the transaction, and with respect to the
purchase of municipal securities, so long as such purchases are designated as
group sales or otherwise allocated to the account of persons described above.
6. The Fund shall report all transactions effected pursuant to this Plan
on Form N-1Q.
7. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Board of
Directors of the Fund and (b) those directors of the Fund who are not
"interested persons" of the Fund (as defined in the Act) voting in person at a
meeting (or meetings) called for the purpose of voting on this Plan or such
related agreements.
8. This Plan shall continue in effect for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Paragraph 7.
9. The Fund's Advisor shall provide to the Fund's Board of Directors and
the Board shall review, at least quarterly, a written report of the securities
purchased and that such securities are purchased in compliance with the
procedure set forth in this Plan. With respect to each transaction effected
pursuant to this Plan, the Fund shall maintain, a written record setting forth
from whom the securities were acquired, the identity of the underwriting
syndicate's members, the terms of the transaction, and the information or
materials upon which the directors determined that the purchases made were
effected in compliance with the procedures of this Plan.
10. This Plan may be terminated at any time by vote of a majority of the
noninterested directors of the Fund.
11. The Fund shall preserve copies of this Plan and any related agreements
or reports made pursuant to paragraph 9 hereof, for a period of not less than
six years from the end of the fiscal year in which the transactions occurred,
the first two years in an easily accessible place.
-2-
<PAGE>
IN WITNESS WHEREOF, the Fund has executed this Plan on the day and year set
forth below in Milwaukee, Wisconsin.
Dated: , 1984.
--------------
HEARTLAND VALUE FUND, INC.
By
-----------------------------------
William J. Nasgovitz, President
Attest:
--------------------------------------
Paul J. Geidel, Secretary
-3-
<PAGE>
EXHIBIT (j)
-----------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting part of this Post-Effective
Amendment No. 35 to the Registration Statement on Form N-1A (the "Registration
Statement") of our report dated February 6, 1998, relating to the financial
statements and financial highlights appearing in the December 31, 1997 Annual
Report to Shareholders of the Heartland Value Fund, Heartland Mid Cap Value
Fund, Heartland Large Cap Value Fund, Heartland Value Plus Fund and Heartland
U.S. Government Securities Fund (portfolios of Heartland Group, Inc.), which are
also incorporated by reference into the Registration Statement. We also consent
to the references to us under the heading "Financial Highlights" in the
Prospectus and under the headings "Counsel and Independent Public Accountants"
and "Financial Statements" in the Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
October 12, 1998
<PAGE>
EXHIBIT (l)
HEARTLAND U.S. GOVERNMENT
HIGH YIELD FUND
The undersigned hereby subscribes for 10,471.204 (Ten Thousand Four
Hundred, Seventy One point 204) shares of Common Stock ($.001 par value) (the
"Shares") of Heartland U. S. Government High Yield Fund, a corporation organized
and existing under the laws of the State of Maryland, (the "Fund") and hereby
agrees to pay therefor upon call of the Board of Directors the sum of Nine
Dollars Fifty-Five Cents ($9.55) per share for an aggregate subscription price
of $100,000.
In subscribing for the Shares the undersigned represents and warrants that:
(a) the Shares are to be purchased as an investment and not with a view to
distribution thereof; (b) I have no present intent of redeeming or selling
such Shares; and (c) I will not redeem any of the Shares prior to the time
that the Fund has completed the amortization of its organizational
expenses, and in the event the Fund liquidates before the deferred
organizational costs are fully amortized, the Shares shall bear their
proportionate share of such unamortized organizational expenses.
Dated this 8th day of January, 1987
/s/ Ross H. Dean
--------------------------------
<PAGE>
ADDENDUM
HEARTLAND U.S. GOVERNMENT FUND
THIS ADDENDUM, entered into on this 26th day of February, 1987, hereby
alters, amends and modifies the subscription agreement (the "Subscription
Agreement") dated January 8, 1987 whereby the undersigned subscribed for
10,471.204 shares of Common Stock, $.001 par value per share (the "Shares") of
Heartland U.S. Government Fund (formally known as Heartland U.S. Government High
Yield Fund) (the "Fund"), a series of the Heartland Group, Inc., a corporation
organized and existing under the laws of the State of Maryland.
WHEREAS, in the Subscription Agreement the undersigned agreed not to redeem
any of the Shares prior to the time that the Fund has completed the amortization
of its organizational expenses; and
WHEREAS, although the undersigned understood his right to transfer any of
the Shares to be subject to an obligation to require any transferree thereof to
consent to these same redemption restrictions, the Subscription Agreement failed
to expressly set forth this understanding.
NOW THEREFORE, in order to clarify the rights and obligations of the
undersigned under the Subscription Agreement, the undersigned represents and
warrants that, in the event he transfers any of the Shares, such transferred
Shares will remain subject to the restriction that they not be redeemed prior to
the time that the Fund has completed the amortization of its organizational
expenses, and in the event the Fund liquidates before the deferred
organizational costs are fully amortized, the transferred Shares shall bear
their proportionate share of such unamortized organizational expenses.
/s/ Ross H. Dean
--------------------------------
Ross H. Dean
<PAGE>
HEARTLAND U.S. GOVERNMENT
HIGH YIELD FUND
The undersigned hereby subscribes for 2,617.80 shares of Common Stock
($.001 par value) (the "Shares") of Heartland U. S. Government High Yield Fund,
a corporation organized and existing under the laws of the State of Maryland,
(the "Fund") and hereby agrees to pay therefor upon call of the Board of
Directors the sum of Nine Dollars Fifty-Five Cents ($9.55) per share for an
aggregate subscription price of $25,000.
In subscribing for the Shares the undersigned represents and warrants that:
(a) the Shares are to be purchased as an investment and not with a view to
distribution thereof; (b) I have no present intent of redeeming or selling
such Shares; and (c) I will not redeem any of the Shares prior to the time
that the Fund has completed the amortization of its organizational
expenses, and in the event the Fund liquidates before the deferred
organizational costs are fully amortized, the Shares shall bear their
proportionate share of such unamortized organizational expenses.
Dated this 12th day of January, 1987
/s/ William J. Nasgovitz
------------------------------------
<PAGE>
ADDENDUM
HEARTLAND U.S. GOVERNMENT FUND
THIS ADDENDUM, entered into on this 26th day of February, 1987, hereby
alters, amends and modifies the subscription agreement (the "Subscription
Agreement") dated January 12, 1987 whereby the undersigned subscribed for
2,617.80 shares of Common Stock, $.001 par value per share (the "Shares") of
Heartland U.S. Government Fund (formally known as Heartland U.S. Government High
Yield Fund) (the "Fund"), a series of the Heartland Group, Inc., a corporation
organized and existing under the laws of the State of Maryland.
WHEREAS, in the Subscription Agreement the undersigned agreed not to redeem
any of the Shares prior to the time that the Fund has completed the amortization
of its organizational expenses; and
WHEREAS, although the undersigned understood his right to transfer any of
the Shares to be subject to an obligation to require any transferree thereof to
consent to these same redemption restrictions, the Subscription Agreement failed
to expressly set forth this understanding.
NOW THEREFORE, in order to clarify the rights and obligations of the
undersigned under the Subscription Agreement, the undersigned represents and
warrants that, in the event he transfers any of the Shares, such transferred
Shares will remain subject to the restriction that they not be redeemed prior to
the time that the Fund has completed the amortization of its organizational
expenses, and in the event the Fund liquidates before the deferred
organizational costs are fully amortized, the transferred Shares shall bear
their proportionate share of such unamortized organizational expenses.
/s/ William J. Nasgovitz
------------------------------------
William J. Nasgovitz
<PAGE>
EXHIBIT (m)(1)
HEARTLAND VALUE FUND, INC.
RULE 12b-1 PLAN
1. Payments by Heartland Group, Inc. (the "Fund") to promote the Sale of the
Fund's Shares
(a) The Fund will pay the Distributor of the Fund's shares a fee of up
to 0.30% per annum of the Fund's average daily net assets. The Distributor
may pay a portion of this fee, not to exceed 0.25% per annum of the Fund's
average daily net assets, to any securities dealer, financial institution
or any other Person (the "Recipient") who renders assistance in
distributing or promoting the sale of the Fund's shares pursuant to a
written agreement (the "Related Agreement"). To the extent such fee is not
paid to such persons, the Distributor may use the fee for its expenses of
distribution of the Fund's Shares. Payment of the distribution fee shall be
made quarterly within 30 days after the close of the quarter for which the
fee is payable upon the Distributor forwarding the Fund the written report
required by Section 2 of this plan; provided that the aggregate payments by
the Fund under this plan in any month to the Distributor and all Recipients
shall not exceed 0.30% of the Fund's average net assets for that quarter;
and provided further that no fee shall be paid in excess of the
distribution expenses verified in a written report and submitted by the
Distributor to the board of directors as required under Section 2 of this
plan.
(b) No Related Agreement shall be entered into, and no payments shall
be made pursuant to any Related Agreement, unless such Related Agreement is
in writing and has first been delivered to and approved by a vote of a
majority of the board of directors of the Fund, and of a majority of the
members of the board of directors of the Fund who are not Interested
Persons of the Fund and have no direct or indirect financial interest in
the operation of the plan or in any Related Agreement (the "Disinterested
Directors"), cast in person at a meeting called for the purpose of voting
on such Related Agreement.
(c) Any Related Agreement shall describe the services to be performed
by the Recipient and shall specify the amount of, or the method for
determining, compensation to the Recipient.
(d) No Related Agreement may be entered into unless it provides that
it may be terminated at any time, without the payment of any penalty, by
vote of a majority of the Disinterested Directors or by vote of a majority
of the outstanding voting securities of the Fund on not more than 60 days'
written notice to the other party to the Related Agreement and that the
Related Agreement shall automatically terminate in the event of its
assignment as defined in the Investment Company Act of 1940.
(e) Any Related Agreement shall continue in effect for a period of
more than one year from the date of its execution or adoption only if it
provides that such continuance is specifically approved at least annually
by a vote of a majority of the board of directors of the Fund, and of the
Disinterested Directors, cast in person at a meeting called for the purpose
of voting on such Related Agreement.
<PAGE>
2. Quarterly Reports
The Distributor shall provide to the board of directors, and the board
of directors shall review, at least quarterly, a written report of all
amounts expended pursuant to this plan. This report shall include the
identity of the Recipient of each payment and the purpose for which the
amounts were expended and such other information as the board of directors
may reasonably request.
3. Effective Date and Duration of the Plan
This plan shall become effective immediately upon approval by both (a)
the vote of a majority of the board of directors of the Fund, and of the
Disinterested Directors, cast in person at a meeting called for the purpose
of voting on the approval of the plan and (b) the vote of a majority of the
outstanding voting securities of the Fund. This plan shall continue in
effect for a period of one year from its effective date unless terminated
pursuant to its terms. Thereafter, this plan shall continue from year to
year, provided that such continuance is approved at least annually by a
vote of a majority of the board of directors of the Fund, and of the
Disinterested Directors, cast in person at a meeting called for the purpose
of voting on such continuance. This plan may be terminated at any time by
the vote of a (a) a majority of the board of directors, (b) a majority of
the Disinterested Directors or (c) a majority of the outstanding voting
securities of the Fund.
4. Selection of Disinterested Directors
During the period in which this plan is effective, the selection and
nomination of those directors of the Fund who are Disinterested Directors
of the Fund shall be committed to the discretion of the Disinterested
Directors.
5. Amendments
All material amendments of this plan shall be in writing and shall be
approved by a vote of a majority of the board of directors of the Fund, and
of the Disinterested Directors, cast in person at a meeting called for the
purpose of voting on such amendment. This plan may not be amended to
increase materially the amount to be spent by the Fund hereunder without
approval by a majority of the outstanding voting securities of the Fund.
-2-
<PAGE>
THE MILWAUKEE COMPANY
250 East Wisconsin Avenue
Milwaukee, WI 53202
, 1984
----------------
Dear Sirs:
This letter will confirm our understanding and agreement with respect to
payments to be made to you pursuant to a plan of distribution adopted by
Heartland Value Fund, Inc. (the "Fund") pursuant to Rule 12b-1 (the "Plan")
under the Investment Company Act of 1940 (the "Act"). The Plan and this related
agreement have been approved by a majority of the Directors of the Fund
including a majority of the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan or any related agreements (the "Disinterested Directors"), cast in person
at a meeting called for the purpose of voting thereon. Such approval included a
determination that in the exercise of reasonable business judgment and in light
of their fiduciary duties, there is a reasonable likelihood that the Plan will
benefit the Fund and its shareholders. The Plan has also been approved by a
vote of at least a majority of the Fund's outstanding voting securities, as
defined in the Act.
1. To the extent you provide distribution and marketing services in the
promotion of the Fund's shares, including furnishing services and assistance to
your customers who invest in and own Fund shares, including, but not limited to,
answering routine inquiries regarding the Fund, assisting in changing
distribution options, account designations and addresses, we shall pay you a fee
of .25% on an annual basis of the net asset value of Fund shares which are owned
of record by your firm as nominee for your customers or which are owned by those
customers of your firm whose records, as maintained by the Fund or its Agent,
designate your firm as the Customer's dealer of record. We shall make the
determination of the net asset value of such fund shares on or about the 45th
day of each such quarter. No such quarterly fee will be paid to you with
respect to shares purchased by you and redeemed or repurchased by the Fund or by
us as Agent within seven (7) business days after the date of our confirmation of
such purchase. No such quarterly fee will be paid to you with respect to any of
your customers if the amount of such fee based upon the value of such customer's
Fund shares will be less than $1.00. Payment of such quarterly fee shall be
made within 45 days after the close of each quarter for which such fee is
payable.
2. You shall furnish us and the Fund with such information as shall
reasonably be requested by the Directors of the Fund with respect to the fees
paid to you pursuant to this Agreement.
-3-
<PAGE>
3. We shall furnish to the Directors of the Fund, for their review, on a
quarterly basis a written report of the amounts expended under the Plan by us
and the purposes for which such expenditures were made.
4. This Agreement may be terminated by the vote of a majority of the
Disinterested Directors of the Fund or by a vote of a majority of the Fund's
outstanding shares on sixty (60) days' written notice, without payment of any
penalty. It will be terminated by any act which terminates either the
Distribution Agreement between the Fund and us or the Dealer Agreement between
your firm and us and shall terminate immediately in the event of its assignment
as that term is defined in the Act.
5. The provisions of the Distribution Agreement between the Fund and us,
insofar as they relate to the Plan, are incorporated herein by reference. This
agreement shall become effective on the effective date of said Distribution
Agreement and shall continue in full force and effect so long as the continuance
of the Distribution Agreement and the Plan and this Agreement are approved at
least annually by a vote of the non-interested Directors, cast in person at a
meeting called for the purpose of voting thereon. All communications to us
should be sent to the above address. Any notice to you shall be duly given if
marked or telegraphed to you at the address specified by you below. This
agreement shall be effective when accepted by you below and shall be construed
under the laws of the State of Wisconsin.
THE MILWAUKEE COMPANY
By
------------------------------------------------------------------------
(Authorized Signature)
Accepted:
------------------------------------------------------------------------
(Dealer's Name)
------------------------------------------------------------------------
(Street Address)
------------------------------------------------------------------------
(City) (State) (ZIP)
By
------------------------------------------------------------------------
(Authorized Signature of Dealer)
-4-
<PAGE>
EXHIBIT (m)(3)
Distribution Agreement
----------------------
(under Rule 12b-1)
Date: __________________
Dear Sirs:
This letter will confirm our understanding and agreement with respect to
payments to be made to you pursuant to a plan of distribution adopted by
Heartland Group, Inc. (the "Fund") pursuant to Rule 12b-1 (the "Plan") under the
Investment Company Act of 1940 (the "Act") with respect to those series of the
Fund's shares (the "Shares") identified on Schedule A to this Agreement, as
modified from time to time by the Fund. The Plan and this related agreement
have been approved by a majority of the Directors of the Fund, including a
majority of the Directors who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the Plan or
any related agreements (the "Disinterested Directors"), cast in person at a
meeting called for the purpose of voting thereon. Such approval included a
determination that, in the exercise of reasonable business judgment and in light
of their fiduciary duties, there is a reasonable likelihood that the Plan will
benefit the Fund and its shareholders. The Plan has also been approved by a
vote of at least a majority of the outstanding voting securities, as defined in
the Act, of each series of Shares.
1. To the extent you provide distribution and marketing services in the
promotion of the Shares, including furnishing services and assistance to your
customers who invest in and own Shares, including, but not limited to, answering
routine inquiries regarding the Fund, assisting in changing distribution
options, account designations and addresses, we shall pay you a fee of 0.25% on
an annual basis of the average daily net asset value of Fund Shares which are
owned of record by your firm as nominee for your customers or which are owned by
those customers of your firm whose records, as maintained by the Fund or its
agent, designate your firm as the customer's dealer of record; except that no
such fee shall be payable with respect to any Shares subject to a contingent
deferred sales charge during the initial one-year period following their sale to
the investor. We reserve the right to increase, decrease or discontinue the fee
at any time in our sole discretion upon written notice to you.
The fee will be calculated and paid quarterly. Payment of such quarterly
fee shall be made within 45 days after the close of each quarter for which such
fee is payable.
2. You shall furnish us and the Fund with such information as shall
reasonably be requested by the Directors of the Fund with respect to the fees
paid to you pursuant to this Agreement.
3. We shall furnish to the Directors of the Fund, for their review, on a
quarterly basis a written report of the amounts expended under the Plan by us
and the purposes for which such expenditures were made.
4. This Agreement may be terminated in its entirety or with respect to
the Shares of any one or more of the series identified on Schedule A by the vote
of a majority of the Disinterested Directors of the Fund or by a vote of
majority of the outstanding Shares of the particular Series on sixty (60) days'
written notice, without payment of any penalty. It will be terminated by any
act which
<PAGE>
_________, 19__
Page 2
terminates either the Distribution Agreement between the Fund and us or the
Dealer Agreement between your firm and us and shall terminate immediately in the
event of its assignment as that term is defined in the Act. This Agreement may
be amended by us upon written notice to you, and you shall be deemed to have
consented to such amendment upon effecting any purchases of Shares for your own
account or on behalf of any of your customer's accounts following your receipt
of such notice.
5. The provisions of the Distribution Agreement between the Fund and us,
insofar as they relate to the Plan, are incorporated herein by reference. This
Agreement shall become effective on the date accepted by you and shall continue
in full force and effect so long as the continuance of the Distribution
Agreement and the Plan and this Agreement are approved at least annually by a
vote of the Disinterested Directors, cast in person at a meeting called for the
purpose of voting thereon. All communications to us should be sent to the above
address. Any notice to you shall be duly given if mailed or telegraphed to you
at the address specified by you below. This agreement shall be construed under
the laws of the State of Wisconsin.
HEARTLAND ADVISORS, INC.
By: _________________________
(Authorized Signature)
Accepted:
_____________________________________________
(Dealer's Name)
_____________________________________________
(Street Address)
______________________________________________
(City) (State) (ZIP)
By __________________________________
(Authorized Signature of Dealer)
<PAGE>
SCHEDULE A
This Distribution Agreement shall extend to and include only the following
series of Heartland Group, Inc.'s Common Stock (the "Shares"):
1. Heartland Value Fund
2. Heartland Value Plus Fund
3. Heartland Mid Cap Value Fund
4. Heartland Large Cap Value Fund
5. Heartland U.S. Government Securities Fund
6. Heartland Wisconsin Tax Free Fund
7. Heartland Short Duration High-Yield Municipal Fund
8. Heartland High-Yield Municipal Bond Fund
<PAGE>
Distribution Agreement for Banks
--------------------------------
(under Rule 12b-1)
Date:_________________________
Dear Sirs:
This letter will confirm our understanding and agreement with respect to
payments to be made to you pursuant to a plan of distribution adopted by
Heartland Group, Inc. (the "Fund") pursuant to Rule 12b-1 (the "Plan") under the
Investment Company Act of 1940 (the "Act") with respect to those series of the
Fund's shares (the "Shares") identified on Schedule A to this Agreement, as
modified from time to time by the Fund. The Plan and this related agreement
have been approved by a majority of the Directors of the Fund, including a
majority of the Directors who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the Plan or
any related agreements (the "Disinterested Directors"), cast in person at a
meeting called for the purpose of voting thereon. Such approval included a
determination that, in the exercise of reasonable business judgment and in light
of their fiduciary duties, there is a reasonable likelihood that the Plan will
benefit the Fund and its shareholders. The Plan has also been approved by a
vote of at least a majority of the outstanding voting securities, as defined in
the Act, of each series of Shares.
1. To the extent you provide distribution and marketing services in the
promotion of the Shares, including furnishing services and assistance to your
customers who invest in and own Shares, including, but not limited to, answering
routine inquiries regarding the Fund, assisting in changing distribution
options, account designations and addresses, we shall pay you a fee of 0.25% on
an annual basis of the average daily net asset value of Fund Shares which are
owned by those customers of yours whose records, as maintained by the Fund or
its agent, designate you as the customer's agent of record; except that no such
fee shall be payable with respect to any Shares subject to a contingent deferred
sales charge during the initial one-year period following their sale to the
investor. We reserve the right to increase, decrease or discontinue the fee at
any time in our sole discretion upon written notice to you.
The fee will be calculated and paid quarterly. Payment of such quarterly
fee shall be made within 45 days after the close of each quarter for which such
fee is payable.
2. You shall furnish us and the Fund with such information as shall
reasonably be requested by the Directors of the Fund with respect to the fees
paid to you pursuant to this Agreement.
3. We shall furnish to the Directors of the Fund, for their review, on a
quarterly basis a written report of the amounts expended under the Plan by us
and the purposes for which such expenditures were made.
4. This Agreement may be terminated in its entirety or with respect to
the Shares of any one or more of the series identified on Schedule A by the vote
of a majority of the Disinterested Directors of the Fund or by a vote of
majority of the outstanding Shares of the particular Series on sixty (60) days'
written notice, without payment of any penalty. It will be terminated by any
act which
<PAGE>
_________, 19__
Page 2
terminates either the Distribution Agreement between the Fund and us or the
Selling Agreement between you and us and shall terminate immediately in the
event of its assignment as that term is defined in the Act. This Agreement may
be amended by us upon written notice to you, and you shall be deemed to have
consented to such amendment upon effecting any purchases of Shares on behalf of
any of your customer's accounts following your receipt of such notice.
5. The provisions of the Distribution Agreement between the Fund and us,
insofar as they relate to the Plan, are incorporated herein by reference. This
Agreement shall become effective on the date accepted by you and shall continue
in full force and effect so long as the continuance of the Distribution
Agreement and the Plan and this Agreement are approved at least annually by a
vote of the Disinterested Directors, cast in person at a meeting called for the
purpose of voting thereon. All communications to us should be sent to the above
address. Any notice to you shall be duly given if mailed or telegraphed to you
at the address specified by you below. This agreement shall be construed under
the laws of the State of Wisconsin.
HEARTLAND ADVISORS, INC.
By: ____________________________
(Authorized Signature)
Accepted:
_____________________________________________
(Bank's Name)
_____________________________________________
(Street Address)
______________________________________________
(City) (State) (ZIP)
By __________________________________
(Authorized Signature of Bank)
______________________________________________
(Name) (Title)
<PAGE>
SCHEDULE A
This Distribution Agreement shall extend to and include only the following
series of Heartland Group, Inc.'s Common Stock (the "Shares"):
1. Heartland Value Fund
2. Heartland Value Plus Fund
3. Heartland Mid Cap Value Fund
4. Heartland Large Cap Value Fund
5. Heartland U.S. Government Securities Fund
6. Heartland Wisconsin Tax Free Fund
7. Heartland Short Duration High-Yield Municipal Fund
8. Heartland High-Yield Municipal Bond Fund
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEMI-ANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED JUNE 30, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 001
<NAME> HEARTLAND VALUE FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 1,779,665,222
<INVESTMENTS-AT-VALUE> 2,129,972,961
<RECEIVABLES> 28,901,362
<ASSETS-OTHER> 73,614
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,158,947,937
<PAYABLE-FOR-SECURITIES> 1,696,065
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,652,952
<TOTAL-LIABILITIES> 11,349,017
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,630,111,174
<SHARES-COMMON-STOCK> 61,036,504
<SHARES-COMMON-PRIOR> 62,792,924
<ACCUMULATED-NII-CURRENT> 2,552,120
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 164,475,035
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 350,460,591
<NET-ASSETS> 2,147,598,920
<DIVIDEND-INCOME> 4,532,277
<INTEREST-INCOME> 10,650,021
<OTHER-INCOME> 0
<EXPENSES-NET> 12,540,153
<NET-INVESTMENT-INCOME> 2,642,145
<REALIZED-GAINS-CURRENT> 161,853,164
<APPREC-INCREASE-CURRENT> (76,866,492)
<NET-CHANGE-FROM-OPS> 87,628,817
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,353,889
<NUMBER-OF-SHARES-REDEEMED> (8,110,309)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 20,884,240
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,353,813
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12,540,153
<AVERAGE-NET-ASSETS> 2,252,508,866
<PER-SHARE-NAV-BEGIN> 33.87
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 1.28
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 35.19
<EXPENSE-RATIO> 1.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEMI-ANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED JUNE 30, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 002
<NAME> HEARTLAND U.S. GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 51,176,466
<INVESTMENTS-AT-VALUE> 52,835,396
<RECEIVABLES> 592,546
<ASSETS-OTHER> 14,303
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 53,442,245
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 424,332
<TOTAL-LIABILITIES> 424,332
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 57,151,280
<SHARES-COMMON-STOCK> 5,328,457
<SHARES-COMMON-PRIOR> 4,930,091
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,792,297)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,658,930
<NET-ASSETS> 53,017,913
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,687,079
<OTHER-INCOME> 0
<EXPENSES-NET> 295,226
<NET-INVESTMENT-INCOME> 1,493,077
<REALIZED-GAINS-CURRENT> 365,901
<APPREC-INCREASE-CURRENT> 127,043
<NET-CHANGE-FROM-OPS> 1,986,021
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,495,274)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,383,345
<NUMBER-OF-SHARES-REDEEMED> (1,098,558)
<SHARES-REINVESTED> 113,579
<NET-CHANGE-IN-ASSETS> 4,455,828
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 164,489
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 295,226
<AVERAGE-NET-ASSETS> 51,188,727
<PER-SHARE-NAV-BEGIN> 9.85
<PER-SHARE-NII> .29
<PER-SHARE-GAIN-APPREC> .10
<PER-SHARE-DIVIDEND> (.29)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.95
<EXPENSE-RATIO> .76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEMI-ANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED JUNE 30, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 005
<NAME> HEARTLAND VALUE PLUS FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 283,022,987
<INVESTMENTS-AT-VALUE> 286,426,553
<RECEIVABLES> 11,265,370
<ASSETS-OTHER> 28,488
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 297,720,411
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,277,637
<TOTAL-LIABILITIES> 4,277,637
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 275,036,192
<SHARES-COMMON-STOCK> 18,723,868
<SHARES-COMMON-PRIOR> 20,844,713
<ACCUMULATED-NII-CURRENT> 342
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 15,002,674
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,403,566
<NET-ASSETS> 293,442,774
<DIVIDEND-INCOME> 4,396,450
<INTEREST-INCOME> 4,425,132
<OTHER-INCOME> 0
<EXPENSES-NET> (2,013,206)
<NET-INVESTMENT-INCOME> 6,808,376
<REALIZED-GAINS-CURRENT> 15,003,091
<APPREC-INCREASE-CURRENT> (21,710,214)
<NET-CHANGE-FROM-OPS> 101,253
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,820,719)
<DISTRIBUTIONS-OF-GAINS> (539,961)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,283,627
<NUMBER-OF-SHARES-REDEEMED> 13,819,493
<SHARES-REINVESTED> 415,021
<NET-CHANGE-IN-ASSETS> (42,838,592)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,279,891
<INTEREST-EXPENSE> 31,545
<GROSS-EXPENSE> 2,013,206
<AVERAGE-NET-ASSETS> 363,351,251
<PER-SHARE-NAV-BEGIN> 16.13
<PER-SHARE-NII> .33
<PER-SHARE-GAIN-APPREC> (.43)
<PER-SHARE-DIVIDEND> (.33)
<PER-SHARE-DISTRIBUTIONS> (.03)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.67
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 1,038,889<F1>
<AVG-DEBT-PER-SHARE> .055<F2>
<FN>
<F1>AMOUNT REPRESENTS AVERAGE OUTSTANDING BALANCE FOR THE PERIOD BEGINNING
JANUARY 1, 1998 THROUGH JUNE 30, 1998.
<F2>SHARES OUTSTANDING AT JUNE 30, 1998 WAS USED TO CALCULATE AVERAGE DEBT
OUTSTANDING PER SHARE.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEMI-ANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED JUNE 30, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 006
<NAME> HEARTLAND SMALL CAP CONTRARIAN FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 220,694,497
<INVESTMENTS-AT-VALUE> 225,408,383
<RECEIVABLES> 37,097,158
<ASSETS-OTHER> 315,899
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 262,821,440
<PAYABLE-FOR-SECURITIES> 55,812
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 56,611,970
<TOTAL-LIABILITIES> 56,667,782
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 219,288,776
<SHARES-COMMON-STOCK> 17,217,916
<SHARES-COMMON-PRIOR> 21,888,487
<ACCUMULATED-NII-CURRENT> 6,770
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,049,594
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (14,191,482)
<NET-ASSETS> 206,153,658
<DIVIDEND-INCOME> 563,800
<INTEREST-INCOME> 1,483,376
<OTHER-INCOME> 0
<EXPENSES-NET> 1,753,019
<NET-INVESTMENT-INCOME> 294,157
<REALIZED-GAINS-CURRENT> (3,345,289)
<APPREC-INCREASE-CURRENT> (7,565,663)
<NET-CHANGE-FROM-OPS> (10,616,795)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,369,765
<NUMBER-OF-SHARES-REDEEMED> (6,040,336)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (70,488,236)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 957,509
<INTEREST-EXPENSE> 35,229
<GROSS-EXPENSE> 1,753,019
<AVERAGE-NET-ASSETS> 252,385,340
<PER-SHARE-NAV-BEGIN> 12.64
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> (.69)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.97
<EXPENSE-RATIO> 1.32
<AVG-DEBT-OUTSTANDING> 833,702<F1>
<AVG-DEBT-PER-SHARE> .05<F2>
<FN>
<F1>(1) Amount represents average outstanding balance for the period beginning Jan.
1, 1998 through June 1, 1998.
<F2>(2) Shares outstanding at June 30, 1998 was used to calculate average debt
outstanding per share.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE SEMI-ANNUAL
REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED JUNE 30, 1998, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 007
<NAME> HEARTLAND MID CAP VALUE FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 41,515,706
<INVESTMENTS-AT-VALUE> 48,442,201
<RECEIVABLES> 112,358
<ASSETS-OTHER> 16,719
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 48,571,278
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 122,405
<TOTAL-LIABILITIES> 122,405
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 41,161,552
<SHARES-COMMON-STOCK> 3,476,914
<SHARES-COMMON-PRIOR> 2,861,166
<ACCUMULATED-NII-CURRENT> 68,131
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 292,695
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,926,495
<NET-ASSETS> 48,448,873
<DIVIDEND-INCOME> 266,314
<INTEREST-INCOME> 66,618
<OTHER-INCOME> 0
<EXPENSES-NET> 264,801
<NET-INVESTMENT-INCOME> 68,131
<REALIZED-GAINS-CURRENT> 352,183
<APPREC-INCREASE-CURRENT> 2,741,383
<NET-CHANGE-FROM-OPS> 3,161,697
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,460,203
<NUMBER-OF-SHARES-REDEEMED> 844,455
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 11,890,832
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 163,046
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 264,801
<AVERAGE-NET-ASSETS> 44,836,557
<PER-SHARE-NAV-BEGIN> 12.78
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 1.13
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.93
<EXPENSE-RATIO> 1.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEMI-ANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED JUNE 30, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 008
<NAME> HEARTLAND LARGE CAP VALUE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 8,748,883
<INVESTMENTS-AT-VALUE> 9,351,989
<RECEIVABLES> 73,445
<ASSETS-OTHER> 31,720
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9,457,154
<PAYABLE-FOR-SECURITIES> 94,480
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46,163
<TOTAL-LIABILITIES> 140,643
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,201,902
<SHARES-COMMON-STOCK> 715,989
<SHARES-COMMON-PRIOR> 623,302
<ACCUMULATED-NII-CURRENT> 118,231
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 393,272
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 603,106
<NET-ASSETS> 9,316,511
<DIVIDEND-INCOME> 101,485
<INTEREST-INCOME> 16,746
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 118,231
<REALIZED-GAINS-CURRENT> 259,916
<APPREC-INCREASE-CURRENT> 48,613
<NET-CHANGE-FROM-OPS> 426,760
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 244,495
<NUMBER-OF-SHARES-REDEEMED> (151,808)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,651,155
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 32,191
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 71,598
<AVERAGE-NET-ASSETS> 8,826,146
<PER-SHARE-NAV-BEGIN> 12.30
<PER-SHARE-NII> .17
<PER-SHARE-GAIN-APPREC> .54
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.01
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
