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Tuesday, August 20, 2002

Heartland Moves On

by: Sean Hanna, Editor in Chief

The end of the story appears to have been written for Heartland Fund's tenure as a bond fund advisor. The firm is selling its sole remaining bond funds to its neighbor, North Track Funds. At one time Heartland sponsored four fixed-income funds.

The sale marks the end of one of the few black-eyes for the fund industry, and perhaps the biggest problem for the industries image since Piper Jaffrey saw a fixed income fund blow up in 1994 after it invested in so-call kitchen sink asset-backed securities. (The bonds were backed by "toxic" trenches from Comes which even included kitchen sinks, traders joked).

The Milwaukee-based fund firm first saw troubles in October 2000 when it sharply marked down the net asset value of two of its funds. The High-Yield Municipal Bond suffered a one-day loss of 70 percent and Short Duration High-Yield plummeted 44 percent.

The losses were a reflection of fund holdings in non-liquid bonds being carried at what turned out to be incorrect price levels. The two funds were subsequently taken over by the Securities and Exchange Commission. The SEC also took over a third fund, Heartland Taxable Short Duration Municipal Fund.

The sale of Heartland's third fixed income fund, Wisconsin Tax Free Fund, may have been eased in July when the fund firm settled a class-action lawsuit brought by shareholders in for $14 million.

North Track plans to merge Heartland fund with its own Wisconsin Tax-Exempt fund on November 1. That move is expected to be okayed by shareholders in October.

The North Track fund is managing by its corporate parent Ziegler. The firm is aggressively growing its advisor-sold product line.

Heartland continues to advise a line-up of equity funds.  

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