NOTES TO FINANCIAL STATEMENTS o December 31, 1997
Heartland Group, Inc. (the "Corporation") is registered as an open-end management company under the
Investment Company Act of 1940. The Short Duration High-Yield Municipal Fund and the High-Yield Municipal
Bond Fund (the "Funds"), each of which is a diversified fund, are two of the nine series of funds issued by the
Corporation at December 31, 1997.
(2) Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Funds in the preparation of the
(a) Debt securities are stated at fair value as furnished by independent pricing services based primarily upon
information concerning market transactions and dealer quotations for similar securities, or by dealers who make
markets in such securities. Debt securities having maturities of 60 days or less are valued at acquisition cost, plus
or minus any amortized discount or premium. Securities and other assets for which quotations are not readily
available are valued at their fair value using methods determined by the Board of Directors.
(b) The Funds' policy is to comply with the requirements of the Internal Revenue Code which are applicable to
regulated investment companies and to distribute substantially all of their taxable income to their shareholders.
The Funds accordingly paid no Federal income taxes, and no Federal income tax provision is required.
At December 31, 1997, the Short Duration High-Yield Municipal Fund had a Federal income tax capital loss
carryforward of $27,690 expiring in 2005. The Fund does not intend to make distributions of any future realized
capital gains until its Federal income tax capital loss carryforward is completely utilized.
Net realized gains or losses may differ for Federal income tax purposes primarily as a result of post-October
losses which may not be recognized for tax purposes until the first day of the following fiscal year, wash sales,
and the marking-to