The final chapter in the Heartland Funds valuation case may be coming to a close. A receiver appointed by the U.S. District Court in Chicago is proposing that the firms three high yield bond funds at the center of the debacle sell their high quality bonds and distribute the proceeds to shareholders, according to a report appearing on the Milwaukee Journal Sentinels Web site.
"This is a means to get some cash out to investors," Phillip Stern, the receiver in charge of the funds, told the Journal Sentinel.
A little over a year ago, Heartland was forced to significantly write down the net asset value of its High Yield Municipal Bond, Short Duration High Yield and Taxable Short Duration High Yield funds as a result of inaccurate portfolio valuations. The High Yield Municipal Bond Funds NAV dropped 69%, while the Short Duration and Taxable Short Duration funds NAVs experienced drops of 44% and 6%, respectively. (See MFMN 11/6/00)
The error produced a flurry of shareholder lawsuits and prompted the Securities and Exchange Commission to freeze the funds assets and place them into receivership.
There are roughly 4.8 million shareholders in the High Yield fund, 3 million in the Short Duration fund and 679,000 in the Taxable Short Duration fund, according to the Journal Sentinel report.
After the distributions, the funds will hold some cash and low quality bonds, according to the report. Stern told the Journal Sentinel that he has received bids on some of those bonds but is not willing to accept the bids because they are significantly lower than what an independent pricing service and his own analysis has estimated they are worth.
Stern will submit a recommendation to the court in December outlining how he believes the remaining assets in the funds should be distributed and he will mail a letter to all shareholders in the three funds tomorrow explaining what he is doing, according to the Journal Sentinel.