HILLIARD LYONS RESEARCH TRUST, 497, 2000-10-30

HILLIARD LYONS RESEARCH TRUST
497, 2000-10-30

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FOR MORE INFORMATION

More information on the Fund is available without charge, upon request,
including the following:

ANNUAL/SEMI-ANNUAL REPORTS

The annual and semi-annual reports to shareholders contain detailed information
about the Fund's investment portfolio. The Annual Report includes a discussion
of the market conditions and the Fund's investment strategies that significantly
affected the Fund's performance during the last fiscal year.

STATEMENT OF ADDITIONAL INFORMATION (SAI).

The SAI provides more details about the Fund and its policies. A current SAI is
on file with the Securities and Exchange Commission and is incorporated by
reference into this prospectus (meaning that it is legally part of this
prospectus).

TO OBTAIN INFORMATION:

BY TELEPHONE
Call 1-800-444-1854

BY MAIL
Write to:
Senbanc Fund
c/o Hilliard Lyons Research Trust
501 South 4th Street
Louisville, Kentucky 40202

ON THE INTERNET
Text-only versions of Fund documents can be viewed online or downloaded from the
SEC at http://www.sec.gov

You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, D.C. (1-202-942-8090) or by sending your request and a duplicating
fee to the SEC's Public Reference Section, Washington, D.C. 20549-0102 or by
e-mail to [email protected].

Investment Company Act File No.: 811-09281

HILLIARD LYONS

SENBANC FUND
SENBANC

PROSPECTUS
OCTOBER 26, 2000

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL AND COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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SENBANC FUND
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TABLE OF CONTENTS SENBANC FUND SUMMARY ..................................... 1

SENBANC FUND ............................................. 5
Investment Objective and Principal Types of Investments 5
Investment Philosophy .................................. 5
Main Risks ............................................. 6
Other Types of Investments and Considerations .......... 8

MANAGEMENT OF THE FUND ................................... 8
Advisor ................................................ 8
Portfolio Manager ...................................... 9

SHAREHOLDER INFORMATION .................................. 9
Net Asset Value ........................................ 9
How to Buy Shares ...................................... 10
How to Sell (Redeem) Shares ............................ 12
Dividends, Distributions and Taxes ..................... 13

DISTRIBUTION ARRANGEMENTS ................................ 15
Distribution Agreement ................................. 15
Sales Charges .......................................... 15
Distribution Plan ...................................... 18

FINANCIAL HIGHLIGHTS ..................................... 19

FOR MORE INFORMATION ............................ Back Cover
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SUMMARY INVESTMENT OBJECTIVE

The Senbanc Fund (the "Fund") seeks long-term capital
appreciation.

MAIN INVESTMENT STRATEGIES

The Fund invests primarily in publicly traded equity securities
of banks and financial institutions conducting at least fifty
percent (50%) of their business through banking subsidiaries
(which are generally referred to herein as "Banks"). "Banks" may
include commercial banks, industrial banks, consumer banks,
savings and loans, and bank holding companies that receive at
least fifty percent (50%) of their income through their bank
subsidiaries, as well as regional and money center banks. The
Fund generally invests in equity securities of Banks that have at
least $500 million in consolidated total assets; however, the
Fund's investments are not influenced by a Bank's market
capitalization (large, medium or small).

Hilliard Lyons Research Advisors, a division of Hilliard Lyons
and the investment advisor to the Fund (the "Advisor"), uses a
value investment style for the Fund. The Advisor seeks to
identify the most undervalued Banks by using an investment model
that considers financial ratios and other quantitative
information. Generally, such Banks have at least six years of
current or predecessor operating history and well-managed
organizations and operations. The Fund's portfolio is weighted
most heavily to the equity securities of Banks that the
investment model indicates are most undervalued for the
longest period of time.

MAIN RISKS OF INVESTING

Your investment in the Fund is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance
Corporation (the "FDIC") or any other government entity. You
could lose money by investing in the Fund. Your investment in the
Fund is subject to the following main risks:

Market Risk:

The Fund is designed for long-term investors who can accept the risks of
investing in a portfolio with significant holdings of equity securities. Equity
securities tend to be more volatile than other investment choices, such as debt
and money market instruments. The value of your investment may decrease in
response to overall stock market movements or the value of individual securities
held by the Fund.

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Industry Concentration Risk:

Because the Fund concentrates in a single industry (banking), its performance is
largely dependent on that specific industry's performance, which may differ in
direction and degree from that of the overall stock market. Volatile interest
rates or deteriorating economic conditions can adversely affect the banking
industry and, therefore, the performance of the equity securities of Banks.

Portfolio Management Risk:

The skill of the Advisor will play a significant role in the Fund's ability to
achieve its investment objective.

Small and Medium-Size Company Risk:

Investment in smaller and medium-sized companies involves greater risk than
investment in larger, more established companies. The equity securities of small
and medium-size companies often fluctuate in price to a greater degree than
equity securities of larger, more mature companies. In addition, such companies
may have more limited financial resources and less liquid trading markets for
their securities.

Nondiversification:

This is a nondiversified fund; compared to other funds, the Fund may invest a
greater percentage of its assets in a particular issuer or a small number of
issuers. As a consequence, the Fund may be subject to greater risks and larger
losses than diversified funds.

PERFORMANCE

No performance information is provided because the Fund does not yet have a full
calendar year of operations.

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FEES & EXPENSES

INVESTOR EXPENSES

The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund. Shareholder fees are paid directly from your account.
Annual Fund operating expenses are paid out of the Fund's assets and are
reflected in the Fund's share price and dividends; therefore, such expenses are
paid indirectly by shareholders.

<TABLE>
<S> <C>
SHAREHOLDER FEES (fees paid directly from your account)
Maximum Sales Charge (load) Imposed on Purchases ........ 2.25%*
Maximum Deferred Sales Charge (load) .................... None**
Maximum Sales Charge (load) Imposed on Reinvested
Dividends and Other Distributions ..................... None
Redemption Fee .......................................... None
Exchange Fee ............................................ None
ANNUAL FUND OPERATING EXPENSES (expenses that are paid
out of the Fund's assets)
Management Fees (1) ..................................... 0.60%
Distribution (12b-1) Fees (2) ........................... 0.15%
Other Expenses .......................................... 2.00%
Total Annual Fund Operating Expenses (3) ................ 2.75%
</TABLE>

* The Fund has a maximum front-end sales charge of 2.25%; however, cumulative
investments of at least $500,000 over thirteen (13) months will be assessed
a sales charge of 1.75% and cumulative investments of at least $1,000,000
over thirteen (13) months will not be assessed a sales charge. For more
detailed information, refer to the section of this Prospectus titled
"Distribution Arrangements."

** Purchases of $1,000,000 or more are not subject to an initial sales charge;
however, a contingent deferred sales charge is payable on these investments
in the event of a share redemption within 12 months following the share
purchase, at the rate of 1% of the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions)
or the total cost of such shares.

(1) The Advisor intends to waive all management fees until the Fund reaches $20
million in net assets.

(2) Amount represents the actual distribution fees incurred for the period July
8, 1999 (commencement operations) through June 30, 2000. The Trustees have
authorized a payment up to .60% of the Fund's average daily net assets
annually.

(3) After waivers and reimbursements, the Fund's actual annual operating
expenses were 1.75% for the period July 8, 1999 (commencement operations)
through June 30, 2000. The Advisor has agreed to voluntarily cap the Fund's
total annual operating expenses at 1.75% of the Fund's average daily net
assets indefinitely. The Advisor may terminate the voluntary cap upon
notice to the Board of Trustees.

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EXAMPLE

This hypothetical example is intended to help you compare the cost of investing
in this Fund with the cost of investing in other mutual funds. The Example
assumes that:

- You invest $10,000;

- You redeem all of your shares at the end of the periods shown;

- Your investment has a 5% annual return; and

- The Fund's operating expenses remain the same.

Although actual annual returns and Fund operating expenses may be higher or
lower, based on these assumptions, your costs would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
$497 $1,059 $1,647 $3,236
</TABLE>

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SENBANC FUND

The Fund is a series of the Hilliard Lyons Research Trust (the "Trust"), an
open-end management investment company.

INVESTMENT OBJECTIVE AND PRINCIPAL TYPES OF INVESTMENTS

The Fund seeks long-term capital appreciation. Under normal market conditions,
the Fund will invest at least 65% of its total assets in publicly traded equity
securities of banks and financial institutions conducting at least fifty percent
(50%) of their business through banking subsidiaries (which are generally
referred to herein as "Banks"). "Banks" may include commercial banks, industrial
banks, consumer banks, savings and loans, and bank holding companies that
receive at least fifty percent (50%) of their income through their bank
subsidiaries, as well as regional and money center banks. A regional bank is one
that provides full-service banking (i.e., savings accounts, checking accounts,
commercial lending and real estate lending), has assets that are primarily of
domestic origin, and typically has a principal office outside of a large
metropolitan area (e.g., New York City or Chicago). A money center bank is one
with a strong international banking business and a significant percentage of
international assets, and is typically located in a large metropolitan area. To
the extent that the Fund invests in the equity securities of bank holding
companies, a portion of the Fund's assets may be indirectly invested in
nonbanking entities, since bank holding companies may derive a portion of their
income from such entities.

Generally, the equity securities in which the Fund will invest are common
stocks; however, the Fund may also at times acquire (through its common stock
holdings) preferred stock, warrants, rights or other securities that are
convertible into common stock. Although the Fund seeks opportunities for
long-term capital appreciation, the Banks in which the Fund invests may also pay
regular dividends.

INVESTMENT PHILOSOPHY

The Advisor uses a VALUE investment style for the Fund. The Advisor seeks to
identify the most undervalued Banks on a monthly basis by using an investment
model that generates information which allows the Advisor to compare its
determinations of current net worth with the underlying market prices of Banks.
The investment model considers financial ratios and other quantitative
information in evaluating and rating Banks which generally have at least six
years of current or predecessor operating history and well-managed organizations
and operations. The Fund's portfolio is weighted most heavily to the equity
securities of Banks that the investment model indicates are most undervalued for
the longest period of time.

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The Advisor intends to build the Fund's portfolio by investing each month in the
top ten most undervalued Banks as determined by its investment model. Comparable
dollar amounts will be invested in each of the top ten Banks each month, insofar
as liquidity of those issues and the liquid resources of the Fund allow. The
Advisor generally does not expect significant turnover within the top ten most
undervalued Banks from month to month. Therefore, limited turnover will lead to
multiple purchases of the securities of the Banks that stay in the top ten for
greater than one month.

Generally, securities in the Fund's portfolio will be sold when they are
adequately valued (as determined by the investment model) and when the most
recent purchase of a Bank's securities has been held for a minimum of twelve
months. However, if a Bank has announced a major reorganization (e.g., merger or
acquisition), the Fund will generally sell that Bank's securities regardless of
the Bank's rating by the investment model or the length of time the Bank's
securities have been held by the Fund. If a Bank is no longer evaluated by the
investment model for any reason, the Bank's securities will be sold by the Fund.
In addition, sales may be made in order to enhance the Fund's cash position in
the case of unusually large redemption requests of the Fund's shares or as a
temporary defensive measure, and such sales would be of those Bank securities
then ranked as least undervalued.

The Advisor generally expects the Fund's portfolio to represent Banks of wide
geographic dispersion within the United States. In addition, the Fund generally
invests in equity securities of Banks which have at least $500 million in
consolidated total assets; however, the Fund's investments are not influenced by
a Bank's market capitalization (large, medium or small).

MAIN RISKS

All investments (including those in mutual funds) have risks, and you could lose
money by investing in the Fund. No investment is suitable for all investors. The
Fund is intended for long-term investors who can accept the risks entailed in
investing in the equity securities of Banks. Of course, there can be no
assurance that the Fund will achieve its objective.

Your investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (the "FDIC") or any
other government entity. Because the Fund's investments are concentrated in the
banking industry, an investment in the Fund may be subject to greater market
fluctuations than an investment in a fund that does not concentrate in a
particular industry. Thus, you should consider an investment in the Fund as only
one portion of your overall investment portfolio.

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MARKET RISK. Equity securities tend to be more volatile than other investment
choices, such as debt and money market instruments. The value of your investment
may decrease in response to overall stock market movements or the value of
individual securities held by the Fund.

INDUSTRY CONCENTRATION RISK. Since the Fund's investments will be concentrated
in the banking industry, they will be subject to risks in addition to those that
apply to the general equity market. Events may occur that significantly affect
the entire banking industry; therefore, the Fund's share value may at times
increase or decrease at a faster rate than the share value of a mutual fund with
investments in many industries. The profitability of Banks is largely dependent
upon the availability and cost of capital funds, and may show significant
fluctuation as a result of volatile interest rate levels. Healthy economic
conditions are important to the operations of Banks, and exposure to credit
losses resulting from possible financial difficulties of borrowers can have an
adverse effect on the financial performance and condition of Banks. In addition,
despite some measure of deregulation, Banks are still subject to extensive
governmental regulation which may limit their activities as well as the amounts
and types of loans and other financial commitments that may be made and the
interest rates and fees that may be charged.

NONDIVERSIFICATION. The Fund is NONDIVERSIFIED, meaning that it is not limited
in the proportion of its assets that it may invest in the obligations of a
single issuer. However, the Fund will comply with diversification requirements
imposed by the Internal Revenue Code for qualification as a regulated investment
company. As a nondiversified fund, the Fund may invest a greater proportion of
its assets in the securities of a small number of issuers, and may be subject to
greater risk and substantial losses as a result of changes in the financial
condition or the market's assessment of the issuers.

SMALL COMPANY RISK. The Advisor may invest the Fund's assets in small and
medium-size companies. Investment in smaller companies involves greater risk
than investment in larger companies. The stocks of smaller companies often
fluctuate in price to a greater degree than stocks of larger companies. Smaller
companies may have more limited financial resources and less liquid trading
markets for their stock. The Fund's share price may experience greater
volatility when the Fund is more heavily invested in small and medium-size
companies.

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OTHER TYPES OF INVESTMENTS AND CONSIDERATIONS

CASH MANAGEMENT AND TEMPORARY DEFENSIVE INVESTMENTS. For cash management
purposes or when the Advisor believes that market conditions warrant it (i.e. a
temporary defensive position), the Fund may hold part or all of its assets in
cash or debt and money market instruments. Except when pursuing such temporary
defensive positions in response to adverse market conditions, the Fund's
investment in debt, including money market instruments, will not exceed 35% of
its total assets. Investments in debt and money market instruments will
generally be limited to (1) obligations of the U.S. government, its agencies and
instrumentalities; and (2) corporate notes, bonds and debentures rated at least
AA by Standard & Poor's Corporation ("Standard & Poor's") or Aa by Moody's
Investors Service ("Moody's") (see Appendix A to the Statement of Additional
Information ("SAI") -- "Description of Securities Ratings").

Investments in debt and money market instruments are subject to interest rate
risk and credit risk. In general, the market value of debt instruments in the
Fund's portfolio will decrease as interest rates rise and increase as interest
rates fall. In addition, to the extent the Fund invests in debt instruments,
there is the risk that an issuer will be unable to make principal and interest
payments when due. The risks of these types of investments and strategies are
described further in the SAI. To the extent that the Fund holds cash or invests
in debt and money market instruments, the Fund may not achieve its investment
objective.

There are also specific restrictions on the Fund's investments. These
restrictions are detailed in the SAI.

MANAGEMENT OF THE FUND

ADVISOR

The Advisor, which is located at Hilliard Lyons Center, Louisville, Kentucky
40202, is responsible for providing investment advisory and management services
to the Fund, subject to the direction of the Board of Trustees. Hilliard Lyons
is a registered investment advisor, registered broker-dealer and member firm of
the New York Stock Exchange, Inc. ("NYSE"), other principal exchanges and the
National Association of Securities Dealers, Inc. ("NASD"). Hilliard Lyons and
its affiliate, Hilliard Lyons Trust Company, a Kentucky chartered trust company,
are wholly owned subsidiaries of PNC Bank Corp. ("PNC"). PNC, a multi-bank
holding company headquartered in Pittsburgh, Pennsylvania, is one of the largest
financial services organizations in the United States. PNC's address is One PNC
Plaza, 249 Fifth Avenue, Pittsburgh, Pennsylvania 15222-2707.

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Together with predecessor firms, Hilliard Lyons has been in the investment
banking business since 1854. Hilliard Lyons has been registered as an investment
advisor since 1973. Hilliard Lyons also serves as investment advisor to the
Hilliard Lyons Growth Fund, Inc., an open-end mutual fund with assets as of
September 30, 2000 of approximately $78 million, and to the Hilliard Lyons
Government Fund, Inc., an open-end money market mutual fund with assets as of
September 30, 2000 of approximately $1,361,000,000. As of September 30, 2000,
Hilliard Lyons and its affiliates managed individual, corporate, fiduciary and
institutional accounts with assets totaling approximately $3,625,000,000.
Pursuant to an investment advisory agreement with the Fund (the "Advisory
Agreement"), the Advisor is paid a management fee at an annual rate of 0.60% of
the Fund's average daily net assets; however, the Advisor intends to waive its
management fee until the Fund reaches $20 million in net assets, and if
necessary, reimburse the Trust by the amount by which the Fund's total annual
operating expenses for any year exceed 1.75% of average daily net assets.

PORTFOLIO MANAGER

Alan F. Morel is the portfolio manager of the Fund and the designer and
originator of the proprietary programs that generate The Hilliard Lyons Bank
Stock Index, upon which the Fund's investment model is based. Therefore, the
investment success of the Fund will depend significantly on the efforts of Mr.
Morel. Accordingly, the death, incapacity, removal or resignation of Mr. Morel
could adversely affect the Fund's performance. Mr. Morel is a Vice President of
Hilliard Lyons and has been employed by Hilliard Lyons as an analyst since 1976.
Neither Hilliard Lyons nor the Advisor currently has a written employment
agreement with Mr. Morel.

SHAREHOLDER INFORMATION

NET ASSET VALUE

The net asset value is determined as of the close of regular trading on the
floor of the NYSE (4:00 p.m., Eastern time) on each day the NYSE is open for
trading (referred to herein as a "business day"). Net asset value per share is
determined by dividing the difference between the values of the Fund's assets
and liabilities by the number of the Fund's shares outstanding. Investments that
are traded on an exchange or in the over-the-counter market are valued based on
the last sale price as of the close of regular trading on the NYSE. Short-term
obligations with maturities of 60 days or less are valued at amortized cost.
Other securities for which market quotations are not readily available are
valued at their fair value, as determined in good faith by the Advisor under
procedures established by, and under the supervision and responsibility of, the
Fund's Board of Trustees.

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HOW TO BUY SHARES

GENERAL. Hilliard Lyons, located at Hilliard Lyons Center, Louisville Kentucky
40202, is the distributor for the shares of the Fund. You may purchase or redeem
Fund shares through a Hilliard Lyons investment broker. In addition, Hilliard
Lyons may enter into selling agreements with authorized dealers and financial
intermediaries (collectively referred to as "Authorized Dealers"), allowing Fund
shares to be purchased and redeemed through such Authorized Dealers. The Fund
may modify or waive its purchase and redemption procedures or requirements to
facilitate any future selling agreements.

INITIAL PURCHASES. Fund shares may be purchased through a Hilliard Lyons
investment broker or Authorized Dealer who will open an account, explain the
shareholder services available from the Fund and answer any questions. The
minimum initial investment for Fund shares is $250, and the minimum additional
investment is $100. These minimums may be waived at the discretion of the Fund,
and the Fund reserves the right to change its investment minimums without
notice.

ADDITIONAL PURCHASE POLICIES. After you make your initial investment and your
account is established, you may make additional purchases by telephoning your
Hilliard Lyons investment broker or Authorized Dealer and placing an order.
Purchase orders received by your Hilliard Lyons investment broker prior to
"closing time" on any business day are executed at the public offering price
determined that day. The public offering price is the Fund's net asset value per
share plus the applicable front-end sales charge. Purchase orders received by an
Authorized Dealer on any business day are executed at the public offering price
determined that day, provided the order is received by the Authorized Dealer and
transmitted to the Fund's transfer agent prior to "closing time" on that day.
Authorized Dealers are responsible for transmitting purchase orders to the
Fund's transfer agent promptly. The failure of an Authorized Dealer to promptly
transmit an order may cause the purchase price to be more or less than the
amount you otherwise would have paid. Purchase orders received after "closing
time" or on a day that is not a business day are priced as of "closing time" on
the next succeeding business day. "Closing time" is the close of trading on the
NYSE (4:00 p.m., Eastern time) or such other day or time as the Fund's Trustees
may establish in the future. The Fund reserves the right to reject any purchase
order and to suspend the offering of Fund shares for a period of time.

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You may pay for purchases with checks drawn on domestic offices of U.S. banks or
with funds in brokerage accounts maintained with Hilliard Lyons or Authorized
Dealers. If your check is subsequently dishonored, your Hilliard Lyons
investment broker or Authorized Dealer may have the right to redeem your shares
and to retain any dividends paid or distributions made with respect to such
shares. When your payment is received by a brokerage firm before a settlement
date, unless otherwise directed by you, the monies may be held as a free credit
balance in your brokerage account and the brokerage firm may benefit from the
temporary use of these monies.

AUTOMATIC INVESTMENT PLAN. The automatic investment plan enables you to make
regular monthly or quarterly investments in shares through automatic charges to
your bank account. With your authorization and bank approval, your bank account
is automatically charged by your Hilliard Lyons investment broker or Authorized
Dealer for the amount specified ($100 minimum), which is automatically invested
in shares at the public offering price on or about the date you specify. Bank
accounts are charged on the day or a few days before investments are credited,
depending on the bank's capabilities, and you will receive a confirmation
statement showing the current transaction. To participate in the automatic
investment plan, contact your Hilliard Lyons investment broker or Authorized
Dealer for an authorization agreement, which contains details about the
automatic investment plan. If your bank account cannot be charged due to
insufficient funds, a stop-payment order or the closing of your account, the
automatic investment plan may be terminated and the related investment reversed.
You may change the amount of the investment or discontinue the automatic
investment plan at any time by notifying your Hilliard Lyons investment broker
or Authorized Dealer.

RETIREMENT PLANS. Shares of the Fund may be purchased in connection with various
retirement plans, including Individual Retirement Accounts ("IRAs"), section
403(b) plans and retirement plans for self-employed individuals, partnerships
and corporations and their employees. Detailed information concerning retirement
plans is available from your Hilliard Lyons investment broker or Authorized
Dealer. There may be fees in connection with establishing and maintaining
retirement plans. You should consult your tax advisor for specific advice
regarding their tax status and the possible benefits of establishing retirement
plans.

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HOW TO SELL (REDEEM) SHARES

REDEMPTIONS GENERALLY. You may submit redemption requests to your Hilliard Lyons
investment broker or Authorized Dealer in person or by telephone, mail or wire.
Redemption requests directed to a Hilliard Lyons investment broker are effected
at the net asset value next computed after receipt of the request. Redemption
requests directed to an Authorized Dealer are effected at the net asset value
next computed after receipt of the request by the Authorized Dealer and
transmission of the request to the Fund's transfer agent. Redemption proceeds
are credited to your brokerage account for disbursement according to your
instructions and will normally be credited to your brokerage account within
three business days. Authorized Dealers are responsible for transmitting
redemption requests to the Fund's transfer agent promptly. The failure of an
Authorized Dealer to promptly transmit a redemption request may cause the
redemption proceeds to be more or less than the amount you otherwise would have
received.

TELEPHONE REDEMPTIONS. During periods of dramatic economic or market changes,
you may experience difficulty in implementing a telephone redemption with your
Hilliard Lyons investment broker or Authorized Dealer because of increased
telephone volume. Your Hilliard Lyons investment broker or Authorized Dealer may
refuse a telephone redemption request if it believes it is advisable to do so.
You will bear the risk of loss from fraudulent or unauthorized instructions
received over the telephone provided your Hilliard Lyons investment broker or
Authorized Dealer reasonably believes that the instructions are genuine.

ADDITIONAL INFORMATION ON REDEMPTIONS. If Fund shares were recently purchased,
the redemption proceeds will not be sent until the check (including a certified
or cashier's check) received for the shares purchased has cleared. Payment for
shares requested to be redeemed may be delayed when the purchase check has not
cleared, but the delay will be no longer than required to verify that the
purchase check has cleared. The Fund may suspend the right of redemption or
postpone the date of payment during any period when (i) trading on the NYSE is
restricted or the NYSE is closed, other than customary weekend or holiday
closings, (ii) the Securities and Exchange Commission (the "SEC") has by order
permitted such suspension or (iii) an emergency, as defined by the rules of the
SEC, exists, making disposal of portfolio investments or determination of the
value of the net assets of the Fund not reasonably practicable.

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The Fund reserves the right to honor any request for redemption or repurchase by
making payment in whole or in part in readily marketable securities ("redemption
in kind"). These securities will be chosen by the Fund and valued as they are
for purposes of computing the Fund's net asset value. A shareholder may incur
transaction expenses in converting these securities to cash.

Questions about redemption requirements should be referred to your Hilliard
Lyons investment broker or Authorized Dealer. Because the Fund incurs certain
fixed costs in maintaining shareholder accounts, the Fund reserves the right to
redeem shareholder accounts of less than $250 in net asset value. Such
shareholder accounts will be redeemed only if the balance has decreased below
that level as a result of shareholder redemptions and not because of
fluctuations in the net asset value of the Fund's shares. If the Fund elects to
redeem such shares, your Hilliard Lyons investment broker or Authorized Dealer
will notify you of the Fund's intention to do so and provide you with an
opportunity to increase the amount so invested to $250 or more within 30 days of
the notice.

SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal Plan")
is available for shareholders of the Fund whose shares have a minimum net asset
value of $10,000. The Withdrawal Plan allows for monthly or quarterly payments
to the participating shareholder in amounts not less than $100. Dividends and
capital gain distributions on shares held under the Withdrawal Plan are
reinvested in additional full and fractional shares of the Fund at net asset
value. The Withdrawal Plan may be terminated at any time. You should not
consider withdrawal payments to be dividends, yield or income. If periodic
withdrawals continuously exceed reinvested dividend and capital gain
distributions, your original investment will be correspondingly reduced and
ultimately exhausted. Furthermore, each withdrawal constitutes a redemption of
shares, and any gain or loss you realize must be reported for federal and state
income tax purposes. As it generally would not be advantageous to you to make
additional investments in the Fund while participating in the Withdrawal Plan,
purchases of shares in amounts less than $5,000 by participants in the
Withdrawal Plan will not ordinarily be permitted. You should consult your tax
advisor regarding the tax consequences of participating in the Withdrawal Plan.

DIVIDENDS, DISTRIBUTIONS AND TAXES

The following discussion of taxation is not intended to be a full discussion of
income tax laws and their effect on shareholders. You should consult your tax
advisor as to the tax consequences of ownership of the Fund's shares.

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SENBANC FUND
--------------------------------------------------------------------------------

REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. Dividends and distributions paid by
the Fund are automatically reinvested in additional shares of the Fund unless
you indicate otherwise to your Hilliard Lyons investment broker or Authorized
Dealer.

PAYMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS. The Fund pays its shareholders
dividends from its net investment income and distributes from any net capital
gains that it has realized. The Fund generally distributes dividends from net
investment income and any net realized capital gains at least annually. The Fund
intends to distribute at least 98% of any net investment income for the calendar
year plus 98% of net capital gains realized from the sale of securities. The
Fund intends to distribute any undistributed net investment income and net
realized capital gains in the following year.

TAX STATUS OF DIVIDENDS AND OTHER DISTRIBUTIONS. Except for those shareholders
exempt from federal income taxes, shareholders will be subject to federal income
tax at ordinary income tax rates (up to a maximum marginal rate of 39.6% for
individuals) on any dividends received that are derived from net investment
income and net realized short-term capital gains. Distributions of net realized
long-term capital gains, when designated as such by the Fund, are taxable to
shareholders as long-term capital gains, regardless of how long shares of the
Fund are held. Long-term capital gain distributions made to individual
shareholders are currently taxed at the maximum rate of 20%. Distributions are
taxable in the year they are paid, whether they are taken in cash or reinvested
in additional shares, except that certain distributions declared in the last
three months of the year and paid in January are taxable as if paid on December
31. Dividends and distributions may also be subject to state and local taxes.

DISTRIBUTIONS TO RETIREMENT PLANS. Fund distributions received by your qualified
retirement plan, such as a 401(k) Plan or IRA, are generally tax deferred. This
means that you are not required to report Fund distributions on your income tax
return, but rather, when your retirement plan makes payments to you. Special
rules may apply to payments from your retirement plans.

HOW DISTRIBUTIONS AFFECT THE FUND'S NET ASSET VALUE. Distributions are paid to
shareholders as of the record date of a distribution of the Fund, regardless of
how long shares have been held. Dividends and capital gains awaiting
distribution are included in the Fund's daily net asset value. The share price
of the Fund drops by the amount of the distribution, net of any subsequent
market fluctuations. You should be aware that distributions from a mutual fund
held in a taxable account are not value-enhancing and may create income tax
obligations.

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SENBANC FUND
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BUYING A DISTRIBUTION. A distribution paid shortly after you purchase shares in
the Fund will reduce the net asset value of the shares by the amount of the
distribution, which nevertheless will be taxable to you even though it
represents a return of a portion of your investment.

BACKUP WITHHOLDING. Federal income taxes may be required to be withheld ("backup
withholding") at a 31% rate from taxable dividends, capital gain distributions
and redemption proceeds paid to certain shareholders. Backup withholding may be
required if:

- You fail to furnish your properly certified social security or other
tax identification number;

- You fail to certify that your tax identification number is correct or
that you are not subject to backup withholding due to the
under-reporting of certain income; or

- The Internal Revenue Service determines that your account is subject
to backup withholding.

These certifications should be completed and returned when you open an account
with your Hilliard Lyons investment broker or Authorized Dealer. All amounts
withheld must be promptly paid to the IRS. You may claim the amount withheld as
a credit on your federal income tax return.

DISTRIBUTION ARRANGEMENTS

DISTRIBUTION AGREEMENT

JJB Hilliard, W.L. Lyons, Inc. ("Hilliard Lyons") acts as the principal
distributor of the Fund's shares pursuant to a distribution agreement (the
"Distribution Agreement") with the Fund. Hilliard Lyons receives the sales
charges and Rule 12b-1 fees payable with respect to Fund shares. Hilliard
Lyons may enter into selling agreements with Authorized Dealers to sell
shares of the Fund, and any such Authorized Dealers may also receive the
sales charges and Rule 12b-1 fees otherwise payable to Hilliard Lyons with
respect to Fund shares which Hilliard Lyons sells through such Authorized
Dealers.

SALES CHARGES

GENERAL. Purchases of the Fund's shares are subject to a front-end sales charge
of two and one-quarter percent (2.25%) of the total purchase price; however,
sales charges may be reduced for large purchases as indicated below. Sales

15
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SENBANC FUND
--------------------------------------------------------------------------------

charges are not imposed on shares that are purchased with reinvested dividends
or other distributions. The table below indicates the front-end sales charge as
a percentage of both the offering price and the net amount invested:

<TABLE>
<CAPTION>
SALES CHARGE AS A SALES CHARGE AS A
% OF OFFERING % OF NET AMOUNT
AMOUNT OF PURCHASE PRICE INVESTED
------------------ ----------------- -----------------
<S> <C> <C>
Less than $500,000 2.25% 2.30%
At least $500,000 but less than
$1,000,000 1.75% 1.78%
$1,000,000 or greater 0.00% 0.00%
</TABLE>

No sales charge is payable at the time of purchase on investments of $1 million
or more; however, a 1% contingent deferred sales charge is imposed in the event
of redemption within 12 months following any such purchase. See "Contingent
Deferred Sales Charge on Certain Redemptions" below. Hilliard Lyons may pay a
commission at the rate of 1% to Authorized Dealers who initiate and are
responsible for purchases of $1 million or more.

COMBINED PURCHASE PRIVILEGE. Certain purchases of Fund shares made at the same
time by you, your spouse and your children under age 25 may be combined for
purposes of determining the "Amount of Purchase." The combined purchase
privilege may also apply to certain employee benefit plans and trust estates.
The combined purchase privilege is further discussed in the SAI. You may also
further discuss the combined purchase privilege with your Hilliard Lyons
investment broker or Authorized Dealer.

CUMULATIVE QUANTITY DISCOUNT. You may combine the value of shares held in the
Fund, along with the dollar amount of shares being purchased, to qualify for a
cumulative quantity discount. The value of shares held is the higher of their
cost or current net asset value. For example, if you hold shares having a value
of $475,000 and purchase $25,000 of additional shares, the sales charge
applicable to the additional investment would be 1.75%, the rate applicable to a
single purchase of $500,000. In order to receive the cumulative quantity
discount, the value of shares held must be brought to the attention of your
Hilliard Lyons investment broker or Authorized Dealer.

LETTER OF INTENT. If you anticipate purchasing at least $500,000 of shares
within a 13-month period, the shares may be purchased at a reduced sales charge
by completing and returning a Letter of Intent (the "Letter"), which can be
provided to you by your Hilliard Lyons investment broker or Authorized Dealer.
The reduced sales charge may also be obtained on shares purchased within the 90
days prior to the date of receipt of the Letter. Shares purchased under the
Letter are eligible for the same reduced sales charge that would have been
available had all the shares been purchased at the same time. There is no

16
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SENBANC FUND
--------------------------------------------------------------------------------

obligation to purchase the full amount of shares indicated in the Letter. Should
you invest more or less than indicated in the Letter during the 13-month period,
the sales charge will be recalculated based on the actual amount purchased. A
portion of the amount of the intended purchase normally will be held in escrow
in the form of Fund shares pending completion of the intended purchase.

SALES CHARGE WAIVERS. The Fund sells shares at net asset value without
imposition of sales charge to the following persons: (i) current and retired (as
determined by Hilliard Lyons) employees of Hilliard Lyons and its affiliates,
their spouses and children under the age of 25 and employee benefit plans for
such employees, provided orders for such purchases are placed by the employee;
(ii) any other investment company in connection with the combination of such
company with the Fund by merger, acquisition of assets or otherwise; (iii)
employees and Trustees of the Fund and registered representatives of Authorized
Dealers; (iv) existing advisory clients of the Advisor or Hilliard Lyons Trust
Company on purchases effected by transferring all or a portion of their
investment management or trust account to the Fund, provided that such account
had been maintained for a period of six months prior to the date of purchase of
Fund shares; (v) investors purchasing shares through a Hilliard Lyons investment
broker to the extent that the purchase of such shares is funded by the proceeds
from the sale of shares of any mutual fund (for which the investor paid a
front-end sales charge) other than a money market fund (a) purchased within
three years of the date of the purchase of Fund shares and held for at least six
months or (b) purchased at any time and for which Hilliard Lyons was not a
selling dealer, provided that in either case the order for Fund shares must be
received within 30 days after the sale of the other mutual fund; (vi) trust
companies, bank trust departments and registered investment advisors purchasing
for accounts over which they exercise investment authority and which are held in
a fiduciary, agency, advisory, custodial or similar capacity, provided that the
amount collectively invested or to be invested in the Fund by such entity or
advisor during the subsequent 13-month period totals at least $100,000; (vii)
employer-sponsored retirement plans with assets of at least $100,000 or 25 or
more eligible participants; and (viii) accounts established under a fee-based
program sponsored and maintained by a registered broker-dealer or other
financial intermediary and approved by Hilliard Lyons.

In order to take advantage of a sales charge waiver, a purchaser must certify to
a Hilliard Lyons investment broker or Authorized Dealer eligibility for a waiver
and must notify a Hilliard Lyons investment broker or Authorized Dealer whenever
eligibility for a waiver ceases to exist. A Hilliard Lyons investment broker or
Authorized Dealer reserves the right to request additional information from a
purchaser in order to verify that such purchaser is so eligible.

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SENBANC FUND
--------------------------------------------------------------------------------

DISTRIBUTION PLAN

The Board of Trustees has adopted a distribution plan (the "Distribution Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940 under which the
Fund reimburses Hilliard Lyons at an annualized rate of up to 0.60% of the
Fund's average daily net assets for distribution expenses actually incurred.
Rule 12b-1 of the 1940 Act regulates the manner in which a mutual fund may
assume the costs of distributing and promoting the sale of its shares. Pursuant
to the Distribution Plan, Hilliard Lyons may be reimbursed for expenses incurred
in connection with any activity primarily intended to result in the sale of the
Fund's shares. If the amount reimbursed is insufficient to pay the expenses of
distribution, Hilliard Lyons bears the additional expenses. Any amount of excess
distribution expenses incurred by Hilliard Lyons in any quarter for which
Hilliard Lyons is not reimbursed can be carried forward from one quarter to the
next but no expenses may be carried over from year to year. Because Rule 12b-1
fees are continually paid out of the Fund's assets, such fees will increase the
cost of your investment and may potentially cost you more than paying other
types of sales charges.

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SENBANC FUND
--------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the Fund's
financial performance for the period of the Fund's operations. Certain
information reflects financial results for a single Fund share. The total return
in the table represent the rate that an investor would have earned or lost on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Ernst & Young LLP, whose
report, along with the Fund's financial statements, is included in the Fund's
Annual Report, which is available upon request.

<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 8, 1999*
THROUGH
JUNE 30, 2000
--------------
<S> <C>
Net asset value:
Beginning of period ........................................................ $10.00
------
Net investment income ........................................................ 0.16
Net realized and unrealized loss on investments .............................. (1.38)
------
Total from investment operations ............................................. (1.22)
------
Less dividends from:
Net investment income ...................................................... (0.16)
------
Total distributions .......................................................... (0.16)
------
Net asset value:
End of period .............................................................. $8.62
======
Total Investment Return (excludes sales charge) .............................. (12.20%)**

SIGNIFICANT RATIOS AND SUPPLEMENTAL DATA
Ratio of operating expenses to average net assets, including waivers ......... 1.75%***
Ratio of operating expenses to average net assets, excluding waivers ......... 2.75%***
Ratio of net investment income to average net assets, including waivers ...... 1.98%***
Ratio of net investment income to average net assets, excluding waivers ...... 0.98%***
Portfolio turnover rate ...................................................... 12.93%**
Net assets, end of period (000s omitted) ..................................... $16,773
</TABLE>

* Commencement of Operations
** Not Annualized
*** Annualized

19
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION DATED OCTOBER 26, 2000

HILLIARD LYONS RESEARCH TRUST
501 SOUTH 4TH STREET
LOUISVILLE, KENTUCKY 40202
1-800-444-1854

SENBANC FUND

This Statement of Additional Information ("SAI") is not a prospectus, but
provides additional information that should be read in conjunction with the
Fund's prospectus dated October 26, 2000, and any supplements thereto
("Prospectus"). The Prospectus and Annual Report may be obtained at no charge by
telephoning 1-800-444-1854. The audited financial statements for the Trust's
fiscal year ended June 30, 2000 are incorporated into this SAI by reference from
the Trust's Annual Report.

<TABLE>
TABLE OF CONTENTS
<S> <C>
General Information .........................................................1
Investment Strategies and Risks .............................................1
Fund Policies ...............................................................5
Purchases and Redemptions ...................................................6
Net Asset Value .............................................................7
Management ..................................................................8
Principal Shareholders ......................................................9
Investment Advisory Services ................................................9
Distributor ................................................................10
Administrator and Fund Accountant ..........................................12
Custodian ..................................................................12
Transfer Agent .............................................................12
Counsel ....................................................................12
Portfolio Turnover .........................................................12
Portfolio Transactions .....................................................13
Income Tax Considerations ..................................................14
Investment Performance .....................................................15
Other Information ..........................................................16
Independent Auditors and Financial Statements ..............................16
Appendix A -- Description of Securities Ratings ...........................A-1
</TABLE>

<PAGE>

GENERAL INFORMATION

Senbanc Fund (the "Fund") is a series of the Hilliard Lyons Research Trust (the
"Trust"), an open-end management investment company. Hilliard Lyons Research
Advisors (the "Advisor") provides management and investment advisory services to
the Fund. The Trust is a Delaware business trust organized under a declaration
of trust ("Declaration of Trust") dated January 12, 1999. The Declaration of
Trust may be amended by a vote of either the Fund's shareholders or its Board of
Trustees (the "Board"). The Trust may issue an unlimited number of shares in one
or more series or classes as the Board may authorize. Each share of a series of
the Trust is entitled to participate pro rata in any dividends and other
distributions declared by the Board on shares of that series, and all shares of
a series of the Trust have equal rights in the event of liquidation of that
series. Currently, the Fund is the only series authorized and outstanding. The
Fund commenced operations on July 8, 1999.

As a business trust, the Trust is not required to hold annual shareholder
meetings; however, such meetings may be called by a majority of the Trustees and
shall be called by any Trustee upon written request of shareholders holding, in
the aggregate, not less than 10% of the outstanding shares of the Trust. The
request must specify the purpose or purposes for which the shareholder meeting
is to be called. Shareholders have the power to vote only with respect to the
election of Trustees and for certain other matters as designated in the
Declaration of Trust. The Fund and all future series of the Trust, if any, will
vote as a single class on matters affecting all series of the Trust (e.g.,
election of Trustees) and separately on matters affecting each series of the
Trust (e.g., approval of the advisory agreement) or when required by the
Investment Company Act of 1940 (the "1940 Act") or other applicable law. Voting
rights are not cumulative, so that shareholders of more than fifty percent (50%)
of the shares voting in any election of Trustees can, if they so choose, elect
all of the Trustees of the Trust.

INVESTMENT STRATEGIES AND RISKS

The following information supplements the discussion of the Fund's investment
objective, strategies and risks discussed in the Prospectus.

INVESTMENT OBJECTIVE

The Fund seeks long-term capital appreciation. There is no assurance that the
Fund will achieve its investment objective. The investment objective is
fundamental and may only be changed with shareholder approval.

INVESTMENT PHILOSOPHY

The Advisor uses a VALUE investment style for the Fund. The Advisor seeks to
identify the most undervalued Banks (as defined below under the section titled
"Principal Types of Investments and Related Risks") by using an investment model
that considers financial ratios and other quantitative information. Generally,
such Banks have at least six years of current or predecessor operating history
and well-managed organizations and operations. The Fund's portfolio is weighted
most heavily to the equity securities of Banks that the investment model
indicates are most undervalued for the longest period of time.

PRINCIPAL TYPES OF INVESTMENTS AND RELATED RISKS

Under normal market conditions, the Fund will invest at least 65% of its total
assets in publicly traded equity securities of banks and financial institutions
conducting at least fifty percent (50%) of their business through banking
subsidiaries (which are generally referred to herein as "Banks"). Banks may
include commercial banks, industrial banks, consumer banks, savings and loans,
and bank holding companies that receive at least fifty percent (50%) of their
income through their bank subsidiaries, as well as regional and money center
banks. A regional bank is one that provides full-service banking (i.e., savings
accounts, checking accounts, commercial lending and real estate lending), has
assets that are primarily of domestic origin, and typically has a principal
office outside of a large metropolitan area (e.g., New York City or Chicago). A
money center bank is one with a strong international banking business and a
significant percentage of international assets, and is typically located in a
large metropolitan area. To the extent that the Fund invests in the equity
securities of bank holding companies, a portion of the Fund's assets may be
indirectly invested in nonbanking entities, since bank holding companies may
derive a portion of their income from such entities.

1
<PAGE>

Generally, the equity securities in which the Fund invests are common stocks;
however, the Fund may also at times acquire (through its common stock holdings)
preferred stock, warrants, rights or other securities that are convertible into
common stock. The Fund generally invests in equity securities of Banks which
have at least $500 million in consolidated total assets; however, the Fund's
investments are not influenced by a Bank's market capitalization (large, medium
or small).

Your investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (the "FDIC") or any
other government entity. You could lose money by investing in the Fund. The Fund
is not a complete investment program. We recommend that you consider an
investment in the Fund as only one portion of your overall investment portfolio.

MARKET RISK. Investments in equity securities are subject to inherent
market risks and fluctuations in value due to earnings, economic conditions and
other factors beyond the Advisor's control. Therefore, the return and net asset
value of the Fund will fluctuate, and you could lose money by investing in the
Fund.

INDUSTRY CONCENTRATION RISK. Since the Fund's investments will be
concentrated in the banking industry, the Fund will be subject to risks in
addition to those that apply to the general equity market. Events may occur that
significantly affect the entire banking industry. Thus, the Fund's share value
may at times increase or decrease at a faster rate than the share value of a
mutual fund with investments in many industries. In addition, despite some
measure of deregulation, Banks are still subject to extensive governmental
regulation which limits their activities. The availability and cost of funds to
Banks are crucial to their profitability. Consequently, volatile interest rates
and deteriorating economic conditions can adversely affect their financial
performance and condition.

Banks are subject to extensive governmental regulations which may limit
both the amounts and types of loans and other financial commitments that may be
made and the interest rates and fees that may be charged. The profitability of
Banks is largely dependent upon the availability and cost of capital funds, and
may show significant fluctuation as a result of volatile interest rate levels.
In addition, healthy economic conditions are important to the operations of
Banks, and exposure to credit losses resulting from possible financial
difficulties of borrowers can have an adverse effect on the value of the Fund.

NONDIVERSIFICATION RISK. The Fund is NONDIVERSIFIED, meaning that it is not
limited in the proportion of its assets that it may invest in the obligations of
a single issuer. However, the Fund will comply with diversification requirements
imposed by the Internal Revenue Code for qualification as a regulated investment
company. As a nondiversified fund, the Fund may invest a greater proportion of
its assets in the securities of a small number of issuers, and may be subject to
greater risk and substantial losses as a result of changes in the financial
condition or the market's assessment of the issuers.

OTHER TYPES OF INVESTMENTS AND RELATED RISKS

Although they are not principal types of investments and strategies of the Fund,
the Fund may also invest to a limited extent in the following types of
investments and is subject to the risks of such investments.

DEBT SECURITIES AND MONEY MARKET INSTRUMENTS. For cash management purposes
or when the Advisor believes that market conditions warrant it (i.e., a
temporary defensive position), the Fund may invest a portion of its total assets
in obligations of the U.S. government, its agencies and instrumentalities and
debt securities of companies in any industry, including corporate notes, bonds
and debentures. Investments in debt securities are subject to interest rate risk
and credit risk. The market value of debt securities in the Fund's portfolio
will decrease as interest rates rise and increase as interest rates fall. In
addition, to the extent the Fund invests in debt securities, the Fund's share
price will be subject to losses from possible financial difficulties of
borrowers whose debt securities are held

2
<PAGE>

by the Fund. Debt securities in which the Fund may invest will generally be
rated at least Aa by Moody's Investors Service ("Moody's"), AA by Standard &
Poor's Corporation ("Standard & Poor's" or "S&P") or the equivalent by other
nationally recognized ratings agencies (see Appendix A -- "Description of
Securities Ratings"). In general, the ratings of Moody's and S&P represent the
opinions of these agencies as to the quality of the securities which they rate.
It should be emphasized, however, that such ratings are relative and subjective
and are not absolute standards of quality. Subsequent to its purchase by the
Fund, an issue of securities may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Fund. Neither of these events
will require the sale of the securities by the Fund, but the Advisor will
consider the event in its determination of whether the Fund should continue to
hold the securities. To the extent that the Fund holds cash or invests in debt
securities and money market instruments, the Fund may not achieve its investment
objective.

CONVERTIBLE SECURITIES. The Fund may generally not purchase but may acquire
(through its holdings in common stocks) convertible securities. These may
include corporate notes or preferred stock, but are ordinarily long-term debt
obligations convertible at a stated exchange rate into common stock of the
issuer. All convertible securities entitle the holder to exchange the securities
for a specified number of shares of common stock, usually of the same company,
at specified prices within a certain period of time. They also entitle the
holder to receive interest or dividends until the holder elects to exercise the
conversion privilege.

As with all debt securities, the market value of convertible securities tends to
decrease as interest rates rise and, conversely, to increase as interests rates
fall. Convertible securities generally offer lower interest or dividend yields
than nonconvertible securities of similar quality. However, when the market
price of the common stock underlying a convertible security approaches or
exceeds the conversion price, the price of the convertible security tends to
reflect the value of the underlying common stock. As the market price of the
underlying common stock declines, the convertible security tends to trade
increasingly on a yield basis, and thus may not depreciate to the same extent as
the underlying common stock.

The provisions of any convertible security determine its ranking in a company's
capital structure. In the case of subordinated convertible debentures, the
holders' claims on assets and earnings are subordinated to the claims of other
creditors, and are senior to the claims of preferred and common shareholders. In
the case of convertible preferred stock, the holders' claims on assets and
earnings are subordinated to the claims of all creditors and are senior to the
claims of common shareholders.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may generally not
purchase but may acquire (through its holdings in common stocks) securities on a
when-issued or delayed delivery basis. Delivery of and payment for these
securities may occur a month or more after the date of the transaction. The
purchase price and the interest rate payable, if any, are fixed on the purchase
commitment date or at the time the settlement date is fixed. The securities so
purchased are subject to market fluctuation, and no income accrues to the Fund
until settlement takes place. At the time the Fund makes the commitment to
purchase securities on a when-issued or delayed delivery basis, it must record
the transaction and reflect the value of such securities each day in determining
its net asset value. At the time it is received, a when-issued security may be
valued at less than its purchase price. The Fund must make commitments for such
when-issued transactions only when it intends to acquire the securities. To
facilitate such purchases, the Fund must maintain with the custodian a
segregated account of liquid assets in the name of the Fund in an amount at
least equal to such commitments. On delivery dates for such transactions, the
Fund must meet its obligations from maturities or sales of the securities held
in the segregated account or from cash on hand.

ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in
illiquid securities. Securities may be illiquid because they are unlisted or
subject to legal restrictions on resale, or due to other factors which, in the
Advisor's opinion, raise questions concerning the Fund's ability to liquidate
the securities in a timely and orderly manner without substantial loss. While
such purchases may be made at an advantageous price and offer attractive
opportunities for investment not otherwise available on the open market, the
Fund may not have the same freedom to dispose of such securities as in the case
of the purchase of securities in the open market or in a public distribution.
These securities may be resold in a liquid dealer or institutional trading
market, but the Fund may experience delays in its attempts to dispose of such
securities. If adverse market conditions develop, the Fund may not be able to
obtain as favorable a price as that prevailing at the time the decision is made
to sell. In any case, where a thin

3
<PAGE>

market exists for a particular security, public knowledge of a proposed sale of
a large block may depress the market price of such securities.

REPURCHASE AGREEMENTS. From time to time, the Fund may enter into
repurchase agreements with qualified banks or securities broker-dealers which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. Under the terms of a typical repurchase agreement,
the Fund acquires an underlying debt obligation for a relatively short period
(usually not more than seven days), subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities is monitored on an ongoing basis by the Advisor to ensure that the
value is at least equal at all times to the total amount of the repurchase
obligation, including interest. The Fund bears a risk of loss in the event that
the other party to a repurchase agreement defaults on its obligations and the
Fund is delayed or prevented from exercising its rights to dispose of the
underlying securities, including the risk of a possible decline in the value of
the underlying securities during the period in which the Fund seeks to assert
its rights to them, the risk of incurring expenses associated with asserting
those rights and the risk of losing all or a part of the income from the
agreement. In addition, if bankruptcy proceedings are commenced with respect to
the seller of the security, realization upon the collateral by the Fund may be
delayed or limited.

The Fund only enters into repurchase agreements involving U.S. government
obligations, or obligations of its agencies or instrumentalities, usually for a
period of seven days or less. The term of each of the Fund's repurchase
agreements is always less than one year and the Fund does not enter into
repurchase agreements of a duration of more than seven days if, taken together
with all other illiquid securities in the Fund's portfolio, more than 15% of its
net assets would be so invested.

WARRANTS AND RIGHTS. The Fund may generally not purchase but may acquire
(through its holdings in common stocks) warrants and rights, which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price. Generally, warrants and rights
do not carry with them the right to receive dividends or exercise voting rights
with respect to the underlying securities, and they do not represent any rights
in the assets of the issuer. As a result, an investment in warrants and rights
may be considered to entail greater investment risk than certain other types of
investments. In addition, the value of warrants and rights does not necessarily
change with the value of the underlying securities, and they cease to have value
if they are not exercised on or prior to their expiration date. Investment in
warrants and rights increases the potential profit or loss to be realized from
the investment of a given amount of the Fund's assets as compared with investing
the same amount in the underlying stock.

LENDING. The Fund may make short-term loans of its portfolio securities to
banks, brokers and dealers. Lending portfolio securities exposes the Fund to the
risk that the borrower may fail to return the loaned securities or may not be
able to provide additional collateral or that the Fund may experience delays in
recovery of the loaned securities or loss of rights in the collateral if the
borrower fails financially. To minimize these risks, the borrower must agree to
maintain collateral marked to market daily, in the form of cash or U.S.
government obligations, with the Fund's custodian in an amount at least equal to
the market value of the loaned securities.

BORROWING. The Fund may have to deal with unpredictable cashflows as
shareholders purchase and redeem shares. Under adverse conditions, the Fund
might have to sell portfolio securities to raise cash to pay for redemptions at
a time when investment considerations would not favor such sales. In addition,
frequent purchases and sales of portfolio securities tend to decrease Fund
performance by increasing transaction expenses.

The Fund may deal with unpredictable cashflows by borrowing money. Through such
borrowings the Fund may avoid selling portfolio securities to raise cash to pay
for redemptions at a time when investment considerations would not favor such
sales. In addition, the Fund's performance may be improved due to a decrease in
the number of portfolio transactions. After borrowing money, if subsequent
shareholder purchases do not provide sufficient cash to repay the borrowed
monies, the Fund will liquidate portfolio securities in an orderly manner to
repay the borrowed money.

4
<PAGE>

To the extent that the Fund borrowed money prior to selling securities, the Fund
would be leveraged such that the Fund's net assets may appreciate or depreciate
in value more than an unleveraged portfolio of similar securities. Since
substantially all of the Fund's assets will fluctuate in value and the interest
obligations on borrowings may be fixed, the net asset value per share of the
Fund will increase more when the Fund's portfolio assets increase in value and
decrease more when the Fund's portfolio assets decrease in value than would
otherwise be the case. Moreover, interest costs on borrowings may fluctuate with
changing market rates of interest and may partially offset or exceed the returns
which the Fund earns on portfolio securities. Under adverse conditions, the Fund
might be forced to sell portfolio securities to meet interest or principal
payments at a time when market conditions would not be conducive to favorable
selling prices for the securities.

FUND POLICIES

FUNDAMENTAL POLICIES

The Fund has adopted the following fundamental policies for the protection of
shareholders that may not be changed without the approval of a majority of the
Fund's outstanding shares, defined in the 1940 Act as the lesser of (i) 67% of
the Fund's shares present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Fund's outstanding shares. Under these policies, THE FUND MAY NOT:

1. Borrow money, except as permitted under the 1940 Act and as interpreted or
modified by a regulatory authority having jurisdiction from time to time;

2. Issue senior securities, except as permitted under the 1940 Act and as
interpreted by a regulatory authority having jurisdiction from time to
time;

3. Purchase physical commodities or contracts relating to physical
commodities;

4. Engage in the business of underwriting securities issued by others, except
to the extent that the Fund may be deemed an underwriter in connection with
the disposition of portfolio securities;

5. Purchase or sell real estate, which term does not include securities of
companies which deal in real estate or mortgages or investments secured by
real estate or interests therein, except that the Fund reserves freedom of
action to hold and sell real estate acquired as a result of the Fund's
ownership of securities;

6. Make loans to other persons except (i) loans of portfolio securities, and
(ii) to the extent that entry into repurchase agreements and the purchase
of debt instruments or interests in indebtedness in accordance with the
Fund's investment objective and policies may be deemed to be loans; or

7. Concentrate its investments in a particular industry, as that term is used
in the 1940 Act, and as interpreted or modified by a regulatory authority
having jurisdiction, from time to time, except that the Fund will
concentrate its investments in the banking industry.

NONFUNDAMENTAL POLICIES

In addition to the fundamental policies mentioned above, the Board voluntarily
adopted the following policies and restrictions which are observed in the
conduct of its affairs. These represent intentions of the Board based upon
current circumstances. They differ from fundamental investment policies in that
they may be changed or amended by action of the Board without prior notice to or
approval of shareholders. Accordingly, the Fund may not:

1. Invest for the purpose of exercising control over management of any
company;

2. Invest its assets in securities of any investment company, except by open
market purchases, including an ordinary broker's commission, or in
connection with a merger, acquisition of assets, consolidation or
reorganization, and any investments in the securities of other investment
companies will be in compliance with the 1940 Act; or

5
<PAGE>

3. Invest more than 15% of the value of its net assets in illiquid securities.

If any percentage limitation is adhered to at the time of an investment, a later
increase or decrease in the percentage resulting from a change in the value of
portfolio securities or in the amount of the Fund's assets will not constitute a
violation of such restriction.

PURCHASES AND REDEMPTIONS

Read the Fund's Prospectus for information regarding the purchase and redemption
of Fund shares, including any applicable sales charges. The following
information supplements information in the Fund's Prospectus.

GENERAL

CONTINGENT DEFERRED SALES CHARGE ON CERTAIN REDEMPTIONS. Purchases of $1
million or more are not subject to an initial sales charge; however, a
contingent deferred sales charge is payable on these investments in the event of
a share redemption within 12 months following the share purchase, at the rate of
1% of the lesser of the value of the shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the total cost of such shares. In
determining whether a contingent deferred sales charge is payable, and the
amount of the charge, it is assumed that shares purchased with reinvested
dividend and capital gain distributions and then other shares held the longest
are the first redeemed. The contingent deferred sales charge is waived in the
event of (a) the death or disability (as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, as amended (the "Code")) of the shareholder, (b)
a lump sum distribution from a benefit plan qualified under the Employee
Retirement Income Security Act of 1974 ("ERISA"), or (c) systematic withdrawals
from ERISA plans if the shareholder is at least 59 1/2 years old. The Fund
applies the waiver for death or disability to shares held at the time of death
or the initial determination of disability of either an individual shareholder
or one who owns the shares of a joint tenant with the right of survivorship or
as a tenant in common.

REDEMPTION IN-KIND. The Fund may redeem securities in-kind. In general,
however, the Fund anticipates redeeming in cash, and to the extent it redeems
in-kind, the Fund anticipates it would first redeem in cash with respect to each
shareholder during any 90-day period to the lesser of (1) $250,000 or (2) 1% of
the net asset value ("NAV") of the Fund at the beginning of such period. The
market value of securities paid in-kind shall be determined as of the close of
trading on the New York Stock Exchange, Inc. ("NYSE") on the business day on
which the redemption is effective. In such case a shareholder might incur
transaction costs if he or she sold the securities received.

REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE

You can reduce or eliminate the front-end sales charge on shares of the Fund as
follows:

QUANTITY DISCOUNTS. Purchases of at least $500,000 can reduce the sales
charges you pay, and purchases of at least $1,000,000 can eliminate the sales
charges you pay.

COMBINED PURCHASE PRIVILEGE. The following purchases may be combined for
purposes of determining the "Amount of Purchase": (a) individual purchases, if
made at the same time, by a single purchaser, the purchaser's spouse and
children under the age of 25 purchasing shares for their own accounts, including
shares purchased by an employee benefit plan(s) exclusively for the benefit of
such individual(s) (such as an IRA, individual-type section 403(b) plan or
single-participant Keogh-type plan) or by a Company, as defined in Section
2(a)(8) of the 1940 Act, solely controlled, as defined in the 1940 Act, by such
individual(s), or (b) individual purchases by trustees or other fiduciaries
purchasing shares (i) for a single trust estate or a single fiduciary account,
including an employee benefit plan, or (ii) concurrently by two or more employee
benefit plans of a single employer or of employers affiliated with each other in
accordance with Section 2(a)(3)(c) of the 1940 Act (excluding in either case an
employee benefit plan described in "(a)" above), provided such trustees or other
fiduciaries purchase shares in a single payment. Purchases made for nominee or
street name accounts may not be combined with purchases made for such other
accounts.

6
<PAGE>

ACCUMULATED PURCHASES. If you make an additional purchase of Fund shares,
you can count previous shares purchased and still invested in the Fund in
calculating the applicable sales charge on the additional purchase.

LETTER OF INTENT. You can sign a Letter of Intent committing to purchase at
least $500,000 (or $1,000,000) in Fund shares within a 13-month period to
combine such purchases in calculating the sales charge. A portion of your Fund
shares will be held in escrow. If you complete your purchase commitments as
stated in the Letter of Intent, your Fund shares held in escrow will be released
to your account. If you do not fulfill the Letter of Intent, the appropriate
amount of Fund shares held in escrow will be redeemed to pay the sales charges
that were not applied to your purchases.

DEALER REALLOWANCES

As shown in the table below, J.J.B. Hilliard, W.L. Lyons, Inc. ("Hilliard Lyons"
or the "Distributor"), the distributor for the shares of the Fund, may provide
dealer reallowances up to the full sales charge for purchases of the Fund's
shares in which a front-end sales charge is applicable.

<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE ALLOWED TO DEALERS AS A
AMOUNT OF PURCHASE PERCENTAGE OF OFFERING PRICE
--------------------------------------------------------------------------------
<S> <C>
Less Than $500,000 2.25%

At least $500,000 but less than $1,000,000 1.75%

$1,000,000 or greater 0.00%
</TABLE>

NET ASSET VALUE

Each security traded on a national securities exchange or traded
over-the-counter and quoted on the Nasdaq System is valued based on the last
sale price as of the close of regular trading on the floor of the NYSE on the
date of valuation. Securities so traded for which there was no sale on the date
of valuation and other securities are valued at the mean of the most recent bid
and asked quotations, except that bonds not traded on a securities exchange or
quoted on the Nasdaq System are valued at prices provided by a recognized
pricing service unless the Advisor believes that any such price does not
represent a fair value. Each money market instrument having a maturity of 60
days or less from the valuation date is valued on an amortized cost basis. Other
securities and assets are valued at fair value, as determined in good faith by
the Advisor under procedures established by, and under the supervision and
responsibility of, the Fund's Board.

The net asset value per share of the Fund's shares is determined on each
"business day," currently any day the NYSE is open for business. The NYSE is
presently scheduled to be closed on New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively.

Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times. The
prices of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Occasionally, events affecting the value
of such securities may occur in the interim, which will not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
value of the Fund's securities occur during such period, then these securities
are valued at their fair value as determined in good faith by the Board.

7
<PAGE>

MANAGEMENT

The Trust's Board manages the business affairs of the Trust. The Board
establishes policies and reviews and approves contracts and their continuance.
The Board also elects the officers and selects the Trustees to serve as
committee members.

The following table sets forth certain information with respect to the Trustees
and executive officers of the Fund:

<TABLE>
<CAPTION>
Position(s) Held Principal Occupation(s)
Name, Address, Date of Birth with Fund During Past Five Years
---------------------------- --------- ----------------------
<S> <C> <C>
James W. Stuckert* Trustee, Chairman of the Board of Director, Chairman and Chief Executive Officer
Hilliard Lyons Trustees of Hilliard Lyons since December 1995.
501 South 4th Street Formerly Executive Vice President and Director
Louisville, Kentucky 40202 of Hilliard Lyons.
D.O.B. 2/15/38

William W. Crawford, Jr.** Trustee Private Investor. Formerly Vice President of
18 Indian Hills Trail Risk Management of NP Energy, Inc.
Louisville, KY 40207
D.O.B. 2/17/54

Robert L. Decker**,*** Trustee Executive Vice President and Chief Financial
Churchill Downs Officer of Churchill Downs since March 1997.
1748 Casselberry Road Formerly Vice President - Finance of the Hilton
Louisville, Kentucky 40205 International Hotel Company, a division of
D.O.B. 10/25/47 Ladbroke Group PLC.

W. Patrick Mulloy** Trustee Formerly President and Chief Executive Officer
2015 Camargo Road of Atria, Inc. Chief Operating Officer of
Louisville, Kentucky 40207 Darwin Networks, Inc. since June 9, 2000.
D.O.B. 5/12/53

James M. Rogers President and Chief Executive Director, Executive Vice President and Chief
Hilliard Lyons Officer Operating Officer of Hilliard Lyons.
501 South 4th Street
Louisville, Kentucky 40202
D.O.B. 8/8/50

Alan F. Morel Vice President Vice President of Hilliard Lyons.
Hilliard Lyons
501 South 4th Street
Louisville, Kentucky 40202
D.O.B. 6/28/48

Joseph C. Curry, Jr. Treasurer, Chief Financial Senior Vice President of Hilliard Lyons; Vice
Hilliard Lyons Officer and Chief Accounting President of Hilliard Lyons Trust Company;
501 South 4th Street Officer Secretary and Treasurer of Hilliard Lyons
Louisville, Kentucky 40202 Growth Fund, Inc; and President of Hilliard
D.O.B. 10/16/44 Lyons Government Fund, Inc.

8
<PAGE>

Position(s) Held Principal Occupation(s)
Name, Address, Date of Birth with Fund During Past Five Years
---------------------------- --------- ----------------------
Jennie L. Oster Secretary Vice President of Hilliard Lyons since August
Hilliard Lyons 1997. Formerly mutual fund marketing
501 South 4th Street representative.
Louisville, Kentucky 40202
D.O.B. 9/27/69
</TABLE>

* Trustee who is an "interested person" of the Fund, the Fund's Advisor and
the Fund's Distributor, as defined in the 1940 Act.

** Trustee who is a member of the Audit Committee and Nominating Committee of
the Board of Trustees.

*** Churchill Downs Incorporated, of which Robert L. Decker is the Executive
Vice President and Chief Financial Officer, has a $250 million credit
facility on which PNC Bank is the lead agent.

Officers and Trustees affiliated with the Advisor and Distributor serve without
any compensation from the Fund. In compensation for their services to the Fund,
Trustees who are not affiliates of the Fund or the Advisor and Distributor are
paid $750 for each meeting of the Board or Committee Meeting of the Board, and
$1,250 as a quarterly retainer, plus reimbursement for out-of-pocket expenses.
The Fund has no retirement or pension plans. The following table sets forth the
compensation paid by the Fund during its fiscal year ended June 30, 2000 to each
of the noninterested Trustees:

<TABLE>
<CAPTION>
Aggregate
Name of Trustee Compensation From the Fund
--------------- --------------------------
<S> <C>
William W. Crawford, Jr. $8,000
Robert L. Decker $8,000
W. Patrick Mulloy $8,000
</TABLE>

As of September 30, 2000, the officers and Trustees, as a group, owned less than
1% of the shares of the Fund.

[JOE CURRY, PLEASE PROVIDE.]

PRINCIPAL SHAREHOLDERS

As of September 30, 2000, no persons owned of record or beneficially 5% or more
of the shares of the Fund.

INVESTMENT ADVISORY SERVICES

The Advisor acts as the Fund's investment advisor and performs certain
administrative services for the Fund. The Advisor is a division of Hilliard
Lyons ("Hilliard").

The Advisor is located at Hilliard Lyons Center, Louisville, Kentucky 40202.
J.J.B. Hilliard, W.L. Lyon Inc. and Hilliard Lyons Trust Company, a Kentucky
chartered trust company, are wholly owned subsidiaries of PNC Bank Corp.
("PNC"). PNC, a multi-bank holding company headquartered in Pittsburgh,
Pennsylvania, is one of the largest financial services organizations in the
United States. PNC's address is One PNC Plaza, 249 Fifth Avenue, Pittsburgh,
Pennsylvania 15222-2707. It is a registered investment advisor and a
registered broker-dealer and member firm of the NYSE, other principal
exchanges and the National Association of Securities Dealers, Inc. As of
September 30, 2000, Hilliard Lyons and its affiliates managed individual,
corporate, fiduciary and institutional accounts with assets aggregating
approximately $3,625,000,000.

The Advisor's obligations pursuant to the Advisory Agreement with the Fund
include, subject to the general supervision of the Board, (a) acting as
investment advisor for the Fund's assets and supervising and managing the

9
<PAGE>

investment and reinvestment of the Fund's assets, (b) supervising continuously
the investment program of the Fund and the composition of its investment
portfolio, (c) arranging for the purchase and sale of securities and other
assets held in the investment portfolio of the Fund (subject to certain
restrictions and covenants), (d) maintaining books and records with respect to
the Fund's securities transactions and rendering to the Fund's Board such
periodic and special reports as the Board may request, and (e) maintaining a
policy and practice of conducting its investment advisory services independently
of the commercial banking operations of its affiliates.

As compensation for its services, the Fund has agreed to pay the Advisor a
monthly fee in arrears at an annual rate equal to 0.60% of the Fund's average
daily net assets. The Advisor has voluntarily agreed to waive the fees payable
to it under the Advisory Agreement until the Fund reaches $20 million in net
assets and, if necessary, reimburse the Trust by the amount by which the Fund's
total annual operating expenses for any year exceed 1.75% of average daily net
assets. For the fiscal year ended June 30, 2000, before waivers and
reimbursements, the Advisor was entitled to receive $92,880; however, the
Advisor waived all fees payable to it under the Advisory Agreement.

The Advisory Agreement does not prohibit the Advisor or any of its affiliates
from providing similar services to other investment companies and other clients
(whether or not their investment objectives and policies are similar to those of
the Fund) or from engaging in other activities. When other clients of the
Advisor desire to purchase or sell a security at the same time such security is
purchased or sold for the Fund, such purchases and sales will, to the extent
feasible, be allocated among the Fund and such clients in a manner believed by
the Advisor to be equitable to such clients and the Fund. However, it cannot be
expected that all of the Advisor's clients, including the Fund, will receive
equal treatment at all times.

The Advisory Agreement was approved by the Board and by a majority of the
Trustees who are not parties to the Advisory Agreement or "interested persons"
(as such term is defined in the 1940 Act) of any party thereto, on May 4, 1999
and became effective on July 1, 1999. It will continue in effect until June 30,
2001 and from year to year thereafter provided such continuance is specifically
approved at least annually (a) by the vote of a majority of the outstanding
shares of the Fund (as defined under "Fund Policies") or by a majority of the
Trustees of the Fund, and (b) by the vote of a majority of the Trustees of the
Fund who are not parties to the Advisory Agreement or "interested persons" (as
such term is defined in the 1940 Act) of any party thereto, cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement will terminate automatically if assigned (as defined in the 1940 Act)
and is terminable at any time without penalty by the Trustees of the Fund or by
vote of a majority of the outstanding shares of the Fund on 60 days' written
notice to the Advisor and by the Advisor on 60 days' written notice to the Fund.

CODE OF ETHICS. The Fund, the Advisor and Distributor have each adopted a code
of ethics under Rule 17j-1 of the Investment Company Act. Board members,
officers of the Fund and employees of the Advisor and Distributor are permitted
to make personal securities transactions, including transactions in securities
that may be purchased or held by the Fund, subject to requirements and
restrictions set forth in the Code of Ethics. The Code of Ethics contains
provisions and requirements designed to identify and address certain conflicts
of interest between personal investment activities and the interests of the
Fund. Among other things, the Code of Ethics prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and quarterly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.

DISTRIBUTOR

J.J.B. Hilliard, W.L. Lyons, Inc. ("Hilliard Lyons"), Hilliard Lyons Center,
Louisville, Kentucky 40202, is the distributor for the shares of the Fund.

Hilliard Lyons' obligations pursuant to the Distribution Agreement with the Fund
include selling Fund shares to the public on a best efforts basis pursuant to
the continuous offering of the Fund's shares. As compensation for its services
and related expenses, the Fund has agreed to reimburse Hilliard Lyons through
the operation of the Fund's Distribution Plan, as described in the following
section ("Rule 12b-1 Fees"). The Distribution Agreement does not prohibit
Hilliard Lyons or any of its affiliates from providing similar services to other
investment companies and

10
<PAGE>

other clients (whether or not their investment objectives and policies are
similar to those of the Fund) or from engaging in other activities.

The Distribution Agreement was approved by the Board and by a majority of the
Trustees who are not parties to the Distribution Agreement or "interested
persons" (as such term is defined in the 1940 Act) of any party thereto, on
August 15, 2000 and became effective on September 1, 2000. It will continue in
effect until July 1, 2001 and from year to year thereafter provided such
continuance is specifically approved at least annually (a) by the vote of a
majority of the outstanding shares of the Fund (as defined under "Fund
Policies") or by a majority of the Trustees of the Fund, and (b) by the vote of
a majority of the Trustees of the Fund who are not parties to the Distribution
Agreement or "interested persons" (as such term is defined in the 1940 Act) of
any party thereto, cast in person at a meeting called for the purpose of voting
on such approval. The Distribution Agreement will terminate automatically if
assigned (as defined in the 1940 Act) and is terminable at any time without
penalty by the Trustees of the Fund or by vote of a majority of the outstanding
shares of the Fund on 60 days' written notice to Hilliard Lyons and by Hilliard
Lyons on 60 days' written notice to the Fund. Prior to September 1, 2000,
Provident Distributors, Inc. ("PDI") served as the distributor for the Fund.

Hilliard Lyons receives the sales charges and Rule 12b-1 fees payable with
respect to Fund shares. Hilliard Lyons may enter into selling agreements with
authorized dealers and financial intermediaries (collectively referred to as
"Authorized Dealers") to sell shares of the Fund, and any such Authorized
Dealers may receive the sales charges and Rule 12b-1 fees otherwise payable to
Hilliard Lyons with respect to Fund shares which Hilliard Lyons sells through
such Authorized Dealers.

The aggregate dollar amount of commissions paid to PDI (the predecessor
distributor) for the Fund's fiscal year ended June 30, 2000 was $0.

RULE 12b-1 FEES

The Fund has adopted a plan under Rule 12b-1 of the Investment Company Act of
1940 (the "Distribution Plan") that allows the Fund to pay distribution and
other fees for the sale and distribution of its shares and for services provided
to shareholders. Because these fees are paid out of the Fund's assets on an
ongoing basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges. Pursuant to the
Distribution Plan, the Fund reimburses Hilliard Lyons at an annual rate of up to
0.60% of the Fund's average daily net assets for distribution expenses actually
incurred.

Rule 12b-1 regulates the manner in which a mutual fund may assume the costs of
distributing and promoting the sale of its shares. In unanimously approving the
Distribution Plan, the Fund's Board of Trustees determined that there is a
reasonable likelihood that the Distribution Plan will benefit the Fund and its
shareholders. Pursuant to the Distribution Plan, Hilliard Lyons may be
reimbursed for expenses incurred in connection with any activity primarily
intended to result in the sale of the Fund's shares, including without
limitation (i) printing and distributing copies of any prospectuses and annual
and interim reports of the Fund (after the Fund has prepared and set in type
such materials) that are used by Hilliard Lyons or brokers, dealers and other
financial intermediaries who may have a selling agreement with Hilliard Lyons
(collectively referred to as "Intermediaries") in connection with the offering
of the Fund's shares; (ii) preparing, printing or otherwise manufacturing and
distributing any other literature or materials of any nature used by Hilliard
Lyons and Intermediaries in connection with promoting, distributing or offering
the Fund's shares; (iii) advertising, promoting and selling the Fund's shares to
broker-dealers, banks and the public; (iv) distribution-related overhead and the
provision of information programs and shareholder services intended to enhance
the attractiveness of investing in the Fund; (v) incurring initial outlay
expenses in connection with compensating Intermediaries for (a) selling the
Fund's shares and (b) providing personal services to shareholders and the
maintenance of shareholder accounts including paying interest on and incurring
other carrying costs on funds borrowed to pay such initial outlays; and (vi)
acting as agent for the Fund in connection with implementing the Distribution
Plan. If the amount reimbursed is insufficient to pay the expenses of
distribution, Hilliard Lyons bears the additional expenses. Any amount of excess
distribution expenses incurred by Hilliard Lyons in any quarter for which
Hilliard Lyons is not reimbursed can be carried forward from one quarter to the
next, but no expenses may be carried over from year to year.

11
<PAGE>

Under its terms, the Distribution Plan remains in effect so long as it is
approved at least annually by vote of the Fund's Board of Trustees, including a
majority of the Trustees who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Distribution
Plan. Hilliard Lyons is obligated to provide the Trustees quarterly reports of
amounts expended under the Distribution Plan and the purpose for which the
expenditures were made. Prior to September 1, 2000, Provident Distributors, Inc.
("PDI") performed duties pursuant to the Distribution Plan. For the fiscal year
ended June 30, 2000, the Fund paid PDI $22,633 under the 12b-1 Plan. This amount
was spent as follows: $1,075 on advertising and $21,558 on printing and mailing
of prospectuses to other than current shareholders.

ADMINISTRATOR AND FUND ACCOUNTANT

PFPC is the administrator and Fund accountant for the Fund pursuant to an
Administration and Accounting Services Agreement dated July 1, 1999 between the
Trust and PFPC. PFPC has agreed to provide corporate secretarial services;
prepare and file various reports with the appropriate regulatory agencies;
assist in preparing various materials required by the SEC; provide accounting
and bookkeeping services for the Fund, including the computation of the Fund's
net asset value, net income and realized capital gains, if any; and prepare
various materials required by any state securities commission having
jurisdiction over the Fund. For the fiscal year ended June 30, 2000, PFPC
received $98,115 from the Fund as its compensation for services as Administrator
and Fund Accountant. The asset based fee for administrative and accounting
services for the Fund is 0.11% of the first $250 million of average daily net
assets; 0.085% of the next $250 million of average daily net assets; 0.06% of
the next $250 million of average daily net assets; and 0.04% of the average
daily net assets in excess of $750 million.

CUSTODIAN

PFPC Trust Company ("PFPC Trust") is the custodian for the Fund pursuant to a
Custodian Services Agreement dated July 1, 1999 between the Trust and PFPC
Trust. As custodian, PFPC Trust is responsible for holding all securities and
cash of the Fund, receiving and paying for securities purchased, delivering
against payment securities sold receiving and collecting income from investments
and performing other administrative duties, all as directed by authorized
persons. PFPC Trust does not exercise any supervisory function in such matters
as purchase and sale of portfolio securities, payment of dividends or payment of
expenses of the Fund. The asset-based fee for custodian services for the Fund is
0.015% of the first $100 million of average daily gross assets; 0.01% of the
next $400 million of average daily gross assets; and 0.008% of average daily
gross assets over $500 million.

TRANSFER AGENT

PFPC Inc. ("PFPC") is the Fund's transfer agent, registrar, dividend-disbursing
agent and shareholder servicing agent pursuant to a Transfer Agency Services
Agreement dated July 1, 1999 between the Trust and PFPC. As transfer agent, PFPC
provides certain bookkeeping and data processing services and services
pertaining to the maintenance of shareholder accounts. The following account
based fees for transfer agency services for the Fund apply; Annual or
Semi-Annual Dividend -- $10.00 per account per annum; Quarterly Dividend --
$12.00 per account per annum; Monthly Dividend -- $15.00 per account per annum;
Daily Accrual Dividend -- $18.00 per account per annum; and Inactive Account --
$0.30 per account per month. There is a minimum monthly fee of $3,000
(excluding transaction charges, networking charges and out-of-pocket
expenses).

COUNSEL

Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street, Chicago, Illinois
60601, is legal counsel to the Fund.

PORTFOLIO TURNOVER

The Fund does not seek to realize profits by participating in short-term market
movements and intends to purchase securities for long-term capital appreciation.
However, portfolio turnover is not a limiting factor when the Advisor deems
changes appropriate. The Fund's portfolio turnover rate was 12.93% for the
fiscal year ended June 30, 2000. Portfolio turnover is calculated by dividing
the lesser of the Fund's purchases or sales of portfolio securities during the
period in question by the monthly average of the value of the Fund's portfolio
securities during that period.

12
<PAGE>

Excluded from consideration in the calculation are all securities with
maturities of one year or less when purchased by the Fund.

PORTFOLIO TRANSACTIONS

In addition to making the investment decisions of the Fund, the Advisor
implements such decisions by arranging the execution of the purchase or sale of
portfolio securities with the objective of obtaining prompt, efficient and
reliable executions of such transactions at the most favorable prices obtainable
("best execution"). The Advisor is authorized to place orders for securities
transactions with various broker-dealers, including the Fund's distributor,
Hilliard Lyons, subject to the requirements of applicable laws and regulations.
Transactions in securities other than those for which a securities exchange is
the principal market are generally made with principals or market makers at a
negotiated "net" price which usually includes a profit to the dealer. Brokerage
commissions are paid primarily for effecting transactions in securities traded
on an exchange, although transactions in the over-the-counter market may be
executed on an agency basis if it appears likely that a more favorable overall
price can be obtained.

With respect to transactions handled by Hilliard Lyons on a national securities
exchange, the commissions must conform to Rule 17e-1 under the 1940 Act, which
permits an affiliated person of a registered investment company to receive
brokerage commissions from such registered investment company, provided that
such commissions are reasonable and fair compared to commissions received by
other brokers in connection with comparable transactions involving similar
securities during a comparable period of time. The Board has adopted
"procedures" which provide that commissions paid to Hilliard Lyons may not
exceed (i) those which would have been charged by other qualified brokers for
comparable customers in similar transactions or (ii) those charged by Hilliard
Lyons for comparable customers in similar transactions. Rule 17e-1 requires that
the Board, including its Trustees who are not "interested persons" of the Fund,
or Hilliard Lyons determine no less frequently than quarterly that all
transactions effected pursuant to the Rule 17e-1 during the preceding quarter
were effected in compliance with such procedures. Hilliard Lyons is also
required to furnish reports and maintain records in connection with such
reviews.

The use of Hilliard Lyons as a broker for the Fund is subject to the provisions
of Section 11(a) under the Securities Exchange Act of 1934 (the "1934 Act").
Section 11(a)(1)(H) permits an exchange member to execute on that exchange's
floor, using its own floor brokers, trades on behalf of its managed accounts,
including affiliated investment advisors and investment companies. Members must
comply with the following two conditions, set out in Section 11(a)(1)(H), in
order to execute these trades lawfully: (1) A member must obtain from the
person(s) authorized to transact business for a managed account written
authorization permitting the member to effect trades on behalf of the account
before doing so (if a customer already has provided a member with an
authorization pursuant to Rule 11(a)2-2(T), the member need not obtain another
written authorization to meet the Section 11(a)(1)(H) authorization
requirement); and (2) at least annually, the member must disclose to the same
person(s) the amount of the aggregate compensation the member received in
effecting such transactions. Further, members will be required to comply with
any rules the SEC may prescribe with respect to the above two express
requirements. The SEC has not indicated any such plans to date. The Advisor
previously obtained authorization from the Fund pursuant to Rule 11(a)2-2(T) and
has disclosed to the Fund the amount of the aggregate compensation Hilliard
Lyons received in effecting all such transactions.

When consistent with the objective of obtaining best execution, Fund brokerage
may be directed to brokers or dealers, other than Hilliard Lyons, which charge
commissions that are higher than might be charged by another qualified broker or
dealer and which furnish at no extra charge brokerage and/or research services
to the Advisor considered by the Advisor to be useful or desirable in its
investment management of the Fund and its other advisory accounts. Such
brokerage and research services are of the type described in Section 28(e) of
the 1934 Act. These research and other services may include, but are not limited
to, general economic and security market reviews, industry and company reviews,
evaluations of securities, recommendations as to the purchase and sale of
securities, and access to third party publications, computer and electronic
equipment and software. Under Section 28(e), the commissions charged by a broker
furnishing such brokerage or research services may be greater than that which
another qualified broker might charge if the Advisor determines, in good faith,
that the amount of such commission is reasonable in relation to the value of
brokerage or research services provided by the executing broker, viewed in terms
of either the particular transaction or the overall responsibilities of the
Advisor or its affiliate to the accounts over which they exercise investment
discretion. The Advisor need not place or attempt to place a specific dollar

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value on such services or on the portion of the commission which reflects such
services but is required to keep records sufficient to demonstrate the basis of
its determinations.

Investment research obtained by allocations of Fund brokerage is used to augment
the internal research and investment strategy capabilities of the Advisor.
Research services furnished by brokers through which the Fund effects securities
transactions are used by the Advisor in carrying out its investment management
responsibilities with respect to all of its accounts. Such investment
information may be useful to one or more of the other accounts of the Advisor
and research information received for the commissions of such other accounts may
be useful to the Fund as well as such other accounts.

INCOME TAX CONSIDERATIONS

Each dividend and capital gain distribution, if any, declared by the Fund on its
outstanding shares will be paid on the payment date fixed by the Board in cash
or in additional shares of the Fund having an aggregate net asset value as of
the record date of such dividend or distribution equal to the cash amount of
such dividend or distribution. Dividends and capital gain distributions will
normally be reinvested in additional shares of the Fund at net asset value
without a sales charge, unless otherwise elected at purchase. A shareholder may
change such election at any time prior to the record date for a particular
dividend or distribution by written request to your Hilliard Lyons investment
broker or Authorized Dealer.

It is the present policy of the Fund to make distributions annually of its net
investment income and of its net realized capital gains, if any, at the end of
the year in which earned or at the beginning of the next year. There is no fixed
dividend rate, and there can be no assurance that the Fund will pay any
dividends or realize any capital gains. Investors considering buying shares of
the Fund just prior to a dividend or capital gain distribution record date
should be aware that, although the price of shares purchased at that time may
reflect the amount of the forthcoming distribution, those who purchase just
prior to such date will receive a distribution that will nevertheless be taxable
to them.

The Fund is subject to a nondeductible 4% excise tax measured with respect to
certain undistributed amounts of ordinary income and capital gains. If necessary
to avoid this tax, and if in the best interests of the shareholders, the Fund's
Board will, to the extent permitted by the SEC, declare and pay distributions of
its net investment income and net realized capital gains more frequently than
stated above. To avoid the tax, the Fund must distribute during each calendar
year at least the sum of (1) 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year, (2) 98% of its capital gains
in excess of its capital losses for the 12-month period ending on October 31 of
the calendar year, and (3) all ordinary income and net capital gains for
previous years that were not previously distributed. A distribution will be
treated as paid during the calendar year if it is actually paid during the
calendar year or declared by the Fund in October, November or December of the
year, payable to shareholders of record as of a specified date in such a month
and actually paid by the Fund during January of the following year. Any such
distributions paid during January of the following year will be deemed to be
paid and received on December 31 of the year the distributions are declared,
rather than when the distributions are received.

The Fund intends to qualify for tax treatment as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code").
Qualification as a regulated investment company relieves the Fund of federal
income tax on that part of its net ordinary income and net realized capital
gains which it pays out to its shareholders. To qualify, the Fund must meet
certain relatively complex tests relating to the source of its income and the
diversification of its assets, and must distribute at least 90% of its
investment company taxable income (as defined in the Code). In addition, the
Fund must diversify its holdings so that, at the end of each fiscal quarter, (i)
at least 50% of the market value of the Fund's assets is represented by cash,
cash items, United States government securities, securities of other regulated
investment companies and other securities with such other securities limited, in
respect of any one issuer, to an amount not greater than 5% of the value of the
Fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than United States government securities or the
securities of other regulated investment companies). The Fund does not
anticipate any difficulty in meeting these requirements. Dividends out of net
ordinary income and distributions of net short-term capital gains are taxable to
shareholders as ordinary income. In the case of corporate shareholders, such
distributions are eligible for the 70% dividends-received deduction, subject to
proportionate reduction of the amount eligible for deduction if the aggregate
qualifying dividends received by the

14
<PAGE>

Fund from domestic corporations in any year are less than its "gross income" as
defined by the Code. A corporation's dividends-received deduction will be
disallowed unless the corporation holds shares in the Fund at least 46 days.
Furthermore, a corporation's dividends-received deduction will be disallowed to
the extent the corporation's investment in shares of the Fund is financed with
indebtedness.

The excess of net long-term capital gains over the net short-term capital losses
realized and distributed by the Fund to its shareholders as capital gain
distributions is taxable to the shareholders as long-term capital gains,
irrespective of the length of time a shareholder may have held the shares. Such
long-term capital gain distributions are not eligible for the dividends-received
deduction referred to above. Any dividend or distribution received by a
shareholder on shares of the Fund shortly after the purchase of such shares will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, such dividend or distribution,
although in effect a return of capital, is subject to applicable income taxation
as described above regardless of the length of time the shares may have been
held. If a shareholder held shares less than six months and during that period
received a distribution taxable to such shareholder as long-term capital gain,
any loss realized on the sale of such shares during such six-month period would
be a long-term loss to the extent of such distribution. The tax treatment of
distributions from the Fund is the same whether the distributions are received
in additional shares or in cash. Shareholders receiving distributions in the
form of additional shares will have a cost basis for federal income tax purposes
in each share received equal to the net asset value on the reinvestment date.

Federal income taxes may be required to be withheld ("backup withholding") at a
31% rate from taxable dividends, capital gain distributions and redemption
proceeds paid to certain shareholders. Backup withholding may be required if (i)
a shareholder fails to furnish a properly certified social security or other tax
identification number; (ii) a shareholder fails to certify that the
shareholder's tax identification number is correct or that the shareholder is
not subject to backup withholding due to the under-reporting of certain income;
or (iii) the Internal Revenue Service determines that a shareholder's account is
subject to backup withholding. These certifications should be completed and
returned when a shareholder opens an account with a Hilliard Lyons investment
broker or Authorized Dealer. All amounts withheld must be promptly paid to the
IRS. A shareholder may claim the amount withheld as a credit on the
shareholder's federal income tax return.

The Fund may be subject to state or local taxes in the jurisdiction in which the
Fund may be deemed to be doing business. Dividends and distributions declared by
the Fund may also be subject to state and local taxes.

Shareholders should consult their tax advisors about the application of the
provisions of tax law in light of their particular tax situations.

INVESTMENT PERFORMANCE

The Fund may quote certain total return figures from time to time. A "total
return" on a per share basis is the amount of dividends distributed per share
plus or minus the change in the net asset value per share for a period. A "total
return percentage" may be calculated by dividing the value of a share at the end
of a period by the value of the share at the beginning of the period and
subtracting one. For a given period, an "average annual total return" may be
computed by finding the average annual compounded rate that would equate a
hypothetical initial amount invested of $1,000 (adjusting to deduct the maximum
sales charge) to the ending redeemable value.

Average Annual Total Return is computed as follows: ERV = P(1+T) to the power
of N

Where: P = a hypothetical initial payment of $1,000 (adjusting to deduct the
maximum sales charge)
T = average annual total return
N = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period at the end of the period (or
fractional portion thereof).

Investment performance figures assume reinvestment of all dividends and
distributions and do not take into account any federal, state, or local income
taxes which shareholders must pay on a current basis. They are not necessarily
indicative of future results. The performance of the Fund is a result of
conditions in the securities markets, portfolio management and operating
expenses. Although investment performance information is useful in reviewing the

15
<PAGE>

Fund's performance and in providing some basis for comparison with other
investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods. Of course,
past performance is not indicative of future results.

The total return of the Fund from July 8, 1999 (inception) to June 30, 2000 was
[-14.18%] (including the maximum front end sales charge of 2.25%).

In advertising, sales literature and other publications, the Fund's performance
may be quoted in terms of total return or average annual total return, which may
be compared with various indices and investments, other performance measures or
rankings, or other mutual funds or indices or averages of other mutual funds.

OTHER INFORMATION

The Fund's Prospectus and this SAI omit certain information contained in the
Registration Statement, which the Fund has filed with the Securities and
Exchange Commission under the Securities Act of 1933, and reference is hereby
made to the Registration Statement for further information with respect to the
Fund and the securities offered hereby. The Registration Statement is available
for inspection by the public at the Securities and Exchange Commission in
Washington, D.C.

INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS

Ernst & Young LLP, Two Commerce Square, 2001 Market Street, Philadelphia,
Pennsylvania 19103, serves as the Fund's independent auditors. The independent
auditors audit and report on the Fund's annual financial statements, certain
regulatory reports and the Fund's federal income tax returns, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Trust. The Fund's annual report dated June 30, 2000, including the
report of Ernst & Young LLP included therein, is legally considered a part of
this SAI.

16
<PAGE>

APPENDIX A -- DESCRIPTION OF SECURITIES RATINGS

RATINGS IN GENERAL

A rating of a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, the Advisor believes that the quality of debt securities
in which the Fund may invest should be continuously reviewed and that individual
analysts give different weights to the various factors involved in credit
analysis. A rating is not a recommendation to purchase, sell or hold a security
because it does not take into account market value or suitability for a
particular investor. When a security has received a rating from more than one
service, each rating should be evaluated independently. Ratings are based on
current information furnished by the issuer or obtained by the rating services
from other sources which they consider reliable. Ratings may be changed,
suspended or withdrawn as a result of changes in or unavailability of such
information, or for other reasons.

The following is a description of the characteristics of ratings of corporate
debt securities used by Moody's Investors Service, Inc. ("Moody's") and Standard
& Poor's Corporation ("S&P").

RATINGS BY MOODY'S

Aaa. Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. Although the various protective elements are likely to
change, such changes as can be visualized are unlikely to impair the
fundamentally strong position of such bonds.

Aa. Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa bonds or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa bonds.

A. Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa. Bonds rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B. Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca. Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

A-1
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RATINGS BY S&P

AAA. Debt rated AAA has the highest rating. Capacity to pay interest and
repay principal is extremely strong.

AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB. Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.

BB, B, CCC, CC, and C. Debt rated BB, B, CCC, CC or C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

C1. This rating is reserved for income bonds on which no interest is being
paid.

D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears. The D rating is also used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.

Notes:

The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
Foreign debt is rated on the same basis as domestic debt measuring the
creditworthiness of the issuer; ratings of foreign debt do not take into account
currency exchange and related uncertainties.

The "r" is attached to highlight derivative, hybrid and certain other
obligations that S&P believes may experience high volatility or high variability
in expected returns due to noncredit risks. Examples of such obligations are:
securities whose principal or interest return is indexed to equities,
commodities, or currencies; certain swaps and options; and interest-only and
principal-only mortgage securities. The absence of an "r" symbol should not be
taken as an indication that an obligation will exhibit no volatility or
variability in total return.

A-2