485BPOS 1 v407626_485bpos.htm 485BPOS

 

As filed with the Securities and Exchange Commission on April 30, 2015.

 

Registration No. 33-11371

File No. 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. 71 x

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

 

Amendment No. 73 x

 

(Check appropriate box or boxes)

 

 

 

HEARTLAND GROUP, INC.

(Exact Name of Registrant as Specified in Charter)

 

789 NORTH WATER STREET, SUITE 500

MILWAUKEE, WISCONSIN 53202

(Address of Principal Executive Offices) (Zip Code)

 

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

Vinita K. Paul

Vice President and Chief Compliance Officer

Heartland Group, Inc.

789 North Water Street, Suite 500

Milwaukee, Wisconsin 53202

(Name and Address of Agent for Service)

 

Copies to:

Ellen R. Drought, Esq.

Godfrey & Kahn, S.C.

780 North Water Street

Milwaukee, Wisconsin 53202

PETER D. FETZER, ESQ.

Foley & Lardner LLP

777 East Wisconsin Avenue

Milwaukee, Wisconsin 53202

It is proposed that this filing will become effective (check appropriate box): 

¨immediately upon filing pursuant to paragraph (b)
xon May 1, 2015 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

 

 
 

 

 

 

Consistent Discipline, Fundamental Value

 

[graphic]

Prospectus

 

May 1, 2015

 

Select Value Fund
Share Class Ticker
Investor HRSVX
Institutional HNSVX
     
Mid Cap Value Fund
Share Class Ticker
Investor HRMDX
Institutional HNMDX
     
Value Plus Fund
Share Class Ticker
Investor HRVIX
Institutional HNVIX
     
Value Fund
Share Class Ticker
Investor HRTVX
Institutional HNTVX
     
International Value Fund
Share Class Ticker
Investor HINVX

 

The Securities and Exchange Commission has not approved or disapproved these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 
 

 

This page intentionally left blank.

 

 
 

 

TABLE OF CONTENTS

 

FUND SUMMARY SECTION  
Heartland Select Value Fund 2
Heartland Mid Cap Value Fund 5
Heartland Value Plus Fund 7
Heartland Value Fund 10
Heartland International Value Fund 13
   
MANAGEMENT OF THE FUNDS  
Heartland Group 17
Heartland Advisors 17
Portfolio Managers 17
   
PRINCIPAL INVESTMENT STRATEGIES AND INVESTMENT RISKS  
   
The Heartland Investment Philosophy 21
Heartland’s 10 Principles of Value InvestingTM 21
Heartland Select Value Fund 21
Heartland Mid Cap Value Fund 22
Heartland Value Plus Fund 22
Heartland Value Fund 23
Heartland International Value Fund 23
Principal Investment Risks 24
Temporary Positions 25
Portfolio Turnover 26
Portfolio Holdings 26
   
OTHER INVESTMENT STRATEGIES AND INVESTMENT RISKS 27
   
HISTORICAL PERFORMANCE 31
   
PRIOR  PERFORMANCE FOR SIMILAR ACCOUNTS 32
   
HOW TO INVEST  
Purchasing Shares of the Funds 33
Purchasing Investor Class Shares 33
Purchasing Institutional Class Shares 33
Purchasing Shares Generally 33
How to Purchase Shares 35
   
HOW TO REDEEM  
Redeeming Shares Generally 37
How to Redeem Shares 38
   
ACCOUNT POLICIES  
How to Receive Account Information 39
Exchanging Shares 39
Other Policies 39
Share Price 41
   
SHAREHOLDER INFORMATION AND REPORTING  
Heartlandfunds.com 42
Investment Reports and Prospectuses 42
E-Delivery of Fund Documents 42
Net Investment Income and Net Capital Gain Distributions 42
Taxes 42
Privacy Policy 43
Financial Highlights 44

 

This Prospectus contains information you should know about Heartland Group, Inc. (the “Funds” or “Heartland Funds”) before you invest. Unless otherwise stated, the investment objectives discussed in this Prospectus and in the Funds’ Statement of Additional Information may be changed without shareholder approval.

 

1
 

 

heartland select value fund

 

INVESTMENT GOAL

 

The Select Value Fund seeks long-term capital appreciation.

 

FEES AND EXPENSES OF THE SELECT VALUE FUND

 

This table describes the fees and expenses that you may pay if you buy and hold Investor or Institutional Class Shares of the Select Value Fund.

 

Shareholder Fees

(fees paid directly from your investment)

Investor
Class
Shares
Institutional
Class Shares
Maximum Sales Charge (Load) Imposed on Purchases None None
Maximum Deferred Sales Charge (Load) None None
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None None
Redemption Fee (as a percentage of the net asset value of any shares that are redeemed or exchanged within 10 days after they were purchased) 2% 2%
Exchange Fee None None

 

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

Investor
Class
Shares
Institutional
Class
Shares
Management Fees 0.75% 0.75%
Distribution (12b-1) Fees 0.25 None
Other Expenses 0.20 0.13
Total Annual Fund Operating Expenses 1.20 0.88

 

Example. This Example is intended to help you compare the cost of investing in the Select Value Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

 

  One
 Year
Three
Years
Five
Years
Ten
Years
Investor Class Shares $122 $381 $659 $1,453
Institutional Class Shares              90            281            487 1,083

 

Portfolio Turnover

 

The Select Value Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in Annual Fund Operating Expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 42% of the average value of its portfolio.

 

Principal Investment Strategies of the SELECT VALUE FUND

 

The Select Value Fund invests primarily in a concentrated number (generally 40 to 60) of common stocks of all sizes, selected on a value basis and whose current market prices, in Heartland Advisors, Inc.’s (“Heartland Advisors”) judgment, are undervalued relative to their intrinsic value. They normally have market capitalizations in excess of $500 million at the time of purchase. The median market capitalization of the Fund is expected to fluctuate over time depending on Heartland Advisors’ perceptions of relative valuations, future prospects, and market conditions.

 

The Fund utilizes Heartland Advisors’ disciplined and time-tested 10 Principles of Value InvestingTM framework to identify securities with the potential for appreciation and a potential margin of safety to limit downside risk. The 10 Principles of Value Investing™ are: catalyst for recognition, low price in relation to earnings, low price in relation to cash flow, low price in relation to book value, financial soundness, positive earnings dynamics, sound business strategy, capable management and insider ownership, value of the company, and positive technical analysis.

 

Principal Risks of Investing in the Select Value Fund

 

The Select Value Fund is designed for investors who seek long-term capital appreciation from a diversified, actively managed portfolio of stocks of all sizes. It is constructed as a core value holding for investors who can accept the volatility and other investment risks of the broad-based equity markets, but want to manage these risks by investing in companies believed to be undervalued relative to their intrinsic value.

 

The principal risk of investing in the Select Value Fund is that its share price and investment return will fluctuate, and you could lose money. Additional principal investment risks of the Fund include:

 

-Management Risk. The ability of the Fund to meet its investment objective is directly related to Heartland Advisors’ investment strategies for the Fund.

 

-General Market Risk. The market value of a security may move up or down, sometimes rapidly and unpredictably. These fluctuations may cause a security to be worth less than the price originally paid for it, or less than it was worth at an earlier time.

 

2
 

 

heartland select value fund

 

-Equity Market Risk. Common stocks are susceptible to general stock market fluctuations and to volatile increases and decreases in value as market confidence in and perceptions of their issuers change.

 

-Value-Style Investing Risk. Value stocks can perform differently from the market as a whole and from other types of stocks. Value investments are subject to the risk that their intrinsic value may not be recognized by the broad market.

 

-SMALLER COMPANY SECURITIES risk. Equity securities of the smaller companies in which the Fund may invest generally involve a higher degree of risk than investments in the broad-based equity markets. The security prices of smaller companies generally are more volatile than those of larger companies, they generally will have less market liquidity, and they may be more likely to be adversely affected by poor economic or market conditions.

 

-Limited Portfolio Risk. As the Fund invests in a limited number of stocks, a change in the value of any single holding may have a more pronounced effect on the Fund’s net asset value (“NAV”) and performance than would be the case if it held more positions. This generally will increase the volatility of the Fund’s NAV and investment return.

 

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

 

Past Performance

 

The following tables show historical performance of the Select Value Fund and provide some indication of the risks of investing in the Fund. Table I shows how the total returns before taxes for the Fund’s Investor Class Shares have varied from year to year for the past 10 years. Table II shows how the Fund’s average annual total returns compare to those of a securities market index. Performance information for the Institutional Class Shares prior to May 1, 2008 is based on the performance of the Investor Class. Past performance (before and after taxes) does not guarantee future results. Recent performance information for the Fund is available on the Fund’s website at heartlandfunds.com or by calling 1-800-432-7856.

 

TABLE I

Select Value Fund - Investor Class Shares - Year-by-Year Total Returns

 

 

 

 

Best Quarter: Worst Quarter:
3rd Quarter of 2009….21.79% 4th Quarter of 2008 . . . .-23.59%

 

TABLE II

Select Value Fund - Average Annual Total Returns [for the periods ended 12/31/14]

 

  One
Year
Five
Years
Ten
Years
Lifetime
(since 10-
11-1996)
INVESTOR CLASS SHARES:        
Return Before Taxes 4.07% 11.79% 8.65% 10.71%
Return After Taxes on Distributions 1.37 10.25 7.57 9.73
Return After Taxes on Distributions and Sale of Fund Shares 4.56 9.43 7.10 9.06
Institutional CLASS SHARES:        
Return Before Taxes 4.40 12.14 8.89 10.84
Russell 3000® Value Index
(reflects no deduction for fees, expenses or taxes)
12.70 15.34 7.26 9.06

 

After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. In addition, after-tax returns are shown only for Investor Class Shares, and after-tax returns for the Institutional Class Shares will vary. The differences in before-tax returns and after-tax returns on distributions and sale of Fund shares are due to adjustments incorporated into the after-tax returns for qualified taxable dividend income and qualifying foreign tax credits.

 

3
 

 

heartland select value fund

 

Investment Advisor

 

Heartland Advisors serves as the investment advisor to the Select Value Fund.

 

Portfolio Managers

 

The Select Value Fund is managed by a team of investment professionals, which consists of William (“Will”) R. Nasgovitz, David C. Fondrie, and Colin P. McWey.

 

Mr. Will Nasgovitz has served as a Portfolio Manager of the Select Value Fund since May 2006. Mr. Will Nasgovitz is the Chief Executive Officer and a Director of Heartland Advisors and Chief Executive Officer of Heartland Funds.

 

Mr. Fondrie has served as a Portfolio Manager of the Select Value Fund since March 2004. Mr. Fondrie is a Senior Vice President of Heartland Advisors.

 

Mr. McWey has served as a Portfolio Manager of the Select Value Fund since February 2015. Mr. McWey is a Vice President of Heartland Advisors.

 

For important information about the purchase and sale of Fund shares, tax information, and financial intermediary compensation, please turn to “Purchase and Sale of Fund Shares,” “Tax Information,” and “Payments to Broker-Dealers and Other Financial Intermediaries” on page 16 of this Prospectus.

 

4
 

 

Heartland mid cap value fund

 

INVESTMENT GOAL

 

The Mid Cap Value Fund seeks long-term capital appreciation and modest current income.

 

FEES AND EXPENSES OF THE MID CAP VALUE FUND

 

This table describes the fees and expenses that you may pay if you buy and hold Investor or Institutional Class Shares of the Mid Cap Value Fund.

 

Shareholder Fees

(fees paid directly from your investment)

Investor
Class
Shares
Institutional
Class Shares
Maximum Sales Charge (Load) Imposed on Purchases None None
Maximum Deferred Sales Charge (Load) None None
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None None
Redemption Fee (as a percentage of the net asset value of any shares that are redeemed or exchanged within 10 days after they were purchased) 2% 2%
Exchange Fee None None

 

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

Investor
Class
Shares
Institutional
Class
Shares
Management Fees 0.75% 0.75%
Distribution (12b-1) Fees 0.25% None
Other Expenses 8.62% 8.61%
Total Annual Fund Operating Expenses 9.62% 9.36%
Fee Waiver and/or Expense Reimbursement -8.37% -8.37%
Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement(1) 1.25% 0.99%
(1)Pursuant to an operating expense limitation agreement between Heartland Advisors, Inc. (“Heartland Advisors” or “the Advisor”) and the Fund, Heartland Advisors has agreed to waive its management fees and/or pay expenses of the Fund to ensure that the Fund’s total annual fund operating expenses (excluding front-end or contingent deferred sales loads, taxes, leverage, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, dividends or interest expenses on short positions, acquired fund fees and expenses, or extraordinary expenses) do not exceed 1.25% of the Fund’s average net assets for the Investor Class Shares and 0.99% for the Institutional Class Shares through at least October 31, 2017, and subject to annual re-approval of the agreement by the Board of Directors, thereafter. This operating expense limitation agreement can be terminated only by, or with the consent of, the Board of Directors.

 

Example. This Example is intended to help you compare the cost of investing in the Mid Cap Value Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. The fee waiver/expense reimbursement arrangement discussed in the previous table is reflected through October 31, 2017. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

 

  One
Year
Three
Years
Investor Class Shares $127 $396
Institutional Class Shares 101 315

 

Portfolio Turnover

 

The Mid Cap Value Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in Annual Fund Operating Expenses or in the example, affect the Fund’s performance. During the most recent fiscal period, from the Fund’s commencement on October 31, 2014 through December 31, 2014, the Fund’s portfolio turnover rate was 4% of the average value of its portfolio.

 

Principal Investment Strategies OF THE MID CAP VALUE FUND

 

Under normal circumstances, at least 80% of the Mid Cap Value Fund’s net assets are invested in equity securities of mid-capitalization companies. The Fund will generally not initiate a position in a company unless it has a market capitalization between $1 and $15 billion. The median market capitalization of the Fund is expected to fluctuate over time depending on Heartland Advisors’ perceptions of relative valuations, future prospects, and market conditions.

 

The Mid Cap Value Fund invests primarily in a concentrated number (generally 30 to 60) of mid-capitalization equity securities selected on a value basis and whose current market prices, in Heartland Advisors’ judgment, are undervalued relative to their intrinsic value. A majority of its assets are generally invested in dividend-paying common stocks.

 

The Fund utilizes Heartland Advisors’ disciplined and time-tested 10 Principles of Value InvestingTM framework to identify securities with the potential for appreciation and a potential margin of safety to limit downside risk. The 10 Principles of Value Investing™ are: catalyst for recognition, low price in relation to earnings, low price in relation to cash flow, low price in relation to book value, financial soundness, positive earnings dynamics, sound business strategy, capable management and insider ownership, value of the company, and positive technical analysis.

 

The Fund’s primary benchmark against which it measures performance is the Russell Midcap® Value Index.

 

5
 

 

Heartland mid cap value fund

 

Principal Risks OF THE MID CAP VALUE FUND

 

The Mid Cap Value Fund is designed for investors who seek long-term capital appreciation from mid-capitalization stocks that may produce modest dividend income to the Fund. It is constructed as a core value holding for investors who can accept the volatility and other investment risks of the broad-based equity markets, but want to manage these risks by investing in companies believed to be undervalued relative to their intrinsic value.

 

The principal risk of investing in the Mid Cap Value Fund is that its share price and investment return will fluctuate, and you could lose money. Additional principal investment risks of the Fund include:

 

-New Fund Risk. There can be no assurance that the Fund will grow to or maintain an economically viable size.

 

-Management Risk. The ability of the Fund to meet its investment objective is directly related to Heartland Advisors’ investment strategies for the Fund.

 

-General Market Risk. The market value of a security may move up or down, sometimes rapidly and unpredictably. These fluctuations may cause a security to be worth less than the price originally paid for it, or less than it was worth at an earlier time.

 

-Equity Market Risk. Common stocks are susceptible to general stock market fluctuations and to volatile increases and decreases in value as market confidence in and perceptions of their issuers change.

 

-Value-Style Investing Risk. Value stocks can perform differently from the market as a whole and from other types of stocks. Value investments are subject to the risk that their intrinsic value may not be recognized by the broad market.

 

-SMALLER COMPANY SECURITIES risk. Equity securities of the smaller companies in which the Fund may invest generally involve a higher degree of risk than investments in the broad-based equity markets. The security prices of smaller companies generally are more volatile than those of larger companies, they generally will have less market liquidity, and they may be more likely to be adversely affected by poor economic or market conditions.

 

-Limited Portfolio Risk. As the Fund invests in a limited number of stocks, a change in the value of any single holding may have a more pronounced effect on the Fund’s net asset value (“NAV”) and performance than would be the case if it held more positions. This generally will increase the volatility of the Fund’s NAV and investment return.

 

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

 

Past PeRformance

 

Performance information for the Fund has not been presented because, as of the date of this Prospectus, the Fund has not been in operation for a full calendar year.

 

Investment Advisor

 

Heartland Advisors serves as the investment advisor to the Fund.

 

Portfolio Managers

 

The Fund is managed by a team of investment professionals, which consists of Colin P. McWey and William (“Will”) R. Nasgovitz.

 

Mr. McWey has served as a Portfolio Manager of the Mid Cap Value Fund since its inception in October 2014. Mr. McWey is a Vice President of Heartland Advisors.

 

Mr. Will Nasgovitz has served as a Portfolio Manager of the Mid Cap Value Fund since February 2015. Mr. Will Nasgovitz is the Chief Executive Officer and a Director of Heartland Advisors and Chief Executive Officer of Heartland Funds.

 

For important information about the purchase and sale of Fund shares, tax information, and financial intermediary compensation, please turn to “Purchase and Sale of Fund Shares,” “Tax Information,” and “Payments to Broker-Dealers and Other Financial Intermediaries” on page 16 of this Prospectus.

 

6
 

 

heartland value plus fund

 

Investment Goal

 

The Value Plus Fund seeks long-term capital appreciation and modest current income.

 

FEES AND EXPENSES OF THE VALUE PLUS FUND

 

This table describes the fees and expenses that you may pay if you buy and hold Investor or Institutional Class Shares of the Value Plus Fund.

 

Shareholder Fees

(fees paid directly from your investment)

Investor
Class
Shares
Institutional
Class Shares
Maximum Sales Charge (Load) Imposed on Purchases None None
Maximum Deferred Sales Charge (Load) None None
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None None
Redemption Fee (as a percentage of the net asset value of any shares that are redeemed or exchanged within 10 days after they were purchased) 2% 2%
Exchange Fee None None

 

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

Investor
Class
Shares
Institutional
Class Shares
Management Fees 0.70% 0.70%
Distribution (12b-1) Fees 0.25 None
Other Expenses 0.19 0.19
Total Annual Fund Operating Expenses 1.14 0.89

 

Example. This Example is intended to help you compare the cost of investing in the Value Plus Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

 

 

 

One
Year
Three
Years
Five
Years
Ten
Years
Investor Class Shares $116 $362 $627 $1,385
Institutional Class Shares 91 284 493 1,095

 

Portfolio Turnover

 

The Value Plus Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in Annual Fund Operating Expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 26% of the average value of its portfolio.

 

Principal Investment Strategies of the Value Plus Fund

 

The Value Plus Fund invests primarily in a concentrated number (generally 40 to 70) of small-capitalization equity securities selected on a value basis. A majority of its assets are generally invested in dividend-paying common stocks. The Fund primarily invests in companies with market capitalizations between $250 million and $4 billion at the time of purchase.

 

The Fund utilizes Heartland Advisors’ disciplined and time-tested 10 Principles of Value InvestingTM framework to identify securities with the potential for appreciation and a potential margin of safety to limit downside risk. The 10 Principles of Value Investing™ are: catalyst for recognition, low price in relation to earnings, low price in relation to cash flow, low price in relation to book value, financial soundness, positive earnings dynamics, sound business strategy, capable management and insider ownership, value of the company, and positive technical analysis.

 

Principal Risks of Investing in the Value Plus Fund

 

The Value Plus Fund is designed for investors who seek capital appreciation from small company stocks that may produce modest dividend income to the Fund. It is designed for long-term investors who can tolerate the greater investment risk and market volatility associated with smaller companies, but want to manage these risks by investing in companies believed to be undervalued relative to their intrinsic value.

 

The principal risk of investing in the Value Plus Fund is that its share price and investment return will fluctuate, and you could lose money. Additional principal investment risks of the Fund include:

 

-Management Risk. The ability of the Fund to meet its investment objective is directly related to Heartland Advisors’ investment strategies for the Fund.

 

-General Market Risk. The market value of a security may move up or down, sometimes rapidly and unpredictably. These fluctuations may cause a security to be worth less than the price originally paid for it, or less than it was worth at an earlier time.

 

-Equity Market Risk. Common stocks are susceptible to general stock market fluctuations and to volatile increases and decreases in value as market confidence in and perceptions of their issuers change.

 

7
 

 

heartland value plus fund

 

-Value-Style Investing Risk. Value stocks can perform differently from the market as a whole and from other types of stocks. Value investments are subject to the risk that their intrinsic value may not be recognized by the broad market.

 

-SMALLER COMPANY SECURITIES RISK. Equity securities of the smaller companies in which the Fund may invest generally involve a higher degree of risk than investments in the broad-based equity markets. The security prices of smaller companies generally are more volatile than those of larger companies, they generally will have less market liquidity, and they may be more likely to be adversely affected by poor economic or market conditions.

 

-Limited Portfolio Risk. As the Fund invests in a limited number of stocks, a change in the value of any single holding may have a more pronounced effect on the Fund’s net asset value (“NAV”) and performance than would be the case if it held more positions. This generally will increase the volatility of the Fund’s NAV and investment return.

 

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

 

Past Performance

 

The following tables show historical performance of the Value Plus Fund and provide some indication of the risks of investing in the Fund. Table I shows how the total returns before taxes for the Fund’s Investor Class Shares have varied from year to year for the past 10 years. Table II shows how the Fund’s average annual total returns compare to those of a securities market index. Performance information for the Institutional Class Shares prior to May 1, 2008 is based on the performance of the Investor Class. Past performance (before and after taxes) does not guarantee future results. Recent performance information for the Fund is available on the Fund’s website at heartlandfunds.com or by calling 1-800-432-7856.

 

TABLE I

Value PLUS Fund - Investor Class Shares - Year-by-Year Total Returns

 

 

 

Best Quarter: Worst Quarter:
4th Quarter of 2010….17.23%  3rd Quarter of 2011. . . .  -22.84%

 

TABLE II

Value plus Fund - Average Annual Total Returns [for the periods ended 12/31/14]

 

  One
Year
Five
Years
Ten
Years
Lifetime
(since 10-
26-1993)
INVESTOR CLASS SHARES:        
Return Before Taxes -2.70% 12.07% 8.27% 11.08%
Return After Taxes on Distributions 4.82 10.82 7.07 9.66
Return After Taxes on Distributions and Sale of Fund Shares 0.24 9.72 6.74 9.11
Institutional  CLASS SHARES:        
Return Before Taxes -2.45 12.38 8.47 11.18
Russell 2000® Value Index
(reflects no deduction for fees, expenses or taxes)
4.22 14.26 6.89 10.32

 

After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. In addition, after-tax returns are shown only for Investor Class Shares, and after-tax returns for the Institutional Class Shares will vary. The differences in before-tax returns and after-tax returns on distributions and sale of Fund shares are due to adjustments incorporated into the after-tax returns for qualified taxable dividend income and qualifying foreign tax credits.

 

8
 

 

heartland value plus fund

 

Investment Advisor

 

Heartland Advisors serves as the investment advisor to the Value Plus Fund.

 

Portfolio Managers

 

The Value Plus Fund is managed by a team of investment professionals, which consists of Bradford A. Evans and Adam J. Peck.

 

Mr. Evans has served as a Portfolio Manager of the Value Plus Fund since May 2006. Mr. Evans is a Senior Vice President and Director of Heartland Advisors.

 

Mr. Peck has served as a Portfolio Manager of the Value Plus Fund since August 2007. Mr. Peck is a Vice President of Heartland Advisors.

 

The Value Plus Fund is closed to most new investors. See “Purchasing Shares Generally” for new account eligibility criteria.

 

For important information about the purchase and sale of Fund shares, tax information, and financial intermediary compensation, please turn to “Purchase and Sale of Fund Shares,” “Tax Information,” and “Payments to Broker-Dealers and Other Financial Intermediaries” on page 16 of this Prospectus.

 

9
 

 

HEARTLAND VALUE FUND

 

Investment Goal

 

The Value Fund seeks long-term capital appreciation through investing in small companies.

 

FEES AND EXPENSES OF THE VALUE FUND

 

This table describes the fees and expenses that you may pay if you buy and hold Investor or Institutional Class Shares of the Value Fund.

 

Shareholder Fees

(fees paid directly from your investment)

Investor
Class
Shares
Institutional
Class Shares
Maximum Sales Charge (Load) Imposed on Purchases None None
Maximum Deferred Sales Charge (Load) None None
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None None
Redemption Fee (as a percentage of the net asset value of any shares that are redeemed or exchanged within 10 days after they were purchased) 2% 2%
Exchange Fee None None

 

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

Investor
Class
Shares
Institutional
Class Shares
Management Fees 0.75% 0.75%
Distribution (12b-1) Fees 0.16 None
Other Expenses 0.16 0.16
Total Annual Fund Operating Expenses 1.07 0.91

 

Example. This Example is intended to help you compare the cost of investing in the Value Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

 

 

 

One
Year
Three
Years
Five
Years
Ten
Years
Investor Class Shares $109 $340 $590 $1,304
Institutional Class Shares 93 290 504 1,119

 

Portfolio Turnover

 

The Value Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in Annual Fund Operating Expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 38% of the average value of its portfolio.

 

Principal Investment Strategies of the Value Fund

 

The Value Fund invests primarily in common stocks of small companies with market capitalizations of less than $2 billion selected on a value basis, and may invest a significant portion of its assets in micro-capitalization securities, i.e., those with market capitalizations of less than $300 million at the time of purchase.

 

The Fund utilizes Heartland Advisors’ disciplined and time-tested 10 Principles of Value InvestingTM framework to identify securities with the potential for appreciation and a potential margin of safety to limit downside risk. The 10 Principles of Value Investing™ are: catalyst for recognition, low price in relation to earnings, low price in relation to cash flow, low price in relation to book value, financial soundness, positive earnings dynamics, sound business strategy, capable management and insider ownership, value of the company, and positive technical analysis.

 

Principal Risks of investing in the value fund

 

The Value Fund is designed for investors who seek long-term capital appreciation from small company stocks. It is designed for investors who can tolerate the greater investment risk and market volatility associated with smaller companies, but want to manage these risks by investing in companies believed to be undervalued relative to their intrinsic value.

 

The principal risk of investing in the Value Fund is that its share price and investment return will fluctuate, and you could lose money. Additional principal investment risks of the Fund include:

 

-Management Risk. The ability of the Fund to meet its investment objective is directly related to Heartland Advisors’ investment strategies for the Fund.

 

-General Market Risk. The market value of a security may move up or down, sometimes rapidly and unpredictably. These fluctuations may cause a security to be worth less than the price originally paid for it, or less than it was worth at an earlier time.

 

-Equity Market Risk. Common stocks are susceptible to general stock market fluctuations and to volatile increases and decreases in value as market confidence in and perceptions of their issuers change.

 

10
 

 

HEARTLAND VALUE FUND

 

-Value-Style Investing Risk. Value stocks can perform differently from the market as a whole and from other types of stocks. Value investments are subject to the risk that their intrinsic value may not be recognized by the broad market.

 

-SMALLER COMPANY SECURITIES RISK. Equity securities of the smaller companies in which the Fund may invest generally involve a higher degree of risk than investments in the broad-based equity markets. The security prices of smaller companies generally are more volatile than those of larger companies, they generally will have less market liquidity, and they may be more likely to be adversely affected by poor economic or market conditions.

 

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

 

Past Performance

 

The following tables show historical performance of the Value Fund and provide some indication of the risks of investing in the Fund. Table I shows how the total returns before taxes for the Fund’s Investor Class Shares have varied from year to year for the past 10 years. Table II shows how the Fund’s average annual total returns compare to those of a securities market index. Performance information for the Institutional Class Shares prior to May 1, 2008 is based on the performance of the Investor Class. Past performance (before and after taxes) does not guarantee future results. Recent performance information for the Fund is available on the Fund’s website at heartlandfunds.com or by calling 1-800-432-7856.

 

TABLE I

Value Fund - Investor Class Shares - Year-by-Year Total Returns

 

 

 

Best Quarter: Worst Quarter:
2nd Quarter 2009….31.26% 4th Quarter of 2008 . . . .-26.76%

 

TABLE II

Value Fund - Average Annual Total Returns [for the periods ended 12/31/14]

 

  One
Year
Five
Years
Ten
Years
Lifetime
(since 12-
28-1984)
INVESTOR CLASS SHARES:        
Return Before Taxes 2.22% 11.65% 6.46% 12.67%
Return After Taxes on Distributions -0.84 9.87 4.96 10.78
Return After Taxes on Distributions and Sale of Fund Shares 3.12 9.17 5.16 10.55
Institutional  CLASS SHARES:        
Return Before Taxes 2.38 11.85 6.61 12.72
Russell 2000® Value Index
(reflects no deduction for fees, expenses or taxes)
4.22 14.26 6.89 10.32

 

After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. In addition, after-tax returns are shown only for Investor Class Shares and after-tax returns for the Institutional Class Shares will vary. The differences in before-tax returns and after-tax returns on distributions and sale of Fund shares are due to adjustments incorporated into the after-tax returns for qualified taxable dividend income and qualifying foreign tax credits.

 

In some instances, the after-tax return on distributions and sale of Fund shares may be higher than other return figures when Fund shares are sold at a loss that provides an assumed tax benefit to the shareholder.

 

Investment Advisor

 

Heartland Advisors serves as the investment advisor to the Value Fund.

 

Portfolio Managers

 

The Value Fund is managed by a team of investment professionals, which consists of William (“Bill”) J. Nasgovitz and Bradford A. Evans.

 

Mr. Bill Nasgovitz has been a Portfolio Manager of the Value Fund since commencement of its operations in 1984. Mr. Bill Nasgovitz is the Chairman and Chief Investment Officer of Heartland Advisors and is the President and a Director of Heartland Funds.

 

11
 

 

HEARTLAND VALUE FUND

 

 

Mr. Evans has served as a Portfolio Manager of the Value Fund since June 2004. Mr. Evans is a Senior Vice President and Director of Heartland Advisors.

 

For important information about the purchase and sale of Fund shares, tax information, and financial intermediary compensation, please turn to “Purchase and Sale of Fund Shares,” “Tax Information,” and “Payments to Broker-Dealers and Other Financial Intermediaries” on page 16 of this Prospectus.

 

12
 

 

HEARTLAND International VALUE FUND

 

INVESTMENT GOAL

 

The International Value Fund seeks long-term capital appreciation with modest current income.

 

FEES AND EXPENSES

 

This table describes the fees and expenses that you may pay if you buy and hold shares of the International Value Fund.

 

Shareholder Fees

(fees paid directly from your investment)

Investor Class
Shares
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None
Redemption Fee (as a percentage of the net asset value of any shares that are redeemed or exchanged within 90 days after they were purchased) 2%
Exchange Fee None

 

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

 
Management Fees  0.85%
Distribution (12b-1) Fees 0.25
Other Expenses 0.66
Total Annual Fund Operating Expenses 1.76
Fee Waiver and/or Expense Reimbursement -0.27
Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement(1) 1.49%

 

(1)Pursuant to an operating expense limitation agreement between the Fund’s investment advisor, Heartland Advisors, and the International Value Fund, Heartland Advisors has agreed to waive its management fees and/or reimburse expenses of the Fund to ensure that Total Annual Fund Operating Expenses (excluding front-end or contingent deferred sales loads, taxes, leverage, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, dividends or interest expenses on short positions, acquired fund fees and expenses or extraordinary expenses) do not exceed 1.49% of the Fund’s average net assets (the “Expense Cap”), through at least May 1, 2016 and, subject to annual re-approval of the agreement by the Funds’ Board of Directors, thereafter. The operating expense limitation agreement may be terminated only by, or with the consent of, the Funds’ Board of Directors. Heartland Advisors is permitted to be reimbursed for management fee waivers and/or expense payments made in the prior three fiscal years, subject to the Expense Cap.

 

Example. This Example is intended to help you compare the cost of investing in the International Value Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. The fee waiver/expense reimbursement arrangement discussed in the table above is reflected only through May 1, 2016. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

 

One    Year Three Years Five  Years Ten   Years
$152 $500 $902 $2,025

 

Portfolio Turnover

 

The International Value Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in Annual Fund Operating Expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 31% of the average value of its portfolio.

 

Principal Investment Strategies

 

The International Value Fund primarily invests in non-U.S. and U.S. equity securities, selected on a value basis and whose current market prices, in Heartland Advisors’ judgment, are undervalued relative to their true worth. At least a majority of its assets are invested in dividend-paying equity securities, which may provide modest income to the Fund. Under normal circumstances, the Fund primarily invests in a concentrated number of non-U.S. and U.S. equity securities, including common stock, preferred stock, depositary receipts (“DRs”), and options, of companies with market capitalizations up to $5 billion at the time of purchase. The median market capitalization is expected to fluctuate over time depending on Heartland Advisor’s perceptions of relative valuations, future prospects, and market conditions.

 

The Fund may invest up to 50% of its net assets at market value at the time of purchase in emerging and less developed markets. At least 40% of the Fund’s net assets, calculated at the time of purchase, will be invested in foreign securities. The Fund does not invest more than 35% of its net assets at market value at the time of purchase in companies from any single country, including the United States. Up to 10% of the Fund’s net assets, measured at the time of purchase, may be invested in American Depositary Receipts (ADRs).

 

The Fund utilizes Heartland Advisors’ disciplined and time-tested 10 Principles of Value InvestingTM framework to identify securities with the potential for appreciation and a potential margin of safety to limit downside risk. The 10 Principles of Value Investing™ are: catalyst for recognition, low price in relation to earnings, low price in relation to cash flow, low price in relation to book value, financial soundness, positive earnings dynamics, sound business strategy, capable management and insider ownership, value of the company, and positive technical analysis.

 

13
 

 

HEARTLAND International VALUE FUND

 

Principal Risks of investing in the INTERNATIONAL value fund

 

The International Value Fund is designed for investors who seek long-term capital appreciation from a diversified, actively managed portfolio of international stocks. It is constructed for investors who can accept the volatility and other investment risks of the broad-based international equity markets, but want to manage these risks by investing in companies believed to be undervalued relative to their intrinsic value.

 

The principal risk of investing in the International Value Fund is that its share price and investment return will fluctuate, and you could lose money. Additional principal investment risks of the Fund include:

 

-Management Risk. The ability of the Fund to meet its investment objective is directly related to Heartland Advisors’ investment strategies for the Fund.

 

-General Market Risk. The market value of a security may move up or down, sometimes rapidly and unpredictably. These fluctuations may cause a security to be worth less than the price originally paid for it, or less than it was worth at an earlier time.

 

-Equity Market Risk. Common stocks are susceptible to general stock market fluctuations and to volatile increases and decreases in value as market confidence in and perceptions of their issuers change.

 

-Value-Style Investing Risk. Value stocks can perform differently from the market as a whole and from other types of stocks. Value investments are subject to the risk that their intrinsic value may not be recognized by the broad market.

 

-SMALLER COMPANY SECURITIES RISK. Equity securities of the smaller companies in which the Fund may invest generally involve a higher degree of risk than investments in the broad-based equity markets. The security prices of smaller companies generally are more volatile than those of larger companies, they generally will have less market liquidity, and they may be more likely to be adversely affected by poor economic or market conditions.

 

-Limited Portfolio Risk. As the Fund invests in a limited number of stocks, a change in the value of any single holding may have a more pronounced effect on the Fund’s net asset value (“NAV”) and performance than would be the case if it held more positions. This generally will increase the volatility of the Fund’s NAV and investment return.

 

-Foreign INVESTING RISK. Foreign markets can be more volatile than the U.S. market due to increased risks of adverse political, social, regulatory, and economic developments. Foreign security prices can be affected by exchange rate and foreign currency fluctuations, less publicly available information, and different accounting, auditing, legal, and financial standards. Foreign investments may also be less liquid than investments in U.S. issuers. This risk may be heightened in emerging or developing markets.

 

-Emerging Markets Risk. The risks of foreign investments typically are greater in emerging and less developed markets. For example, political and economic structures in these less developed countries may be new and changing rapidly, which may cause instability and greater risk of loss.

 

-Currency Risk. Foreign securities usually are denominated and traded in foreign currencies, while the Fund values its assets in U.S. dollars. The exchange rates between foreign currencies and the U.S. dollar fluctuate continuously. As a result, the values of the Fund’s non-U.S. investments will be affected favorably or unfavorably by changes in currency exchange rates relative to the U.S. dollar.

 

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

 

Past Performance

 

Pursuant to an Agreement and Plan of Reorganization (the “Reorganization”) between the Funds, on behalf of the International Value Fund, and Trust for Professional Managers, on behalf of the Heartland International Value Fund (the “Predecessor Fund”), on October 1, 2013, the International Value Fund acquired all the assets and liabilities of the Predecessor Fund in exchange for shares of the International Value Fund. The following tables show historical performance of the Predecessor Fund (for periods prior to the Reorganization) and the International Value Fund (for periods after the Reorganization) and provide some indication of the risks of investing in the International Value Fund. Table I shows how the total returns before taxes for the Fund varied from year to year. Table II shows how the Fund’s average annual total returns compare to that of a securities market index. Past performance (before and after taxes) does not guarantee future results. Recent performance information for the Fund is available on the Fund’s website at heartlandfunds.com or by calling 1-800-432-7856.

 

14
 

 

HEARTLAND International VALUE FUND

 

TABLE I

INTERNATIONAL VALUE FUND – INVESTOR CLASS SHARES - Year-by-Year Total Returns

 

 

 

 

Best Quarter: Worst Quarter:
1st Quarter of 2012. . . .15.51% 3rd  Quarter of 2011 . . . .-16.32%

 

TABLE II

international value fund - Average Annual Total Returns [for the periods ended 12/31/14]

 

  One
Year
Lifetime
(since 10-1-2010)
Return Before Taxes -3.76% 2.85%
Return After Taxes on Distributions -6.28 1.66
Return After Taxes on Distributions and Sale of Fund Shares -1.58 1.80
Russell® Global Small Cap ex-US Value Index (reflects no deduction for fees, expenses or taxes) -3.33 5.88

 

After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The differences in before-tax returns and after-tax returns on distributions and sale of Fund shares are due to adjustments incorporated into the after-tax returns for qualified taxable dividend income and qualifying foreign tax credits.

 

In some instances, the after-tax return on distributions and sale of Fund shares may be higher than other return figures when Fund shares are sold at a loss that provides an assumed tax benefit to the shareholder.

 

Investment Advisor

 

Heartland Advisors serves as the investment advisor to the Fund.

 

Portfolio Managers

 

The International Value Fund is managed by Robert C. Sharpe.

 

Mr. Sharpe has served as a Portfolio Manager of the International Value Fund since May 2013. Mr. Sharpe is a Vice President of Heartland Advisors.

 

For important information about the purchase and sale of Fund shares, tax information, and financial intermediary compensation, please turn to “Purchase and Sale of Fund Shares,” “Tax Information,” and “Payments to Broker-Dealers and Other Financial Intermediaries” on page 16 of this Prospectus.

 

15
 

 

Purchase and sale of Fund shares

 

Each Fund imposes minimum purchase requirements for initial investments in its shares. The table below shows the initial minimum purchase requirements that apply if you purchase Investor Class Shares directly from a Fund.

 

  Regular
Account(1)
IRA
Account
Coverdell
Education
Savings Account
(“ESA”)
Select Value Fund $1,000 $500 $500
Mid Cap Value Fund 1,000 500 500
Value Plus Fund 1,000 500 500
Value Fund 1,000 500 500
International Value Fund 1,000 500 500

 

(1)Regular Accounts include joint accounts, individual accounts, custodial accounts, trust accounts, and corporate accounts. The minimum initial investment is waived when an account is established with an automatic investment plan.

 

The minimum purchase requirement for an initial investment in Institutional Class Shares, including for IRAs, is $500,000. This minimum may be waived for accounts held in qualified retirement or profit-sharing plans opened through a third party service provider or recordkeeper. The International Value Fund only offers Investor Class Shares.

 

Subsequent purchases of Investor Class and Institutional Class Shares, other than through reinvestment of distributions or an automatic investment plan, must be for a minimum of $100.

 

Investors generally may meet the minimum investment amount by aggregating multiple accounts with common ownership or discretionary control within a single Fund. Each Fund may waive or lower its investment minimums for any reason. Different minimums may apply to accounts opened through third parties.

 

The Value Plus Fund is closed to most new investors. See “Purchasing Shares Generally” for new account eligibility criteria.

 

You may redeem your shares in any of the following ways:

 

By Mail

Please mail your redemption instructions to Heartland Funds at the appropriate address below.

 

via U.S. Postal Service
Heartland Funds
PO Box 177             
Denver, CO 80201-0177
via Express Courier
Heartland Funds
c/o ALPS Fund Services, Inc.
1290 Broadway, Suite 1100
Denver, CO 80203

 

By Telephone

Call a Heartland Funds representative toll-free at 1-800-432-7856 to request your redemption (certain redemption requests for IRA or Coverdell ESA accounts must be in writing, see “Redeeming Shares Generally” for more information).

 

By Internet

You may redeem shares by accessing your account online at heartlandfunds.com.

 

By Systematic Withdrawal

Call a Heartland Funds representative toll-free at 1-800-432-7856 to request an Account Maintenance Form to add a systematic withdrawal plan to your account.

 

Tax information

 

The Funds intend to make distributions, which may be subject to federal, state, and local taxes as ordinary income or long-term capital gains, or a combination of the two.

 

Payments to broker-dealers and other financial intermediaries

 

If you purchase shares of a Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund, Heartland Advisors, the Fund’s distributor, or any of their respective affiliates may pay the intermediary for the sale of the Fund’s shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your individual financial advisor to recommend the Funds over another investment. Ask your individual financial advisor or visit your financial intermediary’s website for more information.

 

16
 

 

management of the fund

 

HEARTLAND GROUP

 

The Funds are each a series of Heartland Group, Inc. (“Heartland,” “Heartland Funds,” or the “Funds”). Each of the Investor Class and Institutional Class Shares of the Funds offered by this Prospectus are “no-load.” Only Investor Class and Institutional Class Shares of the Funds have been authorized at this time. The International Value Fund is only available in Investor Class Shares.

 

Under applicable law, the Board of Directors is responsible for management of Heartland and provides broad supervision over its affairs. The Board delegates day-to-day responsibility for the management of the Funds to Heartland’s officers. The Board meets regularly to review the Funds’ investments, performance, and expenses. It elects the officers of Heartland and hires the Funds’ service providers, including the Funds’ investment advisor, transfer agent, and distributor. As a matter of policy, Heartland requires that 75% of its Board members and the Chairman of the Board be independent of the Funds’ investment advisor, transfer agent, and distributor.

 

Heartland, Heartland Advisors (Heartland’s investment advisor), and ALPS Distributors, Inc. (Heartland’s distributor), each has adopted a code of ethics designed to ensure, among other things, that the interests of Fund shareholders take precedence over personal interests of its directors, officers, and employees. Under their respective codes, personal investment activities are subject to limitations designed to avoid both actual and perceived conflicts of interest with the investment activities of the Funds.

 

HEARTLAND ADVISORS

 

Founded in 1983 by William (“Bill”) J. Nasgovitz, Heartland Advisors is an independent firm owned by its employees through Heartland Holdings, Inc. Its principal offices are located at, and its mailing address is, 789 North Water Street, Suite 500, Milwaukee, Wisconsin 53202.

 

As of March 31, 2015, Heartland Advisors had approximately $4.5 billion of assets under its discretionary management. Heartland Advisors manages the Funds’ investments subject to the authority of and supervision by the Heartland Funds’ Board of Directors. Heartland Advisors serves as the investment advisor to all series of Heartland Funds, and also provides investment management services for individuals, institutions, other investment advisors, retirement plans, and sub-advisory services to a sub-portfolio of a series of another investment company. Heartland Advisors also provides various administrative services to the Funds.

 

PORTFOLIO MANAGERS

 

Select Value Fund. The Select Value Fund is managed by a team of investment professionals, which consists of Will R. Nasgovitz, David C. Fondrie, and Colin P. McWey. The team jointly develops and implements investment strategies for the Select Value Fund.

 

Mr. Will Nasgovitz has served as a Portfolio Manager of the Select Value Fund since May 2006, the Mid Cap Value Fund since February 2015, and served as Portfolio Manager for the Value Fund from February 2009 until April 2013. He also serves as Portfolio Manager for Heartland Advisors’ advisory clients. He previously served as a Research Analyst from 2004 to 2006 and a Research Associate from November 2003 to 2004. He is the Chief Executive Officer and a Director of Heartland Advisors and since May 2012 has served as Chief Executive Officer of Heartland. Prior to joining Heartland Advisors, Mr. Will Nasgovitz had been a Senior Research Associate with Cambridge Associates from 2000 to 2002. Mr. Will Nasgovitz is the son of Mr. Bill Nasgovitz, President and Director of the Heartland Funds and Portfolio Manager of the Value Fund.

 

Mr. Fondrie, a Certified Public Accountant (CPA), has served as a Portfolio Manager of the Select Value Fund since March 2004. Mr. Fondrie, who also serves as Portfolio Manager for Heartland Advisors’ advisory clients, is a Senior Vice President of Heartland Advisors, and served as Chief Executive Officer of Heartland from May 2006 to May 2012 and Director of Heartland Advisors until December 2014. He served as Director of Equity Research for Heartland Advisors from 2001 to 2011, having joined the firm in December 1994 as an Equity Research Analyst. Previously, he had been President of Casino Resource Corporation from 1993 to 1994, Executive Vice President and Chief Financial Officer of Ransomes, Inc. from 1987 to 1991, and a Senior Manager and in other capacities with Price Waterhouse, LLP from 1976 to 1987.

 

Mr. McWey, a Chartered Financial Analyst (CFA), has served as a Portfolio Manager of the Select Value Fund since February 2015. He has been a Portfolio Manager for the Mid Cap Value Fund since its inception in October 2014 and for advisory clients of Heartland Advisors since 2010, after serving as a Research Analyst since 2009. Mr. McWey currently holds the position of Vice President and Portfolio Manager with Heartland Advisors. Prior to joining Heartland Advisors, Mr. McWey had been with Banc of America Securities from 2001 to 2009.

 

MID CAP Value Fund. The Mid Cap Value Fund is managed by a team of investment professionals, which consists of Colin P. McWey and William (“Will”) R. Nasgovitz. The team jointly develops and implements investment strategies for the Mid Cap Value Fund.

 

Mr. McWey, a Chartered Financial Analyst (CFA), has served as a Portfolio Manager of the Mid Cap Value Fund since its inception in October 2014 and has served as a Portfolio Manager of the Select Value Fund since February 2015. He has been a Portfolio Manager for advisory clients of Heartland Advisors since 2010, after serving as a Research Analyst since 2009. Mr. McWey currently holds the position of Vice President and Portfolio Manager with Heartland Advisors. Prior to joining Heartland Advisors, Mr. McWey had been with Banc of America Securities from 2001 to 2009.

 

17
 

 

management of the fund

 

Mr. Will Nasgovitz has served as a Portfolio Manager of the Mid Cap Value Fund since February 2015 and has served as Portfolio Manager for the Select Value Fund since May 2006. He also serves as Portfolio Manager for Heartland Advisors’ advisory clients. Mr. Will Nasgovitz served as a Portfolio Manager for the Value Fund from February 2009 until April 2013, after serving as a Research Analyst from 2004 to 2006 and a Research Associate from November 2003 to 2004. He is the Chief Executive Officer and a Director of Heartland Advisors and since May 2012 has served as Chief Executive Officer of Heartland. Prior to joining Heartland Advisors, Mr. Will Nasgovitz had been a Senior Research Associate with Cambridge Associates from 2000 to 2002. Mr. Will Nasgovitz is the son of Mr. Bill Nasgovitz, President and Director of the Heartland Funds and Portfolio Manager of the Value Fund.

 

Value Plus Fund. The Value Plus Fund is managed by a team of investment professionals, which consists of Bradford A. Evans and Adam J. Peck. The team jointly develops and implements investment strategies for the Value Plus Fund.

 

Mr. Evans, a Chartered Financial Analyst (CFA), has served as a Portfolio Manager of the Value Plus Fund since May 2006. He has also served as a Portfolio Manager of the Value Fund since June 2004 and also serves as Portfolio Manager for Heartland Advisors’ advisory clients. Mr. Evans is a Senior Vice President, Director, Portfolio Manager, and Director of Equity Research for Heartland Advisors, having rejoined the firm in June 2004 after serving as Vice President and Research Analyst for High Rock Capital, LLC from April 2001 to June 2004. He had previously been employed by Heartland Advisors from January 1996 to April 2001, first as a Research Associate and then as a Research Analyst.

 

Mr. Peck, a Chartered Financial Analyst (CFA), has served as a Portfolio Manager of the Value Plus Fund since August 2007 and currently holds the position of Vice President and Portfolio Manager with Heartland Advisors. He also serves as Portfolio Manager for Heartland Advisors’ advisory clients. Prior to joining Heartland Advisors, Mr. Peck was a founding partner at Coral Gables Financial Corporation and was a Senior Investment Analyst there in 2004. Previously, he was a Senior Investment Associate at Northern Trust Bank of Florida from 2000 to 2004.

 

Value Fund. The Value Fund is managed by a team of investment professionals, which consists of Bill J. Nasgovitz and Bradford A. Evans. The team jointly develops and implements investment strategies for the Value Fund.

 

Mr. Bill Nasgovitz has been a Portfolio Manager of the Value Fund since commencement of its operations in 1984. Mr. Bill Nasgovitz also serves as Portfolio Manager for advisory clients. He previously served as a Portfolio Manager for the International Value Fund from the Fund’s commencement in October 2010 until April 2015. He is the Chairman and Chief Investment Officer of Heartland Advisors and is the President and a Director of Heartland.

 

Mr. Evans, a Chartered Financial Analyst (CFA), has served as a Portfolio Manager of the Value Fund since June 2004. He has also served as a Portfolio Manager of the Value Plus Fund since May 2006 and he also serves as Portfolio Manager for Heartland Advisors’ advisory clients. Mr. Evans is a Senior Vice President, Director, Portfolio Manager and Director of Equity Research for Heartland Advisors, having rejoined the firm in June 2004 after serving as Vice President and Research Analyst for High Rock Capital, LLC from April 2001 to June 2004. He had previously been employed by Heartland Advisors from January 1996 to April 2001, first as a Research Associate and then as a Research Analyst.

 

INTERNATIONAL Value Fund. The Fund is managed by Robert C. Sharpe. He develops and implements investment strategies for the Fund.

 

Mr. Sharpe has served as a Portfolio Manager of the International Value Fund since May 2013. Mr. Sharpe has been with Heartland Advisors since April 2013 and currently holds the title of Vice President and Portfolio Manager. Prior to joining Heartland Advisors, Mr. Sharpe was employed by The State Teachers Retirement System of Ohio for nearly 20 years where he held various positions. Most recently, he was the Director, International Equities and Portfolio Manager – International Equities. Previously, he was an Investment Analyst with Capital Research Company.

 

The Statement of Additional Information (“SAI”) for the Funds provides additional information about the Portfolio Managers’ compensation, other accounts they manage, and their ownership of Fund shares.

 

CFA is a registered trademark owned by the CFA Institute.

 

Fund Ownership by Employees of Heartland Advisors. As of December 31, 2014, employees of Heartland Advisors, including the Portfolio Managers of the Funds, had approximately $42 million invested across all of the Funds, which includes shares held directly and in retirement accounts. Heartland’s independent directors are also invested in the Funds. Please see the SAI for more details.

 

Management Fee and Expense Limitation. For Heartland Advisors’ investment management services, each of the Funds pays an annual fee, accrued daily and paid monthly, computed as a percentage of the Fund’s average daily net assets. For the fiscal period ended December 31, 2014, Heartland Advisors was entitled to receive from each Fund an investment advisory fee equal to a percentage of the particular Fund’s daily net assets:

 

Fund Advisory
Fee %
   
Select Value Fund

0.75

0.70

(on the average daily net assets up to $1 billion)

(on the average daily net assets in excess of $1 billion)

Mid Cap Value Fund 0.75  
Value Plus Fund 0.70  
Value Fund 0.75  
International Value Fund 0.85  

 

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The following table reflects the investment advisory fee paid by each Fund as a percentage of the particular Fund’s average daily net assets, during the fiscal period ended December 31, 2014, after taking into effect breakpoints and/or waivers by Heartland Advisors during the period.

 

Fund Advisory Fee received %
Select Value Fund 0.75
Mid Cap Value Fund 0.00
Value Plus Fund 0.70
Value Fund 0.75
International Value Fund 0.58

 

Each Fund is responsible for its own operating expenses.

 

Pursuant to an operating expense limitation agreement between Heartland Advisors and the Funds, Heartland Advisors has agreed to waive its management fees and/or pay expenses of the Mid Cap Value Fund to ensure that the Mid Cap Value Fund’s total annual fund operating expenses (excluding front-end or contingent deferred sales loads, taxes, leverage, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, dividends or interest expenses on short positions, acquired fund fees and expenses, or extraordinary expenses) do not exceed 1.25% of the Fund’s average net assets for Investor Class Shares and 0.99% for Institutional Class Shares through at least October 31, 2017, and subject to annual re-approval of the agreement by the Board of Directors, thereafter. This operating expense limitation agreement can be terminated only by, or with the consent of, the Board of Directors. Waivers and reimbursements have the effect of lowering the Mid Cap Value Fund’s overall expense ratio and increasing the Mid Cap Value Fund’s overall return to investors.

 

Pursuant to an operating expense limitation agreement between Heartland Advisors and the Funds, Heartland Advisors has agreed to waive its management fees and/or pay expenses of the International Value Fund to ensure that the International Value Fund’s total annual fund operating expenses (excluding front-end or contingent deferred sales loads, taxes, leverage, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, dividends or interest expenses on short positions, acquired fund fees and expenses, or extraordinary expenses) do not exceed 1.49% of the International Value Fund’s average net assets through at least May 1, 2016, and subject to annual re-approval of the agreement by the Board of Directors, thereafter. Any waiver of management fees or payment of expenses made by Heartland Advisors may be reimbursed by the International Value Fund in subsequent fiscal years, if Heartland Advisors so requests. This reimbursement may be requested if the aggregate amount actually paid by the International Value Fund toward operating expenses for such fiscal year (taking into account the reimbursement) does not exceed the applicable limitation on International Value Fund expenses. Heartland Advisors is permitted to be reimbursed for management fee waivers and/or expense payments made in the prior three fiscal years. Any such reimbursement will be reviewed and approved by the Board of Directors. The International Value Fund must pay its current ordinary operating expenses before Heartland Advisors is entitled to any reimbursement of management fees and/or expenses. In addition, any such reimbursement from the International Value Fund to the Advisor will be subject to the applicable limitation on the International Value Fund’s expenses. This operating expense limitation agreement can be terminated only by, or with the consent of, the Board of Directors. Waivers and reimbursements have the effect of lowering the International Value Fund’s overall expense ratio and increasing the International Value Fund’s overall return to investors.

 

Heartland Advisors has voluntarily agreed to waive certain fees and/or reimburse certain expenses with respect to the Institutional Class Shares of each Fund, to the extent necessary to maintain the Institutional Class Shares’ Total Annual Fund Operating Expenses  at a ratio of 0.99% of average daily net assets. Heartland Advisors may modify or discontinue these waivers and/or reimbursements at any time without notice. Waivers and reimbursements have the effect of lowering a Fund’s overall expense ratio and increasing the Fund’s overall return to investors.

 

A discussion regarding the basis for the Board of Directors approving the investment management contracts of the Funds is available in Heartland’s most recent Semiannual Report to Shareholders for the period ended June 30 for the Select Value, Value Plus, Value, and International Value Funds and in the most recent Annual Report to Shareholders for the period ended December 31 for the Mid Cap Value Fund.

 

Rule 12b-1 Fees. Each Fund has adopted a reimbursement plan under Rule 12b-1 of the Investment Company Act of 1940, as amended, whereby each Fund pays the Fund’s principal underwriter and distributor, ALPS Distributors, Inc. (the “Distributor”), a fee (a “Rule 12b-1 Fee”) which is calculated and paid monthly at an annual rate of up to 0.25% of the average daily net assets of that Fund’s Investor Class shares. Any amount of such payment not paid by the Distributor during a Fund’s fiscal year for distributing and servicing the Fund’s shares shall be reimbursed by the Distributor to the applicable Fund as soon as practicable after the end of the fiscal year. The table below shows the maximum rate of the Rule 12b-1 Fee for each class of shares of each Fund.

 

NAME OF FUND

Investor Class
Shares
Institutional Class  
Shares
Select Value Fund 0.25% None
Mid Cap Value Fund 0.25 None
Value Plus Fund 0.25 None
Value Fund 0.25 None
International Value Fund 0.25 N/A

 

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All or a portion of these fees may be paid, pursuant to contractual commitments or other authorized arrangements, to brokers, dealers, banks, and others (including Heartland Advisors) who provide various services to their customers who hold shares of a Fund. Among others, these may include services such as: (1) establishing, maintaining, and processing changes in shareholder accounts; (2) answering shareholder inquiries; (3) distributing prospectuses, reports, advertising, and sales literature; and (4) preparing account statements and confirmations. Because the fee is paid out of a Fund’s assets on an ongoing basis, fees paid under the Rule 12b-1 plan will increase the cost of your investment in Investor Class Shares and may cost you more over time than paying other types of sales charges imposed by some mutual funds.

 

Heartland Advisors, the Distributor, or their affiliates may, from their own assets, respectively, make cash payments to some, but not all, brokers, dealers, or financial intermediaries for shareholder services, and as an incentive to sell shares of a Fund and/or promote retention of their customer’s assets in the Funds.  These payments, sometimes referred to as “revenue sharing,” do not change the price paid by investors to purchase the Funds’ shares or the amount the Funds receive as proceeds from such sales.  Revenue sharing payments may be made to brokers, dealers, and other financial intermediaries that provide services to the Funds or to shareholders of the Funds, including shareholder servicing, transaction processing, recordkeeping, sub-accounting, and other administrative services to their customers in connection with investments in the Funds.  Revenue sharing payments may also be made to brokers, dealers, and other financial intermediaries for inclusion of the Funds on preferred or recommended lists and for granting the Distributor or Heartland Advisors access to sales meetings, sales representatives, and management representatives of the broker, dealer, or other financial intermediaries. These fees may be in addition to any distribution, administrative, or shareholder servicing fees or other fees or charges paid from the Funds’ assets to these financial intermediaries or by shareholders directly.

 

From time to time, and in accordance with applicable rules and regulations, Heartland Advisors may also provide non-cash compensation, such as gifts, meals, tickets, or event sponsorship, to representatives of various intermediaries who sell Fund shares or provide services to Fund shareholders. Also, the Funds have entered into shareholder support services agreements with certain broker-dealers and other intermediaries whereby the financial intermediary provides certain services to individual shareholders that hold shares of a Fund through an omnibus account or similar arrangement with the financial intermediary. In consideration for such services, a financial intermediary is compensated by a Fund at an annual rate based upon the average daily net asset value of the applicable class of shares of such Fund. The receipt of these fees and/or non-cash compensation may provide an incentive to a financial intermediary, or its representatives, to favor sales of a Heartland Fund over sales of other financial products. These arrangements will not, however, change the price a shareholder pays for Fund shares or the amount that a Fund receives to invest on behalf of the shareholder.

 

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PRINCIPAL investment strategies and investment risks

 

THE HEARTLAND INVESTMENT PHILOSOPHY

 

At Heartland, value investing is our passion and sole focus. We relentlessly seek value, analyzing overlooked and unpopular stocks, which we believe sell at significant discounts to their true worth. This discount is a means to achieve potential appreciation while potentially limiting downside risk.

 

HEARTLAND’S 10 PRINCIPLES OF VALUE INVESTING™

 

We define “value” according to our proprietary 10 Principles of Value Investing.™ For all Heartland Funds, we use the time-tested process to routinely evaluate the stocks we consider for purchase or sale against these distinct criteria:

 

1. Catalyst for Recognition

We look beyond simply discovering undervalued stocks. We identify specific catalysts that we believe will cause a stock’s price to rise, closing the gap between a current stock price and the company’s true worth.

 

2. Low Price in Relation to Earnings

Historically, low Price/Earnings stocks have outperformed the overall market and provided investors with less downside risk relative to other equity investment strategies. 

 

3. Low Price in Relation to Cash Flow

Strong cash flows give a company greater financial flexibility. In the hands of capable management, it can be the foundation for stronger earnings and, in turn, higher stock prices.

 

4. Low Price in Relation to Book Value

Book value is a company’s total assets minus liabilities. We believe low Price/Book Value stocks offer investors potential downside risk protection. It often suggests sentiment about a stock or sector is overly negative.

 

5. Financial Soundness

We prefer investing in companies that are not encumbered by long-term debt. During difficult periods, such low-debt companies are able to direct cash flow to investments in operations, not interest expense.

 

6. Positive Earnings Dynamics

We favor companies with improving earnings and upwardly trending estimates, as earnings tend to drive stock prices.

 

7. Sound Business Strategy

We meet with hundreds of senior executives to understand and evaluate their strategy. It is also typical for us to speak with customers, suppliers, and competitors.

 

8. Capable Management and Insider Ownership

Meaningful and increasing stock ownership by company officers and directors can be tangible evidence of their personal commitment, and aligns their long-term interest with the shareholders’ interest.

 

9. Value of the Company

We endeavor to appraise the intrinsic value, or private market value, of each portfolio company. Our goal is to make investments at a significant discount to our estimates of true value.

 

10. Positive Technical Analysis

Technical analysis is a tool useful for avoiding stocks that may already be subject to speculation. We are attracted to stocks that have “bases,” trading within a narrow price range which has typically followed a down trend, or bear market.

 

Although the Heartland Funds use the same evaluation criteria in selecting securities for their portfolios, they do not necessarily own the same securities. The Funds have different investment objectives and principal strategies that cause the holdings to differ. The Funds also have different Portfolio Managers who exercise independent judgment.

 

The investment goals and principal investment strategies unique to each Fund are described below.

 

heartland SELECT VALUE FUND

 

INVESTMENT GOAL. The Select Value Fund seeks long-term capital appreciation. The Fund’s investment goal may be changed by Heartland’s Board of Directors upon notice to shareholders, but without shareholder approval.

 

Principal Investment Strategies of the SELECT VALUE FUND. The Select Value Fund invests primarily in a concentrated number (generally 40 to 60) of common stocks of all sizes, selected on a value basis and whose current market prices, in Heartland Advisors’ judgment, are undervalued relative to their intrinsic value. They normally have market capitalizations in excess of $500 million at the time of purchase. The median market capitalization of the Fund is expected to fluctuate over time depending on Heartland Advisors’ perceptions of relative valuations, future prospects, and market conditions.

 

The Fund utilizes Heartland Advisors’ disciplined and time-tested 10 Principles of Value InvestingTM framework to identify securities with the potential for appreciation and a potential margin of safety to limit downside risk.

 

Principal Risks of Investing in the Select Value Fund. The principal risk of investing in the Select Value Fund is that its share price and investment return will fluctuate, and you could lose money. Because the Fund invests in value stocks, it is subject to the risk that their intrinsic values may never be recognized by the broad market or that their prices may decline. At times, the Fund may invest in stocks of small or mid-sized companies, which are generally more volatile and less liquid than stocks of larger, more established companies.

 

The Select Value Fund is designed for investors who seek long-term capital appreciation from a diversified, actively managed portfolio of stocks of all sizes. It is constructed as a core value holding for investors who can accept the volatility and other investment risks of the broad-based equity markets, but want to manage these risks by investing in companies believed to be undervalued relative to their intrinsic value.

 

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As the Select Value Fund invests in a limited number of stocks (generally 40 to 60), a change in the value of any single holding may have a more pronounced effect on the Fund’s net asset value and performance than would be the case if it held more positions. This generally will increase the volatility of the Fund’s share price and investment return.

 

heartland MID CAP VALUE FUND

 

INVESTMENT GOAL. The Mid Cap Value Fund seeks long-term capital appreciation and modest current income. The Fund’s investment goal may be changed by Heartland’s Board of Directors upon notice to shareholders, but without shareholder approval.

 

Principal Investment Strategies of the MID CAP VALUE FUND. Under normal circumstances, at least 80% of the Mid Cap Value Fund’s net assets are invested in equity securities of mid-capitalization companies. For purposes of this test, Heartland Advisors defines mid-capitalization securities to be between $2 and $15 billion. The Fund will generally not initiate a position in a company unless it has a market capitalization between $1 and $15 billion. The median market capitalization of the Fund is expected to fluctuate over time depending on Heartland Advisors’ perceptions of relative valuations, future prospects, and market conditions.

 

The Mid Cap Value Fund invests primarily in a concentrated number (generally 30 to 60) of mid-capitalization equity securities selected on a value basis and whose current market prices, in Heartland Advisors’ judgment, are undervalued relative to their intrinsic value. A majority of its assets are generally invested in dividend-paying common stocks.

 

The Fund utilizes Heartland Advisors’ disciplined and time-tested 10 Principles of Value InvestingTM framework to identify securities with the potential for appreciation and a potential margin of safety to limit downside risk.

 

The Fund’s primary benchmark against which it measures performance is the Russell Midcap® Value Index.

 

Principal Risks of Investing in the MID CAP VALUE FUND. The principal risk of investing in the Mid Cap Value Fund is that its share price and investment return will fluctuate, and you could lose money. Because the Fund invests in value stocks, it is subject to the risk that their intrinsic values may never be recognized by the broad market or that their prices may decline. The Fund invests in stocks of mid-sized companies, which may be more volatile and less liquid than stocks of larger, more established companies.

 

The Mid Cap Value Fund is designed for investors who seek long-term capital appreciation from mid-capitalization stocks that may produce modest dividend income to the Fund. It is constructed as a core value holding for investors who can accept the volatility and other investment risks of the broad-based equity markets, but want to manage these risks by investing in companies believed to be undervalued relative to their intrinsic value.

 

As the Fund invests in a limited number of common stocks (generally 30 to 60), a change in the value of any single holding may have a more pronounced effect on the Fund’s net asset value and performance than would be the case if it held more positions. This generally will increase the volatility of the Fund’s share price and investment return.

 

heartland Value Plus Fund

 

INVESTMENT GOAL. The Value Plus Fund seeks long-term capital appreciation and modest current income. The Fund’s investment goal may be changed by Heartland’s Board of Directors upon notice to shareholders, but without shareholder approval.

 

Principal Investment Strategies of the Value Plus Fund. The Value Plus Fund invests primarily in a concentrated number (generally 40 to 70) of small-capitalization equity securities selected on a value basis. A majority of its assets are generally invested in dividend-paying common stocks. The Fund primarily invests in companies with market capitalizations between $250 million and $4 billion at the time of purchase.

 

The Fund utilizes Heartland Advisors’ disciplined and time-tested 10 Principles of Value InvestingTM framework to identify securities with the potential for appreciation and a potential margin of safety to limit downside risk.

 

Principal Risks of Investing in the Value Plus Fund. The principal risk of investing in the Value Plus Fund is that its share price and investment return will fluctuate, and you could lose money. Because the Fund invests in value stocks, it is subject to the risk that their intrinsic values may never be recognized by the broad market or that their prices may decline.

 

The Value Plus Fund is designed for investors who seek capital appreciation from small company stocks that may produce modest dividend income. It is designed for long-term investors who can tolerate the greater investment risk and market volatility associated with smaller companies, but want to manage these risks by investing in companies believed to be undervalued relative to their intrinsic value.

 

The Fund invests in a limited number of stocks (generally 40 to 70). Therefore, a change in the value of any single holding may have a more pronounced effect on the Fund’s net asset value and performance than would be the case if it held more positions. This generally will increase the volatility of the Fund’s share price and investment return.

 

Investing in the equity securities of smaller companies generally involves a higher degree of risk than investing in the securities of larger companies. The prices of securities of smaller companies are generally more volatile than those of larger companies, and these securities generally will have less market liquidity and may be more likely to be adversely affected by poor economic or market conditions. These risks generally increase as the size of the companies decreases. There is no assurance that the income-producing features of the securities in which the Fund invests will reduce the risks associated with investing in small companies or the Fund’s volatility.

 

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heartland Value Fund

 

INVESTMENT GOAL. The Value Fund seeks long-term capital appreciation through investing in small companies. The Fund’s investment goal may be changed by Heartland’s Board of Directors upon notice to shareholders, but without shareholder approval.

 

Principal Investment Strategies of the Value Fund. The Value Fund invests primarily in common stocks of small companies with market capitalizations of less than $2 billion selected on a value basis, and may invest a significant portion of its assets in micro-capitalization securities, i.e., those with market capitalizations of less than $300 million at the time of purchase.

 

The Fund utilizes Heartland Advisors’ disciplined and time-tested 10 Principles of Value InvestingTM framework to identify securities with the potential for appreciation and a potential margin of safety to limit downside risk.

 

Principal Risks of Investing in the Value Fund. The principal risk of investing in the Value Fund is that its share price and investment return will fluctuate, and you could lose money. Because the Fund invests in value stocks, it is subject to the risk that their intrinsic values may never be recognized by the broad market or that their prices may decline.

 

The Value Fund is designed for investors who seek long-term capital appreciation from small company stocks. It is designed for investors who can tolerate the greater investment risk and market volatility associated with smaller companies, but want to manage these risks by investing in companies believed to be undervalued relative to their intrinsic value.

 

Investing in the equity securities of smaller companies generally involves a higher degree of risk than investing in the securities of larger companies. The prices of securities of smaller companies are generally more volatile than those of larger companies, and these securities generally will have less market liquidity and may be more likely to be adversely affected by poor economic or market conditions. These risks generally increase as the size of the companies decreases. The Value Fund may hold a significant number of investments in small company securities, where the Fund holds more than 5% of the outstanding voting securities of the issuer.

 

heartland INTERNATIONAL VALUE FUND

 

INVESTMENT GOAL. The International Value Fund seeks long-term capital appreciation with modest current income. The Fund’s investment goal may be changed by Heartland’s Board of Directors upon notice to shareholders, but without shareholder approval.

 

Principal Investment Strategies of the international value FUND. The International Value Fund primarily invests in non-U.S. and U.S. equity securities, selected on a value basis and whose current market prices, in Heartland Advisors’ judgment, are undervalued relative to their true worth. At least a majority of its assets are invested in dividend-paying equity securities, which may provide modest income to the Fund. Under normal circumstances, the International Value Fund primarily invests in a concentrated number of non-U.S. and U.S. equity securities, including common stock, preferred stock, depositary receipts (“DRs”) and options of companies with market capitalizations up to $5 billion at the time of purchase. The median market capitalization is expected to fluctuate over time depending on Heartland Advisors’ perceptions of relative valuations, future prospects, and market conditions.

 

The Fund utilizes Heartland Advisors’ disciplined and time-tested 10 Principles of Value InvestingTM framework to identify securities with the potential for appreciation and a potential margin of safety to limit downside risk.

 

The Fund’s focus is on individual securities, not on selection of countries or regions. Under normal market conditions, the Fund primarily invests in common stocks, both outside and within the U.S. The Fund may invest up to 50% of its net assets at market value at the time of purchase in emerging and less developed markets. At least 40% of the Fund’s net assets, calculated at the time of purchase, will be invested in foreign securities. A foreign company or issuer is any company or issuer whose primary operations or revenues are located outside the United States and its territories. The International Value Fund intends to invest at all times in securities of issuers representing at least three different countries, not including the United States.

 

The International Value Fund does not invest more than 35% of its net assets at market value at the time of purchase in companies from any single country, including the U.S. However, since securities of companies representing numerous different countries may be listed and traded on registered U.S. stock exchanges including the Nasdaq Stock Market, at times more than 35% of the Fund’s net assets may be invested in companies that are traded on registered U.S. stock exchanges.

 

Investments by the Fund in foreign securities may include DRs, such as American Depositary Receipts (“ADRs”) or Global Depositary Receipts (“GDRs”). The Fund may invest up to 10% of its net assets measured at the time of purchase in ADRs. DRs 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. securities markets, ADRs are alternatives to the direct purchase of the underlying securities in their national markets and currencies. Designed for use in foreign securities markets, GDRs are alternatives to the direct purchase of the underlying securities in their national markets and currencies. DR holders may not have all of the legal rights of shareholders. DRs may be sponsored or unsponsored. If the International Value Fund is invested in an unsponsored DR, the Fund is likely to bear its proportionate share of the expenses of the depositary, and it may have greater difficulty in receiving shareholder communications than it would have with a sponsored DR.

 

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The International Value Fund invests a significant portion of its assets in securities that are traded in currencies other than U.S. dollars, so the Fund may buy and sell foreign currencies to facilitate transactions in portfolio securities. The International Value Fund usually does not hedge against possible variations in exchange rates, but exposure to a particular currency that the Advisor believes is overvalued may be hedged if the Fund has a substantial position in securities traded in that currency. The International Value Fund may buy and sell currencies for cash at current exchange rates, or use an agreement to purchase or sell a specified currency at a specified future date or within a specified time period, at a price set at the time of the contract.

 

From time to time, Heartland Advisors may conclude that a security other than an equity security presents an attractive risk/reward profile. As a result, the International Value Fund may invest up to an aggregate of 20% of its net assets at market value at the time of purchase in investment grade debt securities and convertible debt securities of non-U.S. and U.S. issuers that meet the Fund’s investment criteria.

 

Principal Risks of Investing in the international value Fund. The principal risk of investing in the International Value Fund is that its share price and investment return will fluctuate, and you could lose money. Because it invests in value stocks, it is subject to the risk that their intrinsic values may never be recognized by the broad market or that their prices may decline. The International Value Fund invests in stocks of small or mid-sized companies, which are generally more volatile and less liquid than stocks of larger, more established companies. Foreign securities have additional risk, including but not limited to, exchange rate changes, political and economic upheaval, and relatively low market liquidity. These risks are magnified in emerging markets. The prices of foreign securities held by the International Value Fund, and therefore the Fund’s performance, may decline in response to such risks.

 

The International Value Fund is designed for investors who seek long-term capital appreciation from a diversified, actively managed portfolio of international stocks. It is constructed for investors who can accept the volatility and other investment risks of the broad-based international equity markets, but want to manage these risks by investing in companies believed to be undervalued relative to their intrinsic value.

 

As the International Value Fund invests in a concentrated number of common stocks, a change in the value of any single holding may have a more pronounced effect on the net asset value and performance than would be the case if it held more positions. This generally will increase the volatility of the Fund’s share price and investment return.

 

principal investment risks OF THE FUNDS

 

New Fund Risk. There can be no assurance that the Mid Cap Value Fund will grow to or maintain an economically viable size, in which case the Board of Directors may determine to liquidate the Fund. The timing of any liquidation may not be favorable to certain individual shareholders.

 

Management Risk. The ability of a Fund to meet its investment objective is directly related to the Advisor’s investment strategies for the Fund. The value of your investment in a Fund may vary with the effectiveness of the Advisor’s research, analysis, and asset allocation among portfolio securities. If the Advisor’s investment strategies do not produce the expected results, the value of your investment could be diminished or even lost entirely.

 

General Market Risk. The market value of a security may move up or down, sometimes rapidly and unpredictably. These fluctuations may cause a security to be worth less than the price originally paid for it, or less than it was worth at an earlier time. Market risk may affect a single issuer, industry, sector of the economy, or the market as a whole. U.S. and international markets have experienced significant volatility in recent years. The securities markets have experienced substantially lower valuations, reduced liquidity, price volatility, credit downgrades, increased likelihood of default, and valuation difficulties, all of which may increase the risks of investing in securities held by a Fund.

 

Equity Market Risk. Equity securities are susceptible to general stock market fluctuations and to volatile increases and decreases in value as market confidence in and perceptions of their issuers change. These investor perceptions are based on various, unpredictable factors including: expectations regarding government, economic, monetary and fiscal policies; inflation and interest rates; economic expansion or contraction; and global or regional political, economic, and banking crises. If you hold common stock, or common stock equivalents, of any given issuer, you would generally be exposed to greater risk than if you held preferred stocks and debt obligations of the issuer because common stockholders, or holders of equivalent interests, generally have inferior rights to receive payments from issuers in comparison with the rights of preferred stockholders, bondholders, and other creditors of such issuers.

 

Value-Style Investing Risk. Value stocks can perform differently from the market as a whole and from other types of stocks. Value stocks may be purchased based upon the belief that a given security may be out of favor. Value investing seeks to identify stocks that have depressed valuations, based upon a number of factors which are thought to be temporary in nature, and to sell them at superior profits when their prices rise in response to resolution of the issues which caused the valuation of the stock to be depressed. While certain value stocks may increase in value more quickly during periods of anticipated economic upturn, they may also lose value more quickly in periods of anticipated economic downturn. Furthermore, there is the risk that the factors which caused the depressed valuations are longer term or even permanent in nature, and that there will not be any rise in valuation. Finally, there is the increased risk in such situations that such companies may not have sufficient resources to continue as ongoing businesses, which would result in the stock of such companies potentially becoming worthless. Value investments are subject to the risk that their intrinsic value may not be recognized by the broad market.

 

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Limited Portfolio Risk. As the Select Value, Mid Cap Value, Value Plus, and International Value Funds invest in a limited number of stocks, a change in the value of any single holding may have a more pronounced effect on a Fund’s net asset value (“NAV”) and performance than would be the case if it held more positions. This generally will increase the volatility of a Fund’s NAV and investment return.

 

Foreign INVESTING RISK. Foreign markets in which the International Value Fund invests can be more volatile than the U.S. market due to increased risks of adverse political, social, regulatory, and economic developments. Foreign security prices can be affected by exchange rate and foreign currency fluctuations, less publicly available information, and different accounting, auditing, legal, and financial standards. Foreign investments may also be less liquid than investments in U.S. issuers. This risk may be heightened in emerging or developing markets.

 

Emerging Markets Risk. The risks of foreign investments typically are greater in emerging and less developed markets where the International Value Fund may invest. For example, political and economic structures in these less developed countries may be new and changing rapidly, which may cause instability and greater risk of loss.

 

Currency Risk. Foreign securities, in which the International Value Fund invests, usually are denominated and traded in foreign currencies, while the Fund values its assets in U.S. dollars. The exchange rates between foreign currencies and the U.S. dollar fluctuate continuously. As a result, the values of the Fund’s non-U.S. investments will be affected favorably or unfavorably by changes in currency exchange rates relative to the U.S. dollar. For example, a Fund may have a significant portion of its assets invested in securities denominated in a particular foreign currency, so the exchange rate between that currency and the U.S. dollar is likely to have a significant impact on the value of the Fund’s investments. On occasion, a Fund may (but is not required to) try to hedge against the risk of loss resulting from currency fluctuation. There can be no guarantee that any hedging activity will be undertaken or, if undertaken, will be successful. Hedging activity or use of forward foreign currency contracts may reduce the risk of loss from currency revaluations, but also may reduce or limit the opportunity for gain and involves counterparty risks, which is the risk that the contracting party will not fulfill its contractual obligation to deliver the currency contracted for at the agreed upon price to a Fund.

 

SMALLER COMPANY SECURITIES risk. Equity securities of the smaller companies in which the Funds may invest generally involve a higher degree of risk than investments in the broad-based equity markets. The security prices of smaller companies generally are more volatile than those of larger companies, they generally will have less market liquidity, and they may be more likely to be adversely affected by poor economic or market conditions. Smaller companies may have lower revenues, limited product lines, less management depth, and a lower share of the market for their products or services as compared to larger companies, any or all of which could give rise to their greater risk. A significant percentage of the outstanding shares of a smaller company may also be held by management of the company, which could cause management to have a greater influence over actions requiring shareholder approval. A Fund’s position in securities of a smaller company may be substantial in relation to the public market for such securities. As a result, it may be difficult at times for a Fund to dispose of such securities at prevailing market prices in order to meet redemptions or other cash needs. The risks of investing in smaller companies generally increase as the size of the companies decreases.

 

The following table shows the median and weighted average market capitalizations as of December 31, 2014, for the companies whose equity securities are owned by the Funds and for the companies included in the indices that are benchmarks for each of those Funds.

 

Market Capitalization of Equity Securities Held by the Funds

(as of 12/31/14)

 

  Median
(in Millions)
Weighted
Average
(in Millions)
Select Value Fund $4,800 $25,100
Russell 3000® Value Index 1,400 103,900
Mid Cap Value Fund 4,500 6,600
Russell Midcap®  Value Index 5,800 12,000
Value Plus Fund 1,000 1,400
Value Fund 317 700
Russell 2000® Value Index 639 1,700
International Value Fund 534 1,200
Russell Global® ex-US Small Cap Value Index 642 1,200

 

TEMPORARY POSITIONS

 

Under adverse market, economic, political, or other conditions, including conditions when Heartland Advisors is unable to identify attractive investment opportunities, each Fund may temporarily invest, without limitation, in liquid reserves such as money market instruments, certificates of deposit, commercial paper, corporate debt securities, variable rate demand notes, Government securities, and repurchase agreements. Each Fund may temporarily invest in fixed income securities of any duration. Temporary investments in liquid reserves are not required, and may not be possible because of market conditions. Such investments also might prevent a Fund from achieving its investment objective, and from participating in market advances or declines to the same extent that it would if the Fund remained more fully invested. The level of liquid reserves across the Funds may vary significantly due to differences in investment judgments made by the Portfolio Managers.

 

25
 

 

PRINCIPAL investment strategies and investment risks

 

PORTFOLIO TURNOVER

 

A Fund’s portfolio turnover rate indicates changes in its portfolio of securities and will vary year to year, as well as within a year. Each Fund may engage in short-term trading if Heartland Advisors anticipates the expected benefits exceed the transaction costs. Portfolio turnover may also be affected by the sale of portfolio securities to meet cash requirements for redemption of shares of a Fund. High portfolio turnover could result in increases in transaction costs, generate realized capital gains that would be taxable to shareholders when distributed, and adversely affect a Fund’s performance.

 

PORTFOLIO HOLDINGS

 

A description of Heartland’s policies and procedures with respect to the disclosure of the Funds’ portfolio securities is available in the Funds’ Statement of Additional Information.

 

The performance information presented for the Select Value Fund on page 3 reflects the exclusion of certain fees that were waived by the Advisor through November 30, 2001. These waivers are no longer in effect. Without these waivers, the total returns of the Select Value Fund for periods prior to December 1, 2001 would have been lower.

 

Pursuant to an operating expense limitation agreement between Heartland Advisors and the Funds, Heartland Advisors has agreed to waive its management fees and/or pay expenses of the Mid Cap Value Fund to ensure that the Mid Cap Value Fund’s total annual fund operating expenses (excluding front-end or contingent deferred sales loads, taxes, leverage, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, dividends or interest expenses on short positions, acquired fund fees and expenses, or extraordinary expenses) do not exceed 1.25% of the Fund’s average net assets for Investor Class Shares and 0.99% for Institutional Class Shares through at least October 31, 2017, and subject to annual re-approval of the agreement by the Board of Directors, thereafter. This operating expense limitation agreement can be terminated only by, or with the consent of, the Board of Directors. Waivers and reimbursements have the effect of lowering the Mid Cap Value Fund’s overall expense ratio and increasing the Mid Cap Value Fund’s overall return to investors.

 

Pursuant to an operating expense limitation agreement between Heartland Advisors and Heartland, Heartland Advisors has agreed to waive its management fees and/or pay expenses of the International Value Fund to ensure that the International Value Fund’s total annual fund operating expenses (excluding front-end or contingent deferred sales loads, taxes, leverage, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, dividends or interest expenses on short positions, acquired fund fees and expenses, or extraordinary expenses) do not exceed 1.49% of the International Value Fund’s average net assets through at least May 1, 2016, and subject to annual re-approval of the agreement by the Board of Directors, thereafter. Any waiver of management fees or payment of expenses made by Heartland Advisors may be reimbursed by the International Value Fund in subsequent fiscal years, if Heartland Advisors so requests. This reimbursement may be requested if the aggregate amount actually paid by the International Value Fund toward operating expenses for such fiscal year (taking into account the reimbursement) does not exceed the applicable limitation on International Value Fund expenses. Heartland Advisors is permitted to be reimbursed for management fee waivers and/or expense payments made in the prior three fiscal years. Any such reimbursement will be reviewed and approved by the Board of Directors. The International Value Fund must pay its current ordinary operating expenses before Heartland Advisors is entitled to any reimbursement of management fees and/or expenses. In addition, any such reimbursement from the International Value Fund to Heartland Advisors will be subject to the applicable limitation on the International Value Fund’s expenses. This operating expense limitation agreement can be terminated only by, or with the consent of, the Board of Directors. Waivers and reimbursements have the effect of lowering the International Value Fund’s overall expense ratio and increasing the International Value Fund’s overall return to investors.

 

Heartland Advisors has voluntarily agreed to waive certain fees and/or reimburse certain  expenses with respect to the Institutional Class Shares of the Select Value, Value Plus, and Value Funds, to the extent necessary to maintain the Institutional Class Shares’  Total Annual Fund Operating Expenses  at a  ratio of 0.99% of average daily net assets. The performance information presented for the Institutional Class Shares of each Fund above reflects the impact of these fee waivers and/or expense reimbursements. Without these fee waivers and expense reimbursements, the total returns of the Institutional Class Shares of each Fund may have been lower. The Advisor may modify or discontinue these waivers and/or reimbursements at any time without notice.

 

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

 

26
 

 

OTHER investment strategies and investment risks

 

In addition to the principal investment strategies discussed above in this Prospectus, each Fund may engage in other non-principal investment strategies discussed below and in the SAI. Unless otherwise stated, investment policies and limitations set forth below and elsewhere in this Prospectus or the SAI that are described in terms of percentages apply at the time a security is purchased.

 

Change or Influence Control over Portfolio Companies. As a passive investor in a portfolio company, each Fund may communicate its views as a shareholder on matters of policy to the company’s management, board of directors, and other shareholders when a policy may affect the value of the Fund’s investment. However, each of the Funds may, from time to time, use its ownership interest in a portfolio company to seek to change or influence control of the company’s management. For example, a Fund might take steps, either individually or as part of a group, (a) to actively support, oppose, or influence a company’s decision-making, (b) to seek changes in a company’s management or board of directors, (c) to effect the sale of all or some of a company’s assets, (d) to vote to participate in or oppose a takeover of a portfolio company or an acquisition by a portfolio company, or (e) to serve as lead plaintiff in a matter related to a portfolio company. A Fund would engage in such activities in an effort to protect and maximize the value of its investment on behalf of the Fund’s shareholders. The extent to which a Fund might invest for purposes of changing or influencing control of management would depend, among other things, on facts and circumstances specific to the issuer, as well as general market conditions.

 

Investing for purposes of changing or influencing control of management could result in additional expenses to a Fund, including expenses associated with operational or regulatory requirements and the ongoing cost of potential litigation. It could also restrict a Fund’s ability to freely dispose of the securities of a portfolio company with respect to which it is deemed to be investing to effect control, which might adversely affect the Fund’s liquidity as well as the sale price of those securities. A Fund’s ability to vote the proxies of the company’s securities could also be restricted. Finally, greater public disclosure is required regarding a Fund’s investment and trading strategies in regulatory filings relating to such securities.

 

It is expected that a Fund would make investments for purposes of changing or influencing control only on a selective basis when Heartland Advisors believes it would be in the best interests of the Fund and its shareholders.

 

Illiquid Securities. No Fund will purchase a security if, as a result, more than 15% of its net assets would be invested in illiquid securities. A determination of whether a security is illiquid is made based upon guidelines established by the Board of Directors and depends upon relevant facts and circumstances. Under those guidelines, the term “illiquid security” generally includes securities subject to restrictions on resale as a matter of contract or law, interest-only and principal-only mortgage-backed securities issued by private issuers, repurchase agreements maturing in more than seven days, and any security that may not be sold or disposed of in the ordinary course of business within seven days at approximately the value at which the Fund has valued it. Each Fund may invest in financial instruments that are purchased in private placements (that is, transactions in which securities have not been registered under federal law) and that are subject to restrictions on resale as a matter of contract or law. Securities that are not deemed to be illiquid under guidelines established by the Board of Directors are not subject to a Fund’s limitation on illiquid securities.

 

Securities issued in Pipe transactions. Each Fund may invest in securities that are purchased in private investment in public equity (“PIPE”) transactions. Securities acquired by a Fund in such transactions are subject to resale restrictions under securities laws. While issuers in PIPE transactions typically agree that they will register the securities for resale by the Fund after the transaction closes (thereby removing resale restrictions), there is no guarantee that the securities will in fact be registered. In addition, a PIPE issuer may require a Fund to agree to other resale restrictions as a condition to the sale of such securities. Thus, a Fund’s ability to resell securities acquired in PIPE transactions may be limited, and even though a public market may exist for such securities, the securities held by the Fund may be deemed illiquid.

 

Private placement Securities. Each Fund may invest in securities that are purchased in private placement transactions. Securities acquired by a Fund in such transactions are subject to resale restrictions under securities laws. In addition, securities acquired in private placements typically are not publicly traded and they may be difficult to sell. Further, because there is generally no public market for these securities, there may be less information publicly available and, thus, it may be difficult to determine their fair value. While securities acquired in private placements are generally presumed to be illiquid, such securities may be ultimately determined to be liquid by the Heartland Board of Directors. Securities that are not deemed to be illiquid under guidelines established by the Board of Directors are not subject to a Fund’s limitation on illiquid securities.

 

Private company Securities. Each Fund is also permitted to invest in securities that are issued by privately held companies. Securities issued by privately held companies are subject to the risks described above under the heading “Private Placement Securities.” Also, privately held companies are not subject to SEC reporting requirements, are not required to maintain their accounting records in accordance with generally accepted accounting principles, and are not required to maintain effective internal controls over financial reporting. As a result, Heartland Advisors may not have timely or accurate information about the business, financial condition, and results of operations of the privately held companies in which a Fund invests. The securities of privately held companies are generally considered illiquid, although such securities may be ultimately determined to be liquid by the Heartland Board of Directors. Securities that are not deemed to be illiquid under guidelines established by the Board of Directors are not subject to a Fund’s limitation on illiquid securities.

 

27
 

 

OTHER investment strategies and investment risks

 

Foreign INVESTING RISK. Each Fund may invest in foreign companies (including depositary receipts) traded both within and outside of the United States. Investments in foreign companies may be subject to certain risks in addition to those normally associated with domestic stocks. These risks are greater with respect to companies domiciled in developing and emerging countries.

 

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; and difficulties in enforcing legal rights (particularly with regard to depositary receipts in which the holders may not have the same rights as shareholders).

 

Moreover, brokerage commissions, fees for custodial services, and other costs related to securities traded on foreign markets generally are greater than in the United States. Foreign securities markets have the potential for less liquidity and more volatility than United States securities markets. 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 trades. The 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.

 

Emerging Markets Risk. The risks of foreign investments typically are greater in emerging and less developed markets. For example, political and economic structures in these less developed countries may be new and changing rapidly, which may cause instability and greater risk of loss. Their securities markets may be less developed and securities in those markets are generally more volatile and less liquid than those in the developed markets. Emerging market countries also are more likely to experience high levels of inflation, deflation, or currency devaluations, which could hurt their economies and securities markets. Certain emerging markets also may face other significant internal or external risks, including a heightened risk of war and ethnic, religious, and racial conflicts. In addition, governments in many emerging market countries participate to a significant degree in their economies and securities markets, which may impair investment and economic growth of companies in those markets. High levels of national debt tend to make such markets also heavily reliant on foreign capital and, therefore, vulnerable to capital flight.

 

Initial Public Offerings. Each Fund may purchase equity securities in initial public offerings (“IPOs”). Such investments may have a magnified performance impact on a Fund due to the typical price volatility of securities sold in IPOs. Investments in IPOs also involve the risks that an active trading market may not develop or be sustained for the securities, that the issuer may not have a significant operating history, or that the issuer may not meet market expectations.

 

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

 

Options and futures can be highly volatile investments and involve certain risks. These strategies require the ability to anticipate future movements in securities prices, interest rates, currency exchange rates, and other economic factors. Heartland Advisors’ attempts to use such investments 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 experience losses if the prices of its options or futures positions move in a direction different than anticipated, or if the Fund was unable to close out its positions due to disruptions in the market or lack of liquidity. Over-the-counter options generally involve greater credit and liquidity risks than exchange-traded options. 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.

 

A Fund’s use of options, futures, and other investment techniques for hedging purposes involves the risk that changes in the value of a hedging investment will not match those of the asset or security being hedged. Hedging is the use of one investment to offset the effects of another investment. Imperfect or no correlation of the values of the hedging instrument and the hedged security or asset might occur because of characteristics of the instruments themselves or unrelated factors involving, for example, the markets on which the instruments are traded. As a result, hedging strategies may not always be successful. While hedging strategies can help reduce or eliminate portfolio losses, they can also reduce or eliminate portfolio gains.

 

Each Fund is limited to 5% of its liquidation value for initial margin and premium amounts, or to an aggregate net notional value of commodity interests that does not exceed 100% of the liquidation value of its portfolio, in each case after taking into account unrealized profits and losses on futures, options, or swaps positions considered non-bona fide hedging under regulations of the Commodities Future Trading Commission.

 

28
 

 

OTHER investment strategies and investment risks

 

Convertible Securities Risk. A convertible security is a fixed-income security (a debt instrument or a preferred stock) which may be converted at a stated price within a specified period of time into a certain quantity of the common stock of the same or a different issuer. Convertible securities are senior to common stock in an issuer’s capital structure, but are subordinated to any senior debt securities. While providing a fixed-income stream (generally higher in yield than the income derivable from common stock but lower than that afforded by a similar non-convertible security), a convertible security also gives an investor the opportunity, through its conversion feature, to participate in the capital appreciation of the issuing company depending upon a market price advance in the convertible security’s underlying common stock.

 

Preferred Stock Risk. A preferred stock has a blend of the characteristics of bonds and common stock. It may offer the higher yield of a bond and has priority over common stock in equity ownership, but it does not have the seniority of a bond and, unlike common stock, its participation in the issuer’s growth may be limited. Preferred stock has preference over common stock in the receipt of dividends or in any residual assets or both after payment to creditors should the issuer be dissolved. Although the dividend on a preferred stock may be set at a fixed annual rate, in some circumstances it may be changed or discontinued by the issuer.

 

Debt Securities. Debt securities, such as notes and bonds, are subject to credit risk and interest rate risk. Credit risk is the possibility that an issuer of an instrument will be unable to make interest payments or repay principal when due. Changes in the financial strength of an issuer or changes in the credit rating of a security may affect its value. Interest rate risk is the risk that interest rates may increase, which tends to reduce the resale value of certain debt securities. Debt securities with longer maturities are generally more sensitive to interest rate changes than those with shorter maturities. Changes in market interest rates do not affect the rate payable on an existing debt security, unless the instrument has adjustable or variable rate features, which can reduce its exposure to interest rate risk. Changes in market interest rates may also extend or shorten the duration of certain types of instruments, such as asset-backed securities, thereby affecting their value and the return on your investment.

 

HIGH-YIELD DEBT SECURITIES. Each Fund’s investment program permits it to invest in non-investment grade debt obligations, sometimes referred to as “junk bonds” (hereinafter referred to as “lower-quality securities”). Lower-quality securities are those securities that are rated lower than investment grade and unrated securities believed by Heartland Advisors to be of comparable quality. Although these securities generally offer higher yields than investment grade securities with similar maturities, lower-quality securities involve greater risks, including the possibility of default or bankruptcy. In general, they are regarded to be more speculative with respect to the issuer’s capacity to pay interest and repay principal.

 

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

 

INDEX DEFINITIONS

 

The Russell Midcap® Value Index measures the performance of those Russell Midcap® companies with lower price-to-book ratios and lower forecasted growth characteristics.

 

The Russell Global® ex-US Small Cap Value Index measures the small-cap value segment of the global equity universe as defined by Russell’s leading style methodology, excluding companies assigned to the U.S.

 

The Russell 3000® Value Index measures the performance of those Russell 3000® Index companies with lower price-to-book ratios and lower forecasted growth values.

 

The Russell 2000® Value Index measures the performance of those Russell 2000® companies with lower price-to-book ratios and lower forecasted growth values.

 

Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group.

 

All indices are unmanaged. It is not possible to invest directly in an index.

 

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OTHER investment strategies and investment risks

 

OTHER DEFINITIONS

 

Total return measures the change in the share price of a Fund and assumes the reinvestment of net investment income and net capital gain distributions. Cumulative total return is actual return for a given period, but does not indicate how much return fluctuated during the period. Average annual total return is the hypothetical constant annual return that would have produced a Fund’s cumulative return for a given period. It should not be confused with actual annual returns, the sum of which over a given period produces a Fund’s cumulative total return. After-tax returns measure the impact of assumed federal income taxes calculated using the highest historical individual federal marginal rates. After-tax returns do not reflect state or local taxes and actual after-tax returns depend on the investor’s tax situation and may differ from those shown. Return after taxes on distributions measures the effect of taxable distributions, but assumes the underlying shares are held for the entire period. Return after taxes on distributions and sale of Fund shares shows the effect of both taxable distributions and any taxable gain or loss that would be realized if the underlying shares were purchased at the beginning and sold at the end of the period.

 

INFORMATION REGARDING Investment returns

 

Portfolio Performance vs. Index Performance. The information about each Fund’s past performance includes a comparison of the Fund’s average annual total returns to a broad-based market index believed to be representative of the Fund’s portfolio. An index is not available for a direct investment, and past performance cannot guarantee or predict future results. Unlike an index, each Fund is affected by operating expenses and cash flow activity caused by daily purchases and redemptions. In addition, a Fund’s investment portfolio will differ from the index in terms of the specific securities it holds and in terms of the number and size of holdings or securities, their relative sector and industry weightings, the market capitalization of individual securities, and the median capitalization of the index and the Fund overall. For these reasons, the performance of each Fund will vary from that of its comparative index. Fee waiver may have been in effect for a Fund during the periods in which performance information is presented. Without fee waivers, the Fund’s returns and yields would have been lower.

 

30
 

 

HISTORICAL PERFORMANCE

 

growth of a hypothetical $10,000 investment

 

The following tables show how the growth of a hypothetical $10,000 investment in Investor Class Shares in each of the Funds for the period since inception until December 31, 2014 compared to the growth of a securities market index. The Select Value, Value Plus, and Value Funds began offering Institutional Class shares on May 1, 2008, and the Mid Cap Value Fund began offering Institutional Class Shares on October 31, 2014, which are not presented here. The tables do not reflect the deduction of taxes that a shareholder would pay on distributions or redemptions of Fund shares. Past performance (before and after taxes) does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that a shareholder’s shares, when redeemed, may be worth more or less than the original cost. Subject to certain exceptions, shares of a Fund redeemed or exchanged within 10 days (90 days for the International Value Fund) of purchase are subject to a 2% redemption fee. Performance does not reflect this fee, which, if deducted, would reduce an individual’s return. Heartland Advisors voluntarily waived a portion of its fees with respect to the Select Value Fund through November 30, 2001. These waivers are no longer in effect. Without these waivers, the total returns of the Select Value Fund for periods prior to December 1, 2001 would have been lower. Heartland Advisors has contractually agreed to waive its management fees and/or reimburse expenses of the International Value Fund through at least May 1, 2016 and of the Mid Cap Value Fund through at least October 31, 2017. Without these waivers and/or reimbursements, the total returns of these Funds would have been lower.

 

Performance data quoted for periods prior to October 1, 2013 for the International Value Fund is that of the Predecessor Fund (the Heartland International Value Fund, a series of Trust for Professional Managers), which commenced operations on October 1, 2010.

 

The Funds, except the International Value Fund, also offer Institutional Class shares, performance for which is not reflected in the graphs. The performance of Institutional Class shares may be higher or lower than the performance of the Investor Class shares shown in the graphs based upon differences in fees paid by shareholders investing in the Investor Class shares and Institutional Class shares.

 

Select Value Fund – Investor Class Shares

Growth of a Hypothetical $10,000 Investment Since Inception – 10/11/96

 

 

 

Mid Cap Value Fund – Investor Class Shares

Growth of a Hypothetical $10,000 Investment Since Inception – 10/31/14

 

 

 

Value Plus Fund – Investor Class Shares

Growth of a Hypothetical $10,000 Investment Since Inception – 10/26/93

 

 

 

Value Fund – Investor Class Shares

Growth of a Hypothetical $10,000 Investment Since Inception – 12/28/84

 

 

 

International Value Fund – Investor Class Shares

Growth of a Hypothetical $10,000 Investment Since Inception – 10/01/10

 

 

 

31
 

 

PRIOR PERFORMANCE FOR SIMILAR ACCOUNTS

 

Prior Performance for Similar Accounts  

 

The following tables contain certain performance information for accounts managed by Heartland Advisors with objectives, policies and strategies substantially similar to the Mid Cap Value Fund, known as the Heartland Mid Cap Value Composite (the “Composite”). This Composite was created in 1993 and consists of fully discretionary equity portfolios primarily invested in companies with market capitalizations between $1 billion and $15 billion. The Composite seeks long-term capital appreciation and modest current income. The minimum account size for this composite is $500,000.

 

As of March 31, 2015, the Composite consisted of 11 accounts.

 

The performance information is limited and may not reflect performance in all economic cycles. The accounts in the Composite were not subject to certain investment limitations, diversification requirements, and tax and other restrictions imposed on registered investment companies such as the Mid Cap Value Fund, including those under the Investment Company Act of 1940, as amended, and the Internal Revenue Code of 1986, as amended, which, if applicable, might have adversely affected the performance of the private accounts in the Composite.

 

Composite performance reflects the deduction of all fees and expenses charged by Heartland Advisors and any transaction costs. The Composite’s performance would have been lower than that shown if the accounts included in the Composite had been subject to the fees and expenses of the Mid Cap Value Fund’s Investor Class shares. The U.S. Dollar is the currency used to express performance. The investment management fee schedule for the Composite is as follows: 1.00% per annum on the first $5,000,000 and 0.85% per annum on the next $10,000,000. Fees on accounts over $15,000,000 are negotiable. Actual investment advisory fees may vary. Further information on the fees can be found in Part 2A of Heartland Advisors’ Form ADV.

 

The Composite’s results are time-weighted rates of return, calculated monthly.  Net returns presented are net of advisory fees and transaction costs (if any).  This methodology differs from the guidelines of the SEC for calculating performance of mutual funds.  

 

This performance information is not the historical performance of the Mid Cap Value Fund. Past performance is no guarantee of future results, and the past performance of the Composite is not indicative of the future performance of the Mid Cap Value Fund. The tables compare the Composite’s returns to that of a broad-based securities market index that is unmanaged. It is not possible to invest directly in an index.

 

Mid Cap Value Composite – Average Annual Total Returns for the Periods Ended MARCH 31, 2015

 

  1 Year 3  Years 5 Years 10 Years
Composite Net 9.82% 16.87% 13.11% 12.60%
Russell Midcap® Value Index (reflects no deduction for fees, expenses or taxes) 11.70 18.60 15.84 9.61

 

Mid Cap Value Composite – Calendar Year Total Returns

 

  Composite Net Russell Midcap® Value
Index (reflects no
deduction for fees,
expenses or taxes)
2015(1) 2.89% 2.42%
2014 10.78 14.75
2013 39.46 33.46
2012 10.49 18.51
2011 -7.72 -1.38
2010 25.29 24.75
2009 35.14 34.21
2008 -22.19 -38.44
2007 5.13 -1.42
2006 24.10 20.22
2005 18.41 12.65

(1) For the period from January 1, 2015 – March 31, 2015.

 

Heartland Advisors, Inc. (“the Firm”) claims compliance with the Global Investment Performance Standards (GIPS©.) The Firm is a wholly owned subsidiary of Heartland Holdings, Inc. and is registered with the Securities and Exchange Commission.  For a complete list and description of Heartland Advisors’ composites, additional information regarding policies for valuing portfolios and calculating performance, and/or a complete presentation that adheres to the GIPS© standards, contact Institutional Sales at Heartland Advisors, Inc., 789 N. Water Street, Suite 500, Milwaukee, WI 53202 or call 888-505-5180.

 

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How to Invest

 

PURCHASING SHARES OF THE FUNDS

 

Two Classes of Shares. Heartland offers two classes of shares: Investor Class Shares and Institutional Class Shares. Each Class has its own sales charge, expense structure, and minimum investment amounts, allowing you to choose the Class that best meets your situation.

 

The following table shows the available classes of shares and highlights some of the differences between the two classes. The International Value Fund only offers Investor Class Shares.

 

 

Features of Class

Investor Class
Shares
Institutional Class
Shares
Eligible investors Open to All
Investors*
Open only to
Eligible Investors(1)*
Front-end sales charge None None
Contingent deferred sales charge None None
Redemption Fee(2) 2% 2%
12b-1 Fee Up to 0.25% of
average daily net
assets
None
Minimum investment amount(3)(4) $1,000 $500,000

 

(1)Please refer to “Purchasing Institutional Class Shares” below for a description of investors that are eligible to purchase Institutional Class Shares.

 

(2)As a percentage of the then-current net asset value of any shares of the Fund that are redeemed or exchanged within 10 days (90 days for the International Value Fund) after they were purchased.

 

(3)Minimum investment amount may vary according to type of account. Please refer to “Purchasing Investor Class Shares” and “Purchasing Institutional Class Shares” below for a description of minimum investment amounts.

 

(4)Each Fund may waive or lower its investment minimums for any reason. Different minimums may apply to accounts opened through third parties.

 

* The Value Plus Fund is closed to most new investors. See “Purchasing Shares Generally” for new account eligibility criteria.

 

Purchasing Investor Class Shares

 

Eligible Investors. Investor Class Shares are offered to all types of investors directly and through mutual fund supermarkets or platforms offered by broker-dealers or other financial intermediaries.

 

Minimum Investments. If you purchase Investor Class Shares directly from a Fund, your initial investment must be for a minimum of $1,000, except for Individual Retirement Accounts (“IRAs”), Coverdell Education Savings Accounts (“ESAs”), and regular accounts opened with an automatic investment plan. Subsequent purchases made, other than through reinvestment of distributions or an automatic investment plan, must be for a minimum of $100. Each Fund may waive or lower its investment minimums for any reason. Different minimums may apply to accounts opened through third parties. The following table shows the minimum initial amounts that apply to your purchases of Investor Class Shares of a Fund.

 

  Regular
Account(1)
IRA
Account
Coverdell
ESA
Select Value Fund $1,000 $500 $500
Mid Cap Value Fund 1,000 500 500
Value Plus Fund 1,000 500 500
Value Fund 1,000  500  500
International Value Fund 1,000  500  500

 

(1)Regular accounts include joint accounts, individual accounts, custodial accounts, trust accounts, and corporate accounts. The minimum initial investment is waived when an account is established with an automatic investment plan.

 

Fees. Investor Class Shares of the Funds are sold without a sales charge. The Investor Class Shares of each Fund are subject to a 12b-1 fee calculated at the annual rate of up to 0.25% of the average daily net assets of the Investor Class Shares of that Fund.

 

Purchasing Institutional Class Shares

 

Eligible Investors. Institutional Class Shares are offered to all types of investors directly and through mutual fund supermarkets or platforms offered by broker-dealers or other financial intermediaries, provided that the investor meets the minimum investment threshold for Institutional Class Shares discussed below.

 

Minimum Investments. The minimum initial investment for the Institutional Class Shares, including for IRAs, is $500,000 and for additional purchases of Institutional Class Shares is $100. This minimum may be waived for accounts held in qualified retirement or profit sharing plans opened through a third party service provider or recordkeeper. Investors generally may meet the minimum investment amount by aggregating multiple accounts with common ownership or discretionary control within a single Fund.

 

Fees.    Institutional Class Shares of the Funds are sold without a sales charge and are not subject to a 12b-1 fee.

 

Purchasing Shares Generally

 

Eligibility to Buy Shares. Each Fund is available for purchase only by residents of the United States and certain U.S. territories. Please contact Heartland Advisors or the Distributor for a list of the U.S. territories. After opening an account, if you cease to reside in one of these areas, you will be ineligible to purchase additional shares, except those purchased through reinvestment of net investment income and net capital gain distributions.

 

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How to Invest

 

Effective May 16, 2011, the Value Plus Fund was closed to most new investors. The closing is intended to promote long-term investments in the Fund, thereby contributing to a more stable asset base and the continued efficient management of the Value Plus Fund. This decision was made after considering the current size of the Value Plus Fund and the availability of common stocks of smaller companies that meet the Value Plus Fund’s investment criteria.

 

If you were a shareholder in the Value Plus Fund prior to May 16, 2011, you may make additional investments in the Value Plus Fund and reinvest your net investment income and net capital gain distributions, even though the Value Plus Fund has closed, unless Heartland Advisors considers such additional purchases not to be in the best interests of the Value Plus Fund and its other shareholders.

 

Notwithstanding the closing of the Value Plus Fund, you may open a new account in the Value Plus Fund if that account meets the Fund's other criteria (for example, minimum initial investment) and:

 

·You were a shareholder of the Fund prior to May 16, 2011, either in your own name or as beneficial owner of shares held in someone else's name. For example, someone holding shares for your benefit as a nominee, custodian, or omnibus account may not open a new account for its own benefit or for the benefit of another customer. However, you would be eligible to open a new account in your own name;

 

·You are a shareholder with combined balances of $100,000 in any of the Heartland Funds, regardless of whether you hold those shares in your own name or as the beneficial owner of shares held in someone else's name;

 

·You receive shares of the Value Plus Fund as a gift from an existing shareholder of the Fund;

 

·You are opening a traditional or Roth IRA account;

 

·You are opening a trust account;

 

·You are opening a foundation account;

 

·You are an employer-sponsored retirement account or any other qualified retirement or profit-sharing plan (such as plans qualified under Sections 401, 403, and 457 of the Internal Revenue Code);

 

·You are a director or officer of Heartland Funds, or a partner or employee of Heartland Advisors or its affiliates, or a member of the immediate family of any of those people;

 

·You are a client of Heartland Advisors or you have an existing business relationship with Heartland Advisors and, in the judgment of Heartland Advisors, your investment in the Value Plus Fund would not adversely affect Heartland Advisors’ ability to manage the Value Plus Fund effectively;

 

·You are a client of a registered investment advisor; or

 

·You are purchasing Value Plus Fund shares through a sponsored fee-based program and shares of the Fund are made available to that program pursuant to an agreement with Heartland Funds or ALPS Distributors and Heartland Funds or ALPS Distributors has notified the sponsor of that program that shares may be offered through such program and has not withdrawn that notification.

 

An employer-sponsored retirement account or any other qualified retirement or profit-sharing plan that is a Value Plus Fund shareholder may continue to buy shares in the ordinary course of the plan’s operations, even for new plan participants.

 

Heartland may ask you to verify that you meet one of the guidelines above prior to permitting you to open a new account in the Value Plus Fund. Heartland may decline to permit you to open a new account if Heartland either determines you do not meet these guidelines or Heartland reasonably concludes that allowing you to do so would not be in the best interests of the Value Plus Fund and its shareholders, even though you may meet these guidelines.

 

Heartland’s ability to impose the guidelines above with respect to accounts held by intermediaries may vary depending on the systems capabilities of those intermediaries, applicable contractual and legal restrictions, and cooperation of those intermediaries.

 

Heartland does not permit multiple investors to pool their investments in order to meet the eligibility requirements, except as otherwise noted above. Each individual in a pooled vehicle must meet one of the eligibility categories set forth above.

 

Call a Shareholder Services Representative directly at 1-800-432-7856 if you have questions about your ability to invest in the Funds.

 

Time of Purchase; Form of Payment. Your purchase of a Fund’s shares will be made at the net asset value per share next determined after the Fund or its authorized agent receives your purchase request. Your order will not be accepted unless your application or other documentation is complete, your identity is confirmed, and payment in the proper form and amount accompanies your application. Payment must be in U.S. dollars by a check drawn on a bank in the United States, wire transfer, or electronic transfer. The Funds will not accept cash, traveler’s checks, starter checks, money orders, third party checks (except for properly endorsed IRA rollover checks), checks drawn on foreign banks, or checks issued by credit card companies or Internet-based companies. Shares purchased by checks that are returned will be canceled and you will be liable for any losses or fees incurred by the Fund or its agents, including bank handling charges for returned checks. Once accepted by the Fund or its authorized agent, you may not cancel or revoke your purchase request, but you may redeem your shares at the next determined net asset value for the Fund, which may be subject to a redemption fee. However, the Fund may withhold these redemption proceeds until the Fund is reasonably satisfied it has received your payment, which may take up to 15 days.

 

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How to Invest

 

Purchases Through Third Parties. You may purchase shares through a third party broker-dealer or other financial intermediary, but Heartland reserves the right to refuse purchases through any intermediary arrangement that, among other reasons, the officers of Heartland determine employs investment strategies that are not in the best interests of the Funds or their shareholders. Shares purchased through third parties may be subject to special fees, such as transaction fees, different investment minimums and other conditions imposed by these third parties, that do not apply if you purchase your shares directly from a Fund. Third parties also may place limits on your ability to use the shareholder services or receive shareholder information described in this Prospectus.

 

Heartland has allowed some third parties to authorize selected designees to accept purchase orders for the third party on a Fund’s behalf. If you purchase shares through a third party which is also an authorized agent of the Funds, your order will be processed at the net asset value per share next determined after the third party (or its authorized designee) receives your order.

 

If you place an order for Fund shares through a financial intermediary that is not an authorized agent of the Funds in accordance with such financial intermediary’s procedures, and such financial intermediary then transmits your order to the Funds in accordance with the Funds’ instructions, your purchase will be processed at the net asset value next determined after the Funds receive your order from that intermediary. The financial intermediary must promise to send to the Funds immediately available funds in the amount of the purchase price in accordance with the Funds’ procedures. If payment is not received within the time specified, the Funds may rescind the transaction and the financial intermediary will be held liable for any resulting fees or losses.

 

If you purchase a Fund through a broker-dealer or other financial intermediary (such as a bank), the Funds and its investment advisor may pay the intermediary for the sale of Fund shares and related services. These payments may influence the broker-dealer or other intermediary and your salesperson to recommend a Heartland Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.

 

PURCHASES by Shareholders Who Are Not Individuals. For corporate, trust, partnership, and other institutional accounts, additional documentation to substantiate the existence of the organization (i.e., Articles of Incorporation, Trust Agreements, Partnership Agreements, or other official documents) is required to open an account.

 

How to Purchase Shares

 

By Mail

 

To open an account, please complete one of the following:

· Account Application

 

· IRA Application

 

· Coverdell ESA Application

 

Additional IRA Forms and/or organizational documents may be required.

 

Please make your purchase check payable to Heartland Funds and mail the completed, signed application, along with your investment check, to the appropriate address below.

 

via U.S. Postal Service
Heartland Funds
PO Box 177
Denver, CO 80201-0177
via Express Courier
Heartland Funds
c/o ALPS Fund Services, Inc.
1290 Broadway, Suite 1100
Denver, CO 80203

 

The Funds do not consider the U.S. Postal Service or other independent delivery services to be their agents. Therefore, deposit in the mail or with such services, or receipt at the Heartland Funds’ post office box, of purchase orders or redemption requests does not constitute receipt by the Funds.

 

To add to an account, detach the Additional Investment Form from your account statement and submit with your check payable to Heartland Funds to the appropriate address listed above. You may also make additional investments through the Internet by logging into your account. Please note that bank instructions must be established on your account prior to the transaction.

 

By Telephone

 

If you  have already opened an account with Heartland Funds and established your bank account information, you may call Heartland Funds at 1-800-432-7856 to request a purchase of shares by authorizing the amount to be drafted from your bank account. In order to purchase by telephone, you must add the telephone purchase option to your existing account by completing the Account Maintenance Form. Generally, purchases will be made at the next determined closing price after instructions are received. Transactions placed by telephone for which Heartland is unable to successfully draft from your bank account will be canceled.

 

By Internet

 

To open an account by Internet, please visit heartlandfunds.com

Some account types that require additional documentation may not be opened online. All online applications submitted are subject to review and will be confirmed upon acceptance.

 

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How to Invest

 

When establishing an account online, you will be required to provide active bank account information to facilitate transactions.

 

You may also make additional investments through the Internet by logging into your account. Transactions placed by Internet for which Heartland is unable to successfully draft from your bank account will be canceled.

 

By Wire

 

To open an account by wire, please complete one of the following:

·Account Application

 

·IRA Application

 

·Coverdell ESA Application

 

Additional IRA Forms and/or organizational documents may be required.

 

Contact Heartland Shareholder Services at 1-800-432-7856 for further instructions. If Heartland Funds is not informed of the new account and wire purchase prior to market close on the business day wire instructions are delivered to Heartland Funds or its agents, your purchase may be delayed or canceled.

 

Please note that your financial institution may charge a fee to wire funds.

 

By Automatic Investment

 

To set up an Automatic Investment Plan, complete the automatic investment section of the Account Application or the Account Maintenance Form (for existing accounts) and attach a voided check. Return the form to the appropriate address. Automatic Investment Plans may be established for a minimum of $50 per bank draft.

 

By Exchange

 

New accounts may be opened by exchange and will have identical registration and services as the account from which the funds were exchanged. Please note that an exchange may be subject to an early redemption fee and will be treated as a redemption of shares upon which you will realize a taxable gain or loss, unless your Fund shares are held in a tax-deferred account. Please consult with your tax advisor.

 

Exchanges may be placed in writing, by telephone, or through the Internet by logging into your established Heartland Funds account.

 

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How to redeem

 

Redeeming Shares Generally

 

Time of Redemption; Form of Instructions and Payment. Your shares will be redeemed at the net asset value per share next determined after your instructions are received by the Funds or their authorized agent. A redemption order will not be accepted unless the order and related information are complete. The Funds will not accept an order with instructions for redemption on a particular date or at a particular price. The Funds use procedures reasonably designed to authenticate telephone instructions including, for example, requesting personal identification information from callers. The Funds are not liable for any losses due to unauthorized or fraudulent telephone instructions if these procedures are followed. Once accepted by the Funds or their authorized agent, you may not cancel or revoke your redemption order.

 

Available proceeds are generally mailed within two business days, or wired on the next business day, after a Fund or its authorized agent accepts your redemption request, although they could be delayed for up to seven days. If redemption instructions are received for shares that have not been paid for, your shares will be redeemed, but the Funds reserve the right to hold the proceeds until payment of the purchase price can be confirmed, which may take up to 15 days. This type of delay can be avoided by purchasing shares by federal funds wire. The Funds do not guarantee the time of receipt of your proceeds and are not responsible for delays in mail or wire services. In limited circumstances, as permitted by the Securities and Exchange Commission (“SEC”) (such as when the New York Stock Exchange (“NYSE”) is closed or trading is restricted, or when an emergency exists), the Funds may elect to suspend the redemption of shares.

 

Generally, proceeds will be paid in cash, but the Funds reserve the right to pay redemptions in the amount of more than $250,000 or one percent of the net assets of the Fund during any 90-day period for any one shareholder “in kind,” which means you would be paid in portfolio securities of the Fund being redeemed. If this occurred, you might incur transaction costs when you sell the portfolio securities. Portfolio securities may be illiquid and may not be saleable at the time they are received. For federal income tax purposes, redemptions paid in kind are taxed in the same manner as redemptions paid in cash.

 

If you choose to have your redemption proceeds mailed to you and either the United States Postal Service is unable to deliver the redemption check to you or the check remains outstanding for at least six months, the Funds reserve the right to reinvest the check in shares of the Fund at its then current net asset value or take other measures as allowable by law unless, and until, you give the Funds different instructions. No interest will accrue on amounts represented by uncashed redemption checks.

 

Redemptions by Shareholders Who Are Not Individuals. For corporate, trust, partnership, and other institutional accounts, the persons signing the redemption request should also indicate their office or other fiduciary capacity. A certified corporate resolution evidencing the signing officer’s authority to sign on behalf of a corporate shareholder is also required. Executors, administrators, guardians, trusts, and other institutional shareholders should call Heartland prior to mailing their instructions to determine if other documentation may be required.

 

Redemptions Through Third Parties. You may redeem shares through a third party broker-dealer or other financial institution provided the third party presents documentation satisfactory to the Funds indicating it is your authorized agent. Third parties may charge fees for their services and impose terms or conditions that do not apply if you do business directly with the Funds. Heartland has allowed some third parties to authorize selected designees to accept redemption orders for the third party on the Funds’ behalf. If you redeem shares through a third party which is also an authorized agent of the Funds, your order will be processed at the net asset value per share next determined after the third party (or its authorized designee) receives your order; orders through a non-authorized intermediary will be processed at the net asset value per share next determined after receipt of the order by the Funds.

 

Involuntary Redemption. If you do not participate in an Automatic Investment Plan or do not qualify for an exemption from the minimum initial investment for a particular Fund and/or Share Class, and your account value with respect to the Fund’s shares falls below $500 for Investor Class Shares or $400,000 for Institutional Class Shares, for three consecutive months or more, we may redeem all of your shares in that account, at the Fund’s net asset value per share next determined after we redeem your shares, upon 60 days’ advance notice to you. You may avoid an involuntary redemption by making additional investments to bring your account value up to at least $500 for Investor Class Shares or $400,000 for Institutional Class Shares.

 

Early Redemption Fee. Shares of any Heartland Fund that are redeemed or exchanged within 10 days (90 days for the International Value Fund) after purchase will be assessed a 2% fee on the net asset value of the shares next determined after your request for redemption is received. The fee will apply to shares being redeemed or exchanged in the order in which they are purchased, treating shares that have been held the longest in an account as being redeemed first. The fee is paid to the applicable Fund and is deducted from your redemption proceeds. The purpose of this early redemption fee is to discourage market timing and other short-term trading in the Funds. Short-term trading may be disruptive to the Funds’ normal investment operations and harmful to the interests of long-term shareholders. Heartland reserves the right to modify the terms of or terminate this fee at any time upon notice to shareholders.

 

The early redemption fee will be waived under the following circumstances:

 

·For shares held in an account of certain retirement or profit-sharing plans;

 

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How to redeem

 

·For shares held in tax-favored savings plans;

 

·For shares held in asset allocation programs, wrap accounts, or certain similar accounts, if approved by Heartland;

 

·For shares purchased by automatic reinvestment of income or capital gains distributions from any Heartland Fund;

 

·For shares purchased through an automatic investment plan; and

 

·For shares redeemed through a systematic withdrawal plan.

 

In addition, the early redemption fee may be waived if the Funds do not have the capability to charge the fee. For example, this may occur if the Funds cannot reasonably identify a shareholder who trades through an omnibus account held by a third party or financial intermediary, or reasonably detect short-term trading through such an account. In addition, certain third parties or financial intermediaries may apply different or additional redemption fees or charges.

 

How to Redeem Shares

 

By Mail

 

Provide a letter of instruction that includes:

 

·The names and signatures of all account owners

 

·Your Heartland account number

 

·Your telephone number

 

·The dollar amount or number of shares that you would like to redeem (sell)

 

·Any special payment instructions

 

·Any special documents requested by Heartland to assure proper authorization for the redemption

 

·IRA redemptions must include a statement of withholding. If no statement is made, Heartland Funds will withhold 10%.

 

We will mail the proceeds to the address on the account unless otherwise requested in your written instructions. Instructions for redemptions over $50,000, including those through IRA transfers, and those that request delivery to a bank account or address other than the address of record on the account may require a medallion signature guarantee.

 

Please mail your redemption instructions to Heartland Funds at the appropriate address below.

 

via U.S. Postal Service
Heartland Funds
PO Box 177

Denver, CO 80201-0177

via Express Courier
Heartland Funds
c/o ALPS Fund Services, Inc.
1290 Broadway, Suite 1100
Denver, CO 80203

 

The Funds do not consider the U.S. Postal Service or other independent delivery services to be their agents. Therefore, deposit in the mail or with such services, or receipt at the Heartland Funds’ post office box, of purchase orders or redemption requests does not constitute receipt by the Funds.

 

By Telephone

 

Call a Heartland Funds’ representative toll-free at 1-800-432-7856 to request your redemption. Redemption requests for an IRA or Coverdell ESA may be allowed over the phone in limited circumstances, that may include, normal, pre-mature, and pre-mature exempt distributions. Heartland reserves the right to request that any redemption request be made in writing. You will be asked to provide personal identification information to confirm your identity. A check will be mailed to the address of record for the account unless other arrangements have been pre-authorized. Express mail delivery is available upon request for an additional charge (currently $22.00, subject to change) and additional charges may apply for Saturday delivery.

 

Wire and Electronic Funds transfer services are available; however, they must be pre-authorized in writing. Contact a representative for information on adding this option to your account. Wire transfers are subject to a fee (currently $4.00, subject to change).

 

By Internet

 

Shareholders who hold their account directly with Heartland may redeem shares by accessing their account online at heartlandfunds.com. Redemption proceeds from online transactions may be mailed to the address of record, or may be sent electronically to a bank account that has been previously established for this purpose.

 

By Systematic Withdrawal

 

Call a Heartland Funds representative toll-free at 1-800-432-7856 to request or visit our website at heartlandfunds.com to download an Account Maintenance Form to add a systematic withdrawal plan to your account.

 

HOW MAY WE HELP YOU?

 

1-800-432-7856

 

heartlandfunds.com

 

If you wish to make a telephone transaction under one of the purchase or redemption options described, please call Shareholder Services at 1-800-432-7856 or 414-289-7000. If you have a question about investing or need forms described above, call Shareholder Services at either number or visit our website at heartlandfunds.com.

 

Please note that you may terminate or change any option you elect at any time upon five days’ advance notice to the Funds.

 

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HOW TO RECEIVE ACCOUNT INFORMATION

 

By Telephone

 

Call 1-800-432-7856

 

Heartland Funds’ representatives are available to answer your questions from 8:00 a.m. to 7:00 p.m. Central Time, Monday through Friday.

 

Account balance information is also available over the automated telephone line 24 hours a day, 7 days per week. You will be asked to establish a personal identification number for account access.

 

Over the Internet

 

Shareholders who hold their account directly with Heartland may visit our website at heartlandfunds.com and click on the “Shareholder Log In” link. Follow the registration/log in instructions to access your account. You may view account balances, registration, and history. Please refer to “E-Delivery of Fund Documents,” on page 42, for additional information regarding receiving fund documents by E-Delivery.

 

By Mail

 

Account statements are mailed at the end of each calendar quarter. If you would like to receive a printed statement at any time, please contact Shareholder Services at 1-800-432-7856.

 

EXCHANGING SHARES

 

Unless you instruct the Funds that you do not want this service, you are automatically permitted to purchase shares of any Heartland Fund with the redemption proceeds from your account in any other Heartland Fund. This type of transaction is referred to as an “exchange” and may be effected by writing or calling the Funds. Subject to compliance with applicable minimum initial and subsequent investment requirements and other restrictions applicable to the Fund you would like to purchase, you may exchange your shares of any Fund for shares of the same Class of any other Heartland Fund. Before engaging in any exchange, you should obtain from Heartland and read the current Prospectus for the Fund you intend to purchase. Telephone exchanges may only occur between identically registered accounts.

 

Investments in any Heartland Fund are subject to the terms and conditions of that Fund’s Prospectus. Exchanges are subject to the early redemption fee discussed above and the excessive account activity restrictions discussed below. You may obtain a current Prospectus by calling 1-800-432-7856 or visiting heartlandfunds.com.

 

You should bear in mind, with regard to all exchanges, that an exchange of shares is considered a redemption of the shares of the mutual fund from which you are exchanging, and a purchase of shares of the mutual fund into which you are exchanging. Accordingly, you must comply with all of the conditions on redemptions for the shares being exchanged, and with all of the conditions on purchases for the shares you receive in the exchange. Moreover, for tax purposes you will be considered to have sold the shares exchanged, and you may realize a gain or loss for federal income tax purposes on that sale. These exchange privileges may be modified or terminated at any time.

 

OTHER POLICIES

 

Customer Identification Program. Heartland has adopted a customer identification program as required by the USA PATRIOT Act, as amended. The USA PATRIOT Act is designed to help the government fight the funding of terrorism and money laundering activities. It specifically requires all financial institutions, including mutual funds, to obtain, verify, and record information that identifies each person who opens an account.

 

Under Heartland’s customer identification program, when you open an account we will ask for your name, street address (or APO/FPO), date of birth, social security number, and other information that will allow us to confirm your identity. Corporate accounts will require other similar information. We may also ask to see other identifying documents. Your shares will be purchased at the net asset value next calculated after Heartland confirms your identity.

 

Heartland reserves the right not to open an account or process any purchases, exchanges, or redemptions unless and until we can confirm your identity. We also may close an account if there are any discrepancies in the identifying information you have provided. If your account is closed for this reason, your shares will be redeemed at the net asset value next determined after the account is closed.

 

Excessive Account Activity. An excessive number of purchases and redemptions by a shareholder (short-term trading) may be disadvantageous to a Fund and its shareholders. Frequent purchases and redemptions of Fund shares may present certain risks to Fund shareholders such as dilution in the value of Fund shares held by long-term investors, interference with the efficient management of the Fund’s portfolio, increased brokerage, transaction and administrative costs, and adverse tax consequences. Heartland and its Board of Directors have adopted policies and procedures with respect to frequent purchases and redemptions of shares of the Funds by shareholders, which are intended to discourage such activity, including the imposition of a 2% fee on redemptions or exchanges of Fund shares made within 10 days (90 days for the International Value Fund) of purchase. See “Redeeming Shares Generally - Early Redemption Fee.” Heartland also seeks to identify and detect frequent trading activity that may be disruptive to the Funds, although if such activity is made through omnibus accounts detection may be difficult. Heartland reserves the right to restrict or prohibit any purchase or exchange, and to terminate investment or exchange privileges, if the officers of Heartland determine, in their sole discretion, that any trading activity by a shareholder is not in the best interest of the Fund or its other shareholders. Certain third parties or financial intermediaries may apply additional short-term trading and/or frequent trading limitations.

 

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Confirming your Transactions. Heartland will send you a written confirmation of every purchase and redemption order in the Funds, excluding automatic transactions. You should always verify your order against your confirmation when you receive it. Please contact Heartland or the third party with whom you placed your order promptly if you notice any discrepancy. Transaction activity records are available to registered users through the Heartland Funds website at heartlandfunds.com.

 

Copies of historical account statements are available upon request.

 

IRAs and Coverdell Education Savings Accounts. The Funds are available for investment under a self-directed IRA plan for individual investors as well as Simplified Employee Pension (“SEP”) IRAs for self-employed persons and employers and Coverdell Education Savings Accounts (“ESAs”). The Funds are available for investment under these programs at a reduced initial investment minimum of $500 (for Investor Class Shares only). Booklets describing these programs and the forms necessary for establishing accounts under them are available upon request from Heartland or at heartlandfunds.com.

 

The IRA and Coverdell Education Savings Account custodian charges an annual maintenance fee (currently $15.00) per IRA or ESA holder, which may also be charged on transfers or redemptions.

 

Backup Withholding. Under IRS rules, you must furnish to the Funds your properly certified social security or other tax identification number to avoid Federal income tax backup withholding on net investment income and net capital gain distributions and redemption proceeds. If you do not do so, or the IRS informs the Funds that your tax identification number is incorrect, the Funds may be required to withhold a percentage of your taxable distributions and redemptions proceeds. Amounts withheld by the Funds are submitted to the IRS and are not usually recoverable by the Funds but are credited toward your federal income tax liability.

 

Signature Guarantees. To protect your account, the Funds reserve the right to require a Medallion Signature Guarantee, signature verification from a Signature Validation Program member, or other form of authentication from a financial institution source acceptable to the Transfer Agent (collectively referred to as a “signature guarantee”) for written redemption instructions. Normally, a signature guarantee will be required if the written redemption proceeds will exceed $50,000. A signature guarantee will generally also be required if the proceeds are being paid to a third party, mailed to an address other than the address listed on the Fund’s records or to an address that was changed within the last 15 days, or forwarded to a bank not identified on the Fund’s records as authorized to receive the proceeds or to a bank account that was changed within the last 30 days. A signature guarantee generally will also be required when adding or changing bank instructions to your account and/or changing the registration for your account. In addition to the situations described above, the Funds and/or their Transfer Agent reserve the right to require a signature guarantee in other instances based on the circumstances of the particular situation. Acceptable guarantors include, among others, banks, and brokerage firms that are members of a domestic stock exchange. Notaries public cannot guarantee signatures.

 

Medallion Signature Guarantees are issued by guarantors that participate in one of several signature guarantee programs that are designed to promote safe and accurate securities transactions. A Medallion Signature Guarantee provides additional protective measures through the use of special technology like bar codes, magnetic security ink, and scanners.

 

Reserved Rights. In addition to other reserved rights, the Funds may:

 

·Refuse, change, discontinue, or temporarily suspend account services, including purchase, exchange, or redemption privileges, for any reason;

 

·Reject any purchase request for any reason;

 

·Freeze any account and/or involuntarily redeem an account, if Heartland believes that the account is being used for fraudulent or illegal purposes. Heartland may take this action when, at its sole discretion, it deems the action to be in the Funds’ best interest or when the Funds are requested or compelled to do so by governmental authority or by applicable law;

 

·Waive or lower any minimum dollar investment amount; and/or

 

·Suspend redemptions or postpone payments when the NYSE is closed, when trading on the NYSE is restricted, or when an emergency exists that prevents the Funds from disposing of its portfolio securities or pricing its shares.

 

COST BASIS. The Funds are required to report to you, and the IRS, the cost basis of your Fund shares acquired on or after January 1, 2012 (“covered shares”) when they are subsequently redeemed or exchanged. The Funds will determine the cost basis of covered shares using the Average Cost Method, unless you elect in writing a different permissible method. Please see the Statement of Additional Information for more information regarding cost basis reporting, including information about the Average Cost Method.

 

You are encouraged to consult your tax advisor regarding the application of these cost basis reporting rules and, in particular, which cost basis calculation method you should elect. Heartland representatives are not licensed tax advisors and are unable to give tax advice.

 

Inactive Accounts. Your mutual fund account may be transferred to your state of residence if no activity occurs within your account during the “inactivity period” specified in your state’s abandoned property laws. If the Funds are unable to locate a shareholder, they will determine whether the shareholder’s account can legally be considered abandoned. The Funds are legally obligated to escheat (or transfer) abandoned property to the appropriate state’s unclaimed property administrator in accordance with statutory requirements. The shareholder’s last known address of record determines which state has jurisdiction.

 

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SHARE PRICE

 

Shares of a Fund are purchased and redeemed at the net asset value per share next determined following receipt of your order by the Fund or its authorized agent. Net asset value is the difference between the values of the Fund’s assets and liabilities divided by the number of shares outstanding. It is determined as of the close of regular trading on the New York Stock Exchange (generally 4:00 p.m., Eastern Time, but may be earlier in the case of a holiday or when an emergency exists) on each day the NYSE is open (the “Close of Trading”). Orders received after the Close of Trading are priced at the net asset value per share determined on the next business day of the Fund. Third parties acting as authorized agents of the Funds are required to segregate orders received after the Close of Trading and transmit those orders separately for execution at the net asset value per share next determined.

 

For purposes of determining net asset value for a particular Fund, the Fund’s portfolio securities are valued on the basis of market quotations or at fair value in accordance with pricing policies and procedures adopted by Heartland’s Board of Directors. The Funds may use a systematic fair valuation model provided by an independent pricing service to value foreign equity securities in order to capture events occurring between the time a foreign exchange closes and the close of the NYSE that may affect the value of the Fund’s securities traded on those foreign exchanges, unless facts and circumstances indicate a different “fair value,” in which case the security will be fair valued on a case-by-case basis as noted below. The Funds use a “fair value” methodology to value securities for which market quotations are not readily available or deemed unreliable. Market quotations are readily available in most instances for the common stocks and other equity securities in which the Funds invest. However, some of the securities held by the Funds may be illiquid or thinly traded due to their small market capitalizations, the size of the Fund’s position, or otherwise, and are valued at their fair values. An equity security may also be priced at its fair value when the exchange on which the security is principally traded closes early or when trading in the security was halted during the day and did not resume prior to the Fund’s net asset value calculation. The Pricing Committee for Heartland may also make a fair value determination if it reasonably determines that a significant event, which materially affects the value of a security, occurs after the time at which the market price for the security is determined but prior to the time at which the Fund’s net asset value is calculated. Debt securities are generally stated at fair value as furnished by an independent pricing service based primarily on information concerning market transactions and dealer quotations for similar securities, or by dealers who make markets in such securities. In the absence of such a valuation, the fair value will be determined on a case-by-case basis as noted below or at amortized cost as provided below. Debt securities purchased with remaining maturities of 60 days or less may be valued at acquisition cost, plus or minus any amortized discount or premium, unless facts and circumstances indicate a different fair value, in which case the security will be fair valued on a case-by-case basis as noted below.

 

Fair valuation of a particular security is an inherently subjective process, with no single standard to utilize when determining a security’s fair value. As such, different mutual funds could reasonably arrive at a different fair value price for the same security. In each case where a security is fair valued, consideration is given to the facts and circumstances relevant to the particular situation. This consideration includes reviewing various factors set forth in the pricing procedures adopted by the Funds’ Board of Directors and other factors as warranted. In making a fair value determination, factors that may be considered, among others, include: the type and structure of the security; unusual events or circumstances relating to the security’s issuer; general market conditions; prior day’s valuation; fundamental analytical data; size of the holding; cost of the security on the date of purchase; nature and duration of any restriction on disposition; trading activities; and prices of similar securities or financial instruments.

 

41
 

 

SHAREHOLDER INFORMATION AND REPORTING

 

HEARTLANDFUNDS.COM

 

Heartland’s website, located at heartlandfunds.com, provides investors with a variety of information about the Funds, including daily share prices, market updates, and shareholder reports. Shareholders who hold their accounts directly with Heartland can access their accounts directly to review current balances, recent transactions, and other account information.

 

INVESTMENT REPORTS AND PROSPECTUSES

 

The Funds’ Portfolio Managers review their strategies and results in Annual and Semiannual Reports, which also contain schedules of investments and Fund financial statements. Heartland Advisors periodically publishes and mails to shareholders other investment and performance information. Shareholders also receive annual Prospectus updates.

 

Whenever practicable, and to the extent permitted by applicable law, a single report, Prospectus or other communication will be mailed to shareholders who share a single address. This practice is referred to as “householding.” To receive additional copies or discontinue our practice of householding your materials, you may call Shareholder Services at 1-800-432-7856, or write to ALPS Fund Services, Inc., at 1290 Broadway, Suite 1100, Denver, Colorado 80203. If you choose to discontinue the practice of householding your materials, the Funds will begin to send separate copies to you within 30 days after we receive your notice of discontinuation.

 

E-DELIVERY OF FUND DOCUMENTS

 

Heartland Funds offers those shareholders who hold their accounts directly with Heartland the option of receiving Fund documents, such as account statements and marketing materials, by E-Delivery. You may enroll in Heartland Funds’ E-Delivery Services at heartlandfunds.com by logging in to your account. You may opt-in to receive links to documents and materials by e-mail as they become available rather than receiving paper copies.

 

If your e-mail remains undelivered after a second attempt, your E-Delivery subscription will be discontinued and paper copies of Fund documents will be sent to your mailing address on record. Technical difficulties and other matters beyond the Funds’ control may affect your ability to participate in the Funds’ E-Delivery program. The Funds have no liability for the failure or disruption of the E-Delivery service due to circumstances beyond Heartland’s reasonable control.

 

NET INVESTMENT INCOME AND NET CAPITAL GAIN DISTRIBUTIONS

 

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

 

Substantially all of the net investment income of the Funds will generally be distributed to shareholders annually. If a Fund has a net capital gain for a year, the Fund normally will distribute substantially all of its net capital gain at the end of the year. Both types of distributions are automatically invested in additional shares for your account unless you elect on your Account Application to have them invested in another Heartland Fund or to have them paid to you in cash. Net investment income and net capital gain distributions that are reinvested will be confirmed on your account statement for the quarter in which the reinvestment is made.

 

If you choose to have net investment income or net capital gain distributions, or both, mailed to you and either the U.S. Postal Service is unable to deliver the distribution check to you or the check remains outstanding for at least six months, the Funds reserve the right to reinvest the check and future distributions in shares of the particular Fund at their then-current net asset value until you give the Funds different instructions. No interest will accrue on amounts represented by uncashed distribution checks.

 

“Buying a Dividend.” Please note that if you purchase shares of a Fund just before the record date of a distribution, you will receive a portion of your purchase price back as a taxable distribution. The Fund’s net asset value per share on the record date will be reduced by the amount of the distribution. This is sometimes referred to as “buying a dividend.” To obtain additional information about distributions, you may visit our website at heartlandfunds.com, call Shareholder Services at 1-800-432-7856, or write to Heartland at 789 North Water Street, Suite 500, Milwaukee, WI 53202.

 

TAXES

 

The character of distributions that a Fund makes (i.e., net investment income or net capital gain - see discussion under “Net Investment Income and Net Capital Gain Distributions” above) affects the tax treatment of those distributions to you. In particular, all net investment income distributions (other than any portion attributable to qualified dividends) will be taxable to shareholders as ordinary income for federal income tax purposes. Net capital gain distribution will be taxable as long-term capital gains to shareholders regardless of how long the shareholder has held Fund shares. Dividends from domestic and certain foreign corporations held by the Funds may be considered “qualified dividends,” as provided under the Internal Revenue Code. If certain holding period requirements are met, these dividends may be taxed at the reduced rates applicable to long-term capital gains. If a Fund declares a distribution in October, November, or December, but does not pay it until January of the following year, you still will be taxed as if the distribution were paid in October, November, or December. The Transfer Agent for the Fund will process your distribution and send you a statement for tax purposes each year showing the source of distributions for the preceding year. These tax rules apply whether distributions are paid by the Funds to you in cash or reinvested in additional shares of the Funds.

 

42
 

 

In addition to the federal income tax, certain individuals, trusts, and estates may be subject to a Medicare tax of 3.8%. The Medicare tax is imposed on the lesser of: (i) a taxpayer’s investment income, net of deductions properly allocable to such income, or (ii) the amount by which such taxpayer’s modified adjusted gross income exceeds certain thresholds ($250,000 for married individuals filing jointly, $200,000 for unmarried individuals, and $125,000 for married individuals filing separately). The Funds’ distributions are includable in a shareholder’s investment income for purposes of this Medicare tax. In addition, any capital gain realized by a shareholder upon a redemption of Fund shares is includable in such shareholder’s investment income for purposes of this Medicare tax.

 

If you redeem or exchange your shares, the transaction is a taxable event. Generally, you will recognize a capital gain or loss for federal income tax purposes of an amount equal to the difference between the cost of your shares and the price you receive when you sell them. However, the wash sale rules of the Internal Revenue Code may disallow or recharacterize the loss for tax purposes. Special tax rules apply to non-individual shareholders and shareholders owning Fund shares in IRAs and tax-sheltered retirement plans. State and local tax rules differ from the federal tax rules described in this Prospectus. Because this tax information is only a general overview, you should consult with your own tax advisor about the tax consequences of your investment in the Funds.

 

PRIVACY POLICY

 

Heartland respects its clients’ right to privacy and understands that the privacy and security of nonpublic personal information is important and, therefore, maintains safeguards reasonably designed to protect client data from unauthorized access. Heartland does not sell this information to anyone and only shares such information with others as permitted by law or for the purpose of serving your investment needs.

 

What Information Heartland Collects

Heartland collects only information that is either required or necessary to provide personalized investment services. Any information you choose to provide is kept confidential and allows Heartland to:

 

·Service your account;

 

·Deliver products and services that may be of interest to you;

 

·Prevent unauthorized access to your account;

 

·Improve shareholder service; and

 

·Comply with legal and regulatory requirements.

 

Depending on the nature of your relationship with Heartland, nonpublic personal information such as name, address, Social Security number, telephone number, and income may be collected from the following sources:

 

·Information Heartland receives from you on applications or other forms, on Heartland’s website, or through other means;

 

·Information Heartland receives from you through transactions, correspondence, and other communications with Heartland, Heartland affiliates, and others; and

 

·Information Heartland otherwise obtains from you in connection with providing you a financial product or service.

 

What Information Heartland Shares

Heartland does not share the information collected about its shareholders or former shareholders with any third parties, except as required or permitted by law or for the purpose of servicing shareholder needs. This means Heartland may disclose the information collected to companies who help maintain and service your account. For example, Heartland may share information with a transfer agent or clearing broker to process your securities transactions and update your accounts or to an external service provider so that your account statements can be printed and mailed. These companies are only permitted to use this information for the services for which Heartland hired them, and are not permitted to use or share this information for any other purpose. Heartland will share information with affiliates if the information is required to provide a product or service a shareholder requested. Additionally, Heartland may share information with its affiliates about shareholders or shareholder accounts in order to make shareholders aware of services and products which Heartland thinks may be of interest or value to them. Marketing from Heartland’s affiliates may also include invitations to events sponsored by them. Affiliates are companies in the Heartland group of companies, such as Heartland Advisors and other mutual funds managed by Heartland Advisors. Heartland may also disclose nonpublic personal information to government agencies and regulatory organizations when permitted or required by law.

 

How Heartland Protects Your Information

For your protection, Heartland restricts access to your nonpublic personal information to those individuals who need to know that information to provide products and services to you. Heartland maintains physical, electronic, and procedural safeguards that are reasonably designed to comply with federal standards to maintain the confidentiality of your nonpublic personal information. The accuracy and protection of your personal information is important to Heartland.

 

How to Contact Heartland

You may limit Heartland’s affiliates in the Heartland group of companies from marketing their products or services based on personal information that Heartland collects and shares with them. Your choice to limit marketing offers from Heartland’s affiliates will apply until you request a change to your choice. Your choice to limit marketing offers from Heartland’s affiliates will not affect your ability to receive marketing materials directly from Heartland. If you have already made a choice to limit marketing offers from Heartland’s affiliates, you do not need to act again. To limit marketing offers, contact Heartland at the telephone number listed below.

 

43
 

 

The accuracy of your personal information is important to Heartland.

 

You can correct, update, or confirm your personal information and limit marketing offers from Heartland’s affiliates by calling Heartland at 1-800-432-7856.

 

FINANCIAL HIGHLIGHTS

 

The following financial highlights tables are intended to help you understand each Fund’s financial performance for the past five fiscal years or since inception. Certain information reflects financial results for a single Fund share. The total returns in the tables represent the rate that an investor would have earned or lost on an investment in each class of shares of each Fund over the period presented (assuming reinvestment of all dividends and distributions). Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher.

 

The financial highlights for the International Value Fund incorporate the historical financial highlights of the Heartland International Value Fund, a series of Trust for Professional Managers (the “Predecessor Fund”). Upon completion of the reorganization of the Predecessor Fund with and into the Heartland International Value Fund, which took place on October 1, 2013, the Heartland International Value Fund assumed the performance, financial, and other historical information of the Predecessor Fund.

 

The information through December 31, 2014 for the Select Value, Mid Cap Value, Value Plus, and Value Funds has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Funds’ financial statements, is included in the Annual Report to Shareholders, which is available upon request, and incorporated by reference into the Statement of Additional Information. Information from June 1, 2013 through December 31, 2014 for the International Value Fund has been audited by PricewaterhouseCoopers LLP. For the years ended May 31, 2013 and May 31, 2012 and the period ended May 31, 2011 the information for the International Value Fund has been audited by Deloitte & Touche LLP.

 

44
 

 

 

Financial highlights

 

   Income from Investment Operations(a)   Distributions 
   Net asset value,
beginning of period
   Net investment
income
   Net realized and
unrealized gains
(losses) on
investments,
futures, options,
and the translation
of assets and
liabilities in foreign
currency
   Total income (loss)
from investment
operations
   Distributions from
net investment
income
   Distributions from
net realized gains
on investments
   Total
distributions
   Net asset value,
end of period
 
Heartland Select Value Fund                                              
Investor Class                                        
December 31, 2014  $33.78   $0.11(c)  $1.30(c)  $1.41   $(0.14)  $(3.73)  $(3.87)  $31.32 
December 31, 2013   29.16    0.15(c)   10.04(c)   10.19    (0.12)   (5.45)   (5.57)   33.78 
December 31, 2012   26.81    0.15    3.33    3.48    (0.13)   (1.00)   (1.13)   29.16 
December 31, 2011   29.18    0.14    (2.09)   (1.95)   (0.13)   (0.29)   (0.42)   26.81 
December 31, 2010   24.91    0.16    4.27    4.43    (0.16)       (0.16)   29.18 
Institutional Class                              
December 31, 2014   33.72    0.22(c)   1.30(c)   1.52    (0.26)   (3.73)   (3.99)   31.25 
December 31, 2013   29.13    0.27(c)   10.02(c)   10.29    (0.25)   (5.45)   (5.70)   33.72 
December 31, 2012   26.79    0.22    3.37    3.59    (0.25)   (1.00)   (1.25)   29.13 
December 31, 2011   29.18    0.22    (2.09)   (1.87)   (0.23)   (0.29)   (0.52)   26.79 
December 31, 2010   24.89    0.23    4.29    4.52    (0.23)       (0.23)   29.18 
Heartland Mid Cap Value Fund                         
Investor Class(d)                                        
December 31, 2014   10.00    0.03(c)   0.13(c)   0.16    (0.03)       (0.03)   10.13 
Institutional Class(d)                                        
December 31, 2014   10.00    0.03(c)   0.14(c)   0.17    (0.02)       (0.02)   10.15 
Heartland Value Plus Fund                                                 
Investor Class                                        
December 31, 2014   35.82    0.09(c)   (1.03)(c)   (0.94)   (0.07)   (3.15)   (3.22)   31.66 
December 31, 2013   29.69    0.17(c)   9.97(c)   10.14    (0.16)   (3.85)   (4.01)   35.82 
December 31, 2012   27.72    0.42    2.73    3.15    (0.36)   (0.82)   (1.18)   29.69 
December 31, 2011   29.82    0.19    (1.79)   (1.60)   (0.18)   (0.32)   (0.50)   27.72 
December 31, 2010   23.41    0.12    6.55    6.67    (0.10)   (0.16)   (0.26)   29.82 
Institutional Class                              
December 31, 2014   35.75    0.19(c)   (1.04)(c)   (0.85)   (0.18)   (3.15)   (3.33)   31.57 
December 31, 2013   29.64    0.27(c)   9.97(c)   10.24    (0.28)   (3.85)   (4.13)   35.75 
December 31, 2012   27.69    0.44    2.78    3.22    (0.45)   (0.82)   (1.27)   29.64 
December 31, 2011   29.80    0.28    (1.79)   (1.51)   (0.28)   (0.32)   (0.60)   27.69 
December 31, 2010   23.40    0.21    6.53    6.74    (0.18)   (0.16)   (0.34)   29.80 

 

(a)Redemption fees represent less than $.01 on a per share basis.
(b)Portfolio turnover rate is calculated at the Fund level.
(c)Calculated using the average shares method.
(d)Inception date is October 31, 2014.
(e)Not Annualized.
(f)Total returns would have been lower had various fees and expenses not been waived and reimbursed during the period.
(g)Annualized.

 

45
 

 

Ratios/Supplemental Data 
Total Return   Net assets, end of
period (in
thousands)
   Percentage of
expenses to
average net assets
   Percentage of net
investment income
(loss) to average
net assets
   Percentage of
expenses to
average net assets
before waivers
   Percentage of
expenses to
average net assets
after waivers
   Percentage of
net investment
income (loss) to
average net assets
before waivers
   Percentage of
net investment
income (loss) to
average net assets
after waivers
   Portfolio turnover
rate(b)
 
                                           
                                           
 4.07%  $396,692    1.20%   0.32%   N/A    N/A    N/A    N/A    42%
 35.07    488,526    1.20    0.44    N/A    N/A    N/A    N/A    57 
 13.03    456,456    1.21    0.47    N/A    N/A    N/A    N/A    27 
 (6.68)   565,978    1.22    0.52    N/A    N/A    N/A    N/A    47 
 17.77    600,235    1.23    0.67    N/A    N/A    N/A    N/A    51 
                                           
 4.40%   161,444    N/A    N/A    0.88%   0.88%   0.64%   0.64%   42%
 35.45    221,896    N/A    N/A    0.88    0.88    0.78    0.78    57 
 13.43    175,090    N/A    N/A    0.89    0.89    0.78    0.78    27 
 (6.42)   163,492    N/A    N/A    0.91    0.91    0.84    0.84    47 
 18.15    87,966    N/A    N/A    0.96    0.96    0.96    0.96    51 
                                           
                                           
 1.61%(e)(f)   1,575    N/A    N/A    9.62%(g)   1.25%(g)   (6.44)%(g)   1.93%(g)   4%(e)
                                           
 1.73%(e)(f)   2,067    N/A    N/A    9.36%(g)   0.99%(g)   (6.22)%(g)   2.16%(g)   4%(e)
                                           
                                           
 (2.70)%   1,332,686    1.14%   0.26%   N/A    N/A    N/A    N/A    26%
 34.15    1,784,320    1.14    0.51    N/A    N/A    N/A    N/A    32 
 11.38    1,612,756    1.16    1.43    N/A    N/A    N/A    N/A    27 
 (5.37)   1,668,179    1.16    0.76    N/A    N/A    N/A    N/A    11 
 28.50    1,425,625    1.17    0.61    N/A    N/A    N/A    N/A    31 
                                           
 (2.45)%   1,473,706    N/A    N/A    0.89%   0.89%   0.53%   0.53%   26%
 34.53    1,349,248    N/A    N/A    0.84    0.84    0.80    0.80    32 
 11.67    1,057,469    N/A    N/A    0.90    0.90    1.70    1.70    27 
 (5.07)   553,561    N/A    N/A    0.87    0.87    1.14    1.14    11 
 28.85    164,264    N/A    N/A    0.86    0.86    0.98    0.98    31 

 

46
 

 

   Income from Investment Operations(a)   Distributions 
   Net asset value,
beginning of period
   Net investment
income (loss)
   Net realized and
unrealized gains
(losses) on
investments,
futures, options,
and the translation
of assets and
liabilities in foreign
currency
   Total income (loss)
from investment
operations
   Distributions from
net investment
income
   Distributions from
net realized gains
on investments
   Total
distributions
   Net asset value,
end of period
 
Heartland Value Fund                                        
Investor Class                                        
December 31, 2014  $48.12   $0.07(c)  $1.00(c)  $1.07   $(0.22)  $(5.24)  $(5.46)  $43.73 
December 31, 2013   40.66    (0.23)(c)   13.28(c)   13.05    (0.43)   (5.16)   (5.59)   48.12 
December 31, 2012   38.31    0.10    5.17    5.27        (2.92)   (2.92)   40.66 
December 31, 2011   43.82    (0.05)   (2.99)   (3.04)       (2.47)   (2.47)   38.31 
December 31, 2010   36.18    (0.03)   7.73    7.70        (0.06)   (0.06)   43.82 
Institutional Class                                        
December 31, 2014   48.77    0.16(c)   1.01(c)   1.17    (0.31)   (5.24)   (5.55)   44.39 
December 31, 2013   41.13    (0.16)(c)   13.47(c)   13.31    (0.51)   (5.16)   (5.67)   48.77 
December 31, 2012   38.67    (0.42)   5.80    5.38        (2.92)   (2.92)   41.13 
December 31, 2011   44.12    (1.45)   (1.53)   (2.98)       (2.47)   (2.47)   38.67 
December 31, 2010   36.36    0.19    7.63    7.82        (0.06)   (0.06)   44.12 
Heartland International Value Fund                                        
Investor Class                                        
December 31, 2014   10.96    0.08(c)   (0.49)(c)   (0.41)   (0.66)   (0.12)   (0.78)   9.77 
December 31, 2013(e)   10.79    0.07(c)   0.59(c)   0.66    (0.49)       (0.49)   10.96 
May 31, 2013   8.34    0.08(c)   2.55(c)   2.63    (0.18)       (0.18)   10.79 
May 31, 2012   10.93    0.03(c)   (2.58)(c)   (2.55)   (0.04)       (0.04)   8.34 
May 31, 2011(h)   10.00    0.13(c)   0.80(c)   0.93                10.93 

 

(a)Redemption fees represent less than $.01 on a per share basis.
(b)Portfolio turnover rate is calculated at the Fund level.
(c)Calculated using the average shares method.
(d)Total returns would have been lower had various fees and expenses not been waived and reimbursed during the period.
(e)Effective December 31, 2013, the International Value Fund changed its fiscal year end from May 31 to December 31.
(f)Not Annualized.
(g)Annualized.
(h)The Predecessor Fund commenced operations on October 1, 2010.

 

47
 

 

Ratios/Supplemental Data 
Total Return   Net assets, end of
period (in
thousands)
   Percentage of
expenses to
average net assets
   Percentage of net
investment income
(loss) to average
net assets
   Percentage of
expenses to
average net assets
before waivers
   Percentage of
expenses to
average net assets
after waivers
   Percentage of
net investment
income (loss) to
average net assets
before waivers
   Percentage of
net investment
income (loss) to
average net assets
after waivers
   Portfolio turnover
rate(b)
 
                                           
                                           
 2.22%  $1,073,232    1.07%   0.14%   N/A     N/A    N/A    N/A    38%
 32.11    1,180,293    1.08    (0.49)   N/A    N/A    N/A    N/A    32 
 13.83    1,052,104    1.09    0.10    N/A    N/A    N/A    N/A    24 
 (6.92)   1,068,687    1.10    (0.42)   N/A    N/A    N/A    N/A    25 
 21.28    1,293,235    1.14    (0.43)   N/A    N/A    N/A    N/A    29 
                                           
 2.38%   76,800    N/A    N/A    0.91%   0.91%   0.32%   0.32%   38%
 32.37    87,986    N/A    N/A    0.91    0.91    (0.34)   (0.34)   32 
 13.98    91,722    N/A    N/A    0.93    0.93    0.32    0.32    24 
 (6.73)   67,520    N/A    N/A    0.91    0.91    (0.22)   (0.22)   25 
 21.50    49,880    N/A    N/A    0.95    0.95    (0.26)   (0.26)   29 
                                           
                                           
 (3.76)%(d)   29,049    N/A    N/A    1.76%   1.49%   0.49%   0.76%   31%
 6.13(d)(f)   31,387    N/A    N/A    2.00(g)   1.49(g)   1.55(g)   1.04(g)   16(f)
 31.64(d)   28,001    N/A    N/A    2.36    1.72    0.19    0.83    51 
 (23.39)(d)   17,432    N/A    N/A    2.69    1.75    (0.64)   0.30    82 
 9.40(d)(f)   18,972    N/A    N/A    4.23(g)   1.75(g)   (0.58)(g)   1.90(g)   22(f)

 

48
 

 

HEARTLAND FUNDS

 

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

 

HEARTLAND FUNDS

789 North Water Street

Suite 500

Milwaukee, Wisconsin 53202

 

INVESTMENT ADVISOR

Heartland Advisors, Inc.

789 North Water Street

Suite 500

Milwaukee, Wisconsin 53202

 

DISTRIBUTOR
ALPS Distributors, Inc.

1290 Broadway, Suite 1100

Denver, Colorado 80203

 

CUSTODIAN

Brown Brothers Harriman & Co.

50 Post Office Square

Boston, Massachusetts 02110

 

TRANSFER AND DIVIDEND DISBURSING AGENT

ALPS Fund Services, Inc.

1290 Broadway, Suite 1100

Denver, Colorado 80203

 

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

PricewaterhouseCoopers LLP

1900 16th Street, Suite 1600

Denver, Colorado 80202

 

fund COUNSEL

Godfrey & Kahn, S.C.

780 North Water Street

Milwaukee, Wisconsin 53202

 

independent director COUNSEL

Foley & Lardner LLP

777 East Wisconsin Avenue

Milwaukee, Wisconsin 53202

 

If you have any questions about the Heartland Funds or would like more information, including a free copy of the Funds’ Statement of Additional Information (“SAI”), or their most recent Annual or Semiannual Reports, you may call or write ALPS Distributors, Inc. at:

 

ALPS Distributors, Inc.

789 North Water Street

Suite 500

Milwaukee, Wisconsin 53202

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

 

You may also obtain the SAI, the Funds’ most recent Annual and Semiannual Reports, Form N-Q, and other relevant information at Heartland Funds’ website at heartlandfunds.com.

 

The SAI, which contains more information on the Funds, has been filed with the Securities and Exchange Commission (“SEC”), and is incorporated by reference to be legally a part of this Prospectus. Additional information about the Funds’ investments is available in the Funds’ Annual and Semiannual Reports, which are also filed with the SEC. A complete list of the Funds’ portfolio securities is contained in the most recent Annual Report, Semiannual Report, or Form N-Q. The Funds generally publicly file these documents, which include portfolio holdings information, within 60 days of quarter end. In the Annual and Semiannual Reports, you will also find a discussion of market conditions and investment strategies that significantly affected each Fund’s performance during the prior fiscal year and six-month fiscal period, respectively.

 

Reports and other information regarding the Funds are available on the EDGAR database on the SEC’s Internet website (http://www.sec.gov). This information can also be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room can be obtained by calling 1-202-551-8090. Additionally, copies of this information can be obtained, after paying a duplicating fee, by sending an e-mail request to publicinfo@sec.gov or by writing the Public Reference Section of the SEC, Washington, D.C. 20549-1520.

 

Investment Company Act File No. 811-4982

 

49
 

  

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Heartland Advisors’ commitment to you:

Striving to achieve superior investment results and outstanding client service


 

Fundamental Research

 

We remain focused on discovering opportunities through extensive fundamental analysis

 

Seasoned Investment Team

 

We leverage our investment team’s decades of experience to uncover out-of-favor, financially sound and undervalued companies

 

Consistent and Disciplined Approach

 

We consistently adhere to our clearly defined, time-tested investment process driven by Heartland’s 10 Principles of Value InvestingTM

 

 
 

 

HEARTLAND FUNDS

 

STATEMENT OF ADDITIONAL INFORMATION

 

DATED MAY 1, 2015

 

Heartland Group, Inc.

789 North Water Street

Suite 500

Milwaukee, Wisconsin 53202

1-800-432-7856

heartlandfunds.com

 

Select Value
Fund
  Mid Cap
Value Fund
  Value Plus
Fund
  Value Fund   International
Value Fund
                 
Share Class    Ticker   Share Class    Ticker   Share Class    Ticker   Share Class    Ticker   Share Class    Ticker
                 
Investor    HRSVX   Investor    HRMDX   Investor    HRVIX   Investor    HRTVX   Investor    HINVX
                 
Institutional    HNSVX   Institutional    HNMDX   Institutional    HNVIX   Institutional    HNTVX    

 

Heartland Group, Inc. (“Heartland”) is registered as an open-end, management investment company consisting of separate mutual fund series listed above (each a “Fund” and collectively, the “Funds”). The investment advisor for the Funds is Heartland Advisors, Inc. (“Heartland Advisors” or the “Advisor”). This Statement of Additional Information (“SAI”) relates to the Funds, each of which has a distinct investment objective and program.

 

This SAI is not a prospectus, but provides you with additional information that should be read in conjunction with the Prospectus for the Funds, dated May 1, 2015. You may obtain a free copy of the Funds’ Prospectus and an account application by contacting the distributor of the Funds, ALPS Distributors, Inc. (the “Distributor”), at the street or website address, or at the telephone number, listed above for Heartland.

 

The financial statements of the Funds and the report of the independent registered public accounting firm thereon are incorporated by reference into this SAI from the Funds’ Annual Report to Shareholders for the period ended December 31, 2014. See “Financial Statements.” The Funds’ Annual Report is available, without charge, by calling the Funds at the toll-free telephone number shown above or by visiting the Funds’ website at heartlandfunds.com or on the Securities and Exchange Commission’s website at www.sec.gov.

 

 
 

 

TABLE OF CONTENTS

 

  Page
   
INTRODUCTION TO THE FUNDS 3
   
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS 3
   
TYPES OF SECURITIES 8
   
PORTFOLIO MANAGEMENT STRATEGIES 32
   
INVESTMENT RESTRICTIONS 37
   
PORTFOLIO TURNOVER 42
   
MANAGEMENT 43
   
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES 61
   
INVESTMENT ADVISORY AND OTHER SERVICES 63
   
DISTRIBUTION OF SHARES 68
   
PORTFOLIO TRANSACTIONS 71
   
DESCRIPTION OF SHARES 77
   
PURCHASES AND SALES 78
   
ADDITIONAL INCOME TAX CONSIDERATIONS 81
   
FINANCIAL STATEMENTS 83
   
STATEMENT OF POLICY REGARDING PROXY VOTING APPENDIX A

 

2
 

 

INTRODUCTION TO THE FUNDS

 

Each member of the Heartland Family of Funds is a separate series of Heartland Group, Inc., a Maryland corporation formed in 1986 and registered as an open-end, management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). Each Fund is a diversified fund and has a distinct investment objective and program from the other members of the Heartland Family of Funds.

 

The Heartland Select Value Fund commenced operations on October 11, 1996. The Heartland Mid Cap Value Fund commenced operations on October 31, 2014. The Heartland Value Plus Fund commenced operations on October 26, 1993. The Heartland Value Fund commenced operations on December 28, 1984. The Heartland International Value Fund previously operated as a series of Trust for Professional Managers, and commenced operations on October 1, 2010 (the “Predecessor Fund”). On October 1, 2013, the Fund was reorganized into Heartland, and as a result, the performance and accounting history was assumed.

 

INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS

 

Heartland Select Value Fund

 

The Heartland Select Value Fund seeks long-term capital appreciation. The Fund invests primarily in common stocks whose current market prices, in Heartland Advisors’ judgment, are undervalued relative to their intrinsic value. Heartland Advisors uses its strict value criteria to identify what it believes are the best available investment opportunities for the Fund. The Fund invests in companies of all sizes, although the companies in which the Fund invests normally have market capitalizations in excess of $500 million at the time of purchase. The median market capitalization of the Fund is expected to fluctuate over time depending on Heartland Advisors’ perceptions of relative valuations, future prospects and market conditions.

 

As the Fund invests in a limited number of stocks (generally 40 to 60), a change in the value of any single holding may have a more pronounced effect on the Fund’s net asset value and performance than would be the case if it held more positions. This generally will increase the volatility of the Fund’s share price and investment return.

 

To pursue its objective, the Fund may also invest in debt securities, although under normal market conditions the Fund will not invest more than 10% of its assets in such securities. The Fund may invest in other securities, including preferred stocks, warrants, convertible securities, foreign securities, and cash equivalents. There are no credit quality limitations on the convertible or debt securities in which the Fund may invest. Although not a principal investment strategy, the Fund may utilize other investments and investment techniques from time to time which may impact Fund performance, including options, futures, and other structured transactions. The Fund is limited to 5% of its liquidation value for initial margin and premium amounts, or to an aggregate net notional value of commodity interests that does not exceed 100% of the liquidation value of its portfolio, in each case after taking into account unrealized profits and losses on futures, options, or swap positions considered non-bona fide hedging under regulations of the Commodities Futures Trading Commission (“CFTC”).

 

3
 

 

Under adverse market, economic, political, or other conditions, including conditions when Heartland Advisors is unable to identify attractive investment opportunities, the Fund may temporarily invest, without limitation, in liquid reserves such as money market instruments, certificates of deposit, commercial paper, short-term corporate debt securities, variable rate demand notes, U.S. Government securities, and repurchase agreements. Temporary investments in liquid reserves are not required and may not be possible because of market conditions. Such investments also might prevent the Fund from achieving its investment objective, and from participating in market advances or declines to the same extent that it would if the Fund remained more fully invested.

 

In pursuing its objective, the Fund may, from time to time, use its ownership interest in a portfolio company to seek to change or influence control of the company’s management. The Fund also may employ the investment techniques described in its Prospectus and in the sections of this SAI titled “Types of Securities” and “Portfolio Management Strategies.” The Fund’s investment objective may be changed with the approval of the Board of Directors and notice to shareholders, but without shareholder approval.

 

Heartland Mid Cap Value Fund

 

The Heartland Mid Cap Value Fund seeks long-term capital appreciation and modest current income. The Fund will generally not initiate a position in a company unless it has a market capitalization between $1 and $15 billion. The median market capitalization of the Fund is expected to fluctuate over time depending on Heartland Advisors’ perceptions of relative valuations, future prospects and market conditions.

 

As the Fund invests in a limited number of stocks (generally 30 to 60), a change in the value of any single holding may have a more pronounced effect on the Fund’s net asset value and performance than would be the case if it held more positions. This generally will increase the volatility of the Fund’s share price and investment return.

 

To pursue its objective, the Fund may also invest in debt securities, although under normal market conditions the Fund will not invest more than 10% of its assets in such securities. The Fund may invest in other securities, including preferred stocks, warrants, convertible securities, foreign securities, and cash equivalents. There are no credit quality limitations on the convertible or debt securities in which the Fund may invest. Although not a principal investment strategy, the Fund may utilize other investments and investment techniques from time to time which may impact Fund performance, including options, futures, and other structured transactions. The Fund is limited to 5% of its liquidation value for initial margin and premium amounts, or to an aggregate net notional value of commodity interests that does not exceed 100% of the liquidation value of its portfolio, in each case after taking into account unrealized profits and losses on futures, options, or swap positions considered non-bona fide hedging under regulations of the CFTC.

 

4
 

 

Under adverse market, economic, political, or other conditions, including conditions when Heartland Advisors is unable to identify attractive investment opportunities, the Fund may temporarily invest, without limitation, in liquid reserves such as money market instruments, certificates of deposit, commercial paper, short-term corporate debt securities, variable rate demand notes, U.S. Government securities, and repurchase agreements. Temporary investments in liquid reserves are not required and may not be possible because of market conditions. Such investments also might prevent the Fund from achieving its investment objective, and from participating in market advances or declines to the same extent that it would if the Fund remained more fully invested.

 

In pursuing its objective, the Fund may, from time to time, use its ownership interest in a portfolio company to seek to change or influence control of the company’s management. The Fund also may employ the investment techniques described in its Prospectus and in the sections of this SAI titled “Types of Securities” and “Portfolio Management Strategies.” The Fund’s investment objective may be changed with the approval of the Board of Directors and notice to shareholders, but without shareholder approval.

 

Heartland Value Plus Fund

 

The Heartland Value Plus Fund seeks long-term capital appreciation and modest current income. The Fund invests primarily in a limited number of equity securities of smaller companies selected on a value basis. The Fund generally invests in dividend-paying common stocks. The Fund primarily invests in companies with market capitalizations between $250 million and $4 billion at the time of purchase.

 

The Fund invests in a limited number of stocks (generally 40 to 70). Therefore, a change in the value of any single holding may have a more pronounced effect on the Fund’s net asset value and performance than would be the case if it held more positions. This generally will increase the volatility of the Fund’s share price and investment return.

 

To pursue its objective, the Fund may also invest in debt securities, although under normal market conditions the Fund will not invest more than 10% of its assets in such securities. The Fund may invest in other securities, including preferred stock, warrants, convertible securities, foreign securities, and cash equivalents. There are no credit quality limitations on the convertible or debt securities in which the Fund may invest. Although not a principal investment strategy, the Fund may utilize other investments and investment techniques from time to time which may impact Fund performance, including options, futures, and other structured transactions. The Fund is limited to 5% of its liquidation value for initial margin and premium amounts, or to an aggregate net notional value of commodity interests that does not exceed 100% of the liquidation value of its portfolio, in each case after taking into account unrealized profits and losses on futures, options, or swap positions considered non-bona fide hedging under regulations of the CFTC.

 

5
 

 

Under adverse market, economic, political, or other conditions, including conditions when Heartland Advisors is unable to identify attractive investment opportunities, the Fund may temporarily invest, without limitation, in liquid reserves such as money market instruments, certificates of deposit, commercial paper, short-term corporate debt securities, variable rate demand notes, U.S. Government securities, and repurchase agreements. Temporary investments in liquid reserves are not required and may not be possible because of market conditions. Such investments also might prevent the Fund from achieving its investment objective, and from participating in market advances or declines to the same extent that it would if the Fund remained more fully invested.

 

In pursuing its objective, the Fund may, from time to time, use its ownership interest in a portfolio company to seek to change or influence control of the company’s management. The Fund also may employ the investment techniques described in its Prospectus and in the sections of this SAI titled “Types of Securities” and “Portfolio Management Strategies.” The Fund’s investment objective may be changed with the approval of the Board of Directors and notice to shareholders, but without shareholder approval.

 

The Value Plus Fund is closed to most new investors. Please see the Prospectus for new account eligibility criteria.

 

Heartland Value Fund

 

The Heartland Value Fund seeks long-term capital appreciation through investing in small companies. The Fund invests primarily in common stocks of small companies with market capitalizations of less than $2 billion selected on a value basis, and may invest a significant portion of its assets in micro-capitalization companies, i.e., those with market capitalizations of less than $300 million at the time of purchase.

 

Investing in equity securities of smaller companies involves a higher degree of risk than investing in the securities of larger companies. The prices of securities of smaller companies generally are more volatile than those of larger companies, they generally will have less market liquidity, and they may be more likely to be adversely affected by poor economic or market conditions. These risks generally increase as the size of the companies decrease.

 

To pursue its objective, the Fund may also invest in debt securities, although under normal market conditions the Fund will not invest more than 10% of its assets in such securities. It may invest in other securities, including equity securities of larger companies, preferred stocks, warrants, convertible securities, foreign securities, and cash equivalents. There are no credit quality limitations on the convertible or debt securities in which the Fund may invest. The Fund may utilize other investments and investment techniques from time to time which may impact Fund performance, including options, futures and other structured transactions. The Fund is limited to 5% of its liquidation value for initial margin and premium amounts, or to an aggregate net notional value of commodity interests that does not exceed 100% of the liquidation value of its portfolio, in each case after taking into account unrealized profits and losses on futures, options, or swap positions considered non-bona fide hedging under regulations of the CFTC.

 

6
 

 

Under adverse market, economic, political, or other conditions, including conditions when Heartland Advisors is unable to identify attractive investment opportunities, the Fund may temporarily invest, without limitation, in liquid reserves such as money market instruments, certificates of deposit, commercial paper, short-term corporate debt securities, variable rate demand notes, U.S. Government securities, and repurchase agreements. Temporary investments in liquid reserves are not required and may not be possible because of market conditions. Such investments also might prevent the Fund from achieving its investment objective, and from participating in market advances or declines to the same extent that it would if the Fund remained more fully invested.

 

In pursuing its objective, the Fund may, from time to time, use its ownership interest in a portfolio company to seek to change or influence control of the company’s management. The Fund also may employ the investment techniques described in its Prospectus and in the sections of this SAI titled “Types of Securities” and “Portfolio Management Strategies.” The Fund’s investment objective may be changed with the approval of the Board of Directors and notice to shareholders, but without shareholder approval.

 

Heartland International Value Fund

 

The Heartland International Value Fund seeks long-term capital appreciation with modest current income. Under normal circumstances, the Fund primarily invests in non-U.S. and U.S. equity securities (including common stock, preferred stock, Depositary Receipts (“DRs”) and options) of companies with market capitalizations up to $5 billion at the time of purchase.

 

The Fund invests in a concentrated number of stocks. Therefore, a change in the value of any single holding may have a more pronounced effect on the Fund’s net asset value and performance than would be the case if it held more positions. This generally will increase the volatility of the Fund’s share price and investment return.

 

Investing in equity securities of smaller foreign companies involves a higher degree of risk than investing in the securities of larger domestic companies. The prices of securities of smaller foreign companies generally are more volatile than those of larger domestic companies, they generally will have less market liquidity, and they may be more likely to be adversely affected by poor economic or market conditions. These risks generally increase as the size of the companies decrease.

 

The Fund is limited to 5% of its liquidation value for initial margin and premium amounts, or to an aggregate net notional value of commodity interests that does not exceed 100% of the liquidation value of its portfolio, in each case after taking into account unrealized profits and losses on futures, options, or swap positions considered non-bona fide hedging under regulations of the CFTC.

 

Under adverse market, economic, political, or other conditions, including conditions when Heartland Advisors is unable to identify attractive investment opportunities, the Fund may temporarily invest, without limitation, in liquid reserves such as money market instruments, certificates of deposit, commercial paper, short-term corporate debt securities, variable rate demand notes, U.S. Government securities, and repurchase agreements. Temporary investments in liquid reserves are not required and may not be possible because of market conditions. Such investments also might prevent the Fund from achieving its investment objective, and from participating in market advances or declines to the same extent that it would if the Fund remained more fully invested.

 

7
 

 

In pursuing its objective, the Fund may, from time to time, use its ownership interest in a portfolio company to seek to change or influence control of the company’s management. The Fund also may employ the investment techniques described in its Prospectus and in the sections of this SAI titled “Types of Securities” and “Portfolio Management Strategies.” The Fund’s investment objective may be changed with the approval of the Board of Directors and notice to shareholders, but without shareholder approval.

 

TYPES OF SECURITIES

 

The following information supplements the discussion of the Funds’ investments described in the Prospectus.

 

Illiquid Securities

 

Each Fund may invest in illiquid securities. However, no Fund may acquire illiquid securities if, as a result, more than 15% of the value of the Fund’s net assets would be invested in such securities. For purposes of applying this limitation, an “illiquid security” means one that may not be sold or disposed of in the ordinary course of business within seven days at approximately the value at which the Fund has valued the security.

 

Under guidelines established by, and under the oversight of, Heartland’s Board of Directors, Heartland Advisors determines which securities are illiquid for purposes of this limitation. Certain securities exempt from registration or issued in transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), such as securities that may be resold to institutional investors under Rule 144A under the Securities Act, may be considered by Heartland Advisors to be liquid under guidelines adopted by Heartland’s Board of Directors. While securities acquired in private placements are generally presumed to be illiquid, such securities may be ultimately determined to be liquid by the Heartland Board of Directors. These securities, as well as Rule 144A securities, deemed to be liquid pursuant to the guidelines adopted by Heartland’s Board of Directors, are not treated as being subject to the limitation on illiquid securities.

 

Restricted securities generally can be sold in privately negotiated transactions, pursuant to an exemption from registration under the Securities Act, or in a registered public offering. Where registration is required, 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, a Fund might obtain a less favorable price than prevailed when it decided to seek registration of the security.

 

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

 

To the extent it invests in illiquid or restricted securities, a Fund may encounter difficulty in determining a market value for such securities. Disposing of illiquid or restricted securities may involve time-consuming negotiations and legal expense, and it may be difficult or impossible for a Fund to sell such an investment promptly and at an acceptable price. In addition, if a Fund holds a material percentage of its assets in illiquid or restricted securities, it may experience difficulty meeting its redemption obligations.

 

8
 

 

Foreign Investments and Currencies

 

In considering whether to invest in the securities of a foreign company, Heartland Advisors considers such factors as the characteristics of the particular company, differences between economic trends and the performance of securities markets within the U.S. and those within other countries, and also factors relating to the general economic, governmental and social conditions of the country or countries where the company is located. The extent to which a Fund will be invested in foreign companies and countries and depositary receipts will fluctuate from time to time within the limitations described in the Prospectus, depending on Heartland Advisors’ assessment of prevailing market, economic and other conditions.

 

The Select Value, Mid Cap Value, Value Plus and Value Funds may invest up to 25% of their assets directly in foreign securities or securities of U.S. companies whose revenue or operating income is derived primarily from outside of the U.S. and may invest without limitations in foreign securities through American Depositary Receipts (“ADRs”). A foreign company or issuer is any company or issuer whose primary operations or revenues are located outside the U.S. and its territories. The International Value Fund may invest up to 100% of its assets in securities of foreign issuers that are not publicly traded in the United States, purchase and sell foreign currency on a spot basis and enter into forward currency contracts and may also invest in ADRs and foreign securities that are publicly traded on a U.S. exchange.

 

Investments in DRs and foreign securities involve certain inherent risks, including the following:

 

Depositary Receipts. Each Fund may invest its assets in securities of foreign issuers in the form of depositary receipts, including ADRs and Global Depositary Receipts (“GDRs”), which are securities representing securities of foreign issuers. A purchaser of unsponsored depositary receipts may not have complete voting rights and may not receive as much information about the issuer of the underlying securities as with a sponsored depositary receipt. Generally, ADRs, in registered form, are denominated in U.S. dollars and are designed for use in the U.S. securities markets. ADRs are receipts typically issued by a U.S. bank or trust company evidencing ownership of the underlying securities. Generally, GDRs, in registered form, are denominated in foreign currency and are designed for use in the foreign securities markets. GDRs are receipts typically issued by a foreign bank or trust company evidencing ownership of the underlying securities. The International Value Fund may invest up to 10% of its net assets at the time of purchase in ADRs. The Select Value, Mid Cap Value, Value Plus, and Value Funds are not subject to any limitations specific to ADRs. For purposes of the Funds’ investment policies, ADRs and GDRs are deemed to have the same classification as the underlying securities they represent.

 

Political and Economic Factors. Individual foreign economies of certain countries may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency, diversification and balance of payments position. The internal politics of certain foreign countries may not be as stable as those of the United States. Governments in certain foreign countries also continue to participate to a significant degree, through ownership interest or regulation, in their respective economies. Action by these governments could include restrictions on foreign investment, nationalization, expropriation of goods or imposition of taxes, and could have a significant effect on market prices of securities and payment of interest. The economies of many foreign countries are heavily dependent upon international trade and are accordingly affected by the trade policies and economic conditions of their trading partners. Enactment by these trading partners of protectionist trade legislation could have a significant adverse effect upon the securities markets of such countries.

 

9
 

 

Currency Fluctuations. Each Fund may invest in securities denominated in foreign currencies. Accordingly, a change in the value of any such currency against the U.S. dollar will result in a corresponding change in the U.S. dollar value of a Fund’s assets denominated in that currency. Such changes will also affect a Fund’s income. The value of a Fund’s assets may also be affected significantly by currency restrictions and exchange control regulations enacted from time to time.

 

Market Characteristics. Heartland Advisors expects that many foreign securities in which the Funds may invest could be purchased in over-the-counter markets or on exchanges located in the countries in which the principal offices of the issuers of the various securities are located, if that is the best available market. Foreign exchanges and markets may be more volatile than those in the United States. While growing in volume, they usually have substantially less volume than U.S. markets, and a Fund’s foreign securities may be less liquid and more volatile than U.S. securities. Moreover, settlement practices for transactions in foreign markets may differ from those in U.S. markets, and may include delays beyond periods customary in the United States. Foreign security trading practices, including those involving securities settlement where Fund assets may be released prior to receipt of payment or securities, may expose a Fund to increased risk in the event of a failed trade or the insolvency of a foreign broker-dealer.

 

Legal and Regulatory Matters. Certain foreign countries may have less supervision of securities markets, brokers and issuers of securities, and less financial information available from issuers, than is available in the United States.

 

Taxes. The interest and dividends payable on certain of a Fund’s foreign portfolio securities may be subject to foreign withholding taxes, thus reducing the net amount of income available for distribution to Fund shareholders. Furthermore, beginning in 2014, the United States began imposing a new 30% withholding tax under the Foreign Account Tax Compliance Act (“FATCA”) (generally non-refundable) on certain payments to certain foreign entities, which could affect a Fund’s return on a foreign portfolio security.

 

Costs. To the extent that a Fund invests in foreign securities, its expense ratio is likely to be higher than those of investment companies investing only in domestic securities, because the cost of trading and maintaining the custody of foreign securities may be higher.

 

Emerging Markets. The International Value Fund may invest up to 50% of its net assets at the time of purchase, in securities of companies located in developing or emerging markets, which entail additional risks, including less social, political and economic stability; smaller securities markets and lower trading volume, which may result in less liquidity and greater price volatility; national policies that may restrict the Fund’s investment opportunities, including restrictions on investments in issuers or industries, or expropriation or confiscation of assets or property; and less developed legal structures governing private or foreign investment.

 

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Passive Foreign Investment Companies

 

Each Fund may invest in stocks of foreign companies that are classified under the Internal Revenue Code of 1986, as amended (the “Code”), as passive foreign investment companies (“PFICs”), if that stock is otherwise a permissible investment for the Fund. In general, a foreign company is classified as a PFIC if it meets either of the following tests: (1) at least 75% of its gross income is passive; or (2) an average of at least 50% of its assets produce, or are held for the production of, passive income. Unless a Fund makes a “qualified electing fund (QEF) election” or a “mark to market” election as described below, the Fund generally will be subject to an interest charge in addition to federal income tax (at ordinary income rates) on (i) any “excess distribution” received on the stock of a PFIC; or (ii) any gain from disposition of PFIC stock that was acquired in an earlier taxable year. This interest charge and ordinary income tax treatment will apply even if the Fund distributes such income to its shareholders. Any portion of a PFIC distribution that is not an “excess distribution” will be included in the Fund’s investment company taxable income and, accordingly, will not be taxable to the Funds to the extent they distribute that income to their shareholders.

 

A Fund may avoid the imposition of the interest charge and other adverse tax consequences of PFIC status described above if the Fund makes an election to treat the particular PFIC as a QEF, if this election is made for the first taxable year in which the Fund owns stock of such PFIC. If a Fund invests in a PFIC and makes such a QEF election, the interest charge and other adverse tax consequences of PFIC status described above will not apply with respect to such PFIC. Instead, the Fund will be required to include in the Fund’s income each year the Fund’s pro rata share of the QEF’s annual ordinary earnings and net capital gain (which such Fund may have to distribute to satisfy the distribution requirement under Subchapter M of the Code (“Distribution Requirement”), even if the QEF does not distribute those earnings and gain to the Fund). In most instances it will be very difficult, if not impossible, to make this election because of certain of its requirements.

 

A Fund may also avoid the imposition of the interest charge and other adverse tax consequences of PFIC status described above if the Fund makes a “mark to market” election with respect to the stock of a particular PFIC, if this election is made for the first taxable year in which the Fund owns stock of such PFIC. “Marking-to-market,” in this context, means including in the Fund’s ordinary income each taxable year the excess, if any, of the fair market value of a PFIC’s stock over such Fund’s adjusted basis therein as of the end of that year. Pursuant to the election, a Fund also would be allowed to deduct (as an ordinary, not capital, loss) the excess, if any, of its adjusted basis in PFIC stock over the fair market value thereof as of the taxable year-end, but only to the extent of any net mark-to-market gains with respect to that stock included by the Fund for prior taxable years under the election. A Fund’s adjusted basis in each PFIC’s stock with respect to which it has made this election will be adjusted to reflect the amounts of income included and deductions taken thereunder. The QEF election and the mark-to-market election may accelerate the recognition of income by a Fund (without the receipt of cash) and increase the amount required to be distributed by a Fund to avoid taxation. Making either of these elections therefore may require a Fund to liquidate other investments to meet its Distribution Requirement (including when it may not be advantageous for a Fund to liquidate such investments), which may accelerate the recognition of gain and affect a Fund’s total return.

 

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Custodial Receipts and Participation Interests

 

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

 

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

 

Derivative Instruments

 

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

 

Some options and futures strategies, including selling futures, buying puts, and writing calls, tend to hedge 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 in order to adjust the risk and return characteristics of a Fund’s overall strategy. Futures, options, and options on futures have durations which, in general, are closely related to the duration of the underlying securities. Holding long futures or call option positions will lengthen the duration of a Fund’s portfolio by approximately the same amount of time that holding an equivalent amount of the underlying securities would.

 

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

 

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

 

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

 

A Fund may enter into closing transactions with respect to options by purchasing an option identical to the one it has written (for exchange-listed options) or by entering into an offsetting transaction with the counterparty to such option (for over-the-counter, or “OTC” options). A Fund’s ability to establish and close out positions in exchange-listed options depends on the existence of a liquid market; however, there can be no assurance that such a market will exist at any particular time or that a Fund will be able to effect such closing transactions at a favorable price. In addition, although a Fund will enter into OTC options only with counterparties that are expected to be capable of entering into closing transactions with the Fund, there is no assurance that the Fund will in fact be able to close out an OTC option position at any time prior to its expiration or that the Fund will be able to effect such closing transactions at a favorable price.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

The purchaser of a futures contract is not required to pay for and the seller of a futures contract is not required to deliver the underlying instrument unless the contract is held until the delivery date. However, upon entering into a futures contract, and to maintain an open position in futures contracts, 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. There may be certain circumstances, such as periods of high volatility, that cause an exchange to increase the level of a Fund’s initial margin payment. Unlike margin in securities transactions, initial margin on futures contracts does not represent a borrowing to a Fund, but rather is in the nature of a performance bond or good-faith deposit that is returned to the Fund upon termination of the transaction assuming all contractual obligations have been satisfied.

 

Each day that a Fund has an open position in a futures contract or an option on a futures contract it will pay or receive cash, called “variation margin,” to or from the futures broker equal to the daily change in value of the futures contract. This process is known as “marking to market.” Variation margin paid or received by a Fund does not represent a borrowing or a loan, but rather represents settlement between the Fund and the broker of the amount one would owe the other if the futures contract had expired at the close of the previous day. When a Fund purchases an option on a future, all that is at risk is the premium paid plus transaction costs. Alternatively, when a Fund purchases or sells a futures contract or writes a call or put option thereon, it is subject to daily variation margin calls that could be substantial in the event of adverse price movements. A Fund may be required to sell securities at a time when such sales are disadvantageous in the event a Fund has insufficient cash to meet daily variation margin requirements. In computing daily net asset value, each Fund will mark to market the current value of any 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; however, there can be no assurance that such a market will exist at any particular time or that a Fund will be able to effect such closing transactions at a favorable price. Closing out an open futures contract purchase or sale is effected by entering into an offsetting futures contract sale or purchase, respectively, for the same aggregate amount of the identical securities and the same delivery date. If 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, a 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.

 

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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. Movements in the prices of futures contracts or options on futures contracts may not correlate perfectly with movements in the prices of the underlying instruments due to certain characteristics of the futures markets. In particular, daily variation margin calls may cause certain participants in futures markets to liquidate futures or options on futures contracts positions to avoid being subject to further calls. These liquidations could distort the normal price relationship between the futures or options and the underlying instruments by increasing price volatility. Temporary price distortion may also be caused by increased participation by speculators in the futures markets as a result of initial margin deposit requirements being less onerous than in the securities markets.

 

Limitations on Futures and Options on Futures Transactions. The Funds will engage in transactions in futures contracts and options thereon either for bona fide hedging purposes or to seek to increase total return, in each case in accordance with the rules and regulations of the CFTC. To the extent a Fund engages in transactions in futures contracts and options thereon and other commodity interests such as certain swap contracts, it will do so only in accordance with certain CFTC exemptive provisions under which Heartland Group, Inc. has claimed an exclusion from the definition of a “commodity pool operator” under the Commodity Exchange Act, as amended (the “CEA”), and therefore, Heartland is not subject to registration or regulation as a commodity pool operator under the CEA. A Fund may hold positions in futures contracts and related options and other commodity interests that do not qualify as bona fide hedging positions if, as a result, the sum of initial margin deposits and premiums paid to establish such positions, after taking into account unrealized profits and unrealized losses on such contracts, does not exceed 5% of the Fund’s liquidation value; 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; or if the aggregate net notional value of the Fund’s commodity interests does not exceed 100% of the liquidation value of its portfolio, after taking into account unrealized profits and losses on such contracts.

 

Combined Positions. Each Fund may purchase and write options in combination with another, 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.

 

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Risks in Options and Futures Transactions. Options and futures can be highly volatile investments and involve certain risks. A decision about whether, when, and how to use options and futures involves skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of unexpected market behavior, or market or interest rate trends. Successful options and futures strategies require the ability to predict future movements in securities prices, interest rates, and other economic factors. There are significant differences between the securities markets, the currency markets, and the options and futures markets that could result in an imperfect correlation between markets, causing a given transaction not to achieve its objectives. Options and futures prices are affected by such factors as current and anticipated short-term interest rates, changes in volatility of the underlying instrument and the time remaining until expiration of the contract, which may not affect prices of the underlying instruments the same way. Imperfect correlation may also result from different levels of demand in the options and futures markets and the markets for the underlying instruments, from structural differences in how options and futures, on the one hand, and securities, on the other hand, are traded or from imposition of daily price fluctuation limits or trading halts or suspensions by an exchange. If price changes in a Fund’s options or futures positions are poorly correlated with its other investments, the positions may fail to produce anticipated gains or result in losses that are not offset by gains in other investments.

 

Because there are a limited number of types of exchange-traded options and futures contracts, it is likely that the standardized contracts available will not match a Fund’s current or anticipated investments exactly. A Fund may invest in options and futures contracts based on securities with different issuers, maturities, or other characteristics from the securities in which it typically invests, which involves a risk that the options or futures positions will not track the performance of the Fund’s other investments. For example, even the use of an option or a futures contract on a securities index may result in an imperfect correlation since the index generally will be composed of a much broader range of securities than the securities in which a Fund likely is to be invested. To the extent that a Fund’s options or futures positions do not match its current or anticipated investments, there is an increased risk that the options or futures positions will not track performance of the Fund’s other investments. Moreover, a Fund may purchase or sell options and futures contracts with a greater or lesser value than the securities it wishes to hedge or intends to purchase in order to attempt to compensate for differences in volatility between the contract and the securities, although this may not be successful in all cases.

 

Because of the low margin deposits required, futures trading involves a high degree of leverage. A relatively small price movement in futures contracts could result in an immediate and substantial gain or loss to 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 a Fund.

 

There can be no assurance that a liquid secondary market will exist for any particular options or futures contracts at any particular time. On volatile trading days when the price fluctuation limit is reached or a trading halt or suspension is imposed, it may be impossible for the Fund to enter into new positions, close out existing positions, or dispose of assets held in a segregated account. These events may also make an option or futures contract difficult to price. If the secondary market for a futures contract is not liquid because of price fluctuation limits or otherwise, it could prevent prompt liquidation of unfavorable positions and potentially require 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. Similarly, if a Fund is unable to effect a closing sale transaction with respect to options it has purchased, it would have to exercise the options in order to realize any profit and will incur transaction costs upon the purchase or sale of underlying securities or currencies.

 

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Federal Tax Treatment of Options and Futures Contracts. The Funds may enter into certain options and futures contracts which may or may not be treated as Section 1256 contracts or straddles under the 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 and 40% short-term regardless of the holding period of the instrument. A Fund will be required to recognize net gains or losses on such transactions when determining the Fund’s Distribution Requirement even though it may not have closed the transaction and received cash to pay such distribution.

 

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

 

In order for a Fund to continue to qualify for federal income tax treatment as a regulated investment company, at least 90% of its gross income for a taxable year must be derived from qualifying income (that is, dividends, interest, income derived from loans of securities, and gains from the sale of securities or currencies). Options, futures, and forward foreign exchange contracts entered into for an investment purpose are qualifying income. See “Portfolio Management Strategies - Foreign Currency Transactions” for a discussion of forward foreign exchange contracts.

 

The Code imposes constructive sale treatment for federal income tax purposes on certain hedging strategies with respect to appreciated securities. Under these rules, taxpayers will recognize gain, but not loss, with respect to securities if they enter into short sales of “offsetting notional principal contracts” (as defined by the Code) or futures or “forward contracts” (as defined by the Code) 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. 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.

 

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Convertible Securities

 

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

 

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

 

Investment Companies

 

Each Fund may invest in the securities of other investment companies, including unit investment trusts, closed-end management companies, or exchange-traded funds (“ETFs”) (as discussed below), as permitted under the 1940 Act. At present, subject to certain exceptions, the 1940 Act provisions limit a Fund so that, immediately after purchase or acquisition, (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, a 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.

 

Exchange-Traded Funds

 

Each Fund may invest in securities of ETFs. ETFs are similar to traditional mutual funds, except that their shares trade throughout the trading day in the secondary brokerage market, much like stocks of public companies.

 

ETFs have their own operating expenses that are deducted from their assets and, thus, are borne by the shareholders of the ETF. Accordingly, a Fund that invests in an ETF will bear its share of the operating expenses of the ETF in which it invests. As a result, shareholders of the Fund will bear two layers of operating expenses to the extent the Fund invests in ETFs. An investment in an ETF generally presents the same primary risks as an investment in a traditional mutual fund such as the risk that the prices of the securities owned by the ETF will go down.

 

In addition to the risks described above, an investment in an ETF is also subject to the following risks that do not apply to an investment in a traditional mutual fund: (1) the market price of the ETF may trade at a discount to its net asset value; (2) an active trading market for an ETF’s securities may not develop or be maintained, which may result in issues with liquidity of the ETF shares; or (3) trading of an ETF’s securities may be halted if the listing exchange’s officials deem such action appropriate, the shares or interests are de-listed from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halt trading in general.

 

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Each Fund may invest in ETFs that Heartland Advisors determines are appropriate to help achieve the Fund’s investment objective or otherwise are consistent with its investment program and restrictions. On occasion, the underlying investments of an ETF in which a Fund invests may not comply with some of the investment restrictions described in the section of this SAI titled “Types of Securities.” However, in all cases, the underlying investments of the ETF will comply with the Fund’s fundamental investment restrictions.

 

Swap Agreements

 

Each Fund may enter into swap agreements and may purchase or sell related caps, floors, and collars. It would enter into these transactions primarily to preserve a desired return or spread on a particular investment or portion of its portfolio, as a duration management technique or to protect against any increase in the price of, or the currency exchange rate applicable to, securities it anticipates purchasing at a later date. The Funds intend to use these techniques for hedging purposes and not for speculation.

 

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

 

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

 

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

 

If a swap agreement calls for payments by a Fund, it must be prepared to make such payments when due. If the counterparty’s creditworthiness declines, or in the event of a default of the counterparty, the value of the swap agreement would likely decline, potentially resulting in a loss of the amount expected to receive under a swap agreement. A Fund will enter into swap agreements only with counterparties that Heartland Advisors reasonably believes are capable of performing under the swap agreements. The swap market is largely unregulated and swap agreements may be considered to be illiquid. Certain swaps are considered “commodity interests” and are subject to the limitations set forth above under “Limitations on Futures and Options on Futures Transactions.”

 

Hybrid Instruments

 

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

 

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

 

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Debt Securities

 

From time to time, the Advisor may conclude that a security other than an equity security presents an attractive risk/reward profile. As a result, the Funds may invest in debt securities of corporate and governmental issuers. The Select Value, Mid Cap Value, Value Plus and Value Funds may invest up to 35% of their respective total assets in corporate debt securities and U.S. Governmental obligations, but under normal market conditions will not invest more than 10% of their respective assets in such securities. The International Value Fund may invest up to an aggregate of 20% of its net assets at market value at the time of purchase in investment grade debt securities and convertible debt securities of non-U.S. and U.S. issuers. There are no credit quality or maturity limitations on a Fund’s investments in debt securities.

 

The risks inherent in short-, intermediate- and long-term debt securities depend on a variety of factors, including the term of the obligations, the size of a particular offering and the credit quality and rating of the issuer, in addition to general market conditions. In general, the longer the maturity of a debt obligation, the higher its yield and the greater its sensitivity to changes in interest rates. Conversely, the shorter the maturity, the lower the yield but the greater the price stability. A decline in the prevailing levels of interest rates will generally increase the value of the securities held by a Fund, and an increase in rates will generally have the opposite effect.

 

Foreign debt securities may be subject to additional risk as foreign securities markets may be less liquid and more volatile than U.S. markets. In addition, foreign debt securities may not provide debt holders with the same rights domestic debt holders receive.

 

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

 

Debt obligations rated high and some debt obligations rated medium quality are commonly referred to as “investment-grade” debt obligations. Investment-grade debt obligations are generally believed to have relatively low degrees of credit risk. However, medium-quality debt obligations, while considered investment grade, may have some speculative characteristics, since their issuers’ capacity for repayment may be more vulnerable to adverse economic conditions or changing circumstances than that of higher-rated issuers. The principal value of lower-rated securities generally will fluctuate more widely than higher-quality securities. Lower-quality securities entail a higher degree of risk as to the payment of interest and return of principal. Such securities are also subject to special risks, discussed below. To compensate investors for taking on such increased risk, issuers deemed to be less creditworthy generally must offer their investors higher interest rates than do issuers with better credit ratings.

 

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In conducting its credit research and analysis, Heartland Advisors considers both qualitative and quantitative factors to evaluate the creditworthiness of individual issuers. Heartland Advisors also relies, in part, on credit ratings compiled by a number of nationally recognized statistical rating organizations (“NRSROs”).

 

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

 

“High-Yield” Risk. Each Fund’s investment program permits it to invest in non-investment grade debt obligations, sometimes referred to as “junk bonds” (hereinafter referred to as “lower-quality securities”). Lower-quality securities are those securities that are rated lower than investment grade and unrated securities believed by Heartland Advisors to be of comparable quality. Although these securities generally offer higher yields than investment grade securities with similar maturities, lower-quality securities involve greater risks, including the possibility of default or bankruptcy. In general, they are regarded to be more speculative with respect to the issuer’s capacity to pay interest and repay principal. Other potential risks associated with investing in high-yield securities include:

 

Effect of Interest Rates and Economic Changes. The market for lower-quality and comparable unrated securities can be negatively affected during a prolonged recession or economic downturn. Such conditions could severely disrupt the market for, and adversely affect the value of, such securities.

 

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

 

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

 

Credit Risk. Credit ratings issued by credit rating agencies are designed to evaluate the safety of principal and interest payments of rated securities. They do not, however, evaluate the market value risk of lower-quality securities, and therefore may not fully reflect the true risks of an investment. In addition, credit rating agencies may or may not make timely changes in a rating to reflect changes in the economy or in the condition of the issuer that affect the market value of the security. Consequently, credit ratings, including, for example, those published by Standard & Poor’s Ratings Service (“S&P”), Moody’s Investors Service, Egan Jones, and Fitch Ratings, are used only as a preliminary indicator of investment quality. Investments in lower-quality and comparable unrated obligations will be more dependent on Heartland Advisors’ credit analysis than would be the case with investments in investment-grade debt obligations. Accordingly, Heartland Advisors monitors bonds held in a Fund’s portfolio to assess and determine whether the issuers will have sufficient cash flow to meet required principal and interest payments, and to assure the continued liquidity of such bonds so that the Fund can meet redemption requests.

 

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

 

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

 

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

 

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

 

Floating and Variable Rate Securities. Each Fund may invest in securities which offer a variable or floating rate of interest. Floating rate securities generally provide for automatic adjustment of the interest rate whenever some specified interest rate index changes. Variable rate securities, on the other hand, provide for automatic establishment of a new interest rate at fixed intervals. Interest rates on floating and variable rate securities are based on a designated rate or a specified percentage thereof, such as a bank’s prime rate.

 

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

 

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

 

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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 a Fund’s gross income for the relevant tax year, the excess will be treated as an ordinary loss.

 

If the periodic adjustment rate measuring inflation increases, the principal value of inflation-indexed bonds will be adjusted upward and, as a result, the interest payable on these securities (calculated with respect to a larger principal amount) will be increased. Any increase in the principal amount of an inflation-indexed bond will be considered taxable ordinary income and will be includable in a Fund’s gross income in the period in which it accrues, even though investors do not receive their principal until maturity, subject to offset against any tax loss carryforwards from earlier tax years. There can be no assurance that the applicable inflation index for the security will accurately measure the real rate of inflation (or deflation) in the prices of goods and services.

 

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

 

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

 

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

 

Mortgage-related and asset-backed securities are less effective than other types of securities as a means of “locking in” attractive long-term interest rates. One reason is the need to reinvest prepayments of principal; another is the possibility of significant unscheduled prepayments resulting from declines in interest rates. During periods of declining interest rates, prepayments likely would have to be reinvested at lower rates. As a result, these securities may have less potential for capital appreciation during periods of declining interest rates than other securities of comparable maturities, although they may have a similar risk of decline in market value during periods of rising interest rates.

 

Prepayments may cause losses in securities purchased at a premium. At times, some of the mortgage-related and asset-backed securities in which a Fund may invest may have higher than market yields and, therefore, will be purchased at a premium above their par value. Unscheduled prepayments, which are made at par, will cause the Fund to experience a loss equal to any unamortized premium. In addition, the value of mortgage-related and asset-backed securities may change due to changes in the market’s perception of the creditworthiness of the issuer, and the mortgage-related and asset-backed securities markets in general may be adversely affected by changes in governmental regulation or tax policies.

 

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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 a 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 indices underlying the ARMs, as certain indices 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 periods of favorable interest rate environments, holders of adjustable rate mortgages have greater incentives to refinance with fixed-rate mortgages in order to avoid interest-rate risk. In addition, significant increases in the index rates used for adjustment of the mortgages may result in increased delinquency, default and foreclosure rates, which in turn would increase the rate of prepayment on the ARMs.

 

Collateralized mortgage obligations (“CMOs”) are designed to reduce the risk of prepayment for investors by issuing multiple classes of securities, each having different maturities, interest rates and payment schedules, and with the principal and interest on the underlying mortgages allocated among the several classes in various ways. Payment of interest or principal on some classes or series of CMOs may be subject to contingencies or some classes or series may bear some or all of the risk of default on the underlying mortgages. CMOs of different classes or series are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. If enough mortgages are repaid ahead of schedule, the classes or series of a CMO with the earliest maturities generally will be retired prior to their maturities. Thus, the early retirement of particular classes or series of a CMO held by a 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.

 

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Similarly, prepayments could also result in losses on stripped mortgage-backed and asset-backed securities. Stripped mortgage-backed and asset-backed securities are commonly structured with two classes that receive different portions of the interest and principal distributions on a pool of loans. A Fund may invest in both the interest-only or “IO” class and the principal-only or “PO” class. The yield to maturity on an IO class of stripped mortgage-backed or asset-backed securities is extremely sensitive not only to changes in prevailing interest rates but also to the rate of principal payments (including prepayments) on the underlying assets. A rapid rate of principal prepayments may have a measurable adverse effect on a 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, a 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. Complex instruments such as CMOs and stripped mortgage-backed securities may have a structure that makes their reaction to interest rates and other factors difficult to predict, potentially making their price highly volatile.

 

The secondary market for stripped mortgage-backed and asset-backed securities may be more volatile and less liquid than that for other securities, potentially limiting the Funds’ ability to obtain market quotations for those securities or to buy or sell those securities at any particular time.

 

It is anticipated that certain entities may create loan pools offering pass-through investments in addition to the types discussed above, including securities with underlying pools of derivative mortgage-related and asset-backed securities. As new types of mortgage-related and asset-backed securities are developed and offered to investors, Heartland Advisors will, consistent with each Fund’s objective and investment policies, consider making investments in such new types of securities.

 

Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities. Each Fund may invest in zero-coupon, step-coupon and pay-in-kind securities. These securities are debt securities that do not make regular cash interest payments. Zero-coupon and step-coupon securities are sold at a deep discount to their face value. Pay-in-kind securities pay interest through the issuance of additional securities. Because such securities do not pay current cash income, the price of these securities can be volatile when interest rates fluctuate. While these securities do not pay current cash income, federal income tax law requires the holders of the zero-coupon, step-coupon and pay-in-kind securities to include in income each year the portion of the original issue discount (or deemed discount) and other non-cash income on such securities accrued during that year. In order to satisfy the Distribution Requirement and avoid a federal excise tax, a Fund may be required to distribute a portion of such discount and income and may be required to dispose of other portfolio securities, which could occur in periods of adverse market conditions, in order to generate cash to meet these distribution requirements.

 

Indexed Securities

 

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

 

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

 

The market for indexed securities may be thinner and less active than the market for securities in general, which can adversely affect the prices at which indexed securities are sold. Judgment plays a greater role in valuing certain indexed securities than is the case for securities for which more external sources for quotations and last-sale information are available. Adverse publicity and changing investor perceptions may affect the ability to value accurately indexed securities and a Fund’s ability to dispose of these securities.

 

Loan Interests

 

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

 

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

 

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

 

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Real Estate Investment Trusts

 

Each Fund may invest up to 10% of its total assets in real estate investment trusts (“REITs”), which may own real estate properties (“equity REITs”) or may make or purchase mortgages on real estate (“mortgage REITs”).

 

REITs are subject to volatility from risks associated with investments in real estate and investments dependent on income from real estate, such as fluctuating demand for real estate and sensitivity to adverse economic conditions. Equity REITs may be adversely affected by rising interest rates, which may increase the costs of obtaining financing for real estate projects or cause investors to demand a high annual yield from future distributions. Mortgage REITs may experience diminished yields during periods of declining interest rates if they hold mortgages that the mortgagors elect to prepay during such periods. In addition, the failure of a REIT in which a 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.

 

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

 

Rights and Warrants

 

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

 

When-Issued and Delayed-Delivery Securities; Forward Commitments

 

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

 

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On the date a Fund enters into an agreement to purchase securities on a when-issued or forward commitment basis, it will record the transaction and reflect the value of the obligation in determining its net asset value. Each Fund will only make commitments to purchase securities on a when-issued basis with the intention of actually acquiring the securities, but may sell them before the settlement date if it is deemed advisable. A Fund will establish in a segregated account, or earmark as segregated on the books of the Fund or the Fund’s custodian, an amount of liquid assets equal to 100% of the amount of its commitment to purchase securities on a when-issued basis. These assets will be marked-to-market daily, and a Fund will increase the aggregate value of the assets, as necessary, to ensure that the assets are at least equal to 100% of the amount of the Fund’s commitments.

 

PORTFOLIO MANAGEMENT STRATEGIES

 

The following information supplements the discussion of the Funds’ investment objectives and policies in the Prospectus.

 

Borrowing

 

The extent to which a Fund will borrow will depend, among other things, on market conditions and interest rates. Each Fund may borrow from any bank or other person up to 5% of such Fund’s total assets for temporary purposes. A borrowing is presumed to be for temporary purposes if it is repaid by the Fund within 60 days and is not extended or renewed. Each Fund may also borrow from banks up to one-third of its total assets for other purposes such as facilitating the management of its investment portfolio and making other investments or engaging in other transactions permissible under the 1940 Act which may be considered a borrowing (such as dollar rolls and reverse repurchase agreements). The Funds may enter into a line of credit with a bank for temporary, emergency or other purposes, such as, without limitation, to meet redemption requests in situations where borrowing may be preferable to the liquidation of portfolio securities.

 

Foreign Currency Transactions

 

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

 

The Funds may use these instruments for hedging or any other lawful purpose consistent with their investment objectives.

 

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, a 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.

 

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

 

The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date the forward contract is entered into and the date it matures. The projection of short-term currency market movement is extremely difficult and the successful execution of a short-term hedging strategy is highly uncertain. Under normal circumstances, consideration of the prospect for currency parities will be incorporated into the longer-term investment decisions made with regard to overall diversification strategies. However, Heartland Advisors believes that it is important to have the flexibility to enter into such forward contracts when it determines that the best interests of a Fund will be served.

 

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. There might be imperfect correlation, or even no correlation, between price movements of an instrument and price movements of investments being hedged. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as speculative or other pressures on the markets in which these instruments are traded. In addition, a Fund’s use of currency-related derivative instruments is always subject to the risk that the currency in question could be devalued by the foreign government. In such a case, any long currency positions would decline in value and could adversely affect any hedging position maintained by a Fund. 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.

 

Forward foreign exchange contracts may or may not be treated as Section 1256 contracts or straddles under the Code. See “Types of Securities - Derivative Instruments - Federal Tax Treatment of Options and Futures Contracts.”

 

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Change or Influence Control over Portfolio Companies

 

As a shareholder of a portfolio company, each Fund reserves the right to freely communicate its views on matters of policy to the company’s management, board of directors and other shareholders when a policy may affect the value of the Fund’s investment. In exercising this right, the Funds may, from time to time, use its ownership interest in a portfolio company to seek to change or influence control of the company’s management. For example, a Fund might take steps, either individually or as part of a group, (a) to actively support, oppose, or influence a company’s decision-making, (b) to seek changes in a company’s management or board of directors, (c) to effect the sale of all or some of a company’s assets, (d) to vote to participate in or oppose a takeover of a portfolio company or an acquisition by a portfolio company, or (e) to serve as lead plaintiff in a matter related to a portfolio company. A Fund would engage in such activities in an effort to protect and maximize the value of its investment on behalf of the Fund’s shareholders. The extent to which a Fund might invest for purposes of changing or influencing control of management would depend, among other things, on facts and circumstances specific to the issuer as well as general market conditions.

 

Investing for purposes of changing or influencing control of management could result in additional expenses to a Fund, including expenses associated with operational or regulatory requirements and the ongoing cost of potential litigation. It could also restrict a Fund’s ability to freely dispose of the securities of a portfolio company with respect to which it is deemed to be investing to effect control, which might adversely affect the Fund’s liquidity as well as the sale price of those securities. Finally, greater public disclosure is required regarding a Fund’s investment and trading strategies in regulatory filings relating to such securities.

 

It is expected that a Fund would make investments for purposes of changing or influencing control only on a selective basis when Heartland Advisors believes it would be in the best interests of the Fund and its shareholders.

 

Lending Portfolio Securities

 

Each Fund may lend its portfolio securities to institutional investors or broker-dealers up to a maximum of one-third of its total assets, where such loans are callable at any time and are continuously secured by collateral consisting of cash or liquid assets at least equal to the value of the security lent. The collateral received by a Fund may be invested in government securities, money-market instruments, or other short-term debt instruments. A Fund receives amounts equal to earned income for having made the loans, net of certain fees. A 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, a Fund takes into account the creditworthiness of the borrower since the Fund could experience costs and delays in recovering loaned securities or exercising its rights to the collateral in the event of bankruptcy of the borrower. A Fund may pay a fee to placing brokers in connection with loans of its portfolio securities. Lending portfolio securities involves risks, including, but not limited to, that the borrower may fail to return the securities or provide additional collateral, as required. Also, voting rights with respect to loaned securities may pass with the lending of the securities, which may limit Heartland’s ability to vote such securities. Brown Brothers Harriman & Co (“BBH”) acts as the securities lending agent for the Funds. In its capacity as securities lending agent, BBH, among other things, enters into and maintains securities loan agreements with borrowers, negotiates fees with borrowers, delivers securities to borrowers, receives collateral from borrowers in connection with each loan, holds the collateral on behalf of the Fund engaged in securities lending and invests the cash collateral in accordance with Heartland Advisors’ instructions. BBH receives fees from the Funds and such fee will be calculated on, and deducted from, the Fund’s securities lending revenues.

 

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Repurchase Agreements

 

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

 

Such repurchase agreements will be made only with banks with assets of $500 million or more that are insured by the Federal Deposit Insurance Corporation or with Government securities dealers recognized by the Federal Reserve Board and registered as broker-dealers with the SEC or exempt from such registration. Each Fund will generally enter into repurchase agreements of short durations, from overnight to one week, although the underlying securities generally have longer maturities. A Fund may not enter into a repurchase agreement with more than seven days to maturity if, as a result, more than 5% of the value of the Fund’s net assets would be invested in illiquid securities including such repurchase agreements.

 

However, each Fund will always receive as collateral for any repurchase agreement to which it is a party securities acceptable to the Advisor, the market value of which is equal to at least 100% of the amount invested by the Fund plus accrued interest, and the Fund will make payment against such securities only upon physical delivery or evidence of book entry transfer to the account of its Custodian. If the market value of the U.S. Government security subject to the repurchase agreement becomes less than the repurchase price (including interest), the Fund will direct the seller of the U.S. Government security to deliver additional securities so that the market value of all securities subject to the repurchase agreement will equal or exceed the repurchase price.

 

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

 

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Reverse Repurchase Agreements and Dollar Rolls

 

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

 

Each Fund may also enter into dollar rolls, in which the Fund would sell securities for delivery in the current month and simultaneously contract to purchase substantially similar securities on a specified future date. While a Fund would forego principal and interest paid on the securities during the roll period, the Fund would be compensated by the difference between the current sales price and the lower price for the future purchase as well as by any interest earned on the proceeds of the initial sale. A Fund also could be compensated through the receipt of fee income equivalent to a lower forward price. At the time of entering into a dollar roll, a Fund will establish and maintain a segregated account consisting of cash or other liquid assets, either of which may be quoted or denominated in any currency, having a value at least equal to the Fund’s obligation to buy the securities.

 

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

 

Short Sales

 

Each Fund may engage in short sales of securities under certain circumstances. Selling securities “short against the box” involves selling a security that a 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. A Fund may also engage in short sales of securities of an issuer (“acquirer”) that has publicly announced a proposed or a pending transaction in which a portfolio security of the Fund will be converted into securities of the acquirer. A 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.

 

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Standby Commitments

 

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

 

Cash Liquidation for Redemption

 

Each Fund, with the exception of the Mid Cap Value and International Value Funds, may participate in a program with ReFlow Fund, LLC (“ReFlow”), which is designed to provide an alternative liquidity source for mutual funds experiencing net redemptions of their shares. In order to pay cash to shareholders who redeem their shares on a given day, a mutual fund typically must hold cash in its portfolio, liquidate portfolio securities, or borrow money, all of which impose certain costs on a Fund. Pursuant to the program, ReFlow provides participating mutual funds with a source of cash to meet net shareholder redemptions by being prepared to purchase Fund shares, at the Fund’s closing net asset value, equal to the amount of the Fund’s net redemptions on any given day. ReFlow then generally redeems those shares when the Fund experiences net sales, at the end of the maximum holding period determined by ReFlow (currently 28 days) or at other times at ReFlow’s discretion. When the Fund participates in the ReFlow program, the Fund will pay a fee to ReFlow at a rate determined by a daily auction with other participating mutual funds. The current minimum fee rate is 0.15% of the value of the Fund’s shares purchased by ReFlow for the period of time that the shares remain outstanding. The Fund may submit a bid at a higher fee rate if it determines that doing so is in the best interest of Fund shareholders. ReFlow will purchase Institutional Class shares of the Fund and shares purchased by ReFlow through this program are not subject to the frequent trading limitation described in “Excessive Account Activity” under “Other Policies” in the Prospectus.  Heartland Advisors believes during periods of unusual redemption activity it can utilize this program to help stabilize the Fund’s net assets. The Fund is not required to participate in this program. There is no assurance that ReFlow will have sufficient funds available to meet the Fund’s liquidity needs on a particular day. In accordance with federal securities laws, ReFlow is prohibited from acquiring more than 3% of the outstanding voting securities of the Fund.

 

INVESTMENT RESTRICTIONS

 

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

 

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

 

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

 

Fundamental Restrictions Common to the Select Value, Mid Cap Value, Value Plus, and Value Funds

 

As a matter of fundamental policy, which may not be changed without shareholder approval, no Fund may:

 

1.          Concentration (For the Select Value, Value Plus and Value Funds). Invest more than 25% of total assets in securities of non-governmental issuers whose principal business activities are in the same industry; provided, however, that there shall be no limitation on the purchase of securities issued or guaranteed by national governments,1 their agencies or instrumentalities.

 

2.          Concentration (For the Mid Cap Value Fund). Invest 25% or more of total assets in securities of non-governmental issuers whose principal business activities are in the same industry; provided, however, that there shall be no limitation on the purchase of securities issued or guaranteed by national governments,1 their agencies or instrumentalities.

 

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

 

4.          Borrowing. Borrow money or property, except the Fund may (i) make investments or engage in other transactions permissible under the 1940 Act which may involve borrowing, provided that the combination of such activities shall not exceed 33⅓% of total assets (including the amount borrowed), less the Fund’s liabilities (other than borrowings), and (ii) borrow up to an additional 5% of its total assets (not including the amount borrowed) from a bank for temporary purposes. Any borrowing which comes to exceed these limits shall be reduced in accordance with applicable law.

 

5.          Loans. Make loans, except the Fund may (i) acquire publicly distributed or privately placed debt securities and purchase debt, (ii) purchase money market instruments and enter into repurchase agreements, and (iii) lend portfolio securities. The Fund may not lend portfolio securities if, as a result thereof, the aggregate of all such loans would exceed 33⅓% of total assets taken at market value at the time of such loan.

 

 

(1)For so long as it is the position of the staff of the SEC that foreign governments are industries for purposes of mutual fund policies concerning concentration, they shall not be included within the types of governmental issuers excluded from the Funds’ concentration policies.

 

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

 

7.          Senior Securities. Issue senior securities, except to the extent permitted under the 1940 Act.2

 

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

 

Fundamental Restrictions for the International Value Fund

 

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

 

1.          issue senior securities, borrow money or pledge its assets, except that (i) the Fund may borrow from banks in amounts not exceeding one-third of its total assets (including the amount borrowed); (ii) borrow up to an additional 5% of its total assets (not including the amount borrowed) from a bank for temporary purposes; and (iii) this restriction shall not prohibit the Fund from engaging in options transactions or short sales in accordance with its objectives and strategies;

 

2.          underwrite the securities of other issuers (except that the Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities under circumstances where it may be considered to be an underwriter under the Securities Act);

 

3.          purchase or sell real estate or interests in real estate, unless acquired as a result of ownership of securities (although the Fund may purchase and sell securities which are secured by real estate and securities of companies that invest or deal in real estate) including, but not limited to real estate investment trusts;

 

4.          purchase or sell commodities or commodities contracts, unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from engaging in transactions involving currencies and futures contracts and options thereon or investing in securities or other instruments that are secured by commodities or in the securities of companies engaged in the commodities business;

 

 

(2)With respect to Fundamental Investment Limitation No. 6, the 1940 Act permits the Funds to enter into options, futures contracts, forward contracts, repurchase agreements and reverse repurchase agreements provided that these types of transactions are covered in accordance with SEC positions.  Under SEC staff interpretations of the 1940 Act, such derivative transactions will not be deemed “senior securities” if the Funds segregates assets or otherwise covers its obligations to limit the Fund’s risk of loss, such as through offsetting positions.

 

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5.          make loans of money (except for the lending of its portfolio securities and purchases of debt securities consistent with the investment policies of the Fund);

 

6.          purchase the securities of any one issuer if, immediately after and as a result of such purchase, (a) the value of the Fund’s holdings in the securities of such issuer exceeds 5% of the value of the Fund’s total assets, or (b) the Fund owns more than 10% of the outstanding voting securities of the issuer, with the exception that these restrictions do not apply to the Fund’s investments in the securities of the U.S. Government, or its agencies or instrumentalities, or other investment companies); or

 

7.          invest in the securities of any one industry if, as a result, 25% or more of the Fund’s total assets would be invested in the securities of such industry, except that the foregoing does not apply to securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities or securities of other investment companies.

 

Other Fundamental Restrictions Common to the Select Value, Mid Cap Value, Value Plus, and Value Funds

 

In addition to the fundamental restrictions for the Select Value, Mid Cap Value, Value Plus, and Value Funds, these Funds have fundamental policies on diversification, pledging of assets, short sales, and affiliate transactions, as described below.

 

Diversification. The diversification of a Fund’s holdings is measured at the time the Fund purchases a security. However, if a Fund purchases a security and holds it for a period of time, the security may become a larger percentage of the Fund’s total assets due to movements in the financial markets. If the market affects several securities held by a Fund, the Fund may have a greater percentage of its assets invested in securities of fewer issuers. Because a Fund is diversified, the Fund is less subject to the risk that its performance may be hurt disproportionately by the poor performance of relatively few securities.

 

The Select Value Fund (a) may not, 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; and (b) may not, with respect to 75% of its total assets, purchase more than 10% of the outstanding voting securities of an issuer.

 

The Mid Cap Value Fund (a) may not, 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; and (b) may not, with respect to 75% of its total assets, purchase more than 10% of the outstanding voting securities of an issuer.