<PAGE>
As filed with the Securities and Exchange Commission on August 19, 1998.
Registration No. 333-_____
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. [ ] Post-Effective Amendment No.
---- ----
(Check appropriate box or boxes)
================================================================================
<TABLE>
<CAPTION>
<S> <C>
Exact Name of Registrant as Specified in Charter: Area Code and Telephone Number:
HEARTLAND GROUP, INC. (414) 347-7777
Address of Principal Executive Offices (Number, Street, City, State, Zip Code):
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Name and Address of Agent for Service: With a copy to:
Jilaine Hummel Bauer Conrad G. Goodkind
Vice President and General Counsel Quarles & Brady
Heartland Group, Inc. 411 East Wisconsin Avenue
790 North Milwaukee Street Milwaukee, Wisconsin 53202
Milwaukee, Wisconsin 53202
</TABLE>
Approximate Date of Proposed Public Offering: As soon as practicable after
this Registration Statement becomes effective.
It is proposed that this filing will become effective on September 18,
1998, pursuant to Rule 488.
================================================================================
The Registrant has previously filed a declaration registering an indefinite
number of its shares of Common Stock, par value $.001 per share, pursuant to
Rule 24f-2 under the Investment Company Act of 1940, as amended. Accordingly, no
filing fee is payable herewith. The Registrant's Rule 24f-2 Notice for the year
ended December 31, 1997 was filed on March 31, 1998.
================================================================================
<PAGE>
HEARTLAND GROUP, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 481(a) showing the location in the Prospectus and the
Statement of Additional Information of the responses to the Items of Parts A and
B of Form N-14.)
<TABLE>
<CAPTION>
Caption or Subheading in Prospectus
Item No. on Form N-14 or Statement of Additional Information
- --------------------- --------------------------------------
<S> <C>
PART A - INFORMATION REQUIRED IN THE PROSPECTUS
1. Beginning of Registration Statement and Cover Page
Outside Front Cover Page of Prospectus
2. Beginning and Outside Back Cover Page of Table of Contents
Prospectus
3. Fee Table, Synopsis Information, and Risk Summary; Comparison of the Funds;*
Factors
4. Information About the Transaction Summary; The Proposed Reorganization;
Appendix A
5. Information About the Registrant Summary; Comparison of the Funds;
Miscellaneous;*
6. Information About the Company Being Summary; Comparison of the Funds;
Acquired Miscellaneous;*
7. Voting Information Voting Information
8. Interest of Certain Persons and Experts Miscellaneous
9. Additional Information Required for Not Applicable
Reoffering by Persons Deemed to be
Underwriters
PART B -- INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Not Applicable
12. Additional Information About the Registrant *
13. Additional Information About the Company *
Being Acquired
14. Financial Statements Historical Financial Statements
</TABLE>
______________________
*Incorporated by reference.
<PAGE>
[ON HEARTLAND FUNDS LETTERHEAD]
HEARTLAND SMALL CAP CONTRARIAN FUND
September __, 1998
Dear Shareholder:
I am writing to ask you to vote for an important proposal to merge the
Heartland Small Cap Contrarian Fund into the Heartland Value Fund at a special
shareholder meeting to be held on Wednesday, November 4, 1998. This package
contains information about the proposal and includes all the material you will
need to vote by mail.
Although the Contrarian Fund was initially offered to investors as an
opportunity to combine Heartland Advisors' small cap value investment strategy
with the more aggressive tactic of selling short larger cap stocks believed to
be fundamentally overvalued, an extended bull market has made this combined
objective difficult. As a result, the Fund has not experienced the growth in
assets originally anticipated and has been in net redemption for a number of
months. After careful consideration of various options, the Fund's Board of
Directors has decided to recommend to shareholders to approve a merger of the
Contrarian Fund into the Value Fund in a transaction that would be tax-free to
shareholders.
The proposed merger would give you the opportunity to participate in
Heartland's flagship fund, the Heartland Value Fund. The Value Fund has similar
investment policies to those of the Contrarian Fund and is managed by me
along with my investment colleague, Eric Miller. Together, we have over 35 years
of investment experience. Your Board of Directors believes the merger will allow
us to do what we do best: value investing in small company stocks. In addition,
the merger should allow you to benefit from the economies of scale of the larger
Value Fund.
Although the Value Fund has been closed to new investors for over three
years, we have decided to re-open it following the merger. Because you will
become a Value Fund shareholder upon the closing of the merger, you will then
automatically become eligible to purchase additional shares of the Value Fund.
Attached are answers to questions we anticipate some of you may have about
the merger. We hope they help you understand the proposed merger. The enclosed
proxy statement/prospectus contains a detailed description of the proposed
merger. Please read it carefully and cast your vote by completing and returning
the enclosed proxy card. To help avoid additional expense, be sure to vote
promptly. If you have any questions, please call us at 1-800-432-7856. We will
be glad to help you.
Sincerely,
William J. Nasgovitz
President
<PAGE>
IMPORTANT INFORMATION TO HELP YOU UNDERSTAND AND VOTE ON THE PROPOSAL
Although you should read the full text of the enclosed proxy
statement/prospectus, we hope this brief overview will explain why your
Board of Directors believes you should vote for the proposal to merge the
Heartland Small Cap Contrarian Fund into the Heartland Value Fund.
Why has the Board of Directors decided to recommend the merger of the Contrarian
Fund and the Value Fund?
Merging the Contrarian Fund and the Value Fund and discontinuing short
sales activities will permit the members of Heartland's small cap research
team to focus all of their time, energy and resources on finding
undervalued small company stocks. This focus is believed to offer
shareholders excellent capital appreciation potential over the long-term
period. As a result, your Directors concluded that the interests of the
Contrarian Fund shareholders would be better served if the Fund were merged
with the Value Fund at this time.
What are the advantages of the merger?
Your Directors believe the proposed merger will allow shareholders to
benefit from a more focused investment strategy. Your assets would continue
to be invested in a portfolio of small cap companies. However, many of the
aggressive investment strategies used in managing the Contrarian Fund may
not be used in managing the Value Fund. In addition, because the Value Fund
is larger than the Contrarian Fund, the Directors believe all shareholders
will benefit from economies of scale.
Do the Funds merged have similar investment policies?
Both Funds seek long-term growth by investing primarily in equity
securities of companies with small market capitalizations. The funds differ
primarily in that, unlike the Contrarian Fund, the Value Fund does not seek
to achieve its objective through aggressive investment strategies, such as
uncovered short sales or leverage.
Who is the portfolio manager for these Funds?
William J. Nasgovitz manages the Contrarian Fund and will continue to co-
manage the Value Fund with Eric J. Miller after the merger.
How do the expense structures of the funds compare?
The Contrarian Fund and the Value Fund have similar expense structures.
Each fund pays the same investment management fee, which, on an annualized
basis, is 0.75 of 1% of the Fund's average daily net assets. For the six
months ended June 30, 1998, the annualized expense ratio of the Contrarian
Fund was 1.32% compared to 1.11% for the Value Fund.
What will be the size of the Value Fund after the merger and what impact is that
expected to have on the Fund?
As of August 31, 1998, the net assets of the Contrarian Fund and the Value
Fund were $______ million and $_______ billion, respectively. The Value
Fund is expected to be larger in terms of the number of portfolio companies
it holds after the merger. The merger will focus the portfolio management
responsibility. The advisor, Heartland Advisors, Inc., believes it will be
more efficient for the two Funds to be managed as a single investment
portfolio.
How have the Funds performed relative to each other?
The table below shows average annual total returns for both Funds over the
last one- and three-year periods and since inception. Average annual total
returns are historical and include changes in share price, reinvestment of
dividends and capital gains. The inception dates for the Value Fund and for
the Contrarian Fund are December 28, 1984 and April 27, 1995, respectively.
Please keep in mind that past performance is no guarantee of future
results. You may have a gain or a loss when you sell your shares.
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return as of June 30, 1998
-----------------------------------------------
1 Year 3 Year Since Inception
------ ------ ---------------
<S> <C> <C> <C>
Value Fund 12.22% 18.99% 16.97%
Contrarian Fund 1.40% 11.29% 14.71%
</TABLE>
How will you determine the number of shares of the Value Fund that I will
receive?
As of the close of business on the closing date of the merger, shareholders
will receive the number of full and fractional shares of the Value Fund
that is equal in value to the net asset value of their shares of the
Contrarian Fund on that date. The anticipated closing date is November 6,
1998.
What are the federal tax implications of the merger?
The Funds have obtained a legal opinion from their counsel that, subject to
certain conditions, the merger will not be a federally taxable event to
shareholders of either Fund.
Has the Board of Directors approved the proposal?
Yes. The Board of Directors has unanimously approved the proposal and
recommends that you vote in favor of the proposal.
Will I be able to make additional investments in the Value Fund after the
merger?
Yes. The Board of Directors has decided to re-open the Value Fund effective
on November 9, 1998. Beginning on that date, new accounts may be opened in
the Value Fund subject to certain minimum investments and other
restrictions. Because you will become a Value Fund shareholder upon the
closing of the merger, you will automatically become eligible immediately
following the closing date to purchase additional shares of the Value Fund.
What if there are not enough votes to reach a quorum by the scheduled date of
the shareholder meeting?
Although we expect to have a quorum for the meeting, if a quorum were not
obtained, the meeting would need to be postponed to allow time to solicit
additional proxies from shareholders. We urge you to vote promptly after
reviewing the enclosed material so that the meeting is not delayed.
How many votes am I entitled to cast?
You are entitled to one vote for each share of the Contrarian Fund that you
owned on the record date. The record date was September , 1998.
How do I vote my shares?
Voting is easy. You can vote your shares by completing and signing the
enclosed proxy card and mailing it in the enclosed postage paid envelope.
If you need any assistance or have any questions concerning the proposal or
how to vote your shares, please call Heartland at 1-800- - .
<PAGE>
How do I sign the proxy card?
Individual Accounts: Shareholders should sign exactly as their names appear
on the account registration shown on the card.
Joint Accounts: Either owner may sign, but the name of the person
signing should conform exactly to a name shown in the
registration.
All Other Accounts: The person signing must indicate his or her capacity.
For example, a trustee for a trust or other entity
should sign, "Jane F. Doe, Trustee."
This material may be used only when preceded or accompanied by a prospectus.
Heartland Advisors, Inc., distributor. Member SIPC.
<PAGE>
HEARTLAND GROUP, INC.
HEARTLAND SMALL CAP CONTRARIAN FUND
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
(414) 289-7000 or 1-800-432-7856
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
on November 4, 1998
To the Shareholders of the Heartland Small Cap Contrarian Fund:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of the Heartland Small Cap Contrarian Fund (the "Contrarian Fund"), a
mutual fund portfolio of Heartland Group, Inc. ("Heartland"), will be held on
Wednesday, November 4, 1998, at 4:00 p.m., Central Time, at __________________
_______________, Milwaukee, Wisconsin. The purpose of the Meeting is to consider
and to act upon the following proposals:
1. To approve a Plan of Reorganization and Liquidation (the "Plan")
providing for the transfer of all the assets of the Contrarian Fund
(net of its liabilities) to the Heartland Value Fund (the "Value
Fund"), another mutual fund portfolio of Heartland, in exchange solely
for shares of Value Fund Common Stock, followed by the pro rata
distribution of such shares of Value Fund Common Stock to the
Contrarian Fund shareholders.
2. To transact such other business as may properly come before the Meeting
or any adjournments thereof.
The Board of Directors of Heartland has fixed the close of business on
September __, 1998, as the record date for the determination of shareholders of
the Contrarian Fund entitled to notice of, and to vote at, the Meeting and any
adjournments thereof.
By Order of the Board of Directors
LOIS SCHMATZHAGEN
Secretary
September __, 1998
YOUR VOTE IS IMPORTANT -- PLEASE RETURN YOUR PROXY CARD PROMPTLY
SHAREHOLDERS ARE URGED TO INDICATE VOTING INSTRUCTIONS ON THE ENCLOSED PROXY
CARD, DATE AND SIGN IT, AND RETURN IT IN THE ENCLOSED POST-PAID ENVELOPE. IN
ORDER TO AVOID THE ADDITIONAL EXPENSE OF A SECOND SOLICITATION, WE ASK YOUR
COOPERATION IN MAILING YOUR PROXY PROMPTLY, NO MATTER HOW LARGE OR SMALL YOUR
HOLDINGS MAY BE.
<PAGE>
HEARTLAND GROUP, INC.
HEARTLAND SMALL CAP CONTRARIAN FUND
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
(414) 289-7000 or 1-800-432-7856
==============
PROXY STATEMENT/PROSPECTUS
==============
This Proxy Statement/Prospectus is being furnished in connection with the
solicitation of proxies by the Board of Directors of Heartland Group, Inc.
("Heartland") for use at a Special Meeting of Shareholders of the Heartland
Small Cap Contrarian Fund (the "Contrarian Fund"), a mutual fund portfolio of
Heartland, to be held at 4:00 p.m., Central Time, on Wednesday, November 4,
1998, at _______________ ____________________, Milwaukee, Wisconsin (the
"Meeting").
The purpose of the Meeting is to consider and vote on a Plan of
Reorganization and Liquidation (the "Plan") which would merge the Contrarian
Fund with and into the Heartland Value Fund (the "Value Fund"), another mutual
fund portfolio of Heartland. Pursuant to the Plan, all of the assets of the
Contrarian Fund (net of its liabilities) would be acquired by the Value Fund in
exchange solely for shares of common stock, par value $.001 per share ("Common
Stock"), of the Value Fund. Shares of Common Stock of the Value Fund received
by the Contrarian Fund would then be distributed pro rata to shareholders of the
Contrarian Fund, and the Contrarian Fund would be liquidated and discontinued as
a separate mutual fund portfolio of Heartland. It is expected that the value of
each Contrarian Fund shareholder's account in the Value Fund after these
proposed transactions (the "Reorganization") would be the same as the value of
such shareholder's account in the Contrarian Fund immediately prior to the
Reorganization. The Reorganization is intended to qualify as a tax-free
reorganization so that shareholders of the Contrarian Fund will not recognize
any gain or loss through the exchange of shares in the Reorganization. See "The
Proposed Reorganization."
The investment objective of the Value Fund is long-term capital
appreciation. The Value Fund seeks to achieve its objective through investment
in small company stocks selected on a value basis.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement/Prospectus sets forth concisely the information that
shareholders of the Contrarian Fund should know before voting on the
Reorganization. It also constitutes an offering of shares of the Value Fund.
Please read this Proxy Statement/Prospectus carefully and retain it for future
reference. The Statement of Additional Information, dated September ____, 1998,
relating to this Proxy Statement/Prospectus (the "Contrarian Fund Reorganization
SAI"), as well as the Prospectus and the Statement of Additional Information of
Heartland (covering both the Contrarian Fund and the Value Fund), each dated May
1, 1998 (the "May 1, 1998 Prospectus" and the "May 1, 1998 SAI," respectively),
have been filed with the Securities and Exchange Commission (the "Commission")
and are incorporated herein by reference. Copies of these documents may be
obtained without charge by contacting Heartland Advisors, Inc. ("Heartland
Advisors"), distributor for Heartland, at the address or telephone number given
above. The May 1, 1998 Prospectus accompanies this Proxy Statement/Prospectus.
Excerpts from Heartland's 1997 Annual Report to Shareholders (the "Annual
Report") regarding the Contrarian Fund and the Value Fund are attached to this
Proxy Statement/Prospectus as Appendix A.
The date of this Proxy Statement/Prospectus is September ____, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY........................................................................... 3
Introduction................................................................. 3
Proposed Reorganization...................................................... 3
Reasons for the Proposed Reorganization...................................... 4
Summary of Investment Objectives and Policies................................ 4
Management and Operations; Advisory and Distribution Fees.................... 4
Portfolio Managers........................................................... 5
Purchases and Redemptions; Shareholder Services.............................. 5
Expenses..................................................................... 5
Federal Tax Consequences..................................................... 6
COMPARISON OF THE FUNDS........................................................... 6
Investment Objectives and Policies; Risk Factors............................. 6
Portfolio Turnover........................................................... 9
Performance Information...................................................... 9
Other Information About the Contrarian Fund, the Value Fund and Heartland.... 9
THE PROPOSED REORGANIZATION....................................................... 10
Description of the Plan...................................................... 10
Reasons for the Proposed Reorganization...................................... 11
Description of Securities to Be Issued....................................... 12
Tax Considerations........................................................... 12
Capitalization............................................................... 13
VOTING INFORMATION................................................................ 13
Quorum....................................................................... 14
Shareholder Approval......................................................... 14
MISCELLANEOUS..................................................................... 15
Principal Shareholders....................................................... 15
Auditors..................................................................... 15
Interests of Experts and Counsel............................................. 15
Other Matters................................................................ 15
Shareholder Meetings......................................................... 15
Available Information........................................................ 15
EXCERPTS FROM THE 1997 ANNUAL REPORT TO SHAREHOLDERS..............................A-1
PLAN OF REORGANIZATION AND LIQUIDATION............................................B-1
</TABLE>
2
<PAGE>
SUMMARY
This Proxy Statement/Prospectus is being furnished to the shareholders of
the Contrarian Fund in connection with the solicitation of proxies by the Board
of Directors of Heartland to be used at a Special Meeting of Shareholders of the
Contrarian Fund to be held on Wednesday, November 4, 1998, at 4:00 p.m., Central
Time, at _____________________________________________, Milwaukee, Wisconsin.
The purpose of the Meeting is to consider and vote on the Plan, pursuant to
which the Value Fund would acquire all of the assets of the Contrarian Fund (net
of its liabilities) in exchange for shares of Common Stock of the Value Fund,
which shares would be distributed, pro rata, to the shareholders of the
Contrarian Fund, and the Contrarian Fund would be liquidated and discontinued.
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus (including a copy of the Plan attached hereto
as Appendix B), as well as the May 1, 1998 Prospectus, which is incorporated by
reference herein and accompanies this Proxy Statement/Prospectus. This summary
is not intended to be complete and is qualified in all respects by reference to
the more detailed information appearing elsewhere in this Proxy
Statement/Prospectus, the Plan and the May 1, 1998 Prospectus.
Introduction
Shareholders of the Contrarian Fund will be asked at the Meeting to vote
upon and approve the Plan and the Reorganization. If approved, the
Reorganization is expected to be consummated following the close of business on
November 6, 1998, or such later date as Heartland may determine (the "Closing
Date").
The Small Cap Contrarian and Value Funds (collectively, the "Funds") are
two of nine mutual fund portfolios currently offered by Heartland. The other
seven mutual fund portfolios of Heartland are not involved in the transactions
contemplated by the Plan.
Prior to the Reorganization, shareholders of the Contrarian Fund may
continue to purchase shares of the Contrarian Fund in their existing accounts.
Following the Reorganization, shareholders of the Contrarian Fund will continue
to enjoy the privileges of the Heartland family of funds as shareholders of the
Value Fund. The Plan will allow shareholders of the Contrarian Fund to become
shareholders of the Value Fund which has a similar investment objective to that
of the Contrarian Fund but lower annual operating expenses and a longer
operating history. Additionally, the Reorganization is intended to qualify as a
tax-free reorganization. As a result, shareholders of the Contrarian Fund will
not realize any capital gain or loss as a result of the exchange in the
Reorganization of their shares of the Contrarian Fund for shares of the Value
Fund. See "The Proposed Reorganization - Tax Considerations" below.
Proposed Reorganization
The Plan describes the essential terms of the proposed Reorganization and
is set forth in full as Appendix B to this Proxy Statement/Prospectus. Pursuant
to the Plan, all of the assets of the Contrarian Fund (net of its liabilities)
would be transferred to the Value Fund in exchange for the Value Fund's issuance
to the Contrarian Fund of shares of Common Stock of the Value Fund. The
aggregate net asset value of the Value Fund shares issued in the Reorganization
would be equal to the aggregate value of the assets of the Contrarian Fund
transferred in the Reorganization. The Contrarian Fund would pay or make
provision for the payment of all of its accrued liabilities, and distribute the
shares of the Value Fund received by it in the Reorganization to its
shareholders on a pro rata basis. Thereafter, the Contrarian Fund would be
discontinued as a designated series of shares of Heartland, and the shareholders
of the Contrarian Fund would become shareholders of the Value Fund. It is
expected that the value of each shareholder's account in the Value Fund
immediately after the Reorganization would be the same as the value of such
shareholder's account in the Contrarian Fund immediately prior to the
Reorganization.
3
<PAGE>
Reasons for the Proposed Reorganization
The Board of Directors believes that the lack of growth and net redemptions
experienced by the Contrarian Fund in recent months may suggest limited interest
in the Fund as an alternative to other mutual funds that invest in small company
stocks. It may also suggest that certain of the Contrarian Fund's aggressive
investment techniques, which include short selling and leverage, may not be
attractive or desirable for many "small cap" investors. The Board of Directors
further believes that the relatively small size of the Contrarian Fund places it
at a disadvantage in attempting to achieve its investment objective and to
compete with larger mutual funds having similar investment objectives and
programs. Finally, the Board of Directors believes that the Contrarian Fund
shareholders would be better served if the time, energy and resources of its
investment advisor were focused on selecting undervalued small company stocks
for investment rather than searching for larger companies to sell short under
current market conditions. As a result, the Board of Directors believes there is
no compelling reason to manage the Contrarian Fund separate from the Value Fund.
The Reorganization would combine two Funds with similar investment
objectives, policies (except for certain of the Contrarian Fund's investment
strategies) and fee structures, and identical advisers and other service
providers, on a tax-free basis, and enable shareholders to remain in the
Heartland family of funds. The Board also believes that the combination of the
Funds will result in cost savings through economies of scale. See "Comparison of
the Funds - Other Information About the Contrarian Fund, the Value Fund and
Heartland."
For these and additional reasons set forth below under "The Proposed
Reorganization - Reasons for the Proposed Reorganization," the Board of
Directors of Heartland has concluded that the proposed Reorganization is fair
to, and in the best interests of, the shareholders of the Contrarian Fund.
THE BOARD OF DIRECTORS OF HEARTLAND UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS OF THE CONTRARIAN FUND VOTE FOR APPROVAL OF THE PLAN AND THE
REORGANIZATION.
Summary of Investment Objectives and Policies
The investment objective and policies of the Value Fund are similar to
those of the Contrarian Fund, although there are some differences. The Value
Fund's investment objective is long-term capital appreciation, and the
Contrarian Fund's investment objective is maximum long-term growth. The Value
Fund seeks to achieve its objective through investment in small company stocks
selected on a value basis, while the Contrarian Fund seeks to achieve its
objective through aggressive, yet flexible, value investing in small company
stocks. Under normal market conditions, the Contrarian Fund invests at least 65%
of its total assets in equity securities of smaller companies with market
capitalizations of less than $750 million. Although the Value Fund may invest in
securities of companies with larger market capitalizations, it invests primarily
in equity securities of small companies with market capitalizations of less than
$750 million. In selecting securities for both funds, Heartland Advisors
considers whether the security is undervalued relative to a set of factors,
including those described in the accompanying May 1, 1998 Prospectus under
"Heartland's Value Criteria for Investing in Stocks." As described more fully
under "Comparison of the Funds," however, in pursuit of its investment objective
the Contrarian Fund may engage in certain investment practices, such as short
sales and the use of leverage, that entail greater risks than the investment
practices of the Value Fund.
Management and Operations; Advisory and Distribution Fees
Heartland Advisors, Inc. ("Heartland Advisors") serves as investment
advisor and distributor for both Funds. The investment advisory fee paid by each
Fund to Heartland Advisors is 0.75 of 1% of the Fund's average daily net assets
during the year. Each Fund has an identical reimbursement-type distribution plan
permitting the Fund to pay Heartland Advisors a quarterly distribution fee of up
to 0.25 of 1% of its average daily net assets computed on an annual basis.
Firstar Trust Company is custodian and transfer and dividend disbursing agent
for each Fund.
4
<PAGE>
Portfolio Managers
William J. Nasgovitz is portfolio manager for the Contrarian Fund and is
co-portfolio manager, along with Eric J. Miller, CMA, for the Value Fund. Mr.
Nasgovitz has managed or co-managed the two Funds since commencement of their
operations. Mr. Nasgovitz has been President and a director of Heartland and
Heartland Advisors since 1982, and was Senior Vice President-Investments with
Dain Bosworth Incorporated from 1988 to June 1992. Eric J. Miller, CMA, is co-
portfolio manager of the Value Fund. Mr. Miller, a Senior Vice President of
Heartland Advisors, has co-managed the Value Fund since July 1997. He has been a
director of Heartland Advisors since 1997 and a portfolio manager and research
analyst for advisory clients since January 1994. Prior to joining Heartland
Advisors, Mr. Miller had been with American Appraisal Associates, Inc. since
1986, serving as Vice President, Head of U.S. Appraisal Operations.
Purchases and Redemptions; Shareholder Services
Shares of each Fund are sold without a sales charge. Although the Funds
differ with respect to purchases of shares by new investors as discussed under
"Comparison of the Funds - Other Information About the Contrarian Fund, the
Value Fund and Heartland," the manner in which shares of each Fund may be
purchased and redeemed, as well as the exchange rights and other shareholder
services offered by each Fund, are identical. See "How to Buy Shares," "How to
Redeem Shares" and "Shareholder Services" in the accompanying May 1, 1998
Prospectus.
Expenses
The following table sets forth the shareholder transaction expenses and
annual operating expenses for the Funds, including pro forma expenses estimated
by management (giving effect to the Reorganization), for the fiscal year ended
December 31, 1997. The purpose of this expense information is to illustrate the
various costs and expenses an investor will bear directly or indirectly in the
Funds. More detailed information concerning these expenses is set forth in the
sections entitled "How To Buy Shares," "The Distribution Plan" and "The Funds
and the Heartland Organization" in the accompanying May 1, 1998 Prospectus. The
examples shown below should not be considered a representation of future
expenses. Actual expenses may be greater or less than shown.
<TABLE>
<CAPTION>
PRO FORMA
CONTRARIAN VALUE COMBINED
FUND FUND FUND
---------- ----- ----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load on Purchases None None None
Sales Load on Reinvested Dividends None None None
Redemption Fees* None None None
Exchange Fees None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .75% .75% .75%
12b-1 Fee .25% .25% .25%
Other Expenses .30% .12% .12%
---- ---- ----
Total Fund Operating Expenses 1.30% 1.12% 1.12%
</TABLE>
- ---------------
* The Transfer Agent charges a wire fee for the return of redemption proceeds
requested by wire transfer. The fee is currently $12.00.
5
<PAGE>
Example
-------
You would pay the following expenses on a $1,000 investment, assuming: (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Contrarian Fund $13 $41 $71 $157
Value Fund $11 $36 $62 $136
Pro Forma Combined Fund $11 $36 $62 $136
</TABLE>
Federal Tax Consequences
As described more fully below, _____________ has rendered an opinion that
the Reorganization will constitute a tax-free reorganization within the meaning
of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the
"Code"). Accordingly, except with respect to Section 1256 contracts and stock of
any passive foreign investment company which may be held by the Contrarian Fund,
no gain or loss will be recognized for federal income tax purposes by either the
Contrarian Fund or the Value Fund, or by the shareholders of either Fund, as a
result of the Reorganization.
COMPARISON OF THE FUNDS
Investment Objectives and Policies; Risk Factors
The investment objectives and policies of the Contrarian Fund and Value
Fund are similar, although, as described below, the Contrarian Fund takes a more
aggressive investment approach than does the Value Fund. The investment
objective of each Fund is fundamental and may not be changed without shareholder
approval. All of the investment restrictions of the Value Fund are fundamental,
while many of the investment restrictions of the Contrarian Fund are non-
fundamental. For a more complete description of the investment objectives and
policies of the two Funds, as well as the risk factors associated with their
policies, please read the information under "Investment Objectives and Policies"
in the accompanying May 1, 1998 Prospectus.
The Contrarian Fund's investment objective is maximum long-term growth,
while the Value Fund's objective is long-term capital appreciation. The
Contrarian Fund seeks to achieve its objective by aggressive, yet flexible,
value investing in smaller companies that are attractively priced. The
Contrarian Fund seeks to take advantage of both rising and, to a lesser degree,
declining markets. Under normal market conditions, at least 65% of the
Contrarian Fund's total assets are invested in equity securities of smaller
companies with market capitalizations of less than $750 million. The Value Fund
also seeks to achieve its objective by value investing in equity securities of
smaller companies. While the Value Fund may invest in securities of companies
with larger market capitalizations, it invests primarily in equity securities of
small companies with market capitalizations of less than $750 million. As of
June 30, 1998, the median market capitalizations of the long positions in the
portfolios of the Contrarian Fund and the Value Fund were approximately $55
million and $94 million, respectively, with a weighted average market
capitalization for the Funds' portfolios of approximately $121 million and $540
million, respectively. In selecting equity securities for both Funds, Heartland
Advisors considers whether the security is undervalued relative to the same set
of factors, including those described under "Heartland's Value Criteria for
Investing in Stocks" in the accompanying May 1, 1998 Prospectus.
Diversification. As a matter of fundamental policy, the Contrarian Fund
will not purchase the securities of any issuer if, as a result, with respect to
75% of the Fund's total assets, more than 5% of its total assets would be
invested in such issuer or the Fund would own more than 10% of the outstanding
voting securities of such
6
<PAGE>
issuer. As a result, the Contrarian Fund may, under certain circumstances,
invest more than 5% of its total assets in securities of a single issuer or own
more than 10% of the outstanding voting securities of a single issuer. The
Value Fund has the same fundamental policy except that it applies to 100% of its
total assets. Neither Fund will concentrate more than 25% of its assets in any
one industry. These limitations do not apply to U.S. Government securities.
Short Sales. The Contrarian Fund may sell securities short (sell a
security which the Fund does not then own for delivery at a future date) and
borrow the same security from a broker or other institution to complete the
sale. The Contrarian Fund may engage in such short selling when it anticipates
that the price of the security will decline. The Value Fund does not engage in
such short selling activities.
Each Fund may engage in "short sales against the box," a less aggressive
investment technique that involves selling a security that the Fund owns (or has
an unconditional right to purchase) for delivery at a specified date in the
future, to hedge protectively against anticipated declines in the market price
of its portfolio's securities. If the value of the securities sold short
increases prior to the scheduled delivery date, the Fund loses the opportunity
to participate in the gain. Each Fund may also engage in short sales of an
issuer ("acquiror") that has publicly announced a proposed or a pending
transaction in which portfolio securities of the Fund will be converted into
securities of the acquiror. Each Fund will maintain a segregated collateral
account with its custodian to cover open short positions in acquiror securities.
If the value of an acquiror's security sold short were to increase relative to
the segregated collateral, the Fund would lose the opportunity to participate in
the appreciation and could also be required to purchase additional shares of the
shorted security to close out the position or settle the position in cash.
The Contrarian Fund will not sell short securities whose underlying value
exceeds 25% of its total assets and will limit short sales (other than short
sales against the box or of acquiror securities) of any one issuer's securities
to 2% of the Fund's total assets and to 2% of any one class of the issuer's
securities. The Value Fund will limit short sales against the box and of
acquiror securities so that no more than 5% of its total assets would be subject
to open short positions, and no more than 10% of the Fund's net assets would be
held as collateral for such positions.
Illiquid Investments. The Contrarian Fund may invest up to 10% of its
assets in illiquid securities. Although illiquid securities may offer greater
appreciation potential than liquid securities, the absence of a trading market
can make it difficult to ascertain a market value for illiquid investments.
Disposing of illiquid investments may involve time-consuming negotiation and
legal expenses, and it may be difficult or impossible for the Fund to sell an
investment promptly at an acceptable price. The Value Fund may not invest in
illiquid securities.
Options, Futures Contracts and Options on Futures Contracts. Each Fund may
engage in transactions in options, futures contracts, and options on futures
contracts to hedge protectively against anticipated declines in the market value
of its portfolio securities, or against increases in the market values of
securities it intends to purchase, to manage exposure to changing interest rates
or as a hedge against changes in prevailing levels of currency exchange rates.
The Funds may not use these instruments for speculation.
The Contrarian Fund may buy and sell options and futures, including
purchasing and writing put and call options and options on futures, based on any
type of security, index or currency related to its investments, including
options and futures traded on foreign exchanges and options not traded on
exchanges.
The Value Fund may write covered call options and purchase put options that
are traded on recognized U.S. exchanges with respect to specific securities and
may enter into closing transactions with respect to such options. The Value
Fund also may sell covered call options and purchase put options on foreign
currencies and on stock indices composed of securities of the same general
character as the Fund's portfolio and may enter into closing transactions with
respect to such options. The Value Fund may purchase and sell futures
contracts, including interest rate futures, index futures and currency futures,
that are traded on a recognized U.S. exchange,
7
<PAGE>
board of trade or similar entity, or quoted on an automated quotation system.
The Value Fund may also write covered call options and purchase put options on
futures contracts and enter into closing transactions with respect to such
options.
Options and futures can be highly volatile investments and involve certain
risks. Successful hedging strategies require the ability to predict future
movements in securities prices, interest rates and other economic factors.
Attempts to use such investments for hedging purposes may not be successful and
could result in reduction of a Fund's total return.
Foreign Securities. The Value Fund may invest up to 15% of its assets
directly in the securities of foreign issuers traded outside of the United
States ("Non-U.S. Traded Foreign Securities"). The Contrarian Fund may invest
up to 25% of its assets in Non-U.S. Traded Foreign Securities or in any one
currency. Each Fund may also invest in foreign securities in domestic markets
through depository receipts and securities of foreign issuers that are traded on
a registered U.S. stock exchange or the Nasdaq National Market System and in
foreign securities guaranteed by a United States person without regard to these
limitations. While investment in foreign securities is intended to reduce risk
by providing further diversification, such investments involve certain risks in
addition to the credit and market risks normally associated with domestic
securities.
Borrowings and Leverage. The Contrarian Fund may borrow from banks up to
one-third of its total assets, and may pledge its assets in connection with such
borrowings. If the Fund makes additional investments while borrowings are
outstanding, this may be construed as a form of leverage. This leverage may
exaggerate changes in the Contrarian Fund's share value and the gains and losses
on the Fund's investments. Borrowing also creates interest expenses that may
exceed the return on investments made with the borrowings.
As a fundamental policy, the Value Fund will not borrow money or property
except for temporary or emergency purposes. If the Value Fund ever should
borrow money, it would borrow only from banks and in an amount not exceeding 10%
of the market value of its total assets (not including the amount borrowed).
The Value Fund will not pledge more than 15% of its net assets to secure such
borrowings. In the event the Value Fund's borrowings exceeds 5% of the market
value of its total assets, it will not invest in any additional portfolio
securities until its borrowings are reduced to below 5% of its total assets.
High Yield Debt Securities. Each Fund may invest in debt securities,
including non-investment grade securities (commonly known as "junk bonds"). The
Contrarian Fund may invest up to, but less than, 35% of its total assets in debt
securities, including non-investment grade debt securities rated as low as the
lowest rating category assigned by Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's ("S&P"). The Value Fund may invest up to 5% of its net
assets in debt securities rated "B" or above or judged by Heartland Advisors to
be of comparable quality. Non-investment grade securities are regarded, on
balance, as predominantly speculative with respect to the capacity to pay
interest and repay principal in accordance with the terms of the obligation.
While such bonds typically offer higher rates of return, they involve greater
risk, including greater risk of default and loss of principal.
Other Securities and Instruments. The Contrarian Fund may invest in
securities of other investment companies, real estate investment trusts
("REITs"), zero coupon bonds, stripped obligations and indexed securities, and
may enter into repurchase agreements and reverse repurchase agreements. The
Value Fund may not invest in or enter into any of these securities, instruments
or agreements.
Portfolio Turnover
The Value Fund will not trade portfolio securities for short-term profits,
but when circumstances warrant, securities may be sold without regard to their
holding period. The Contrarian Fund may engage in short-term trading. During
the fiscal years ended December 31, 1997 and 1996, the portfolio turnover rates
for the Value Fund were 55% and 31%, respectively; and for the Contrarian Fund
the portfolio turnover rates were 103% and
8
<PAGE>
57%, respectively. A high portfolio turnover rate may increase transaction costs
and may affect taxes paid by shareholders to the extent short-term gains are
distributed.
Performance Information
Average annual return information (unaudited) for the Funds for the periods
ended June 30, 1998 is set forth below. Performance figures are historical and
not predictive of future results.
<TABLE>
<CAPTION>
1-Year 3-Year 5-Year 10-Year Since Inception*
------ ------ ------ ------- ----------------
<S> <C> <C> <C> <C> <C>
Value Fund 12.22% 18.99% 18.06% 16.50% 16.92%
Contrarian Fund 1.40% 11.29% NA NA 14.71%
</TABLE>
_______________
* The inception dates of the Value Fund and the Contrarian Fund are December
28, 1984 and April 27, 1995, respectively.
For management's discussion and analysis of the factors affecting the
Funds' performance for 1997, see Appendix A, which is an excerpt from the Funds'
1997 Annual Report to Shareholders.
Other Information About the Contrarian Fund, the Value Fund and Heartland
Effective November 9, 1998, the Value Fund will be re-opened to new
investors subject to an initial minimum purchase amount of $25,000 for all new
accounts, including those opened through intermediaries. The Value Fund will
reserve the right not to accept purchases through any intermediary arrangement
that Heartland's officers determine employs investment strategies which are not
in the best interests of the Value Fund and its shareholders. At the present
time, shareholders of the Value Fund may purchase additional shares of the Value
Fund by adding to an existing account. Shareholders of the Contrarian Fund will
be permitted to purchase additional shares of the Value Fund after they become
shareholders of the Value Fund as a result of the Reorganization.
The Contrarian Fund is currently closed to new investors. In order to
facilitate the Reorganization, orders to purchase additional shares received
after September 30, 1998, will be accepted only at the discretion of Heartland's
officers. Beginning seven days prior to the Closing Date, no orders to purchase
additional shares will be accepted.
For additional information about the Contrarian Fund, Value Fund and
Heartland, including the organization and operation of Heartland, condensed
historical financial information of the two Funds, the principal risk factors
associated with investments in the Funds, management of Heartland (including
information about Heartland Advisors and other service providers providing
services to the two Funds and to Heartland), the capital stock of Heartland,
purchases and redemptions of shares of Heartland, and dividends, capital gains
distributions and taxes, please read the accompanying May 1, 1998 Prospectus.
9
<PAGE>
THE PROPOSED REORGANIZATION
The Board of Directors of Heartland recommends that the shareholders of the
Contrarian Fund vote to approve the Plan and the Reorganization contemplated
thereby. The Board of Directors approved the Plan out of the belief that the
Plan is fair to, and in the best interests of, the shareholders of the
Contrarian Fund.
Description of the Plan
The terms and conditions under which the proposed Reorganization may be
consummated are set forth in the Plan. Significant provisions of the Plan are
summarized below; however, this summary is qualified in its entirety by
reference to the Plan, a copy of which is attached as Appendix B to this Proxy
Statement/Prospectus.
The Plan contemplates the transfer of all of the assets of the Contrarian
Fund (net of its liabilities) to the Value Fund in exchange for shares of Common
Stock of the Value Fund, and the pro rata distribution on the Closing Date of
such shares of the Value Fund to the shareholders of the Contrarian Fund.
The Value Fund would acquire all of the assets of the Contrarian Fund (net
of its liabilities), including without limitation all cash, cash equivalents,
securities, receivables and other property owned by the Contrarian Fund, but
excluding cash assets of the Contrarian Fund sufficient to pay all of its
accrued but unpaid liabilities as of the Closing Date. The Value Fund would not
assume any debts, liabilities, obligations or duties of the Contrarian Fund.
Rather, cash assets of the Contrarian Fund would be set aside to pay, as they
come due, all such liabilities. Such liabilities may include without limitation:
(a) amounts owed to shareholders of the Contrarian Fund with respect to capital
gains distributions and/or dividends declared but remaining unpaid as of the
Closing Date; (b) accounts payable, taxes and other accrued and unpaid expenses,
if any, incurred in the normal operation of the business of the Contrarian Fund
up to and including the Closing Date and/or expected to be incurred following
the Closing Date in connection with the winding up and liquidation of the
Contrarian Fund; and (c) the costs and expenses incurred by the Contrarian Fund
in connection with carrying out the transactions contemplated by the Plan,
including legal and accounting fees and costs relating to the calling and
holding of the Meeting and the solicitation of proxies in connection therewith
(estimated at $125,000).
In consideration for the assets of the Contrarian Fund transferred in the
Reorganization, the Value Fund would issue to the Contrarian Fund shares of
Value Fund Common Stock having an aggregate net asset value equal to the value
of the assets so transferred by the Contrarian Fund. The assets of the
Contrarian Fund and the per share net asset value of the shares of Value Fund
Common Stock would be valued as of the close of business on the New York Stock
Exchange on the Closing Date. All such valuations would be conducted in
accordance with the policies and procedures of the Value Fund or the Contrarian
Fund, as the case may be, as described under "Determination of Net Asset Value
Per Share" in the accompanying May 1, 1998 Prospectus.
On the Closing Date, the Contrarian Fund would distribute pro rata to its
shareholders of record the shares of Common Stock of the Value Fund received by
the Contrarian Fund. Such distribution would be accomplished by opening accounts
on the books of the Value Fund in the names of shareholders of the Contrarian
Fund and by transferring the shares credited to the account of the Contrarian
Fund on the books of the Value Fund. Each account opened would represent the
respective pro rata number of Value Fund shares due to each Contrarian Fund
shareholder. Fractional shares of the Value Fund would be rounded to the nearest
thousandth of a share.
Accordingly, every shareholder of the Contrarian Fund would own shares of
the Value Fund immediately after the Reorganization, the net asset value of
which is expected to be equal to the aggregate net asset value of such
shareholder's Contrarian Fund shares immediately prior to the Reorganization.
Moreover, because the Value Fund shares would be issued at net asset value in
exchange for the net assets of the Contrarian Fund, and the aggregate value of
those assets would equal the aggregate value of the Value Fund shares issued in
exchange
10
<PAGE>
therefor, the net asset value per share of the Value Fund would not change as a
result of the Reorganization. Thus, the Reorganization would not result in
economic dilution to any Contrarian Fund or Value Fund shareholder.
As a condition to consummation of the Reorganization, all of the Contrarian
Fund's assets on the Closing Date must be invested in a manner consistent with
the investment objective and policies of the Value Fund. To the extent that any
portfolio asset of the Contrarian Fund is inconsistent with the investment
requirements of the Value Fund on the Closing Date, the Contrarian Fund would be
required to sell that asset and would bear the transaction costs associated with
replacement of that asset, including any adverse tax consequences if losses are
incurred in connection with such a sale. It is expected that the Contrarian Fund
will recognize a net capital loss as a result of disposing of securities and
instruments in its portfolio that are ineligible for investment or acquisition
by the Value Fund. Such loss would reduce any capital gain distribution
requirement for 1998. Additionally, under current federal income tax law, the
Value Fund may be limited to using only a portion of any capital loss
carryforward transferred by the Contrarian Fund at the time of the
Reorganization. There is no assurance that the Value Fund will be able to
realize sufficient capital gains to use such capital loss carryforward, if any,
before it expires (in 2006).
On or about the Closing Date, the Contrarian Fund would declare and pay a
dividend to its shareholders, so that for the short taxable year of the
Contrarian Fund that ends on the date of its liquidation, the Contrarian Fund
would have distributed an aggregate amount of dividends that: (a) is equal to at
least the sum of its net capital gain and 90% of its investment company taxable
income for such year, and (b) is sufficient to avoid any excise tax on the
Contrarian Fund for the calendar year in which the Closing Date occurs.
Prior to the Closing Date, Heartland may terminate the Plan and abandon the
Reorganization at any time, before or after approval by the shareholders of the
Contrarian Fund. In addition, Heartland may amend the Plan in any manner,
except that no amendment may be made subsequent to the Meeting of shareholders
of the Contrarian Fund which would detrimentally affect the value of the Value
Fund shares to be issued.
Reasons for the Proposed Reorganization
The Board of Directors of Heartland has unanimously determined that the
interests of the shareholders of the Contrarian Fund will not be diluted as a
result of the proposed transaction, and that the proposed transaction is fair
to, and in the best interests of, the shareholders of the Contrarian Fund. In
reaching such conclusion, the Board of Directors considered a number of factors,
including the following:
(1) the compatibility of the objectives, policies and restrictions of the
Funds;
(2) the historical performance of the Funds;
(3) the Funds' identical advisory and other fee structures, and other
shareholder services, and the fact that the Funds have the same
investment adviser, distributor and other service providers;
(4) the relative size of the Funds;
(5) the cost savings that potentially can be achieved by combining the
assets of the Contrarian Fund with those of the Value Fund through
greater economies of scale;
(6) the opportunity provided by the Reorganization for the Contrarian Fund
shareholders to continue as members of the Heartland family of funds;
(7) the tax consequences of the Reorganization (see "Tax Considerations"
below); and
11
<PAGE>
(8) the potential benefits and detriments to the Contrarian Fund
shareholders of alternatives to the Reorganization, including
continued operation of the Fund, opening the Fund to new investors or
possible liquidation.
The unanimous decision by the Board of Directors to recommend that the
shareholders of the Contrarian Fund vote to approve the Reorganization was made
primarily because the Reorganization would be a means of combining similar Funds
with similar investment objectives and policies (except for certain of the
Contrarian Fund's more aggressive investment strategies) and would permit the
shareholders of the Contrarian Fund to pursue substantially the same investment
goals in a larger combined Fund. The Board of Directors believes that the lack
of growth of the Contrarian Fund may suggest limited interest in the Fund as an
alternative to other similar "small cap" funds and may evidence the limited
value placed by the investing public on some of the investment techniques and
strategies employed by the Contrarian Fund. The Board also believes that the
Contrarian Fund shareholders would be better served if the time, energy and
resources of Heartland Advisors were focused on selecting undervalued small
company stocks for investment rather than searching for larger companies to sell
short under current market conditions.
The Board further considered that the Reorganization should result in the
reduction or elimination of certain duplicative costs and expenses presently
incurred for services that are separately performed for both the Contrarian Fund
and the Value Fund. The Board also anticipates that the larger aggregate net
assets of the combined Fund resulting from the Reorganization should enable the
shareholders of the Value Fund (including the former shareholders of the
Contrarian Fund) to benefit from economies of scale by spreading certain fixed
expenses (such as printing costs and fees for professional services) over a
larger asset base and by eliminating certain audit fees. The former
shareholders of the Contrarian Fund who become shareholders of the Value Fund
are expected to benefit from a lower overall expense ratio. There can be no
assurance, however, that those economies of scale and a lower overall expense
ratio will be achieved. See "Comparison of the Funds - Expenses."
Description of Securities to Be Issued
Organized in 1986 as a Maryland corporation, Heartland is an open-end
management investment company registered under the 1940 Act. The authorized
Common Stock of Heartland consists of one billion shares, par value $0.001 per
share. Heartland is a series company, which means that its Board of Directors
may establish additional series, and may increase or decrease the number of
shares in each series at any time. Currently nine series are authorized and
outstanding.
Each share of Heartland has one vote and, when issued and paid for in
accordance with the terms of the offering, will be fully paid and nonassessable.
Shares have no preemptive, cumulative voting, subscription or conversion rights,
and are freely transferable. Although annual meetings of shareholders are not
required, special meetings may be called for purposes such as electing or
removing directors, changing fundamental policies or approving investment
advisory contracts.
Tax Considerations
In the opinion of _______________, the principal federal income tax
consequences that will result from the Reorganization, under currently
applicable law, are as follows: (a) the Reorganization will constitute a
reorganization within the meaning of Section 368(a)(1)(C) of the Code; (b)
except with respect to Section 1256 contracts and stock of any passive foreign
investment company which may be held by the Contrarian Fund, no gain or loss
will be recognized by either Fund upon the transfer of assets of the Contrarian
Fund in exchange for shares of the Value Fund; (c) no gain or loss will be
recognized by shareholders of the Contrarian Fund upon the exchange of their
shares of the Contrarian Fund for shares of the Value Fund; (d) the Value Fund's
basis in the assets acquired from the Contrarian Fund will be same as the basis
of those assets in the hands of the Contrarian Fund immediately prior to the
exchange; (e) the holding period of the assets of the Contrarian Fund in the
hands of the Value Fund will include the holding period of the Contrarian Fund;
(f) the basis of shares of the Value Fund received by each shareholder of the
Contrarian Fund pursuant to the Reorganization will be the same as the
shareholder's basis in shares of the Contrarian Fund surrendered in the
exchange; and (g) the holding period of shares of the Value Fund received by
each shareholder of the Contrarian Fund pursuant to the Reorganization will
include the shareholder's holding
12
<PAGE>
period of shares of the Contrarian Fund surrendered in the exchange, provided
that the latter shares were held as capital assets on the Closing Date.
The foregoing discussion of Federal tax consequences is included herein for
general information only. Each shareholder should consult with his or her own
tax adviser as to the specific tax consequences of the Reorganization, including
the application and effect of state and local tax laws. Because of special or
unique circumstances applicable to any given shareholder, the tax consequences
of the Reorganization and/or investment alternatives could be significantly
different.
Capitalization
The following table shows the capitalization of the Contrarian Fund and the
Value Fund, respectively, as of December 31, 1997, and the unaudited pro forma
capitalization of the Value Fund as of that date giving effect to the
Reorganization:
<TABLE>
<CAPTION>
Pro Forma
Value Combined
Contrarian Fund Fund Fund
--------------- ---- ----
<S> <C> <C> <C>
Net Assets $276,641,894 $2,126,714,680 $2,403,356,574
Net Asset Value Per Share $12.64 $33.87 $33.87
Shares Outstanding 21,888,487 62,792,924 70,958,269
</TABLE>
VOTING INFORMATION
This Proxy Statement/Prospectus is being furnished to the shareholders of
the Contrarian Fund in connection with the solicitation of proxies by
Heartland's Board of Directors for use at the Meeting. Expenses in connection
with the solicitation of proxies will be borne by the Contrarian Fund.
Solicitation of proxies will be conducted principally by the mailing of this
Proxy Statement/Prospectus and the accompanying proxy card. Proxies also may be
solicited in person, or by telephone or facsimile, or, without special
compensation, by officers of Heartland or by officers and employees of Heartland
Advisors. The Contrarian Fund has engaged the services of D.F. King & Co., Inc.
("D.F. King") to assist in the solicitation of proxies for the Meeting. Upon
request, the Contrarian Fund will reimburse brokers, dealers, banks and voting
trustees, or their nominees, for reasonable expenses incurred in forwarding
copies of the proxy materials to the beneficial owners of shares which such
persons hold of record. It is estimated that the total expenses to be incurred
by the Contrarian Fund in connection with the Reorganization (including the
solicitation of proxies and fees to be paid to D.F. King) will be $125,000.
Any proxy which is properly executed and returned in time to be voted at
the Meeting will be voted in accordance with the instructions marked thereon.
In the absence of such instructions, the proxy will be voted "FOR" approval of
the Plan under Proposal 1. The duly appointed proxies may, in their discretion,
vote upon such other matters as may come before the Meeting or any adjournments
thereof. A shareholder may revoke his or her proxy at any time prior to its
exercise by delivering written notice of revocation to the Secretary of
Heartland or by executing and delivering a later dated proxy to Heartland or by
attending the Meeting in person to vote the shares of the Contrarian Fund held
by such shareholder. Proxy materials are expected to be mailed to shareholders
of the Contrarian Fund on or about September ___, 1998.
Heartland may also arrange to have votes recorded by telephone. Any
expenses in connection with telephone voting would be paid by the Contrarian
Fund and are included in the estimated expenses above. If
13
<PAGE>
votes are recorded by telephone, Heartland will use procedures designed to
authenticate shareholders' identities, to allow shareholders to authorize the
voting of their shares in accordance with their instructions, and to confirm
that their instructions have been properly recorded. Proxies given by telephone
may be revoked at any time before they are voted in the same manner that proxies
by mail may be revoked.
The Board of Directors has determined that the shares of the Contrarian
Fund are to be voted as a separate series on the proposal to approve the Plan
and that holders of shares of the other series of Heartland, including the Value
Fund, are not entitled to vote on the proposal to approve the Plan.
Quorum
The presence at the Meeting, in person or by proxy, of shareholders
representing one-third of all Contrarian Fund shares outstanding and entitled to
vote on the Plan constitutes a quorum for the transaction of business.
Abstentions and broker non-votes (proxies from brokers or other nominee owners
indicating that such persons have not received instructions from the beneficial
owners or other persons entitled to vote the shares as to a matter with respect
to which the brokers or other nominee owners do not have discretionary power to
vote) will be treated as present for purposes of determining the presence or
absence of a quorum.
Shareholder Approval
Approval of the Plan and the Reorganization contemplated thereby will
require the affirmative vote of "a majority of the outstanding voting
securities" of the Contrarian Fund, as defined in the Investment Company Act of
1940, as amended (the "1940 Act"). A majority of the outstanding voting
securities means the lesser of (1) 67% or more of the Contrarian Fund's shares
present at the Meeting, if shareholders who are the owners of more than 50% of
the Contrarian Fund's outstanding shares are present in person or by proxy, or
(2) more than 50% of the Contrarian Fund's outstanding shares. Accordingly,
abstentions and broker non-votes will have the same effect as votes cast against
approval of the Plan.
In the event that sufficient votes in favor of the proposal to approve the
Plan are not received by the scheduled time of the Meeting, the persons named as
proxies in the enclosed proxy may propose and vote in favor of one or more
adjournments of the Meeting to permit further solicitation of proxies without
the necessity of further notice. Any such adjournment will require the
affirmative vote of a majority of the shares present at the session of the
Meeting to be adjourned.
Shareholders of record of the Contrarian Fund at the close of business
on September ___, 1998 (the "Record Date") will be entitled to notice of and to
vote at the Meeting or any adjournment thereof. Each such shareholder will be
entitled to one vote for each share (and a fractional vote for each fractional
share) held by such shareholder on each matter presented at the Meeting. As of
the Record Date, there were ____________ shares of the Contrarian Fund
outstanding.
14
<PAGE>
MISCELLANEOUS
Principal Shareholders
As of June 30, 1998, no person was known to own of record or beneficially
5% or more of the outstanding shares of either Fund, other than Charles Schwab &
Co., Inc., Attn: Mutual Funds, 101 Montgomery Street, San Francisco, California
94104-4122, which held of record 11,875,181 shares (or 19.5%) of the Value Fund
and 5,010,130 shares (or 29.1%) of the Contrarian Fund. The directors and
officers of Heartland as a group own less than 1% of the outstanding shares of
each Fund. Neither Heartland nor either Fund is "controlled" (as that term is
defined in the 1940 Act) by any person.
Auditors
The firm of PricewaterhouseCoopers LLP is independent accountants and
auditors to the Funds. PricewaterhouseCoopers LLP has no direct or indirect
financial interest in Heartland or the Funds except as auditors and independent
public accountants.
Interests of Experts and Counsel
No expert or counsel named herein has a substantial interest in Heartland,
either Fund, the Reorganization, or any other transaction contemplated by this
Proxy Statement/Prospectus.
Other Matters
The Board of Directors has not been informed and is not aware that any
other matter will be brought before the Meeting. However, unless expressly
indicated otherwise on the enclosed form of proxy, proxies may be voted with
discretionary authority with respect to any other matter that may properly be
presented at the meeting or any adjournment thereof.
Shareholder Meetings
Heartland is organized as a Maryland corporation, and as such is not
required to hold annual meetings of shareholders. Heartland's Bylaws provide
that Heartland is not required to hold a shareholder meeting in any year in
which the election of directors, approval of an investment advisory agreement
(or any sub-advisory agreement) or ratification of the selection of independent
public accountants is not required to be acted upon by shareholders of Heartland
or any of its series, including the Funds, under the 1940 Act. Meetings of
shareholders of any series of Heartland will be held when and as determined
necessary by the Board of Directors of Heartland and in accordance with the 1940
Act. However, shareholders of any portfolio series wishing to submit proposals
for inclusion in a proxy statement for any future shareholder meetings should
send their written proposals to the Secretary of Heartland at 790 North
Milwaukee Street, Milwaukee, Wisconsin 53202.
Available Information
Heartland has filed with the Commission a Registration Statement on Form N-
14 (the "Registration Statement") under the Securities Act of 1933, as amended,
with respect to the shares of the Value Fund offered hereby. As permitted by the
rules and regulations of the Commission, this Proxy Statement/Prospectus omits
certain information, exhibits and undertakings contained in the Registration
Statement. Such additional information can be inspected at the principal offices
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional office at 7 World Trade Center, New York, New York 10048.
Copies of the Registration Statement can be obtained from the Commission at
prescribed rates by writing to the Commission at either such address. For
further information, reference is made to the Registration Statement and
15
<PAGE>
to the exhibits thereto. The Commission also maintains a Web site at
http:\\www.sec.gov that will contain post-effective amendments to Heartland's
Registration Statement on Form N-1A and reports and certain other publicly
available documents about Heartland and the Funds.
No person has been authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus in
connection with the offer contained in this Proxy Statement/Prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by Heartland. This Proxy Statement/Prospectus does
not constitute an offer to sell securities in any state or other jurisdiction to
any person to whom it would be unlawful to make such offer in such state or
jurisdiction. Neither the delivery of this Proxy Statement/Prospectus nor any
sale made hereunder shall under any circumstances create any implication that
there have been no changes in the affairs of Heartland subsequent to the date of
this Proxy Statement/Prospectus.
16
<PAGE>
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HEARTLAND GROUP, INC.
HEARTLAND SMALL CAP CONTRARIAN FUND
Revocable Proxy for Special Meeting of Stockholders. This Proxy is Solicited on
Behalf of the Board of Directors.
The undersigned hereby appoints William J. Nasgovitz, Patrick J. Retzer and
Willard H. Davidson, and each of them, proxy, with full power of substitution,
to vote all shares of stock the undersigned is entitled to vote at the Special
Meeting of Stockholders of Heartland Small Cap Contrarian Fund to be held at the
______________________________, Milwaukee, Wisconsin at 4:00 p.m. on Wednesday,
November 4, 1998 or at any adjournment thereof, with respect to the matters set
forth on this proxy and described in the Notice of Special Meeting and Proxy
Statement/Prospectus, receipt of which is hereby acknowledged.
Shares listed below represent an aggregate total of all Small Cap Contrarian
Fund shares registered in the name printed below.
Dated: _________________________, 1998
---------------------------------------------------
---------------------------------------------------
(Please sign exactly as name appears at left.)
(If stock is owned by more than one person, all
owners should sign. Persons signing as executors,
administrators, trustees or in similar capacities
should so indicate.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares represented by this proxy will be voted as directed by the stockholder.
IF NO DIRECTION IS SUPPLIED, THIS PROXY WILL BE VOTED FOR PROPOSAL 1.
Please vote by filling in the appropriate boxes below, as shown, using blue or
black ink or dark pencil. Do not use red ink.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. To approve the Plan of Reorganization and Liquidation (the "Plan") providing for [_] [_] [_]
(a) the transfer of all of the assets of the Small Cap Contrarian Fund (net of its
liabilities) to the Value Fund in exchange solely for shares of Value Fund Common
Stock, followed by (b) the distribution of shares of Value Fund Common Stock, pro
rata, to the Small Cap Contrarian Fund shareholders in liquidation of the Small
Cap Contrarian Fund.
2. In their discretion, the proxies are authorized to vote on such other matters as may
properly come before the meeting.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
APPENDIX A
EXCERPTS FROM THE 1997 ANNUAL REPORT TO SHAREHOLDERS
HEARTLAND SMALL CAP CONTRARIAN FUND
[Photo of William J. Nasgovitz]
William J. Nasgovitz
Portfolio Manager
"We are not inclined to cancel our life insurance, because we didn't get hit by
a bus last year."
In full year 1997, the Fund returned 13.7% versus the Russell 2000 Index's 22.4%
advance. In fourth quarter 1997, the Fund declined 8.7% compared to a 3.3% drop
in the Russell 2000 Index. For more information on the Fund, including top ten
holdings, please see the Fund Fact Sheet on page A-3.
Mergers and acquisitions were responsible for much of our gains as 10 portfolio
companies were taken over in 1997. We buy stocks based on value, not takeover
prospects. However, we believe strategic corporate buyers are also using value
criteria in assessing potential acquisitions.
The Fund's defensive posture restrained performance. At year-end 1997,
approximately 25% of total assets was allocated to short sales, another 22% was
hedged via S&P 500 short futures, and 8% was held in cash and equivalents. We
actually had nice gains in some of our shorts, most notably Liposome Company,
Inc., Oracle Corporation, and Oxford Health Plans, Inc. Nevertheless, as a
percentage of average 1997 net assets, our short positions resulted in a 2.5%
loss for the year. However, we did successfully short S&P 500 index futures to
hedge the portfolio and produce a positive return for the year. We plan to
remain somewhat defensive in 1998 and are not inclined to cancel our life
insurance, because we didn't get hit by a bus last year.
The Long and the Short of It
To demonstrate our value discipline, we thought it would be interesting to
discuss a long and a short in the same industry. Matrix Pharmaceuticals, Inc. is
a small research and development oriented drug company whose Intradose, a
promising new treatment for shrinking cancerous tumors in the head and neck
region, is now in final clinical trials at the FDA. On the company's
announcements of the withdrawal of one product from
A-1
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testing and an internal restructuring program, the stock dropped from a 1997
high near $8 per share. Based on most recently stated book values at the end of
the third quarter, Matrix was trading below its stated $3.78 book value and just
above its $2.75 per share in cash. We believe Matrix is a value oriented
opportunity in an industry group that is generally very richly priced.
Compare this with Organogenesis, Inc., a biotech company competing with six
other firms in developing artificial tissue for skin grafts. The company is
losing money, and 1997 revenues are forecast at just $270,000. We estimate book
value at $0.67 per share. Yet, at year-end 1997, the stock was trading at around
40 times book value, with a $484 million market cap. The company submitted its
technology to the FDA for initial testing nearly three years ago. While the
company recently announced that it received premarket approval from the FDA, we
still feel that the stock is overpriced. We are monitoring the situation
carefully and will close our short position if we see evidence Organogenesis can
live up to all the promise baked into its fanciful valuation.
[line chart illustrating performance of an assumed investment of $10,000 in the
Heartland Small Cap Contrarian Fund and the Russell 2000 Index beginning on
4/27/95 as follows:
Heartland Small Cap
Contrarian Fund Russell 2000
04/27/95 $10,000 $10,000
12/31/95 12,082 12,102
12/31/96 14,362 14,098
12/31/97 16,330 17,251
Legend in graph states that Past Performance is not predictive of future
results.
A box below the graph states Average Annual Total Returns as of 12/31/97 as
follows:
1-year 13.7%
since inception 20.1%]
On 12/31/97, the Fund held 0; 0; 0; 2,100,000; and (262,500) shares of Liposome
Company, Inc.; Oracle Corporation; Oxford Health Plans, Inc.; Matrix
Pharmaceuticals, Inc.; and Organogenesis, Inc.; representing 0%; 0%; 0%; 2.6%;
and (2.5%), respectively, of the Fund's net assets.
A-2
<PAGE>
HEARTLAND SMALL CAP CONTRARIAN FUND
With a focus on small company stocks, this Fund seeks maximum long-term growth
through an aggressive value-based strategy. It seeks to take advantage of both
undervalued and overvalued stocks, as well as both rising and declining markets.
The Fund can short stocks it regards as overvalued, use leverage--or borrow--to
enhance returns, and use options and futures to hedge the portfolio. In exchange
for potentially greater returns, these sophisticated techniques involve
additional risks. (Closed to new investors since 11/1/97)
AVERAGE ANNUAL TOTAL RETURNS 1-year Since inception (4/27/95)
Small Cap Contrarian Fund 13.7% 20.1%
Russell 2000 22.4 22.6
The Russell 2000 Index is an unmanaged index of stocks considered representative
of the small cap market in general.
FUND FACTS
Growth of $10,000
since inception (4/27/95)..........$16,330/1/
Number of holdings
Long positions.........................106
Short positions.........................23
Fund vs. Russell 2000/2/
Alpha.................................3.52
Beta.................................. .64
R-squared............................. .44
Net assets.........................$276.6 mil.
COMPARATIVE VALUATIONS
Heartland Small Cap
Contrarian Fund Russell
(Long Positions) 2000/4/
Price/Earnings Ratio/3/ 21.3x 25.0x
Price/Book Value Ratio 1.9x 2.7x
Price/Cash Flow Ratio 9.8x 16.8x
TOP 10 HOLDINGS
ICN Pharmaceuticals, Inc......................4.4%
Drypers Corp. (7.5% Sr. Conv. Cum. Pfd.)......3.7
Matrix Pharmaceutical, Inc....................2.6
Orthologic Corporation........................2.4
Executone Information Systems, Inc............2.2
BTG, Inc......................................2.2
Shiloh Industries, Inc........................2.1
ICU Medical, Inc..............................2.0
Templeton Dragon Fund, Inc....................1.9
Donnelly Corporation (Class A)................1.8
All statistics are as of December 31, 1997.
/1/ Includes reinvestment of all dividends and capital gains distributions.
/2/ Based on monthly data for the period from 4/27/95 through 12/31/97. Source:
Heartland Advisors, Inc., with data on relevant benchmark index from Russell
Analytics. /3/'97 estimate. /4/Source: The Micro-Cap Research Group at Schroder
& Co. Inc.
A-3
<PAGE>
HEARTLAND VALUE FUND
[Photo of William J. Nasgovitz]
William J. Nasgovitz
Portfolio Co-Manager
[Photo of Eric J. Miller]
Eric J. Miller, CMA
Portfolio Co-Manager
"...we don't think it is an accident that our portfolio performance was enhanced
by takeovers in 1997."
In 1997, the Fund returned 23.2% versus the Russell 2000 Index's 22.4% advance.
However, in fourth quarter 1997, the Fund declined 5.9% compared to the Russell
2000 Index's decline of 3.3%. For more complete information on the Fund,
including top ten holdings, please refer to the Fund Fact Sheet on page A-6.
We are pleased to have materially outperformed the Russell 2000, our benchmark
index for the year. Some of the credit must go to strategic corporate buyers,
who provided new homes for 21 of our portfolio holdings. Strategic corporate
buyers are seeking to extend product lines and distribution systems by acquiring
niche companies in related industries. They appear to be looking for the same
things we are--companies with strong free cash flow, positive earnings dynamics,
capable management and sound balance sheets. Consequently, we don't think it is
an accident that our performance was enhanced by takeovers in 1997.
On an industry group basis, our financial service stocks--brokers, banks and
insurance companies--were among our best performing investments. We have been
reducing the portfolio's exposure to bank stocks, which in our opinion, have
gotten rather richly priced. Our investments in small, specialty retailers hurt
portfolio performance. We must confess to being caught in a "value trap" in this
group. Fundamentally, the stocks looked cheap. But, retailers in general have
struggled this year, especially small, single-category retailers, which have
been hurt worst of all. We have weeded out several losers, but still believe the
sector has merit at current valuations.
Buying the Steak not the Sizzle
Lone Star Steakhouse and Saloon, Inc. stock was sizzling from January 1995
through April 1996. Then, growth
A-4
<PAGE>
slowed and momentum investors bailed out, dropping the stock from a high of $45
down to the mid teens. We looked at the menu carefully. It appeared the sizzle
was out of the stock, but that a fundamentally appetizing steak remained. We
began accumulating the stock at $18 per share.
With approximately 265 restaurants, Lone Star is second only to Outback in the
steakhouse category. The balance sheet is squeaky clean, with virtually no debt
and about $150 million in cash. We believe management will use this cash to
renew expansion. Lone Star plans on adding approximately 50 new restaurants and
to broaden its menu in 1998. The company is increasing its advertising budget in
an attempt to revive sales.
At year-end 1997, the stock was trading at around 10.6 times our 1998 earnings
projections and at a relatively modest premium to our estimated $13.91 per share
1997 book value. Insiders own approximately 16% of the stock--with the CEO
personally owning approximately 6% with another 2.5% in stock options at $28 per
share. So, management should be financially motivated to reinvigorate the
company. We expect relatively flat earnings in 1998, but looking farther out, we
believe Lone Star can grow earnings at around 15% annually. If we are right, we
think Lone Star Steakhouse stock will regain some of its sizzle.
[line chart illustrating performance of an assumed investment of $10,000 in the
Heartland Value Fund and the Russell 2000 Index beginning on 12/28/84 as
follows:
Heartland Value Fund Russell 2000
12/28/84 $10,000 $10,000
12/31/85 14,094 13,219
12/31/86 15,637 13,970
12/31/87 14,318 12,745
12/31/88 18,190 15,918
12/31/89 19,385 18,503
12/31/90 16,072 14,892
12/31/91 24,005 21,751
12/31/92 34,202 25,756
12/31/93 40,620 30,626
12/31/94 41,316 30,070
12/31/95 53,629 38,618
12/31/96 64,885 44,987
12/31/97 79,934 55,048
Legend in graph states that Past Performance is not predictive of future
results.
A box below the graph states Average Annual Total Returns as of 12/31/97 as
follows:
1-year 23.2%
5-year 18.5%
10-year 18.8%
since inception 17.3%]
On 12/31/97, the Fund held 825,000 shares of Lone Star Steakhouse and Saloon,
Inc. valued at $14,437,500, representing 0.7% of the Fund's net assets.
A-5
<PAGE>
HEARTLAND VALUE FUND
This Fund seeks capital appreciation through small company stocks selected on a
value basis. (Closed to new investors since 7/1/95)
AVERAGE ANNUAL TOTAL RETURNS
Since inception
1-year 5-year 10-year 12/28/84
Value Fund 23.2% 18.5% 18.8% 17.3%
Russell 2000 22.4 16.4 15.8 14.0
The Russell 2000 Index is an unmanaged index of stocks considered representative
of the small cap market.
FUND FACTS
Growth of $10,000
since inception (12/28/84).................$79,934/1/
Net assets.....................................$2.1 bil.
Median market cap...............................$94 mil.
Avg. weighted market cap.......................$436 mil.
Fund vs. Russell 2000/2/
Alpha...........................................2.70
Beta............................................ .65
R-squared....................................... .58
Number of holdings...................................353
COMPARATIVE VALUATIONS
Heartland Russell
Value Fund 2000/4/
Price/Earnings Ratio/3/ 19.7x 25.0x
Price/Book Value Ratio 2.1x 2.7x
Price/Cash Flow Ratio 10.2x 16.8x
TOP 10 HOLDINGS
ICN Pharmaceuticals, Inc...........6.2% Eaton Vance Corporation.........1.2%
Associated Banc-Corp...............1.4 Forest Oil Corporation..........1.2
John Alden Financial Corporation...1.4 Tesoro Petroleum Corporation....1.0
Grand Casinos, Inc.................1.3 PXRE Corporation................0.9
Presidential Life Corporation......1.3 ShopKo Stores, Inc..............0.9
All statistics are as of December 31, 1997.
/1/ Includes reinvestment of all dividends and capital gains distributions.
/2/ Based on monthly data for the 3-year period ending 12/31/97. Source:
Heartland Advisors, Inc., with data on relevant benchmark index from Russell
Analytics. /3/ '97 estimate. /4/ Source: The Micro-Cap Research Group at
Schroder & Co. Inc.
A-6
<PAGE>
Definitions
PLEASE NOTE...
Defined below are the Alpha, Beta and R-Squared measurements presented for our
equity funds. These definitions were provided by Russell Analytics, a division
of the Frank Russell Company, highly regarded specialists in investment
information and statistics. When calculating these measurements for each
Heartland equity fund, we have substituted the Fund's benchmark index for a
"market return" as indicated in the presentation for each fund.
Alpha. A measure of a portfolio's return in excess of the market return, both
adjusted for risk. It is a measure of the manager's contribution to performance
due to security selection. A positive Alpha indicates that the portfolio
outperformed the market on a risk-adjusted basis, and a negative Alpha indicates
the portfolio did worse than the market.
Beta. A measure of the sensitivity of a portfolio's rates of return against
those of the market. A Beta greater than 1.00 indicates volatility greater than
that of the market.
R-Squared. A measure that indicates the extent to which fluctuations in
portfolio returns are correlated with those of the general market. An R-Squared
of .75 indicates that 75% of the fluctuation in a portfolio's return is
explained by the fluctuation of the market.
A-7
<PAGE>
APPENDIX B
HEARTLAND SMALL CAP CONTRARIAN FUND
PLAN OF REORGANIZATION AND LIQUIDATION
This Plan of Reorganization and Liquidation (this "Plan") is made as of
this 19th day of August, 1998, by Heartland Group, Inc. ("Heartland"), on behalf
of its two series known as the Heartland Small Cap Contrarian Fund (the
"Contrarian Fund") and the Heartland Value Fund (the "Value Fund").
R E C I T A L S
WHEREAS, Heartland: (a) is a corporation duly organized, validly existing
and in good standing under the laws of the State of Maryland; (b) is registered
as an open-end, series, management investment company under the Investment
Company Act; and (c) currently has designated nine separate series or investment
portfolios including the Contrarian Fund and the Value Fund;
WHEREAS, this Plan is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
Code. The Reorganization will comprise the transfer of all of the assets of the
Contrarian Fund (net of its liabilities) to the Value Fund in exchange solely
for shares of Value Fund Common Stock, and the constructive distribution at the
Effective Time of such shares to the shareholders of the Contrarian Fund in
liquidation of the Contrarian Fund, all upon the terms and conditions
hereinafter set forth in this Plan; and
WHEREAS, the adoption and performance of this Plan has been authorized by
Heartland's Board of Directors and, prior to the Closing Date will have been
duly authorized by all other necessary corporate action on the part of
Heartland, including approval by the shareholders of the Contrarian Fund.
A G R E E M E N T
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. Definitions
For purposes of this Plan, the following terms shall have the respective
meanings set forth below:
1.1 "Closing" means the transfer to the Value Fund of the assets of the
Contrarian Fund (net of its liabilities) against delivery to the Contrarian Fund
of the Value Fund Shares as described in Section 2.1 of this Plan.
1.2 "Closing Date" means November 6, 1998, or such other date as Heartland
may determine.
1.3 "Code" means the Internal Revenue Code of 1986, as amended.
1.4 "Custodian" means Firstar Trust Company, acting in its capacity as
custodian with respect to the assets of the Contrarian Fund and the Value Fund.
1.5 "Effective Time" means 5:01 p.m. Central Time on the Closing Date.
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1.6 "Excluded Assets" shall have the meaning set forth in Section 2.3 of
this Plan.
1.7 "Heartland" means Heartland Group, Inc., a corporation which: (a) is
duly organized, validly existing and in good standing under the laws of the
State of Maryland; (b) is registered as an open-end, series, management
investment company under the Investment Company Act; and (c) presently his
designated nine separate series of its Common Stock, par value $.001 per share,
including the Contrarian Fund and the Value Fund.
1.8 "Heartland Prospectus" means the Prospectus, dated May 1, 1998, of
Heartland relating to the Contrarian Fund and the Value Fund, among other series
of Heartland, included in Post-Effective Amendment No. 34 to Heartland's
Registration Statement on Form N-1A (Securities Act Reg. No. 33-11371), as filed
with the SEC on April 29, 1998 pursuant to Rule 485(b) under the Securities Act.
1.9 "Investment Company Act" means the Investment Company Act of 1940, as
amended, and all of the rules and regulations adopted thereunder by the SEC.
1.10 "Person" means an individual or a corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization, or other entity, as the context requires.
1.11 "Plan" means this Plan of Reorganization and Liquidation, together
with all schedules and exhibits attached hereto, as the same may be amended from
time to time in accordance with the terms hereof.
1.12 "Reorganization" means the transactions described in and contemplated
by this Plan.
1.13 "Required Contrarian Fund Shareholder Vote" shall have the meaning
specified in Section 3.1 of this Plan.
1.14 "SEC" means the United States Securities and Exchange Commission.
1.15 "Securities Act" means the Securities Act of 1933, as amended, and
all rules and regulations adopted by the SEC pursuant thereto.
1.16 "Contrarian Fund" means the Contrarian Fund, a designated series or
investment portfolio of Heartland.
1.17 "Contrarian Fund Shareholders" means the holders of record of the
issued and outstanding shares of Common Stock of the Contrarian Fund as of the
Closing Date.
1.18 "Contrarian Fund Shareholder Meeting" means a special meeting of the
shareholders of the Contrarian Fund to be convened in accordance with applicable
law and the Articles of Incorporation and Bylaws of Heartland to consider and
vote upon the approval of this Plan and the transactions contemplated hereby.
1.19 "Contrarian Fund Shares" means the issued and outstanding shares of
Common Stock of the Contrarian Fund.
1.20 "Value Fund" means the Value Fund, a designated series or investment
portfolio of Heartland.
1.21 "Value Fund Shares" means the shares of Common Stock of the Value
Fund to be issued pursuant to this Plan, as described in Section 2.1 hereof.
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2. Reorganization and Liquidation of the Contrarian Fund.
2.1 Transfer of Contrarian Fund Assets; Issuance of Value Fund Shares. At
or prior to the Effective Time, all of the assets of the Contrarian Fund, except
the Excluded Assets, shall be delivered to the Custodian for the account of the
Value Fund, in exchange for, and against delivery to the Contrarian Fund at the
Effective Time of, that number of Value Fund Shares (including, if applicable,
fractional shares rounded to the nearest thousandth of one whole share) having
an aggregate net asset value equal to the value of the assets of the Contrarian
Fund so delivered, all determined and adjusted as provided in Section 2.2 of
this Plan. As of the Effective Time and following delivery of such assets to
the Custodian, the Value Fund shall receive good and marketable title to such
assets free and clear of all liens, security interests, pledges, charges, claims
or encumbrances of any and every kind.
2.2 Computation of Net Asset Value.
(a) The net asset value of the Value Fund Shares and the net value of
the assets of the Contrarian Fund transferred pursuant to this Plan shall, in
each case, be determined as of the close of business on the New York Stock
Exchange on the Closing Date.
(b) The net asset value of the Value Fund Shares shall be computed in
accordance with the practices and procedures of the Value Fund described in the
Heartland Prospectus. Likewise, the value of the assets of the Contrarian Fund
to be transferred pursuant to this Plan shall be computed in accordance with the
practices and procedures of the Contrarian Fund described in the Heartland
Prospectus.
2.3 Excluded Assets. There shall be deducted from the assets of the
Contrarian Fund described in Section 2.1 all organizational expenses and other
assets of the Contrarian Fund that would not have value to the Value Fund as
well as cash in an amount estimated by Heartland to be sufficient to pay all
liabilities of the Contrarian Fund accrued and unpaid as of the Effective Time,
including without limitation: (a) amounts owed or to be owed to any Small Cap
Contrarian Shareholder, including declared but unpaid dividends and capital
gains distributions; (b) accounts payable, taxes and other accrued and unpaid
expenses, if any, incurred in the normal operation of the business of the
Contrarian Fund up to and including the Closing Date and estimated to be
incurred after the Closing Date in connection with winding up the affairs of,
and liquidating, the Contrarian Fund; and (c) costs and expenses incurred by the
Contrarian Fund in connection with the Reorganization, including preparing and
distributing proxy materials, soliciting proxies and holding the Contrarian Fund
Shareholder Meeting (together the "Excluded Assets").
2.4 Closing of Books. The assets of the Contrarian Fund and the per share
net asset value of the Value Fund Shares shall be valued as of the close of
trading on the New York Stock Exchange on the Closing Date. The stock transfer
books of the Contrarian Fund shall be permanently closed as of the close of
business on the Closing Date, and only requests for the redemption of shares of
the Contrarian Fund received in proper form prior to the close of trading on the
New York Stock Exchange on the Closing Date shall be accepted by the Contrarian
Fund. Redemption requests thereafter received by the Contrarian Fund shall be
deemed to be redemption requests for Value Fund Shares (assuming that the
transactions contemplated by this Plan have been consummated) to be distributed
to the Contrarian Fund Shareholders pursuant to this Plan.
2.5 Declaration of Dividends and Distributions by the Contrarian Fund. On
or prior to the Closing Date, the Contrarian Fund will declare a dividend to
shareholders of record of the Contrarian Fund as of the date of such dividend
declaration so that, for the short taxable year of the Contrarian Fund ending on
the date on which it is completely liquidated and discontinued, the Contrarian
Fund will have declared an aggregate amount of dividends which: (a) is equal to
at least the sum of its net capital gain, if any, (within the meaning of Section
852(b)(3) of the Code) and ninety percent (90%) of its investment company
taxable income (determined under Section 852(b)(2) of the Code, but without
regard to Section 852(b)(2)(D) of the Code) for such taxable year; and
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(b) is sufficient to avoid any excise tax on the Contrarian Fund under Section
4982 of the Code for the calendar year in which the Closing Date occurs,
provided that the dividends that have been so declared but have not been paid on
or before such Closing Date are in fact paid by the Contrarian Fund prior to the
end of such calendar year to the shareholders of the Contrarian Fund as of the
record date for determining shareholders entitled to receive payment of such
dividend.
2.6 Liquidation. As soon as reasonably practicable after the Closing
Date, the Contrarian Fund shall pay or make provisions for all of its debts,
liabilities and taxes, and distribute all remaining assets, including the Value
Fund Shares received by it in the Reorganization and the balance, if any, of the
Excluded Assets, to the Contrarian Fund Shareholders, and the Contrarian Fund's
status as a designated series of shares of Heartland shall be terminated.
2.7 Issuance of Value Fund Shares. On the Closing Date, Heartland shall
instruct its transfer agent to record on Heartland's books and records the pro
rata interest of each of the Contrarian Fund Shareholders in the Value Fund
Shares in the name of such Contrarian Fund Shareholder. All Contrarian Fund
Shares then issued and outstanding shall thereupon be canceled on the books of
Heartland. Heartland shall forward a confirmation of such ownership to each of
the Contrarian Fund Shareholders. No redemption or repurchase of such Value
Fund Shares credited to any Contrarian Fund Shareholder in respect of his or her
Contrarian Fund Shares which are represented by an unsurrendered stock
certificate shall be permitted until such certificate has been surrendered to
Heartland for cancellation, or if such certificate is lost or misplaced, until a
lost certificate affidavit has been executed and delivered to Heartland.
2.8 Liabilities and Expenses. The Value Fund shall not assume any
liability of the Contrarian Fund, and the Contrarian Fund shall use its best
efforts to discharge all known liabilities, so far as may be possible, prior to
the Closing Date.
3. Conditions Precedent to Closing
The Closing of the Reorganization is subject to the conditions that on or
before the Closing Date:
3.1 Approval of Plan By Shareholders of the Contrarian Fund. The
Contrarian Fund Shareholder Meeting shall have been duly called and held in
accordance with the provisions of the Investment Company Act, the Maryland
General Corporate Law and the Articles of Incorporation and Bylaws of Heartland,
including compliance with the notice and quorum requirements thereunder, and at
such meeting the Plan shall have been approved by the affirmative vote of the
lesser of (a) 67% or more of the Contrarian Fund Shares present at the
Contrarian Fund Shareholder Meeting, if shareholders who are the owners of more
than 50% of the Contrarian Fund Shares outstanding and entitled to vote on the
Plan at the Contrarian Fund Shareholder Meeting are present at such Meeting in
person or by proxy; or (b) more than 50% of the Contrarian Fund Shares
outstanding and entitled to vote on approval of the Plan at the Contrarian Fund
Shareholder Meeting (the "Required Contrarian Fund Shareholder Vote").
3.2 No Adverse Actions. On the Closing Date, no action, suit or other
proceeding shall be pending before any court or governmental agency in which it
is sought to restrain or prohibit or obtain damages or other relief in
connection with this Plan or the transactions contemplated hereby.
3.3 Consents and Approvals. All consents of other parties and all other
consents, orders and permits of federal, state and local regulatory authorities
(including those of the SEC and of state Blue Sky or securities authorities)
deemed necessary by Heartland to permit consummation, in all material respects,
of the transactions contemplated hereby, shall have been obtained, except where
failure to obtain any such consent, order or permit would not involve a risk of
a material adverse effect on the assets or properties of the Contrarian Fund.
B-4
<PAGE>
3.4 Effectiveness of Registration Statement on Form N-14. Heartland's
Registration Statement on Form N-14 to be prepared and filed with the SEC with
respect to the Value Fund Shares, including the Proxy Statement of the
Contrarian Fund soliciting approval of the Plan at the Contrarian Fund
Shareholder Meeting constituting a part thereof, shall have become effective
under the Securities Act and no stop order suspending the effectiveness thereof
shall have been issued and, to the best knowledge of Heartland, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the Securities Act.
3.5 Tax Opinion. Heartland shall have obtained an opinion in form and
substance reasonably satisfactory to its Board of Directors, to the effect that
the Reorganization will constitute a tax-free reorganization pursuant to Section
368(a)(1)(C) of the Code and that, accordingly, for Federal income tax purposes:
(i) except with respect to Section 1256 contracts and stock of any passive
foreign investment company which may be held by the Contrarian Fund, no gain or
loss will be recognized by either the Contrarian Fund or the Value Fund upon the
transfer of assets of the Contrarian Fund in exchange for the Value Fund Shares;
(ii) no gain or loss will be recognized by the Contrarian Fund Shareholders upon
the liquidation of the Contrarian Fund and the related surrender of their shares
of the Contrarian Fund in exchange for the Value Fund Shares; (iii) the Value
Fund's basis in the assets acquired from the Contrarian Fund will be the same as
the basis of those assets in the hands of the Contrarian Fund immediately prior
to the exchange; (iv) the holding period of the assets of the Contrarian Fund in
the hands of the Value Fund will include the holding period of the Contrarian
Fund; (v) the basis of the Value Fund Shares received by each Contrarian Fund
Shareholder in connection with the reorganization will be the same as the
Contrarian Fund Shareholder's basis in his or her Contrarian Fund Shares
immediately prior to the Reorganization; and (vi) the holding period of the
Value Fund Shares received by each Contrarian Fund Shareholder in connection
with the Reorganization will include such Contrarian Fund Shareholder's holding
period of his or her Contrarian Fund Shares held immediately prior to the
Reorganization, provided that such Contrarian Fund Shares were held by such
Contrarian Fund Shareholder as capital assets as of the Effective Time.
3.6 Disposition of Ineligible Investments by Contrarian Fund. Prior to
the Closing Date, the Contrarian Fund shall sell, liquidate or otherwise dispose
of such securities and instruments (or portions thereof) in the Contrarian
Fund's investment portfolio as and to the extent necessary to enable the Value
Fund to own, purchase or hold all of the securities and instruments in the
Contrarian Fund's investment portfolio being transferred to the Value Fund in
the Reorganization without causing a violation of any of the Value Fund's
investment restrictions or policies.
3.7 Declaration of Dividends and Distributions by the Contrarian Fund.
Prior to or on the Closing Date, the Contrarian Fund shall have declared a
dividend or dividends which, together with all previous such dividends, shall
have the effect of distributing to its shareholders all of the Contrarian Fund's
investment company taxable income for taxable years ending on or prior to the
Closing Date (computed without regard to any deduction for dividends paid) and
all of its net capital gain realized in taxable years ending on or prior to the
Closing Date (after reduction for any capital loss carried forward).
4. Expenses
The Contrarian Fund and the Value Fund will bear their respective expenses
in connection with the entering into and carrying out the provisions of this
Plan; however, it is not expected that the Value Fund will incur any expenses.
5. Termination
5.1 Mutual Agreement. This Plan may be terminated at any time by
Heartland, and will be terminated by Heartland if any of the conditions
precedent to the Reorganization set forth in Article 3 has not been satisfied as
of the Closing Date.
B-5
<PAGE>
5.2 Effects of Termination. In the event of any such termination, there
shall be no liability for damage on the part of either the Contrarian Fund or
the Value Fund.
6. Amendment
This Plan may be amended, modified or supplemented in such manner as
Heartland determines; provided, however, that following approval of the Plan by
the Required Contrarian Fund Shareholder Vote, no such amendment may have the
effect of changing the provisions for determining the number of Value Fund
Shares to be issued to the Contrarian Fund Shareholders pursuant to this Plan to
the detriment of the Contrarian Fund Shareholders without their further
approval.
7. Miscellaneous
7.1 Headings. The Article and Section headings contained in this Plan
will have reference purposes only and shall not affect in any way the meaning or
interpretation of this Plan.
7.2 Governing Law. This Plan shall be governed by and construed in
accordance with the laws of the State of Maryland, Heartland's Articles of
Incorporation and Bylaws, and the Heartland Prospectus.
IN WITNESS WHEREOF, on the authority of the Board of Directors of
Heartland, this Plan has been executed by its duly authorized officer as of the
day and year first written above.
BY ORDER OF THE BOARD OF DIRECTORS OF
HEARTLAND GROUP, INC.
(On Behalf of the Small Cap Contrarian and
Value Funds)
By: /s/ William J. Nasgovitz
--------------------------------------
William J. Nasgovitz, President
B-6
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DATED SEPTEMBER ___, 1998
HEARTLAND SMALL CAP CONTRARIAN FUND
REORGANIZATION INTO
HEARTLAND VALUE FUND
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
(414) 289-7000 or 1-800-432-7856
This Statement of Additional Information is not a prospectus, and should be
read in conjunction with the Proxy Statement/Prospectus dated September ____,
1998, relating to the reorganization of the Heartland Small Cap Contrarian Fund
(the "Contrarian Fund"), a mutual fund portfolio of Heartland Group, Inc.
("Heartland"), into the Heartland Value Fund (the "Value Fund"), another mutual
fund portfolio of Heartland. In connection with the Reorganization, the Value
Fund would acquire all of the assets (net of liabilities) of the Contrarian
Fund. In consideration for the Contrarian Fund's transfer of assets to the
Value Fund, the Value Fund would issue to the Contrarian Fund shares of Value
Fund Common Stock with an aggregate net asset value equal to the aggregate value
of the assets transferred by the Contrarian Fund. The Contrarian Fund would
thereafter distribute the shares of the Value Fund so received to its
shareholders on a pro rata basis, and the Contrarian Fund subsequently would be
liquidated and discontinued. As a result of the Reorganization, shareholders of
the Contrarian Fund would become shareholders of the Value Fund. It is expected
that the aggregate net asset value of the shares of the Value Fund received by
each shareholders of the Contrarian Fund in the Reorganization would be equal,
immediately following the Reorganization, to the aggregate net asset value of
the shares of the Contrarian Fund held by such shareholder immediately prior to
the Reorganization.
The information otherwise required to be set forth in this Statement of
Additional Information is included in: (i) the Prospectus of Heartland (relating
to both the Contrarian Fund and the Value Fund), dated May 1, 1998 (the "May 1,
1998 Prospectus"); (ii) the Statement of Additional Information of Heartland
(relating to both the Contrarian Fund and the Value Fund), dated May 1, 1998
(the "May 1, 1998 SAI"); (iii) Heartland's 1997 Annual Report to Shareholders
(the "Annual Report"); and (iv) Heartland's June 30, 1998 Semi-Annual Report to
Shareholders (the "Semi-Annual Report"). The May 1, 1998 Prospectus, the May 1,
1998 SAI, the Annual Report and the Semi-Annual Report are incorporated by
reference herein.
A copy of the Proxy Statement/Prospectus, the May 1, 1998 Prospectus, the
May 1, 1998 SAI, the Annual Report and the Semi-Annual Report may be obtained
free of charge by writing to the distributor, Heartland Advisors, Inc., at 790
North Milwaukee Street, Milwaukee, Wisconsin 53202, or by calling Heartland
Advisors at (414) 289-7000 or 1-800-432-7856.
EXPERTS
The audited financial statements of the Contrarian Fund and the Value Fund
incorporated by reference into this Statement of Additional Information have
been audited by PricewaterhouseCoopers LLP, independent public accountants, as
indicated in their report with respect thereto, which also is incorporated by
reference into this Statement of Additional Information, in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
<PAGE>
HISTORICAL FINANCIAL STATEMENTS
The following audited historical financial statements and footnotes thereto
of the Contrarian Fund and the Value Fund, together with the Report of the
Independent Accountants thereon, are incorporated herein by reference from the
Annual Report:
(1) Statement of Assets and Liabilities for each of the Contrarian Fund
and the Value Fund as of December 31, 1997;
(2) Statement of Operations for each of the Contrarian Fund and the Value
Fund for the year ended December 31, 1997;
(3) Statement of Changes in Net Assets for each of the Contrarian Fund and
the Value Fund for the years ended December 31, 1997 and 1996;
(4) Schedule of Investments of each of the Contrarian Fund and the Value
Fund as of December 31, 1997;
(5) Financial Highlights for each of the Contrarian Fund and the Value
Fund; and
(6) Notes to Financial Statements.
The following unaudited historical financial statements and footnotes
thereto of the Contrarian Fund and the Value Fund are incorporated herein by
reference from the Semi-Annual Report:
(1) Statement of Assets and Liabilities for each of the Contrarian Fund
and the Value Fund as of June 30, 1998;
(2) Statement of Operations for each of the Contrarian Fund and the Value
Fund for the six months ended June 30, 1998;
(3) Statement of Changes in Net Assets for each of the Contrarian Fund and
the Value Fund for the six months ended June 30, 1998 and the year
ended December 31, 1997;
(4) Schedule of Investments of each of the Contrarian Fund and the Value
Fund as of June 30, 1998; and
(5) Financial Highlights for each of the Contrarian Fund and the Value
Fund; and
(6) Notes to Financial Statements.
2
<PAGE>
HEARTLAND GROUP, INC.
Part C. Other Information
Item 15. Indemnification
---------------
Reference is made to Article IX of the Registrant's Amended and Restated
Bylaws filed as Exhibit No. 2 to its Registration Statement on Form N-1A,
as amended (Reg. Nos. 33-11371 and File No. 811-4982), with respect to the
indemnification of Registrant's directors and officers, which is set forth
below:
Section 9.1. Indemnification of Officers, Directors, Employees and Agents.
The Corporation shall indemnify each person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative ("Proceeding"), by reason of the fact that he is or was a
Director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a Director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by
him in connection with such Proceeding to the fullest extent permitted by
law; provided that:
(a) whether or not there is an adjudication of liability in such
Proceeding, the Corporation shall not indemnify any person for any
liability arising by reason of such person's willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in
the conduct of his office or under any contract or agreement with the
Corporation ("disabling conduct"); and
(b) the Corporation shall not indemnify any person unless:
(1) the court or other body before which the Proceeding was
brought (i) dismisses the Proceeding for insufficiency of
evidence of any disabling conduct, or (ii) reaches a final
decision on the merits that such person was not liable by reason
of disabling conduct; or
(2) absent such a decision, a reasonable determination is made,
based upon a review of the facts, by (i) the vote of a majority
of a quorum of the Directors of the Corporation who are neither
interested persons of the Corporation as defined in the
Investment Company Act of 1940 nor parties to the Proceeding, or
(ii) if such quorum is not obtainable, or even if obtainable, if
a majority of a quorum of Directors described in paragraph
(b)(2)(i) above so directs, by independent legal counsel in a
written opinion, that such person was not liable by reason of
disabling conduct.
Expenses (including attorneys' fees) incurred in defending a
Proceeding will be paid by the Corporation in advance of the final
disposition thereof upon an undertaking by such person to repay such
expenses (unless it is ultimately determined that he is entitled to
indemnification), if:
(1) such person shall provide adequately security for his
undertaking;
(2) the Corporation shall be insured against losses arising by reason
of such advance; or
(3) a majority of a quorum of the Directors of the Corporation who
are neither interested persons of the Corporation as defined in
the Investment Company Act of 1940 nor parties to the Proceeding,
or independent legal counsel in a written opinion, shall
C-1
<PAGE>
determine, based on a review of readily available facts, that
there is reason to believe that such person will be found to be
entitled to indemnification.
Section 9.2 Insurance of Officers, Directors, Employees and Agents.
The Corporation may purchase and maintain insurance on behalf of any person
who is or was a Director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a Director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise against any liability asserted against him and incurred
by him in or arising out of his position. However, in no event will the
Corporation purchase insurance to indemnify any such person for any act for
which the Corporation itself is not permitted to indemnify him.
Reference is made to Section 6 of the Registrant's Distribution
Agreement with Heartland Advisors, Inc. ("Distributor") filed as Exhibit
No. 6(a)(i) to Registrant's Registration Statement on Form N-1A, as amended
(Reg. No. 33-11371 and File No. 811-4982), with respect to the
indemnification of Registrant's directors and officers, which is set forth
below:
Section 6. Indemnification.
(a) The Distributor agrees to indemnify and hold harmless the Fund and
each of its present or former directors, officers, employees,
representatives and each person, if any, who controls or previously
controlled the Fund within the meaning of Section 15 of the 1933 Act
against any and all losses, liabilities, damages, claims or expenses
(including the reasonable costs of investigating or defending any alleged
loss, liability, damage, claims or expense and reasonable legal counsel
fees incurred in connection therewith) to which the Fund or any such person
may become subject under the 1933 Act, under any other statute, at common
law, or otherwise, arising out of the acquisition of any Shares by any
person which (i) may be based upon any wrongful act by the Distributor or
any of the Distributor's directors, officers, employees or representatives,
or (ii) may be based upon any untrue statement or alleged untrue statement
of a material fact contained in a registration statement, prospectus,
shareholder report or other information covering Shares filed or made
public by the fund or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance upon
information furnished to the Fund by the Distributor. In no case (i) is the
Distributor's indemnity in favor of the Fund, or any person indemnified to
be deemed to protect the Fund or such indemnified person against any
liability to which the Fund or such person would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in the
performance of his duties or by reason of his reckless disregard of his
obligations and duties under this Agreement or (ii) is the Distributor to
be liable under its indemnity agreement contained in this Paragraph with
respect to any claim made against the Fund or any person indemnified unless
the fund or such person, as the case may be, shall have notified the
Distributor in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the
nature of the claim shall have been served upon the Fund or upon such
person (or after the Fund or such person shall have received notice to such
service on any designated agent). However, failure to notify the
Distributor of any such claim shall not relieve the Distributor from any
liability which the Distributor may have to the Fund or any person against
whom such action is brought otherwise than on account of the Distributor's
indemnity agreement contained in this Paragraph.
The Distributor shall be entitled to participate, at its own expense,
in the defense, or, if the Distributor so elects, to assume the defense of
any suit brought to enforce any such claim, but, if the Distributor elects
to assume the defense, such defense shall be conducted by legal counsel
chosen by the Distributor and satisfactory to the Fund, to the persons
indemnified defendant or defendants, in the suit. In the event that the
Distributor elects to assume the defense of any such suit and retain such
legal
C-2
<PAGE>
counsel, the Fund, the persons indemnified defendant or defendants in the
suit, shall bear the fees and expenses of any additional legal counsel
retained by them. If the Distributor does not elect to assume the defense
of any such suit, the Distributor will reimburse the Fund and the persons
indemnified defendant or defendants in such suit for the reasonable fees
and expenses of any legal counsel retained by them. The Distributor agrees
promptly to notify the Fund of the commencement of any litigation of
proceedings against it or any of its officers, employees or representatives
in connection with the issue or sale of any Shares.
In addition, the Registrant maintains an Investment Advisor/Mutual Fund
Professional Liability insurance policy with a $10 million limit of liability
under which the Registrant and its affiliate, Heartland Advisors, Inc., and each
of their respective directors and officers are named insureds.
Registrant undertakes that insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 16. Exhibits
--------
See Exhibit Index following the Signature Page of this Registration
Statement, which Exhibit Index is incorporated herein by this reference.
Item 17. Undertakings
------------
(1) The Registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus which is a part
of this Registration Statement by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c) under the
Securities Act of 1933, as amended, the reoffering prospectus will
contain the information called for by the applicable registration form
for reofferings by persons who may be deemed underwriters, in addition
to the information called for by the other items of the applicable
form.
(2) The Registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as a part of an amendment to this
Registration Statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities
Act of 1933, as amended, each post-effective amendment shall be deemed
to be a new registration statement for the securities offered therein,
and the offering of the securities at that time shall be deemed to be
the initial bona fide offering of them.
C-3
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the Registrant, in the City of Milwaukee, and State
of Wisconsin, on the 19th day of August, 1998.
HEARTLAND GROUP, INC.
By: /s/ William J. Nasgovitz
----------------------------------
William J. Nasgovitz, President
As required by the Securities Act of 1933, this Registration Statement has
been signed on this 19th day of August, 1998 by the following persons in the
capacities indicated. Each person whose signature appears below hereby
constitutes and appoints William J. Nasgovitz and Patrick J. Retzer, or either
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including pre-effective
and post-effective amendments) to this Registration Statement and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto either or both said
attorneys-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully as he might or
could do in person, hereby ratifying and confirming all that either or both said
attorneys-in-fact and agents may lawfully do or cause to be done by virtue
hereof.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ William J. Nasgovitz Director and President (Chief Executive Officer)
- ------------------------
William J. Nasgovitz
/s/ Patrick J. Retzer Director, Vice President and Treasurer (Chief
- ------------------------ Financial Officer)
Patrick J. Retzer
/s/ Paul T. Beste Vice President and Principal Accounting Officer
- ------------------------ (Chief Accounting Officer)
Paul T. Beste
/s/ Hugh F. Denison Director
- ------------------------
Hugh F. Denison
/s/ A. Gary Shilling Director
- ------------------------
A. Gary Shilling
/s/ Willard H. Davidson Director
- ------------------------
Willard H. Davidson
/s/ Jon D. Hammes Director
- ------------------------
Jon D. Hammes
/s/ Linda F. Stephenson Director
- ------------------------
Linda F. Stephenson
</TABLE>
C-4
<PAGE>
HEARTLAND GROUP, INC.
EXHIBIT INDEX
TO
REGISTRATION STATEMENT ON FORM N-14
<TABLE>
<CAPTION>
EXHIBIT FILED
NUMBER DESCRIPTION HEREWITH
- ------- ----------- --------
<S> <C> <C>
(1)(a) Articles of Incorporation*
(1)(b) Form of Articles Supplementary to Articles of Incorporation filed with
Maryland Department of Assessments and Taxation to withdraw the
designation of and to discontinue, the series known as the Heartland
Nebraska Tax Free fund*
(2) Amended and Restated By-Laws*
(3) None
(4) Heartland Small Cap Contrarian Fund's Plan of Reorganization and
Liquidation (included as Appendix B to the Proxy Statement/Prospectus,
which is part of the Registration Statement on Form N-14)
(5) None
(6) Investment Advisory Agreement for Heartland Value Fund*
(7)(a)(i) Distribution Agreement between Heartland Group, Inc. and Heartland
Advisors, Inc.*
(7)(a)(ii) Amendment No. 1 to Distribution Agreement between Heartland Group,
Inc. and Heartland Advisors, Inc.*
(7)(b) Form of Selected Dealer Agreements*
(7)(c) Form of Selling Agreement for Banks*
(8) None
(9) Custodian Agreement*
(10)(a) The Value Fund's Rule 12b-1 Plan*
(10)(b) Heartland Group Inc.'s Amended and Restated Rule 12b-1 Plan*
(10)(c) Form of Related Distribution Agreement for Rule 12b-1 Plan*
(11) Opinion of Counsel regarding the legality of securities being registered X
(12) Opinion of Counsel regarding certain tax matters and consequences to
shareholders**
(13)(a) Transfer Agent/Dividend Disbursing Agent Agreement*
(13)(b) Rule 10f-3 Plan*
(14)(a) Consent of Independent Accountants X
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT FILED
NUMBER DESCRIPTION HEREWITH
- ------- ----------- --------
<S> <C> <C>
(14)(b) Consent of Counsel (included within Exhibit 11)
(15) None
(16) Powers of Attorney (included on Signature Page of this Registration
Statement)
</TABLE>
_________________
* Previously filed as part of the Registrant's Registration Statement on Form
N-1A (Reg. No. 33-11371 and 1940 Act File No. 811-4982), or an amendment
thereto, and incorporated herein by reference.
** To be filed by amendment.
C-6
<PAGE>
[LETTERHEAD OF QUARLES & BRADY]
EXHIBIT 11
----------
August 19, 1998
Heartland Group, Inc.
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Ladies and Gentlemen:
In connection with the registration of shares of Heartland Value Fund, a
series of Heartland Group, Inc., a Maryland corporation (the "Registrant"), you
have requested that we furnish you with the following opinion, which we
understand is to be used in connection with and to included as an exhibit to the
Registration Statement on Form N-14 (the "Registration Statement") to be filed
with the Securities and Exchange Commission.
We understand that the shares of Common Stock of Heartland Value Fund to
which the Registration Statement relates will be issued in exchange for
outstanding shares of Heartland Small Cap Contrarian Fund, another separate
series of the Registrant, pursuant to the terms of a Plan of Reorganization and
Liquidation (the "Plan of Reorganization"), dated August 19, 1998, all as
described in the Registrant's Registration Statement. For purposes of rendering
this opinion, we have examined originals or copies of such documents as we
consider necessary, including those listed below. In conducting such
examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all documents submitted to us as copies.
The documents we have examined include:
1. The Registration Statement;
2. Registrant's Articles of Incorporation and Articles Supplementary
as filed with the State of Maryland State Department of Assessments
and Taxation;
3. The Plan of Reorganization;
4. Resolutions adopted by Registrant's Board of Directors at an August
17, 1998 special meeting, authorizing the transactions described in
the Plan of Reorganization; and
5. Such certificates of public officials and other public documents,
certificates of officers and representatives of the parties to the
Plan of Reorganization and such matters of law as we have deemed
relevant to the opinions expressed herein.
Based upon and subject to the foregoing, after having given due regard to
such issues of law as we deemed relevant, and assuming that:
1. The Registration Statement becomes and then remains effective, and
the Proxy Statement/Prospectus which is a part thereof and your
Proxy Statement/Prospectus delivery procedures with respect thereto
fulfill all the requirements of the Securities Act
<PAGE>
EXHIBIT 14(a)
-------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus and Statement of Additional Information constituting parts
of this Registration Statement on Form N-14 (the "Registration Statement" of our
report dated February 6, 1998, relating to the financial statements and
financial highlights appearing in the December 31, 1997 Annual Report to
Shareholders of the Heartland Small Cap Contrarian Fund, Heartland Value Fund,
Heartland Mid Cap Value Fund, Heartland Large Cap Value Fund, Heartland Value
Plus Fund and Heartland U.S. Governmental Securities Fund (six of the portfolios
constituting Heartland Group, Inc.), portions of which are also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Auditors" in the Proxy Statement/Prospectus and under the
heading "Experts" in the Statement of Additional Information.
/s/ PricewaterhouseCoopers
- --------------------------
PricewaterhouseCoopers
Milwaukee, Wisconsin
August 17, 1998
