<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 30, 1997.
REGISTRATION NO. 2-68290
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 19
to
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
and
AMENDMENT NO. 21
to
REGISTRATION STATEMENT
Under
THE INVESTMENT COMPANY ACT OF 1940
------------
HILLIARD-LYONS GOVERNMENT FUND, INC.
(Exact Name of Registrant as Specified in Charter)
Hilliard Lyons Center
Louisville, Kentucky 40202
(Address of Principal Executive Offices)
Registrant's Telephone Number: (502) 588-8400
William G. Strench, Esq.
Brown, Todd & Heyburn PLLC
3200 Providian Center
Louisville, Kentucky 40202
(Name and Address of Agent for Service)
------------
It is proposed that this filing will become effective (check
appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[X] on January 1, 1998 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1) of rule 485
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
------------
REGISTRANT HAS REGISTERED AN INDEFINITE AMOUNT OF SECURITIES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2. THE RULE 24F-2 NOTICE FOR
REGISTRANT'S MOST RECENT FISCAL YEAR WAS FILED ON OCTOBER 23, 1997.
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
------------- --------
PART A
<C> <C> <S> <C>
Item 1. Cover Page........................ Cover Page
Item 2. Synopsis.......................... Summary of Expenses
Item 3. Financial Highlights.............. Financial Highlights
Item 4. General Description of Registrant. Investment Objectives and
Policies; Daily Income
Dividends; Organization and
Capitalization
Item 5. Management of the Fund............ Management of the Fund
Item 6. Capital Stock and Other Daily Income Dividends; Taxes;
Securities....................... Organization and
Capitalization
Item 7. Purchase of Securities Being How to Purchase Shares; Net
Offered.......................... Asset Value; Management of the
Fund
Item 8. Redemption or Repurchase.......... How to Redeem Shares
Item 9. Pending Legal Proceedings......... Not Applicable
PART B
Item 10 Cover Page........................ Cover Page
Item 11. Table of Contents................. Table of Contents
Item 12. General Information and History... Not Applicable
Item 13. Investment Objectives and Investment Objectives and
Policies......................... Policies
Item 14. Management of the Fund............ Management
Item 15. Control Persons and Principal Management
Holders of Securities............
Item 16. Investment Advisory and Other Investment Advisory and Other
Services......................... Services
Item 17. Brokerage Allocation and Other Portfolio Transactions
Practices........................
Item 18. Capital Stock and Other Not Applicable
Securities.......................
Item 19. Purchase, Redemption and Pricing Individual Retirement Accounts;
of Securities Being Offered...... Net Asset Value
Item 20. Tax Status........................ Not Applicable
Item 21. Underwriters...................... Investment Advisory and Other
Services
Item 22. Calculations of Performance Data.. Yield Information
Item 23. Financial Statements.............. Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered in Part C to this Registration Statement.
<PAGE>
PROSPECTUS DATED JANUARY 1, 1998
HILLIARD-LYONS GOVERNMENT FUND, INC.
HILLIARD LYONS CENTER
LOUISVILLE, KENTUCKY 40202
(502) 588-8400
Hilliard-Lyons Government Fund, Inc. (the "Fund") is an open-end,
diversified management investment company. Its goal is to provide investors
with liquidity and the highest possible level of current income consistent
with the preservation of capital. The Fund seeks to achieve its goals by
investing exclusively in short-term securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities or in repurchase
agreements collateralized by such securities, or in a combination of both.
Substantially all of the Fund's assets are invested in securities maturing in
six months or less, with an average weighted maturity of less than 90 days.
The Fund does not invest more than 10% of its total assets in repurchase
agreements having a maturity of more than 7 business days. Only by action of
the Board of Directors and on 30 days written notice to shareholders may the
Fund change these investment policies.
- - -------------------------------------------------------------------------------
SUITABILITY
The Fund is designed as a convenient and economical investment vehicle for
the cash reserves or temporary cash balances of both individual and
institutional investors. The Fund seeks to maintain a net asset value of $1.00
per share.
THESE SECURITIES ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A NET ASSET VALUE
OF $1.00 PER SHARE.
- - -------------------------------------------------------------------------------
PURCHASES AND COMMISSIONS DIVIDENDS
The Fund is no-load, and the full Dividends from the Fund's net income
amount paid by the purchaser is are declared every business day and
invested in shares of the Fund. A paid on or shortly after the 15th
purchase is effected after receipt day of each month in cash or
of Federal funds. The minimum reinvested in additional shares of
initial purchase of shares is $1,000 the Fund.
and subsequent investments must be
at least $100.
- - -------------------------------------------------------------------------------
ABOUT THIS PROSPECTUS
This Prospectus sets forth concisely the information about the Fund which
you should know before investing. Please read it and retain it for further
reference. The Fund has filed with the Securities and Exchange Commission a
Statement of Additional Information (the "Statement") about the Fund dated
January 1, 1998. The Statement contains more detailed information about the
Fund and is incorporated into this Prospectus by reference in its entirety.
You may obtain a free copy of the Statement by writing to J. J. B. Hilliard,
W. L. Lyons, Inc. ("Hilliard-Lyons"), Hilliard Lyons Center, Louisville,
Kentucky 40202 or by calling (502) 588-8400.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF EXPENSES.................................................. 3
FINANCIAL HIGHLIGHTS................................................. 4
WHO SHOULD INVEST.................................................... 4
INVESTMENT OBJECTIVES AND POLICIES................................... 5
HOW TO PURCHASE SHARES............................................... 6
Initial Investment--Minimum $1,000.................................. 6
Subsequent Investments--Minimum $100................................ 7
General Purchase Information........................................ 7
HOW TO REDEEM SHARES................................................. 8
Redemption by Telephone............................................. 8
Redemption by Mail.................................................. 9
Redemption by Check................................................. 9
Redemption by Systematic Withdrawal Plan............................ 10
General............................................................. 10
NET ASSET VALUE...................................................... 11
DAILY INCOME DIVIDENDS............................................... 11
TAXES................................................................ 12
Other Taxes......................................................... 12
MANAGEMENT OF THE FUND............................................... 12
Directors........................................................... 12
Investment Adviser and Distributor.................................. 12
Transfer and Dividend Agent......................................... 13
Expenses............................................................ 13
ORGANIZATION AND CAPITALIZATION...................................... 13
REPORTS.............................................................. 14
ADDITIONAL INFORMATION............................................... 14
</TABLE>
2
<PAGE>
SUMMARY OF EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Advisory fees........................................................... .37%
Other expenses.......................................................... .20%
----
Total Fund operating expenses........................................... .57%
====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- - ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment,
assuming (1) 5% annual return and (2)
redemption at the end of
each time period............................. $6 $18 $32 $71
</TABLE>
The purpose of the above Summary of Expenses is to assist the investor in
understanding the various costs and expenses borne by the Fund and therefore,
indirectly by investors. The example should not be considered to be a
representation of past or future expenses. Actual expenses may be greater or
less than those shown. While the example assumes a 5% annual return, the
Fund's actual performance will vary and may result in an actual return greater
or less than 5%. The example assumes reinvestment of all dividends and
distributions.
The Fund's yield for the last seven days of its most recent fiscal year
(August 25-31, 1997) was 4.95%.
From time to time, the Fund may advertise its yield. Yield figures are based
on historical earnings and are not intended to indicate future performance.
The yield of the Fund refers to the net investment income generated by an
investment in the Fund over a specified period. If such period is less than
one year, income is annualized. That is, the amount of income generated by the
investment during the specified period is assumed to be generated over a one-
year period and is shown as a percentage of the investment. Additional
information concerning the Fund's performance appears in the Fund's Statement
of Additional Information.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share of capital stock
outstanding throughout each year and other performance information derived
from the financial statements. It should be read in conjunction with the
financial statements and notes thereto. The information has been audited by
Ernst & Young LLP, the Fund's independent auditors, whose report thereon
appears in the Statement of Additional Information.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value,
Beginning of Year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
Net investment income... .05 .05 .05 .03 .03
--------- --------- --------- --------- ---------
Total From Investment
Operations............ .05 .05 .05 .03 .03
Less Distributions:
Dividend Distributions. ( .05) ( .05) ( .05) ( .03) ( .03)
--------- --------- --------- --------- ---------
Total Distributions.... ( .05) ( .05) ( .05) ( .03) ( .03)
--------- --------- --------- --------- ---------
Net asset value, End of
Year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Number of shares
outstanding (000's
omitted)............... 587,080 427,494 335,776 210,652 221,050
Total Investment Return. 4.96% 4.96% 5.04% 2.85% 2.54%
SIGNIFICANT RATIOS AND
SUPPLEMENTAL DATA
Net assets, End of Year
(000's omitted)....... $587,080 $427,494 $335,776 $210,652 $221,050
Operating expenses to
average net assets.... .57% .61% .72% .75% .71%
Net investment income
to average net assets. 4.86% 4.84% 4.97% 2.80% 2.51%
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------
1992 1991 1990 1989 1988
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value,
Beginning of Year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
Net investment income... .04 .06 .08* .08* .06*
--------- --------- --------- --------- ---------
Total From Investment
Operations............ .04 .06 .08 .08 .06
Less Distributions:
Dividend Distributions. ( .04) ( .06) ( .08) ( .08) ( .06)
--------- --------- --------- --------- ---------
Total Distributions.... ( .04) ( .06) ( .08) ( .08) ( .06)
--------- --------- --------- --------- ---------
Net asset value, End of
Year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Number of shares
outstanding (000's
omitted)............... 234,600 232,660 226,389 111,506 76,974
Total Investment Return. 3.87% 6.19% 8.04% 8.39% 6.02%
SIGNIFICANT RATIOS AND
SUPPLEMENTAL DATA
Net assets, End of Year
(000's omitted)....... $234,600 $232,660 $226,389 $111,506 $ 76,974
Operating expenses to
average net assets.... .68% .70% .60% .79% .92%
Net investment income
to average net assets. 3.80% 6.01% 7.71%* 8.12%* 5.85%*
</TABLE>
- - --------
*Includes net realized gain (loss) on investments.
WHO SHOULD INVEST
The Fund is designed to suit the needs of investors who wish to keep cash
balances invested in a portfolio of short-term securities which may be more
professionally managed, diversified, higher yielding, more stable and more
liquid than investors might be able to obtain on an individual basis. The Fund
may also relieve the investor of many of the administrative problems
associated with direct investment in short-term securities, such as scheduling
maturities and reinvestments, safekeeping of securities and making numerous
buy and sell decisions.
4
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund seeks preservation of capital, liquidity and the highest possible
level of current income consistent with these objectives. The Fund can change
these objectives only with prior shareholder approval. There is no guarantee
that the Fund's objectives will be attained.
By resolution of its Board of Directors, the Fund has adopted a policy of
investing its assets exclusively in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (which, except for securities
covered by repurchase agreements, will mature in six months or less) or in
repurchase agreements collateralized by such securities or in a combination of
both. Securities subject to repurchase agreements may bear maturities in excess
of six months, but the term of the repurchase agreement is normally not more
than a few days. The Fund will not enter into a repurchase agreement having a
duration of more than seven business days if, as a result, more than 10% of the
value of the Fund's total assets would be so invested.
The types of U.S. Government securities in which the Fund may invest include
a variety of U.S. Treasury obligations, which differ primarily in their
interest rates and lengths of maturities, and obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, including
mortgage-related securities. Some of the government agencies and
instrumentalities which issue or guarantee securities in which the Fund may
invest include the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association, General Services Administration,
Federal Farm Credit Banks, Federal Home Loan Banks, Federal National Mortgage
Association, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Federal Land Banks, Maritime Administration, Student Loan
Marketing Association, The Tennessee Valley Authority and the International
Bank for Reconstruction and Development.
Obligations of certain of these agencies and instrumentalities, such as the
Government National Mortgage Association and the Export-lmport Bank of the
United States, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Student Loan Marketing Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; and still others, such as those of the Federal Farm Credit Banks
and the Federal Home Loan Mortgage Corporation, are supported only by the
credit of the instrumentality. The Fund normally holds its portfolio securities
to maturity. Historically, securities issued or guaranteed by the U.S.
Government or its agencies and instrumentalities have involved minimal risk of
loss of principal or interest, if held to maturity.
The Fund may purchase the above-described debt securities outright or invest
in securities by means of repurchase agreements with any member bank of the
Federal Reserve System and dealers with which the Federal Reserve conducts open
market transactions. A repurchase agreement is an instrument under which the
purchaser (i.e., the Fund) acquires ownership of an obligation (debt security)
and the seller agrees, at the time of sale, to repurchase the obligation at a
mutually agreed upon time and price. The term of such an agreement is generally
quite short, possibly overnight or a few days, although it may extend over a
number of months not to exceed six months from its delivery. The resale price
is in excess of the purchase price, reflecting an agreed upon rate of interest,
which is effective for the period of time the Fund holds the purchased security
and is not related to the coupon rate on the purchased security. Repurchase
agreements may be considered loans to the sellers collateralized by the
underlying securities.
Under a repurchase agreement, the Fund's risk is limited to the ability of
the seller to pay the agreed upon sum on the delivery date. In the opinion of
management, however, such risk is not material because in the event of default
the securities underlying the repurchase agreement serve as collateral for the
seller's repurchase
5
<PAGE>
obligation and the market value of such underlying securities will at all
times equal or exceed the face amount of the seller's obligation, including
the accrued interest earned thereon.
At all times during its most recent fiscal year ended August 31, 1997, the
Fund's net assets were invested exclusively in securities issued by the U.S.
Government, its agencies or instrumentalities, or in repurchase agreements
collateralized by such securities, or a combination of both. The Fund
currently intends to invest more than 95% of its net assets in such securities
and repurchase agreements.
The yield differential between the securities the Fund invests in and other
high quality, short-term investments such as certificates of deposit, bankers'
acceptances and high-grade commercial paper is normally quite small. Should
this differential widen to in excess of 1 3/4%, management may recommend to
the Fund's Board of Directors that it consider authorizing investments in
securities other than those issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, or in repurchase agreements collateralized by
such securities. The Board of Directors may at its discretion, but only after
30 days written notice to shareholders, authorize this change in investment
policy, provided such investments are not prohibited by the Fund's investment
restrictions or by applicable law. The Fund has no present plans to change its
policy with regard to the types or maturities of the securities in which it
invests, and this prospectus will be supplemented to give further information
should the Fund's Board of Directors authorize such a change.
The Fund endeavors to exercise due care in the selection of its portfolio
securities, and the risks associated with the securities the Fund purchases
are nominal. Nevertheless, an investment in the Fund is not completely risk-
free. The Fund's portfolio can depreciate in value if short-term interest
rates increase. There is also a risk that demand for redemptions may require
that some of the Fund's portfolio be liquidated prior to maturity at a price
less than original cost, face amount or maturity value. If these events occur,
they could cause a reduction in the net asset value of the Fund's shares and a
loss to the Fund's shareholders. For an explanation of the effect that a
decline in the value of the Fund's portfolio could have upon the Fund's
dividends and its net asset value per share see "Daily Income Dividends".
In pursuing its objectives, the Fund may engage in trading activity in order
to take advantage of opportunities to enhance yield, protect principal or
improve liquidity. This trading activity, and the relatively short maturity of
the obligations purchased by the Fund, may result in high portfolio turnover,
but such turnover should not increase the Fund's expenses since there are
normally no brokerage commissions paid in connection with the purchase or sale
of the types of securities in which the Fund invests.
The Fund is managed so that the average maturity of all its investments does
not exceed 90 days. The average maturity of the Fund's investments at any
specific point in time is determined by Hilliard-Lyons based on an assessment
of existing and prospective money market conditions. The weighted average
maturity of the portfolio on August 31, 1997 was 56 days.
HOW TO PURCHASE SHARES
The Fund's shares are offered at present only to residents of the states of
Arkansas, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan,
Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Tennessee,
Virginia, and West Virginia. Orders for the Fund's shares may be placed as
follows:
INITIAL INVESTMENT--MINIMUM $1,000
To open an account, complete and mail to J. J. B. Hilliard, W. L. Lyons,
Inc., Hilliard Lyons Center, Louisville, Kentucky 40202, an application
together with a check made payable to Hilliard-Lyons Government
6
<PAGE>
Fund, Inc. An account with the Fund can also be opened in person at any office
of Hilliard-Lyons. To shorten the time before the purchase becomes effective,
payment may be made with immediately available funds on account at Hilliard-
Lyons, including the proceeds of a trade that has completely settled on a prior
day which therefore are immediately available to Hilliard-Lyons. A purchaser
who does not have immediately available funds in an account at Hilliard-Lyons
and who desires to make an immediate purchase of shares of the Fund may, after
a completed application has been furnished to Hilliard-Lyons, instruct his bank
to wire Federal funds to "Hilliard-Lyons Government Fund, Inc., c/o Custodian
Services Department, State Street Bank and Trust Company, Boston,
Massachusetts," together with the name in which the account is registered and
the account number. (Federal funds are a commercial bank's deposits in a
Federal Reserve Bank which can be transferred from one member bank's account to
that of another member bank on the same day.) Funds wired in this manner may be
subject to a service charge by the purchaser's bank. The time when a purchase
becomes effective is explained in "General Purchase Information".
For assistance in opening an account, contact a financial consultant of
Hilliard-Lyons. For convenience in effecting purchases and redemptions of Fund
shares, an account will automatically be opened at Hilliard-Lyons for each
investor opening an account with the Fund.
To enable its shareholders to take advantage of the tax laws governing
retirement plans, the Fund has established an Individual Retirement Account
Plan ("IRA Plan"). For the purpose of investing in the IRA Plan, the initial
minimum investment in Fund shares is $1,000; minimum subsequent investments are
$100. For more information about the IRA Plan, see the Fund's Statement of
Additional Information or contact a financial consultant of Hilliard-Lyons.
SUBSEQUENT INVESTMENTS--MINIMUM $100
Subsequent investments may be made by sending to the Fund's Custodian, State
Street Bank and Trust Company, P.O. Box 1912, Boston, Massachusetts 02105, a
check payable to Hilliard-Lyons Government Fund, Inc., accompanied by a letter
indicating the dollar value of the shares to be purchased and identifying the
Fund, the account number, and the name or names in which the account is
registered. A shareholder also may deliver a check payable to the Fund to any
office of Hilliard-Lyons and thereby add to his account, or may instruct
Hilliard-Lyons in writing, by telephone or in person to purchase Fund shares
with immediately available funds on account at Hilliard-Lyons. Shareholders who
have brokerage accounts with Hilliard-Lyons may participate in a "sweep"
program whereby Hilliard-Lyons automatically invests their account dividends
and interest income in Fund shares on a weekly basis, thus avoiding loss of
interest from idle cash. To participate in the "sweep" program, shareholders
should contact a financial consultant of Hilliard-Lyons.
Subsequent investments may also be made by a shareholder wiring Federal funds
to "Hilliard-Lyons Government Fund, Inc., c/o Custodian Services Department,
State Street Bank and Trust Company, Boston, Massachusetts" together with the
name in which the account is registered and the account number.
GENERAL PURCHASE INFORMATION
The Fund is offering its shares without sales charge at a public offering
price equal to the net asset value next determined after a purchase order
becomes effective. See "Net Asset Value". If Federal funds are available to the
Custodian or Hilliard-Lyons before 12:00 noon Boston time on any business day,
the purchase order will be effective on that day. If Federal funds are
available to the Custodian or Hilliard-Lyons after 12:00 noon on any business
day, the purchase order will be effective on the next business day. (For
purposes of this prospectus, the term "business day" means every day except
Saturdays, Sundays and certain legal holidays.)
7
<PAGE>
Checks delivered to Hilliard-Lyons or the Custodian for investment in shares
of the Fund normally do not become converted into Federal funds available to
Hilliard-Lyons or the Custodian until approximately two business days after the
check is deposited. If Hilliard-Lyons is instructed to purchase shares with
immediately available funds on account at Hilliard-Lyons, Federal funds will be
available to Hilliard-Lyons at the time it receives the instruction. A wire
transfer of Federal funds will be available to the Custodian at the time the
Custodian receives the wire transfer. Each order accepted will be fully
invested in whole and fractional shares.
Each investment is confirmed by a monthly statement which provides the
details of any transactions that took place that month. The information
furnished includes the dollar amount invested, the number of shares purchased
or redeemed, the price per share, and the aggregate shares owned.
The shares which a shareholder purchases are held in an open account, thereby
relieving the shareholder of the responsibility of providing for the
safekeeping of a negotiable share certificate. Shareholders have the same
rights of ownership with respect to such shares as if certificates had been
issued.
If an order to purchase shares must be canceled due to non-payment, the
purchaser will be responsible for any loss incurred by the Fund arising out of
such cancellation. To recover any such loss, the Fund reserves the right to
redeem shares owned by any purchaser whose order is canceled, and such
purchaser may be prohibited from or restricted in the manner of placing further
orders.
The Fund reserves the right in its sole discretion to withdraw all or any
part of the offering made by this prospectus or to reject purchase orders when,
in the judgment of management, such withdrawal or rejection is in the best
interest of the Fund and its shareholders. The Fund also reserves the right at
any time to waive or increase the minimum requirements applicable to initial or
subsequent investments with respect to any person or class of persons.
HOW TO REDEEM SHARES
Shareholders may redeem shares of the Fund at their net asset value as
described below. See "Net Asset Value". A shareholder may elect to use either
the telephone or mail redemption procedures or, if checks have been issued in
respect of the shareholder's account, redemption by check. If a shareholder
desires to utilize check redemption procedures this should be indicated on the
shareholder's Fund application.
Redemption by check or by telephone is not available for shares purchased by
personal or corporate checks which have been on the books of the Fund for less
than 15 days.
REDEMPTION BY TELEPHONE
A shareholder may withdraw any amount in excess of $100 from his account by
calling Hilliard-Lyons at 502-588-8400. If the redemption request is received
at any office of Hilliard-Lyons before 12:00 noon Boston time on any business
day, the redemption order will be forwarded to the Custodian and the redemption
will be effective as of 12:00 noon Boston time on that day. If the redemption
request is received at any office of Hilliard-Lyons after 12:00 noon Boston
time, the redemption will be effective on the following business day. Depending
upon what was specified in the shareholder's application, the proceeds of a
telephone redemption will be wired either to the shareholder's account at
Hilliard-Lyons or to the shareholder's bank account. Shareholder's desiring to
utilize the redemption by telephone procedure should so indicate on their Fund
application. Further documentation may be required from corporations,
fiduciaries and institutional investors. If a shareholder should
8
<PAGE>
desire the Fund to wire the proceeds of any telephone redemption request
directly to the shareholder's bank and he has not so indicated on his Fund
application, the shareholder will be required to furnish to the Fund, in
advance of or concurrently with the request, a new Fund application identifying
the bank and indicating the shareholder's account number. The signature(s) on
any such instructions must be guaranteed by a member firm of the New York Stock
Exchange or by a commercial bank or trust company (not a savings bank) which is
a member of the Federal Deposit Insurance Corporation. Notaries Public are not
acceptable guarantors. There will be a $5.00 charge for each wiring of proceeds
of redeemed shares if wired otherwise than to a shareholder's account at
Hilliard-Lyons. This charge will be deducted from the proceeds to be wired and
will be paid to the Custodian to cover the administrative expenses of
processing the redemption.
Funds will normally be transmitted on the business day on which the
redemption becomes effective and credited to the shareholder's Hilliard-Lyons
account on the same day. If a shareholder so desires, a check representing the
proceeds of such redemption will be available to the shareholder at Hilliard-
Lyons after such proceeds have been credited to the shareholder's Hilliard-
Lyons account. Alternatively, and normally no later than the next business day,
Hilliard-Lyons will mail a check representing such proceeds to the shareholder
if so instructed.
The Fund and Hilliard-Lyons reserve the right to reject a telephone request
and the Fund, at its option, may limit the frequency or amount of such
redemptions. The Fund in its discretion may honor telephonic withdrawal
requests in amounts less than $100.
REDEMPTION BY MAIL
To redeem shares by mail, a shareholder must submit a written redemption
request to the Custodian, State Street Bank and Trust Company, P.O. Box 1912,
Boston, Massachusetts 02105, in proper form, specifying the number of shares to
be redeemed and signed by the shareholder(s) in the same way as the account is
registered, with signature(s) guaranteed by a member firm of the New York Stock
Exchange or by a commercial bank or trust company (not a savings bank) which is
a member of the Federal Deposit Insurance Corporation. Notaries Public are not
acceptable guarantors. A shareholder should also include any documents required
by special situations. Shareholders may request that proceeds from the
redemption of shares be wired to their brokerage account at Hilliard-Lyons.
Normally, payment will be made by check mailed within one business day after
receipt of a redemption request in proper form.
Redemption requests should not be mailed to the Fund in Louisville or to
Hilliard-Lyons as this will result in delay. If a redemption request should be
received by the Fund or Hilliard-Lyons, it will be forwarded to the Custodian
and will become effective, if in proper form, at the net asset value next
determined after receipt by the Custodian.
REDEMPTION BY CHECK
The Fund will provide shareholders, upon request, with forms of checks drawn
on the State Street Bank and Trust Company (the "Bank"). The Bank will
establish a checking account for the shareholder. These checks may be made
payable to any person in any amount of not more than $5,000,000. When such a
check is presented to the Bank for payment, the Bank, as the shareholder's
agent, will request the Fund to redeem a sufficient number of full and
fractional shares in the shareholder's account to cover the amount of the
check. The shareholder will continue earning daily income dividends until the
check is cleared and such shares are redeemed. The shareholder will be subject
to all applicable Bank rules and regulations including the right of the Bank
not to honor checks in amounts exceeding the value of the account at the time
the check is presented for payment.
9
<PAGE>
The Fund and the Bank each reserve the right to modify or terminate this
service at any time after giving notice to the shareholders. If a shareholder
wishes to use this method of redemption this should be indicated on the
shareholder's Fund application. Checks should not be used to close a
shareholder's account since the amount in the account, including accrued
dividends, may not equal the amount of the check. Shareholders will receive
their canceled checks for record keeping purposes monthly.
REDEMPTION BY SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan (the "Withdrawal Plan") is available for
shareholders of the Fund. The Withdrawal Plan allows for monthly or quarterly
payments to the participating shareholder in amounts not less than $100.
Shareholders desiring to utilize the Withdrawal Plan procedure should so
indicate on their Fund application.
Dividend distributions on shares held under the Withdrawal Plan are
reinvested in additional full and fractional shares of the Fund at net asset
value. The Transfer Agent acts as agent for the shareholder in redeeming
sufficient full and fractional shares to provide the amount of the systematic
withdrawal payment. The Withdrawal Plan may be terminated at any time.
Withdrawal payments should not be considered to be dividends or income. If
periodic withdrawals continuously exceed reinvested dividend distributions, the
shareholder's original investment will be correspondingly reduced and
ultimately exhausted. Furthermore, each withdrawal constitutes a redemption of
shares, and any gain or loss realized must be reported for federal and state
income tax purposes. Shareholders should consult their tax adviser regarding
the tax consequences of participating in the Withdrawal Plan.
GENERAL
The redemption price will be the net asset value per share of the Fund next
determined after receipt by the Custodian of a redemption request in proper
form or, with respect to redemption by telephone, at the net asset value per
share next determined after receipt of a redemption request by Hilliard-Lyons.
In no event will payment be delayed more than seven days, except payment may
be delayed (generally not in excess of 15 days) if the check in payment of all
or a portion of the shares being redeemed has not cleared at the time the
redemption request is received. The Fund may suspend the right of redemption or
delay payment more than seven days during any period when the New York Stock
Exchange is closed (other than customary weekend or holiday closings), when
trading in the markets customarily utilized by the Fund is restricted or when
an emergency exists so that disposal of investments or determination of net
asset value is not reasonably practicable, or for such other period as the
Securities and Exchange Commission by order may permit for protection of
shareholders.
Although the Fund will attempt to maintain a consistent share price of $1.00,
it is possible that the value of the shares upon redemption may be more or less
than the shareholder's cost, depending upon the market value of the Fund's
portfolio securities at the time of redemption. See "Net Asset Value" and
"Daily Income Dividends".
The Board of Directors may authorize redemption of all of the shares in any
account in which there are fewer than l,000 shares. Before authorizing such
redemption, the Board of Directors must determine that it is in the Fund's
economic best interests, or necessary to reduce disproportionately burdensome
expenses in servicing shareholder accounts. At least 60 days' prior notice will
be given before such redemption, during which time shareholders may bring their
accounts up to the minimum set by the Board of Directors to avoid redemption.
If a shareholder has any questions concerning the procedures for redeeming
shares the shareholder should call Hilliard-Lyons or contact a Hilliard-Lyons
financial consultant prior to submitting a redemption request.
10
<PAGE>
NET ASSET VALUE
The net asset value per share of the Fund for purposes of pricing orders for
both the purchase and redemption of Fund shares is determined once daily on
each day except Saturdays, Sundays and certain legal holidays. The Fund will
also determine its net asset value on any day on which there is sufficient
trading in its portfolio securities that the net asset value might be
materially affected, but only if on such day the Fund is required to sell or
redeem shares. Net asset value is determined as of 12:00 noon Boston time for
the purpose of pricing orders received prior to that time. Net asset value per
share is calculated by adding the value of all securities in the portfolio and
other assets, subtracting liabilities and dividing by the number of shares
outstanding. Expenses, including the fees payable to Hilliard-Lyons, are
accrued daily.
Portfolio securities are valued using the amortized cost method.
Since realized and unrealized changes in the value of the Fund's portfolio
securities are ordinarily reflected in dividends rather than net asset value
per share, such net asset value per share will ordinarily be maintained at
$1.00. See "Daily Income Dividends".
DAILY INCOME DIVIDENDS
The net income of the Fund is determined as of 12:00 noon Boston time on
each day on which the net asset value is determined and is declared as a
dividend payable to holders of record immediately prior to the time of
determination of net asset value on such day. Dividends declared since the
preceding dividend payment date are distributed monthly. Monthly dividend
distributions may be reinvested in additional shares or paid in cash, as the
shareholder requests, and are payable to shareholders as of the fifteenth day
of each month if the fifteenth is a day on which the net asset value is
determined, or, if not, as of the preceding day on which the net asset value
is determined. A monthly statement summarizing account activity will be mailed
to each shareholder who has elected to receive dividends in additional shares
of the Fund. Shareholders who have not elected to invest their dividends in
shares of the Fund will receive a check with an attached statement providing
information on that dividend and on recent transactions in their account.
Shares begin earning income at 12:00 noon Boston time on the date the
purchase becomes effective. See "How to Purchase Shares". Income earned on
weekends, holidays, and other days which are not business days, will be
declared as a dividend on the next business day.
The Fund's net income for dividend purposes includes accrued interest and
accretion of original issue and market discount earned and amortization of
premium, plus or minus any net realized gain or loss in portfolio securities
occurring since the previous dividend declaration, less the estimated expenses
of the Fund for such period. Under this dividend policy, the daily dividend
declared on Fund shares will fluctuate. By reflecting these capital changes in
the dividends paid rather than in the net asset value per share, the net asset
value per share will ordinarily remain constant at $1.00 unless the Fund
experiences an extraordinarily large expense or loss on portfolio securities.
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to compute net asset value per share of the Fund to
an accuracy of 1% (the nearest penny). Therefore, the Fund's net asset value
per share would decline to $.99 per share in the event that realized losses,
plus expenses, since the prior dividend were to exceed the Fund's income
(without regard to such losses or expenses) by an amount of $.005 or more per
share. Accordingly, it is possible that a shareholder could purchase shares of
the Fund at $1.00 per share and thereafter the value of these shares could
decline to $.99 or less and the shareholder could thereby incur a loss on his
investment.
11
<PAGE>
TAXES
The Fund has elected to qualify under the Internal Revenue Code of 1986, as
amended ("Code"), as a regulated investment company and to distribute all of
its taxable income to shareholders, thereby relieving it of Federal income tax
liability. To qualify for this treatment, it is necessary for the Fund to
derive at least 90% of its gross income from dividends, interest and gain from
the sale or other disposition of securities and certain other types of passive
income; derive less than 30% of its gross income from the sale or other
disposition of securities held less than three months; invest in securities
within certain limits; and distribute to its shareholders at least 90% of its
net income earned in any year.
Since all net income is being distributed as dividends, it is taxable to
shareholders as ordinary income, except for such portion as may exceed a
shareholder's ratable share of the Fund's earnings and profits as determined
for tax purposes, which excess will be applied against and reduce the
shareholder's cost or other tax basis for his shares. See "Daily Income
Dividends". If the excess described above were to exceed the shareholder's tax
basis for his shares, the amount thereof would be treated as gain from the sale
or exchange of such shares.
Dividends paid by the Fund from its net investment income, and distributions
of the Fund's net realized short-term capital gains, are taxable to the
shareholder as ordinary income regardless of whether they are paid in cash or
additional shares. At present, no portion of the dividends paid by the Fund is
expected to qualify for the dividends received deduction for corporations. To
avoid being subject to a 31% Federal withholding tax on taxable dividends,
capital gains distributions and proceeds of redemptions, shareholders' taxpayer
identification numbers must be furnished and certified as to accuracy.
Information concerning the tax status of dividends and distributions is
mailed to shareholders annually.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury Regulations promulgated thereunder. The Code and these
Regulations are subject to change by legislative or administrative action,
respectively.
OTHER TAXES
The Fund may be subject to state or local tax in certain jurisdictions where
the Fund may be deemed to be doing business. Shareholders are urged to consult
their own tax advisers regarding specific questions as to Federal, state or
local taxes.
MANAGEMENT OF THE FUND
DIRECTORS
The business and affairs of the Fund are managed under the direction of its
Board of Directors.
INVESTMENT ADVISER AND DISTRIBUTOR
Hilliard-Lyons has been retained by the Fund as its investment adviser under
an Investment Advisory Agreement (the "Agreement") dated December l, 1980.
Under the Agreement, Hilliard-Lyons supervises investment operations of the
Fund and the composition of its portfolio and furnishes advice and
recommendations
12
<PAGE>
with respect to investments and the purchase and sale of securities in
accordance with the Fund's investment objectives, policies and restrictions;
subject, however, to the general supervision and control of the Fund's Board of
Directors. The Agreement also requires Hilliard-Lyons to furnish office
facilities to the Fund at its own expense and to pay certain other expenses of
the Fund.
Hilliard-Lyons is a registered broker-dealer and a member of the New York,
American and Chicago Stock Exchanges, the Chicago Board Options Exchange and
the National Association of Securities Dealers, Inc. Hilliard-Lyons maintains
an Investment Advisory Department and is registered with the Securities and
Exchange Commission as an investment adviser, rendering advice to both
individual and institutional clients. Assets under management in this
department on November 30, 1997, were over $4,000,000,000.
For the services Hilliard-Lyons renders and facilities it furnishes, the Fund
has agreed to pay Hilliard-Lyons an annual advisory fee. The annual advisory
fee paid for the fiscal year ended August 31, 1997 was .37% of the Fund's
average daily net assets for that fiscal year.
Pursuant to the terms of a Distribution Agreement entered into with the Fund,
Hilliard-Lyons also serves as the principal underwriter and distributor of the
Fund's shares.
Certain affiliated persons of the Fund are also affiliated persons of
Hilliard-Lyons. Mr. Donald F. Kohler, Chairman of the Board of Directors of the
Fund, is an Executive Vice President and a Director of Hilliard-Lyons. Mr.
Joseph C. Curry, Jr., President and a Director of the Fund, is a Senior Vice
President of Hilliard-Lyons. Mr. Gilbert L. Pamplin, a Director of the Fund, is
a former Chairman and Chief Executive Officer of Hilliard-Lyons. Ms. Dianna P.
Wengler, Vice President and Treasurer of the Fund, is a Vice President of
Hilliard-Lyons. Mr. J. Henning Hilliard, a Director of the Fund, is a former
Senior Executive and Director of Hilliard-Lyons.
TRANSFER AND DIVIDEND AGENT
State Street Bank and Trust Company, 225 Franklin Street, P.O. Box 1912,
Boston, Massachusetts 02105, is the Fund's transfer agent and dividend
disbursing agent.
EXPENSES
For the fiscal year ended August 31, 1997, the ratio of operating expenses to
average net assets of the Fund was .57%.
ORGANIZATION AND CAPITALIZATION
The Fund operates as a diversified open-end management investment company. It
was incorporated under the laws of Maryland on June 5, 1980 and has an
authorized capital consisting of 1,500,000,000 shares of common stock, $.01 par
value per share. All shares have equal non-cumulative voting rights and equal
rights with respect to dividends, distributions, redemptions and liquidation.
The shares are fully paid and non-assessable when issued and have no
preemptive, conversion or exchange rights.
13
<PAGE>
REPORTS
The Fund distributes semi-annual and annual reports to its shareholders. An
annual report containing audited financial statements is issued after the end
of each fiscal year, which ends on August 31. Tax information with regard to a
shareholder's account is mailed to each shareholder annually.
ADDITIONAL INFORMATION
This prospectus does not contain all the information included in the
Registration Statement filed with the Securities and Exchange Commission under
the Securities Act of 1933 with respect to the securities offered hereby,
certain portions of which have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The Registration
Statement including the exhibits filed therewith may be examined at the office
of the Securities and Exchange Commission in Washington, D.C.
Statements contained in this prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement of which this prospectus forms a part,
each such statement being qualified in all respects by such reference.
14
<PAGE>
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
NO DEALER, INVESTMENT BROKER OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION, AND IF
GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND OR J. J. B. HILLIARD, W. L. LYONS, INC.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE,
OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITA-
TION.
J.J.B. HILLIARD,
W.L. LYONS, INC.
HILLIARD LYONS CENTER
LOUISVILLE, KENTUCKY 40202
MEMBER NEW YORK STOCK EXCHANGE, INC.
MEMBER AMERICAN STOCK EXCHANGE, INC.
MEMBER MIDWEST STOCK EXCHANGE, INC.
MEMBER CHICAGO BOARD OPTIONS EXCHANGE
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
Hilliard-Lyons Government Fund, Inc.
Mailing address: Post Office Box 32760
Hilliard Lyons Center
Louisville, Kentucky 40232
Phone: (502) 588-8400
Investment Adviser and Distributor
J. J. B. Hilliard, W. L. Lyons, Inc.
Post Office Box 32760
Hilliard Lyons Center
Louisville, Kentucky 40232
Phone: (502) 588-8400
Custodian and Transfer Agent
State Street Bank and Trust Company
225 Franklin Street
P.O. Box 1912
Boston, Massachusetts 02105
Legal Counsel
Brown, Todd & Heyburn PLLC
400 West Market Street
Louisville, Kentucky 40202
Independent Auditors
Ernst & Young LLP
400 West Market Street
Louisville, Kentucky 40202
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 1, 1998
- - -------------------------------------------------------------------------------
HILLIARD-LYONS GOVERNMENT FUND, INC.
HILLIARD LYONS CENTER
LOUISVILLE, KENTUCKY 40202
(502) 588-8400
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Fund's prospectus dated January 1, 1998 which may
be obtained at no cost from J.J.B. Hilliard, W.L. Lyons, Inc. ("Hilliard-
Lyons"), Hilliard Lyons Center, Louisville, Kentucky 40202.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES......................................... 3
Investment Restrictions................................................... 3
Change in Investment Policies............................................. 4
INDIVIDUAL RETIREMENT ACCOUNTS............................................. 4
NET ASSET VALUE............................................................ 6
MANAGEMENT................................................................. 6
INVESTMENT ADVISORY AND OTHER SERVICES..................................... 7
Investment Adviser and Distributor........................................ 7
Custodian................................................................. 10
Independent Auditors...................................................... 10
PORTFOLIO TRANSACTIONS..................................................... 10
YIELD INFORMATION.......................................................... 11
ADDITIONAL INFORMATION..................................................... 12
FINANCIAL STATEMENTS....................................................... 13
REPORT OF INDEPENDENT AUDITORS............................................. 18
</TABLE>
2
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion under~ "Investment
Objectives and Policies" in the Fund's prospectus.
INVESTMENT RESTRICTIONS
The Fund may not purchase a security if, as a result: (a) more than 5% of the
value of the Fund's total assets would be invested in the securities of a
single issuer, except securities issued or guaranteed by the U.S. Government,
or any of its agencies or instrumentalities, and repurchase agreements
collateralized by such securities; (b) 10% or more of the outstanding
securities of any class of any issuer would be held by the Fund (for this
purpose, all indebtedness of an issuer is deemed to be of a single class),
except securities issued or guaranteed by the U.S. Government, or any of its
agencies or instrumentalities, and repurchase agreements collateralized by such
securities; (c) 25% or more of the value of the Fund's total assets would be
invested in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply
to obligations issued or guaranteed by the U.S. Government, or its agencies or
instrumentalities, or to repurchase agreements collateralized by such
securities, or to certificates of deposit or domestic bankers' acceptances; (d)
more than 5% of the value of the Fund's total assets would be invested in the
securities (taken at cost) of issuers which, at the time of purchase, had been
in operation less than three years, including predecessors and unconditional
guarantors, except investments in obligations issued or guaranteed by the U.S.
Government, or any of its agencies or instrumentalities, and repurchase
agreements collateralized by such securities.
The Fund may not: (1) purchase any common stock or other equity securities,
or securities convertible into equity securities; (2) purchase securities with
legal or contractual restrictions on resale (except repurchase agreements) or
securities which are otherwise not readily marketable; (3) purchase or sell
real estate (although it may purchase money market securities secured by real
estate or interests therein, or issued by companies which invest in real estate
or interests therein); (4) purchase securities of other investment companies,
except in connection with a merger, consolidation, acquisition, or
reorganization; (5) purchase or sell commodities or commodity contracts; (6)
purchase participations or other direct interests in oil, gas, or other mineral
exploration or development programs; (7) purchase securities on margin, except
for use of short-term credit necessary for clearance of purchases of portfolio
securities; (8) make loans, although it may purchase money market securities
and enter into repurchase agreements; (9) borrow money, except as a temporary
measure for extraordinary or emergency purposes, and then only from banks in
amounts not exceeding the lesser of 10% of its total assets valued at cost or
5% of its total assets valued at market. The Fund will not borrow in order to
increase income (leveraging), but only to facilitate redemption requests which
might otherwise require untimely disposition of portfolio securities.
Accordingly, the Fund will not purchase securities while borrowings are
outstanding; (10) mortgage, pledge, hypothecate, or in any other manner
transfer as security for indebtedness any security owned by the Fund, except as
may be necessary in connection with permissible borrowings mentioned in (9)
above, and then such mortgaging, pledging, or hypothecating may not exceed 15%
of the Fund's assets, taken at cost; provided, however, that as a matter of
operating policy, the Fund will limit any such mortgaging, pledging or
hypothecating to 10% of its net assets, taken at market, in order to comply
with certain state investment restrictions; (11) underwrite securities issued
by other persons; (12) purchase or retain the securities of any issuer if, to
the knowledge of the Fund's management, those officers and directors of the
Fund, and of its investment adviser, each of whom owns beneficially more than
1/2 of 1% of the outstanding securities of such issuer, together own
beneficially more than 5% of such securities; (13) invest in companies for the
purpose of exercising management or control; or (14) invest in puts, calls,
straddles, spreads or any combination thereof.
3
<PAGE>
All of these investment restrictions, except that described as an operating
policy in (10), are fundamental policies and may not be changed without the
approval of at least a majority of the outstanding shares of the Fund or, if it
is less, 67% of the shares represented at a meeting of shareholders at which
the holders of 50% or more of the shares are represented. Operating policies
are subject to change by the Board of Directors without shareholder approval.
However, the operating policy of investing exclusively in securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements collateralized by such securities, which securities
(except those covered by repurchase agreements) will mature in six months or
less, may be changed by the Board of Directors only if 30 days written notice
is forwarded to shareholders. Likewise, such notice must be given if the Fund
is to change its policy of investing not more than 10% of its total assets in
repurchase agreements maturing in more than seven business days.
CHANGE IN INVESTMENT POLICIES
Should the yield differential between the securities in which the Fund
invests and other high quality, short-term investments widen to in excess of 1
3/4%, management may recommend to the Fund's Board of Directors that it
consider authorizing investments in securities other than those issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, or in
repurchase agreements collateralized by such securities. The Board of Directors
may, at its discretion, but only after 30 days written notice to the
shareholders, authorize this change in investment policy, provided such
investments are not prohibited by the Fund's investment restrictions or by
applicable law. If such policy is changed (after 30 days written notice to
shareholders) the Fund will only invest in the following: (i) short-term
(maturing in one year or less) debt obligations which are payable in dollars,
issued or guaranteed by the Federal government, Federal governmental agencies
or instrumentalities, or certain banks, savings and loan associations, and
corporations; (ii) certificates of deposit issued by domestic banks (but not
foreign branches thereof) and savings and loan associations which have total
assets in excess of $1 billion; (iii) bankers' acceptances or letters of credit
guaranteed by U.S. commercial banks having total assets in excess of $1
billion; (iv) commercial paper which is rated A-2 or higher by Standard &
Poor's Corporation ("Standard & Poor's") or rated P-2 or higher by Moody's
Investors Service, Inc. ("Moody's") or, if not rated, will be issued by a
corporation having an existing debt security rated AA or higher by Standard &
Poor's or Aa or higher by Moody's; (v) other debt instruments (including bonds)
issued by domestic corporations which either mature within one year or have
been called for redemption by the issuer, with such redemption to be effective
within one year, and which are rated AA or higher by Standard & Poor's or Aa or
higher by Moody's; (vi) obligations issued by other entities, if the obligation
is accompanied by a guarantee of principal and interest of a bank or
corporation whose certificates of deposit or commercial paper may otherwise be
purchased by the Fund; and (vii) repurchase agreements collateralized by any of
the foregoing types of securities. Although securities underlying the
repurchase agreements may have maturities longer than one year, no repurchase
agreements will be entered into with a duration of more than seven business
days, if as a result more than 10% of the Fund's total assets would be so
invested. The Fund has no present plans to change its policy with regard to the
types or maturities of the securities in which it invests, and the Fund's
prospectus will be supplemented to give further information should the Fund's
Board of Directors authorize such a change.
INDIVIDUAL RETIREMENT ACCOUNTS
To enable its shareholders to take advantage of the tax laws governing
retirement plans, the Fund has established an Individual Retirement Account
Plan ("IRA Plan"). Cash contributions to an IRA made under conditions outlined
below are deductible from gross income, and investment earnings accumulate tax-
free.
4
<PAGE>
In the case of contributions made for the 1998 tax year, an individual is not
permitted to make a deductible IRA contribution if the individual has adjusted
gross income that exceeds an applicable dollar amount or if the individual is
an active participant in an employer maintained defined benefit retirement
plan for any part of the plan year ending with or within the individual's
taxable year or, in the case of a defined contribution plan, if an employer
contribution or any forfeiture is allocated to the individual's account with
respect to the individual's taxable year. For a married individual filing a
joint return, a contribution can be made if neither spouse is an active
participant in employer-sponsored plan or the couple has a combined applicable
dollar amount of less than $50,000. The applicable dollar amount is $30,000.
Active plan participants with adjusted gross income of $30,000 to $40,000 (if
single) or $150,000 to $160,000 (if married) may deduct only a portion of an
IRA contribution. In addition, no deduction for a contribution is permitted if
the contributing individual is age 70 1/2 before the close of the taxable
year. The Fund recommends that you consult with your tax adviser or other
professional to determine whether or not contributions for 1997 will be
deductible. The Fund uses the Individual Retirement Custodian Account
Agreement of the Internal Revenue Service (Form 5305-A), in which provisions
have been incorporated directing the Custodian, State Street Bank and Trust
Company, to invest in shares of the Fund.
For the purpose of investing in the IRA Plan, the initial minimum investment
in Fund shares is $1,000; minimum subsequent investments are $100. Individuals
are eligible to contribute to IRAs even if they currently participate in
qualified pension plans, although, as indicated above, the contribution may
not be deductible. Contribution limits are the lesser of 100% of compensation
or $2,000. An individual may contribute and deduct $2,000 to an IRA for the
individual's non-working spouse if a joint return is filed and the combined
spousal IRA contributions (subject to a maximum limit of $2,000 each) do not
exceed the spouses' combined income. Amounts contributed above these limits
may be subject to a 6% excise tax. Under certain conditions, lump sums and
partial distributions of any size received as distributions from other
retirement plans m~ay be "rolled over" into the IRA Plan without a penalty.
Withdrawals from the IRA constitute regular taxable income, but are subject
to penalties in addition to the normal tax if they are made before the
depositor attains the age of 59 1/2 (unless the withdrawal is made for certain
exceptional reasons including, but not limited to, withdrawals after the
depositor has become disabled or is deceased) or if minimum distributions are
not made after the depositor attains the age of 70 1/2 years.
State Street Bank and Trust Company, the Plan Trustee and Custodian, charges
$5 to open an IRA and $10 as an annual maintenance fee. Fees are also charged
for distributions: $10 for lump sums and $2 for each periodic distribution.
If you want to participate in the Fund's IRA Plan, contact Hilliard-Lyons.
You will be sent Form 5305-A and designation of beneficiary forms. You should
fill out the Form and send it to the Fund along with one beneficiary form and
a check for your initial contribution (including $5 as the fee for opening the
account).
The Fund will review your application and forward it to the Custodian after
a required seven day waiting period. You may revoke your investment by mail or
by telegram during this period. Subsequent investments ($100 minimum) are sent
directly to the Custodian, who will buy full and fractional Fund shares at the
net asset value next determined after your check clears and the Custodian
receives Federal funds. See "General Purchase Information" in the Fund's
Prospectus.
The Fund recommends that you consult with your tax adviser before investing
in the IRA Plan.
5
<PAGE>
NET ASSET VALUE
As stated in the Fund's prospectus, net asset value per share as of a given
date is calculated by adding the value of all securities in the portfolio and
other assets of the Fund, subtracting liabilities and dividing by the number
of shares outstanding. Expenses, including the fees payable to Hilliard-Lyons,
are accrued daily.
Portfolio securities are valued by use of the amortized cost method of
valuation. The amortized cost method of valuation involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact
of fluctuating interest rates on the market value of the instrument. While
this method provides certainty in valuation, it may result in periods during
which value, as determined by this method, is higher or lower than the price
the Fund would receive if it sold the instrument. During such periods the
yield to investors in the Fund may differ somewhat from that obtained in a
similar company which uses other methods to determine the fair market value of
its portfolio securities.
The relationship between the amortized cost value per share and the net
asset value per share based upon available indications of market value is
monitored. The Board of Directors will decide what, if any, steps should be
taken if there is a difference of more than 1/2 of 1% between the two. The
Board of Directors will take any steps they consider appropriate to minimize
any material dilution or other unfair results arising from differences between
the two methods of determining net asset value.
In connection with its attempt to maintain its net asset value per share of
$1.00, the Fund has received an order of exemption from the Securities and
Exchange Commission permitting the Fund to round its net asset value per share
to the nearest one cent. In connection with the order of exemption, the Fund
has agreed: (i) that its Board of Directors will undertake to assure, to the
extent reasonably practicable, taking into account current market conditions
affecting its investment objectives, that the Fund's price per share, rounded
to the nearest one cent, will not deviate from $1.00; (ii) that it will
maintain a dollar-weighted average portfolio maturity appropriate to its
objective of maintaining a stable price per share and not, in any event, in
excess of 90 days; and (iii) that its purchases of portfolio securities will
be limited to those United States dollar denominated instruments which its
Board of Directors determines present minimal credit risks and which are of
high quality as determined by any major rating service or, in the case of any
instrument that is not so rated, of comparable quality as determined by its
Board of Directors.
MANAGEMENT
Directors and officers of the Fund, together with information as to their
principal occupations during the past five years and affiliations, if any,
with Hilliard-Lyons, are set forth below.
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST 5 YEARS
---------------- ---------------- -----------------------
<S> <C> <C>
Donald F. Kohler*....... Chairman of the Board Retired, Former Executive
Hilliard Lyons Center Vice President and
Louisville, Kentucky Director, J. J. B.
40202 Hilliard, W. L. Lyons, Inc.
Joseph C. Curry, Jr.*... President and Director Senior Vice President, J. J.
Hilliard Lyons Center B. Hilliard, W. L. Lyons,
Louisville, Kentucky Inc.
40202
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST 5 YEARS
---------------- ---------------- -----------------------
<S> <C> <C>
Gilbert L. Pamplin*..... Director Retired, former Chairman and
Hilliard Lyons Center Chief Executive Officer, J.
Louisville, Kentucky J. B. Hilliard, W. L.
40202 Lyons, Inc.
J. Henning Hilliard*.... Director Retired, former Senior
Hilliard Lyons Center Executive and Director, J.
Louisville, Kentucky J. B. Hilliard, W. L.
40202 Lyons, Inc.
Dillman A. Rash+........ Director Investment consultant, Major
Hilliard Lyons Center General (Retired), U.S.
Louisville, Kentucky Army
40202
J. Robert Shine+........ Director Chairman and Certified
222 East Market Street Public Accountant, Monroe
New Albany, Indiana Shine & Co., Inc.
47150
Samuel G. Miller+ ...... Director Retired, former Chairman of
402 Wynfield Close Vineyard Village
Court
Louisville, Kentucky
40206
Dianna P. Wengler*...... Vice President and Treasurer Vice President, J. J. B.
Hilliard Lyons Center Hilliard, W. L. Lyons, Inc.
Louisville, Kentucky
40202
Penny L. Wellinghurst*.. Secretary Investment Advisory
Hilliard Lyons Center Department, J. J. B.
Louisville, Kentucky Hilliard, W. L. Lyons, Inc.
40202
</TABLE>
- - --------
*An "interested person", as defined by the Investment Company Act of 1940.
+Member of Audit Committee.
No compensation is paid by the Fund to officers of the Fund and directors
who are affiliated with Hilliard-Lyons. The Fund pays each unaffiliated
director an annual retainer of $2,000, a fee of $500 for each meeting of the
Board of Directors and of the Audit Committee attended and all expenses the
directors incur in attending meetings. For the year ended August 31, 1997,
unaffiliated directors received, in the aggregate, $13,500 from the Fund,
excluding reimbursed expenses.
The Fund's officers and directors together own approximately 1% of its
outstanding shares.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER AND DISTRIBUTOR
Hilliard-Lyons has been retained by the Fund as its investment adviser under
an Investment Advisory Agreement (the "Agreement") dated December 1, 1980.
The Agreement was approved by the Board of Directors, including a majority
of the directors who are not interested persons of Hilliard-Lyons, and by the
initial shareholder of the Fund, prior to the initial public offering of the
Fund's shares. The Agreement was reapproved for one year on October 23, 1997,
by the Board of
7
<PAGE>
Directors, including a majority of the directors who are not interested persons
of Hilliard-Lyons. The Agreement will continue in effect from year to year,
provided that such continuance is approved at least annually (a) by a majority
of the Fund's directors who are not interested persons of Hilliard-Lyons and
(b) by either the Fund's Board of Directors or by the vote of a majority of the
outstanding voting securities of the Fund (as defined in the Investment Company
Act of 1940).
The Agreement may be terminated by Hilliard-Lyons at any time without penalty
upon giving the Fund 60 days' written notice and may be terminated by the Fund
at any time without penalty upon giving Hilliard-Lyons 60 days' written notice,
provided that such termination by the Fund is directed or approved by the vote
of a majority of the Board of Directors of the Fund or by the vote of a
majority of the outstanding voting securities of the Fund (as defined in the
Investment Company Act of 1940). The Agreement will automatically terminate in
the event of its assignment.
The Agreement requires Hilliard-Lyons at its own expense to furnish office
space to the Fund and all necessary office facilities, equipment, and personnel
for managing the assets of the Fund. Hilliard-Lyons pays all other expenses
incurred by it in connection with managing the assets of the Fund, including,
but not limited to, the cost and expense of research, analysis and supervision
of the investment portfolio. Hilliard-Lyons pays the expense of determining the
daily price of shares of the Fund and the related bookkeeping expenses (other
than for such services as are provided by the Fund's Custodian) and one-half of
the fees of any trade association of which the Fund may be a member. Hilliard-
Lyons paid all costs and expenses incurred in connection with the Fund's
organization, the initial registration for offer and sale of the Fund's shares
under the Securities Act of 1933 and under applicable state securities laws and
the initial registration of the Fund under the Investment Company Act of 1940,
including legal, accounting and printing expenses.
Under the Agreement, the Fund pays all charges of depositories, custodians,
and other agencies for the safekeeping and servicing of its cash, securities,
and other property, and of its transfer, shareholder record- keeping, dividend
disbursing, and redemption agents. The Fund pays all charges of legal counsel
and of independent auditors, other than those described in the preceding
paragraph. The Fund is responsible for all interest expense. The expense of
notices, proxy solicitation material, reports to its shareholders and of all
prospectuses furnished from time to time to existing shareholders or used for
regulatory purposes are the Fund's responsibility. The Fund pays for any bond
and insurance coverage required by law, all brokers' commissions and other
normal charges incident to the purchase and sale of portfolio securities. The
Fund pays all taxes and corporate fees payable to Federal, state, or other
governmental agencies and all stamp or other transfer taxes. The Fund bears all
expenses of complying with Federal, state, and other laws regulating the issue
or sale of shares except for those expenses that were attributable to initial
Federal and state securities law compliance and those deemed to be sales or
promotional expenses. The Fund also bears one-half of the fees of any trade
association of which the Fund may be a member and all of the Fund's
extraordinary expenses as may arise including expenses incurred in connection
with litigation, proceedings and claims and expenses incurred in connection
with the legal obligation of the Fund to indemnify its directors, employees,
shareholders and agents with respect to any claims or litigation. In general,
the Fund bears all expenses incidental to its operations not assumed by
Hilliard-Lyons, with the exception of sales and promotional expenses which are
borne by Hilliard-Lyons.
For the services Hilliard-Lyons renders and facilities it furnishes pursuant
to the Agreement, the Fund has agreed to pay Hilliard-Lyons an annual advisory
fee of 1/2 of 1% of the first $200 million of average daily net assets, 3/8 of
1% of the next $100 million of average daily net assets, and 1/4 of 1% of
average daily net assets in
8
<PAGE>
excess of $300 million. The fee accrues daily and is paid monthly. For the
fiscal years ended August 31, 1995, 1996, and 1997 Hilliard-Lyons earned
advisory fees, based on the formula described above, totalling $1,228,947,
$1,660,231, and $1,880,981, respectively.
Hilliard-Lyons has agreed to reimburse the Fund if total operating expenses
of the Fund, excluding taxes, interest and (with prior written consent of the
necessary state securities commissions) extraordinary expenses, exceed on an
annual basis 1 1/2% of the first $30,000,000 of average daily net assets and
1% of average daily net assets over $30,000,000. Hilliard-Lyons reimburses the
Fund for such excess expenses monthly as an offset against any amounts
receivable from the Fund. All such reimbursements and offsets are subject to
adjustments as of the end of each fiscal year. There were no reimbursements
necessary in the fiscal years ended August 31, 1995, 1996, or 1997.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard for its obligations thereunder,
Hilliard-Lyons is not liable for any act or omission in the course of or in
connection with its rendering of services thereunder. Hilliard-Lyons has
reserved the right to grant its name to other mutual funds and if the
Agreement is terminated to withdraw its consent to the continuing use of its
name by the Fund.
Mr. Donald F. Kohler, Chairman of the Board of Directors of the Fund, is a
former Executive Vice President and a Director of Hilliard-Lyons. Mr. Joseph
C. Curry, Jr., President and a Director of the Fund, is a Senior Vice
President of Hilliard-Lyons. Mr. Gilbert L. Pamplin, a Director of the Fund,
is a former Chairman and Chief Executive Officer of Hilliard-Lyons. Ms. Dianna
P. Wengler, Vice-President and Treasurer of the Fund, is a Vice-President of
Hilliard-Lyons. Mr. J. Henning Hilliard, a Director of the Fund, is a former
Senior Executive and Director of Hilliard-Lyons.
The senior officers and directors of Hilliard-Lyons are: Brian M. Boor,
Senior Vice President and Director; James W. Stuckert, Chairman and Chief
Executive Officer; Joseph L. Heintzman, Jr., Senior Vice President, Chief
Financial Officer and Director; E. Neal Cory II, Executive Vice President and
Director; Kenneth W. Moore, Senior Vice President, Secretary, and Director;
James R. Allen, Executive Vice President and Director; Samuel C. Harvey,
Executive Vice President and Director; Frank James Walker, Senior Vice
President and Director; James M. Rogers, Vice President and Director; and
Robert H. Duling, Vice President and Director.
The directors and officers of Hilliard-Lyons, including the aforementioned
officers of Hilliard-Lyons who are officers and directors of the Fund, may be
deemed to control Hilliard-Lyons by reason of their positions with Hilliard-
Lyons and their ownership in the aggregate of 100% of Hilliard-Lyons' shares.
The Fund entered into a Distribution Agreement dated as of December 1, 1980
(the "Distribution Agreement") with Hilliard-Lyons. The terms of the
Distribution Agreement were approved on June 11, 1980, and reapproved on
October 23, 1997, by vote of the Board of Directors of the Fund, including a
majority of the directors of the Fund who are not "interested persons" (as
such term is defined in the Investment Company Act of 1940) of any party
thereto, cast in person at a meeting called for the purpose of voting on such
approval. Pursuant to the terms of the Distribution Agreement, Hilliard-Lyons
serves as the principal underwriter and distributor of the Fund's shares.
There is no fee payable by the Fund pursuant to the Distribution Agreement.
The Distribution Agreement provides that Hilliard-Lyons bears the cost of all
sales and promotional expenses, including the expenses of printing all sales
literature and prospectuses, other than those utilized for regulatory purposes
and those furnished from time to time to existing shareholders of the Fund.
The continuance of the
9
<PAGE>
Distribution Agreement must be approved by a majority of the Fund's Board of
Directors including a majority of the directors, who are not "interested
persons". The Agreement will terminate automatically if assigned by either
party thereto and is terminable at any time by mutual agreement of the Fund and
Hilliard-Lyons.
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, P.O. Box 1912,
Boston, Massachusetts 02105, is the Fund's custodian. As such, it is
responsible for maintaining books and records with respect to the Fund's
portfolio transactions and holds the Fund's portfolio securities and cash
pursuant to a Custodian Agreement with the Fund. It also maintains the Fund's
accounting and portfolio transaction records and computes the Fund's net asset
value, net income and dividends daily. State Street Bank and Trust Company may,
for settlement purposes, enter into sub-custodian agreements with other banks.
INDEPENDENT AUDITORS
Ernst & Young LLP, 400 West Market Street, Louisville, Kentucky 40202, have
been selected as independent auditors of the Fund, and such firm also prepares
the Fund's Federal and state income tax returns.
PORTFOLIO TRANSACTIONS
Hilliard-Lyons, as investment adviser, places orders for all purchases and
sales of portfolio securities. As a consequence of its investment policies and
restrictions, the Fund does not generally purchase securities for which a
brokerage commission is paid, but purchases securities from dealers at current
market prices, or directly from the issuer. Purchases from underwriters of
portfolio securities will include a commission or concession paid by the issuer
to the underwriter, and purchases from dealers serving as market makers will
include a dealer's mark-up.
Although the Fund does not seek but may nonetheless make profits through
short-term trading, Hilliard-Lyons may, on behalf of the Fund, dispose of any
portfolio security prior to its maturity if it believes such disposition
advisable. The Fund's policy of generally investing in securities with
maturities of six months or less results in high portfolio turnover. However,
since brokerage commissions are not normally paid by the Fund on investments
which the Fund may make, turnover resulting from such investments has not
adversely affected the net asset value or net income of the Fund.
On occasions when the Fund and Hilliard-Lyons deem the purchase or sale of a
security to be in the best interests of the Fund as well as other customers,
Hilliard-Lyons, to the extent permitted by applicable laws and regulations,
may, but is not obligated to, aggregate the securities to be sold or purchased
for the Fund with those to be sold or purchased for other customers in order to
obtain best execution. In such event, allocation of the securities so purchased
or sold as well as any expenses incurred in the transactions are made by
Hilliard-Lyons in the manner it considers to be most equitable and consistent
with its fiduciary obligations to all such customers, including the Fund. In
some instances, this procedure may adversely affect the size of the position or
yield obtainable for the Fund.
Portfolio securities are not purchased from or through or sold to or through
Hilliard-Lyons or any affiliated person (as defined in the Investment Company
Act of 1940) of Hilliard-Lyons when Hilliard-Lyons is acting as principal.
Hilliard-Lyons is a frequent dealer in U.S. Treasury and U.S. agency
securities. In addition, the Fund does not purchase securities during the
existence of any underwriting or selling group related thereto of which
10
<PAGE>
Hilliard-Lyons is a member. As a result, substantially all of the Fund's
purchases of Federal agency securities are made in the secondary market. Such
limitation, in the opinion of the Fund, does not affect the Fund's ability to
pursue its investment objectives. However, under certain circumstances, the
Fund may be at a disadvantage because of this limitation in comparison with
other funds with similar investment objectives but not subject to such
limitation.
No affiliated person of the Fund, including Hilliard-Lyons, may serve as a
dealer in connection with transactions with the Fund. However, affiliated
persons of the Fund may serve as its broker in any transactions conducted on an
agency basis.
The Adviser's overriding objective in placing orders for the purchase and
sale of the Fund's portfolio securities with a particular bank, dealer or
broker is to seek to obtain the best combination of price and execution. The
best net price, giving effect to transaction and other costs, is normally an
important factor in this decision, but a number of other judgmental
considerations also enter into the decision. These considerations include, but
are not limited to: (1) trading and operational capability; (2) financial
condition and stability; and (3) reliability and integrity. Accordingly, the
Fund may not necessarily be paying the lowest spread or commission available.
When more than one broker or dealer is believed to be capable of providing the
best combination of price and execution with respect to a particular portfolio
transaction, Hilliard-Lyons may select a broker or dealer primarily on the
basis of its ability to furnish research, statistical or similar services to
Hilliard-Lyons. Since such information and services will be only supplementary
to Hilliard-Lyons' own research efforts, the receipt of research information is
not expected to significantly reduce Hilliard-Lyons' expenses. Research
information furnished by brokers or dealers may be useful to Hilliard-Lyons in
serving other clients, as well as the Fund. Conversely, the Fund may benefit
from research information obtained by Hilliard-Lyons from the placement of
portfolio transactions of other clients.
YIELD INFORMATION
The Fund's yield is its current net investment income expressed in annualized
terms. Yield is computed by dividing the Fund's average per share net
investment income for a current period (for example, seven calendar days) by
the Fund's average per share net asset value for the same period and
annualizing the result on a 365-day basis. The Fund's net investment income
changes in response to fluctuations in interest rates and in the expenses of
the Fund. Any given yield quotation should not be considered as representative
of what the Fund's yield may be for any specified period in the future. Because
the yield will fluctuate, it cannot be compared with yields on savings accounts
or other investment alternatives that provide an agreed to or guaranteed fixed
yield for a stated period of time. However, yield information may be useful to
an investor considering temporary investments in money market instruments. In
comparing the yield of one money market fund to another, consideration should
be given to each fund's investment policies, including the types of investments
made, lengths of maturities of the portfolios, the method used by each fund to
compute the yield (which may differ) and whether there are any special account
charges which may reduce the effective yield.
11
<PAGE>
The following is an example of the yield calculation. The yield shown
represents the average annualized net investment income per share for the
seven days ended August 31, 1997.
<TABLE>
<S> <C>
Total dividends per share from net investment income (seven
days ended August 31, 1997)................................... $ .00095
Annualized (365 day basis)..................................... $ .04947
Average net asset value per share.............................. $1.00
Annualized net yield per share for seven calendar days ended
August 31, 1997............................................... 4.95%
</TABLE>
ADDITIONAL INFORMATION
The prospectus and this Statement of Additional Information do not contain
all the information included in the Registration Statement filed with the
Securities and Exchange Commission under the Securities Act of 1933 with
respect to the securities offered hereby, certain portions of which have been
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The Registration Statement, including the exhibits filed
therewith, may be examined at the office of the Securities and Exchange
Commission in Washington, D.C.
Statements contained in the prospectus and this Statement of Additional
Information as to the contents of any contract or other document referred to
are not necessarily complete, and, in each instance, reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement of which the prospectus and this Statement of
Additional Information form a part, each such statement being qualified in all
respects by such reference.
12
<PAGE>
HILLIARD-LYONS GOVERNMENT FUND, INC.
SCHEDULE OF INVESTMENTS
AUGUST 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL PURCHASE MATURITY
AMOUNT YIELD DATE VALUE
----------- -------- -------- -----------
<C> <S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 100.2%
$ 5,990,000 Federal Home Loan Bank 5.346% 09/02/97 $ 5,989,123
10,000,000 Federal Home Loan Bank 5.606 09/02/97 9,998,485
8,000,000 Federal Home Loan Bank 5.622 09/03/97 7,997,569
4,000,000 Federal Home Loan Bank 5.634 09/03/97 3,998,782
11,000,000 Federal Farm Credit Bank 5.473 09/04/97 10,995,077
13,000,000 Federal Home Loan Bank 5.621 09/05/97 12,992,099
10,000,000 Federal Farm Credit Bank 5.483 09/08/97 9,989,539
6,000,000 Federal Farm Credit Bank 5.461 09/09/97 5,992,853
5,000,000 Federal Farm Credit Bank 5.592 09/09/97 4,993,956
6,000,000 Federal Home Loan Bank 5.623 09/10/97 5,991,795
5,000,000 Federal Farm Credit Bank 5.578 09/11/97 4,992,458
5,000,000 Federal Home Loan Bank 5.579 09/12/97 4,991,704
7,550,000 Federal Farm Credit Bank 5.559 09/15/97 7,534,086
7,000,000 Federal Farm Credit Bank 5.504 09/16/97 6,984,250
13,000,000 Federal Home Loan Bank 5.571 09/17/97 12,968,685
9,000,000 Federal Farm Credit Bank 5.567 09/18/97 8,976,965
11,000,000 Federal Home Loan Bank 5.460 09/19/97 10,970,630
13,000,000 Federal Farm Credit Bank 5.568 09/22/97 12,958,898
11,000,000 Federal Farm Credit Bank 5.509 09/23/97 10,963,700
4,450,000 Federal Home Loan Bank 5.567 09/24/97 4,434,591
5,000,000 Federal Farm Credit Bank 5.540 09/25/97 4,982,033
9,000,000 Federal Home Loan Bank 5.559 09/26/97 8,966,188
12,000,000 Federal Farm Credit Bank 5.578 09/29/97 11,949,413
10,000,000 Federal Farm Credit Bank 5.501 09/30/97 9,956,500
8,000,000 Federal Home Loan Bank 5.582 10/01/97 7,963,800
10,000,000 Federal Home Loan Bank 5.527 10/03/97 9,952,178
11,000,000 Federal Home Loan Bank 5.502 10/06/97 10,942,678
6,000,000 Federal Home Loan Bank 5.508 10/08/97 5,966,947
9,000,000 Federal Home Loan Bank 5.493 10/09/97 8,949,175
6,000,000 Federal Home Loan Bank 5.499 10/10/97 5,965,225
6,000,000 Federal Farm Credit Bank 5.481 10/14/97 5,961,658
9,000,000 Federal Home Loan Bank 5.508 10/15/97 8,941,040
16,000,000 Federal Home Loan Bank 5.469 10/16/97 15,893,400
15,000,000 Federal Home Loan Bank 5.496 10/17/97 14,897,458
4,000,000 Federal Home Loan Bank 5.493 10/20/97 3,970,872
10,000,000 Federal Home Loan Bank 5.495 10/21/97 9,925,417
15,000,000 Federal Farm Credit Bank 5.489 10/22/97 14,886,525
6,000,000 Federal Farm Credit Bank 5.523 10/23/97 5,953,287
</TABLE>
See notes to financial statements.
13
<PAGE>
HILLIARD-LYONS GOVERNMENT FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL PURCHASE MATURITY
AMOUNT YIELD DATE VALUE
----------- -------- -------- ------------
<C> <S> <C> <C> <C>
$ 6,170,000 Federal Farm Credit Bank 5.489% 10/24/97 $ 6,121,494
4,000,000 Federal Home Loan Bank 5.569 10/24/97 3,968,200
11,000,000 Federal Home Loan Bank 5.513 10/27/97 10,908,113
13,000,000 Federal Farm Credit Bank 5.507 10/28/97 12,889,262
16,000,000 Federal Home Loan Bank 5.530 10/29/97 15,861,316
12,000,000 Federal Home Loan Bank 5.521 10/30/97 11,894,193
10,000,000 Federal Home Loan Bank 5.530 10/31/97 9,910,333
10,000,000 Federal Farm Credit Bank 5.532 11/03/97 9,905,500
10,000,000 Federal Home Loan Bank 5.508 11/05/97 9,903,222
7,690,000 Federal Home Loan Bank 5.530 11/05/97 7,615,300
5,000,000 Federal Farm Credit Bank 5.635 11/07/97 4,949,285
10,000,000 Federal Home Loan Bank 5.501 11/10/97 9,896,361
10,000,000 Federal Home Loan Bank 5.540 11/12/97 9,892,200
13,000,000 Federal Home Loan Bank 5.511 11/13/97 12,859,232
4,000,000 Federal Home Loan Bank 5.537 11/14/97 3,955,682
7,000,000 Federal Home Loan Bank 5.572 11/14/97 6,922,012
7,800,000 Federal Home Loan Bank 5.555 11/17/97 7,710,411
9,000,000 Federal Home Loan Bank 5.520 11/18/97 8,895,285
10,000,000 Federal Home Loan Bank 5.520 11/19/97 9,882,158
5,000,000 Federal Home Loan Bank 5.540 11/20/97 4,940,111
11,000,000 Federal Home Loan Bank 5.521 11/21/97 10,867,093
10,000,000 Federal Home Loan Bank 5.572 11/26/97 9,870,522
4,000,000 Federal Home Loan Bank 5.540 12/03/97 3,944,717
10,000,000 Federal Home Loan Bank 5.532 12/03/97 9,861,533
10,000,000 Federal Home Loan Bank 5.519 12/04/97 9,860,567
10,000,000 Federal Farm Credit Bank 5.546 12/08/97 9,853,817
10,000,000 Federal Home Loan Bank 5.608 01/02/98 9,816,183
10,000,000 Federal Home Loan Bank 5.618 01/05/98 9,811,350
5,000,000 Federal Home Loan Bank 5.585 01/09/98 4,902,861
------------
TOTAL U. S. GOVERNMENT AGENCY
OBLIGATIONS (amortized cost --
$588,407,352) 588,407,352
------------
TOTAL INVESTMENTS (100.2%) (cost --
$588,407,352*) $588,407,352
============
</TABLE>
* Also represents cost for federal income tax purposes.
The percentage shown for each investment category is the total value of that
category as a percentage of the total net assets of the Fund.
See notes to financial statements.
14
<PAGE>
HILLIARD-LYONS GOVERNMENT FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments in money market instruments, at value:
United States Government Agency Obligations, at value (amortized
cost--$588,407,352)............................................. $588,407,352
------------
Total Investments.............................................. 588,407,352
Cash............................................................. 147,519
Prepaid expenses................................................. 3,517
------------
TOTAL ASSETS................................................... 588,558,388
LIABILITIES
Dividends payable................................................ 1,276,010
Due to J. J. B. Hilliard, W. L. Lyons, Inc. -- Note B............ 176,700
Miscellaneous accrued expenses................................... 25,835
------------
TOTAL LIABILITIES.............................................. 1,478,545
------------
NET ASSETS (equivalent to $1.00 per share; 800,000,000 shares
authorized and 587,079,843 shares issued and outstanding)--Note
C............................................................... $587,079,843
============
HILLIARD-LYONS GOVERNMENT FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
AUGUST 31, 1997
INVESTMENT INCOME
Interest income.................................................. $ 27,276,344
EXPENSES
Investment Advisory fee--Note B.................................. 1,880,981
Transfer agent fees.............................................. 712,000
Custodian fees................................................... 99,160
Printing and other expenses...................................... 48,648
Filing fees...................................................... 45,690
Insurance expense................................................ 36,193
Legal and audit fees............................................. 33,093
Directors' fees.................................................. 11,003
------------
Total expenses.................................................. 2,866,768
------------
Net investment income........................................... 24,409,576
------------
Net increase in net assets resulting from operations............ $ 24,409,576
============
</TABLE>
See notes to financial statements.
15
<PAGE>
HILLIARD-LYONS GOVERNMENT FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31,
1997 1996
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS
Net investment income.......................... $ 24,409,576 $ 19,948,761
-------------- --------------
Net increase in net assets resulting from
operations................................... 24,409,576 19,948,761
Dividends to shareholders ($.048529 and
$.048527 per share, respectively)............. ( 24,409,576) ( 19,948,761)
-------------- --------------
Undistributed net investment income............ 0 0
-------------- --------------
FROM CAPITAL SHARE TRANSACTIONS
Net capital share transactions (at $1.00 per
share)--Note C................................ 159,585,459 91,717,907
NET ASSETS
Beginning of year.............................. 427,494,384 335,776,477
-------------- --------------
End of year.................................... $ 587,079,843 $ 427,494,384
============== ==============
</TABLE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share of capital stock
outstanding throughout each year and other performance information derived
from the financial statements. It should be read in conjunction with the
financial statements and notes thereto.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, Beginning of
Year........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Net Investment income........ .05 .05 .05 .03 .03
-------- -------- -------- -------- --------
Total From Investment
Operations................. .05 .05 .05 .03 .03
Less Distributions:
Dividend Distributions...... ( .05) ( .05) ( .05) ( .03) ( .03)
-------- -------- -------- -------- --------
Total Distributions.......... ( .05) ( .05) ( .05) ( .03) ( .03)
-------- -------- -------- -------- --------
Net asset value, End of Year. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Number of shares outstanding
(000's omitted)............. 587,080 427,494 335,776 210,652 221,050
Total Investment Return...... 4.96% 4.96% 5.04% 2.85% 2.54%
SIGNIFICANT RATIOS AND
SUPPLEMENTAL DATA
Net assets, End of Year
(000's omitted)............ $587,080 $427,494 $335,776 $210,652 $221,050
Operating expenses to
average net assets......... .57% .61% .72% .75% .71%
Net investment income to
average net assets......... 4.86% 4.84% 4.97% 2.80% 2.51%
</TABLE>
See notes to financial statements.
16
<PAGE>
HILLIARD-LYONS GOVERNMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A--ACCOUNTING POLICIES
Hilliard-Lyons Government Fund, Inc. (the "Fund") is a diversified open-end
management investment company registered under the Investment Company Act of
1940, as amended. The following is a summary of significant accounting policies
followed by the Fund in the preparation of its financial statements.
SECURITY VALUATION: The Fund employs the amortized cost method of security val-
uation for U.S. Government securities which, in the opinion of the Board of Di-
rectors, represents fair value of the particular security. The Board monitors
deviations between net asset value per share as determined by using available
market quotations and the amortized cost method of security valuation. If the
deviation in the aggregate is significant, the Board considers what action, if
any, should be initiated to provide fair valuation.
The Fund values repurchase agreements at cost and accrues interest into inter-
est receivable. Normally, repurchase agreements are not subject to trading. Re-
purchase agreements are fully collateralized by U.S. Treasury and U.S. Govern-
ment Agency obligations valued at bid prices plus accrued interest. U.S. Trea-
sury and U.S. Government Agency obligations pledged as collateral for repur-
chase agreements are held by the Fund's custodian bank until maturity of the
repurchase agreements. Provisions of the agreements provide that the market
value of the collateral plus accrued interest on the collateral is greater than
or equal to the repurchase price plus accrued interest at all times. In the
event of default or bankruptcy by the other party to the agreements, the Fund
maintains the right to sell the underlying securities at market value; however,
realization and/or retention of the collateral may be subject to legal proceed-
ings.
FEDERAL INCOME TAXES: It is the policy of the Fund to continue to qualify under
the Internal Revenue Code as a regulated investment company and to distribute
all of its taxable income to shareholders, thereby relieving the Fund of fed-
eral income tax liability.
DIVIDENDS TO SHAREHOLDERS: The net investment income of the Fund is determined
on each business day and is declared as a dividend payable to shareholders of
record immediately prior to the time of determination of net asset value on
each such day. Dividends declared since the preceding dividend payment date are
distributed monthly.
The Fund's net investment income for dividend purposes includes accrued inter-
est and accretion of original issue and market discounts earned and amortiza-
tion of premiums, plus or minus any net realized gain or loss on portfolio se-
curities, if any, occurring since the previous dividend declaration, less the
accrued expenses of the Fund for such period.
INVESTMENT TRANSACTIONS: Investment transactions are accounted for on the date
the securities are bought or sold. Net realized gains and losses on sales of
investments, if any, are determined on the basis of identified cost.
The Fund may enter into repurchase agreements with financial institutions,
deemed to be credit worthy by J.J.B. Hilliard, W.L. Lyons, Inc. (the "Advis-
er"), subject to the seller's agreement to repurchase and the Fund's agreement
to sell such security at a mutually agreed upon date and price.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE B--INVESTMENT ADVISORY AGREEMENT
On October 1, 1996, the Fund renewed its investment advisory agreement with the
Adviser. Under the investment advisory agreement, the Adviser supervises in-
vestment operations of the Fund and the composition of its portfolio, and fur-
nishes advice and recommendations with respect to investments and the purchase
and sale of securities in accordance with the Fund's investment objectives,
policies and restrictions; subject, however, to the general supervision and
control of the Fund's Board of Directors. For the services the Adviser renders,
the Fund has agreed to pay the Adviser an annual advisory fee of 1/2 of 1% of
the first $200 million of average daily net assets, 3/8 of 1% of the next $100
million of average daily net assets, and 1/4 of 1% of the average daily net as-
sets in excess of $300 million. Such fee is accrued daily and paid monthly. The
Adviser has agreed to reimburse the Fund if total operating expenses of the
Fund, excluding taxes, interest and extraordinary expenses (as defined), exceed
on an annual basis 1 1/2% of the first $30 million of average daily net assets
and 1% of average daily net assets over $30 million. There was no reimbursement
required for the year ended August 31, 1997.
No compensation is paid by the Fund to officers of the Fund and Directors who
are affiliated with the Adviser. The Fund pays each unaffiliated director an
annual retainer of $2,000, a fee of $500 for each Board of Directors or commit-
tee meeting attended, and all expenses the Directors incur in attending meet-
ings.
NOTE C--CAPITAL STOCK
The Fund was incorporated in June 1980 under the laws of the state of Maryland.
At August 31, 1997, there were 800,000,000 shares of $.01 par value Common
Stock authorized, and capital paid in aggregated $581,209,045. Transactions in
Fund shares at $1.00 per share were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31,
1997 1996
-------------- --------------
<S> <C> <C>
Shares sold 1,740,443,413 1,341,481,777
Shares issued to shareholders in reinvestment
of dividends 23,618,228 19,471,857
-------------- --------------
1,764,061,641 1,360,953,634
Less shares repurchased (1,604,476,182) (1,269,235,727)
-------------- --------------
Net increase in capital shares 159,585,459 91,717,907
============== ==============
</TABLE>
17
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Directors and Shareholders
Hilliard-Lyons Government Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Hilliard-Lyons Government Fund, Inc., including the schedule of investments, as
of August 31, 1997, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Hilliard-Lyons Government Fund, Inc. at August 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended, in conformity with generally
accepted accounting principles.
LOGO
Louisville, Kentucky
September 12, 1997
18
<PAGE>
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENT AND EXHIBITS
(A) FINANCIAL STATEMENTS:
(1) Financial Highlights (PART A, p.4)
(2) Schedule of Investments at August 31, 1997 (PART B, p. 13)
(3) Statement of Assets and Liabilities at August 31, 1997 (PART B,
p.15)
(4) Statement of Operations for Year ended August 31, 1997 (PART B, p.
15)
(5) Statement of Changes in Net Assets for Years ended August 31, 1996
and 1997 (PART B, p. 16)
(6) Report of Ernst & Young LLP, Independent Auditors (PART B, p. 18)
(B) EXHIBITS
(1) Restated Articles of Incorporation of Registrant. (Incorporated by
reference to Exhibit 1, Post-Effective Amendment No. 3.)
(1.1) Articles Supplementary to Articles of Incorporation.
(2) Amended By-Laws of Registrant. (Incorporated by reference to
Exhibit 2, Post-Effective Amendment No. 11.)
(3) Not applicable.
(4) Form of Common Stock Certificate. (Incorporated by reference to
Exhibit 4, Pre-Effective Amendment No. 1.)
(5) Form of Investment Advisory Agreement between Registrant and
J.J.B. Hilliard, W.L. Lyons, Inc. (Incorporated by reference to
Exhibit 5, Pre-Effective Amendment No. 1.)
(6) Form of Distribution Agreement between Registrant and J.J.B.
Hilliard, W.L. Lyons, Inc. (Incorporated by reference to Exhibit
6, Pre-Effective Amendment No. 1.)
(7) Not applicable.
(8) Form of Custodian Agreement between Registrant and State Street
Bank and Trust Company. (Incorporated by reference to Exhibit 8,
to original N-1 filing.)
(9) Form of Transfer Agent's Agreement between Registrant and State
Street Bank and Trust Company. (Incorporated by reference to
Exhibit 9, to original N-1 filing.)
(10) Opinion and Consent of Brown, Todd & Heyburn PLLC.
(11) Consent of Ernst & Young LLP, independent auditors.
(12) Not applicable.
(13) Form of Letter from contributor of initial capital to the
Registrant that purchase was made for investment purposes without
any present intention of redeeming or selling. (Incorporated by
reference to Exhibit 13, Pre-Effective Amendment No. 1.)
(14) Individual Retirement Custodial Account Agreement of the Internal
Revenue Service, Form 5305-A; Application Information; and
Designation of Beneficiary Form. (Incorporated by reference to
Exhibit 14, Post-Effective Amendment No. 3.)
(15) Not applicable.
(16) Not applicable.
(17) Financial Data Schedule.
(18) Not applicable.
C-1
<PAGE>
(19) 485(b) Certification from Brown, Todd & Heyburn PLLC.
(20) Powers of Attorney executed by J. Henning Hilliard, Gilbert L.
Pamplin, Owsley Brown, II, and Dillman A. Rash. (Incorporated by
reference to Exhibit 15 to original N-1 filing.)
(21) Powers of Attorney executed by Samuel G. Miller and Joseph C.
Curry, Jr. (Incorporated by reference to Exhibit 17, Post-
Effective Amendment No. 9.)
(22) Power of Attorney executed by J. Robert Shine. (Incorporated by
reference to Exhibit 18, Post-Effective Amendment No. 11.)
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
The number of record holders of each class of the Registrant's securities as
of November 30, 1997, was as follows:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
<S> <C>
Common Stock, $.01 par value 52,912
</TABLE>
ITEM 27. INDEMNIFICATION
See Restated Articles of Incorporation, Article Eleventh, Exhibit (1).
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
J.J.B. Hilliard, W.L. Lyons, Inc., the Investment Adviser of the Registrant
("Hilliard-Lyons"), is an investment banking and securities brokerage firm
headquartered in Louisville, Kentucky. Hilliard-Lyons is a registered broker-
dealer and is a member of the National Association of Securities Dealers,
Inc., the New York Stock Exchange, the American Stock Exchange, the AMEX
Commodities Exchange, the Midwest Stock Exchange, the Chicago Board Options
Exchange and the New York Futures Exchange. It has 95 offices and more than
700 financial consultants doing business in 49 states. Hilliard-Lyons
maintains an investment advisory department and is registered under the
Investment Advisers Act of 1940. Hilliard-Lyons is the distributor of the
Fund's shares. For information as to the business, profession, vocation or
employment of a substantial nature of each of the directors and officers of
Hilliard-Lyons, reference is made to Part I, Schedule D and Part II, Item 6,
Schedule F of Form ADV (revised November 5, 1997) filed on or about November
6, 1997 for Hilliard-Lyons.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) J.J.B. Hilliard, W.L. Lyons, Inc. is Registrant's principal underwriter.
J.J.B. Hilliard, W.L. Lyons, Inc. currently serves as investment adviser and
principal underwriter of Hilliard Lyons Growth Fund, Inc., an open-end mutual
fund.
(b) Set forth below is certain information pertaining to the directors and
officers (at the Executive Vice President level and above) of J.J.B. Hilliard,
W.L. Lyons, Inc., the Registrant's principal underwriter:
<TABLE>
<CAPTION>
POSITION WITH
NAME AND PRINCIPAL UNDERWRITER POSITION WITH
BUSINESS ADDRESS (DISTRIBUTOR) REGISTRANT
------------------ ------------- -------------
<S> <C> <C>
Donald F. Kohler.................... Senior Executive Chairman of the
Hilliard Lyons Center Board
Louisville, KY 40202
Kenneth W. Moore.................... Secretary, Senior Vice None
Hilliard Lyons Center President and Director
Louisville, KY 40202
James W. Stuckert................... Chairman and None
Hilliard Lyons Center Chief Executive Officer
Louisville, KY 40202
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH POSITION
NAME AND PRINCIPAL UNDERWRITER WITH
BUSINESS ADDRESS (DISTRIBUTOR) REGISTRANT
------------------ ------------- ----------
<S> <C> <C>
Joseph L. Heintzman, Jr.................. Senior Vice President, None
Hilliard Lyons Center Chief Financial Officer
Louisville, KY 40202 and Director
E. Neal Cory, II......................... Executive Vice President None
Hilliard Lyons Center and Director
Louisville, KY 40202
Robert M. Lee............................ Senior Executive None
Hilliard Lyons Center
Louisville, KY 40202
Brian M. Boor............................ Senior Vice President None
Hilliard Lyons Center and Director
Louisville, KY 40202
Samuel C. Harvey......................... Executive Vice President None
Joseph L. Heintzman, Jr. and Director
Louisville, KY 40202
James R. Allen........................... Executive Vice President None
Hilliard Lyons Center and Director
Louisville, KY 40202
Frank James Walker....................... Senior Vice President None
Hilliard Lyons Center and Director
Louisville, KY 40202
Oscar C. Wright, Jr. .................... Senior Executive None
Hilliard Lyons Center
Louisville, KY 40202
Thomas B. Kessinger...................... Senior Executive None
Hilliard Lyons Center
Louisville, KY 40202
Robert H. Duling......................... Vice President None
Hilliard Lyons Center and Director
Louisville, KY 40202
Gilbert L. Pamplin....................... Senior Executive Director
Hilliard Lyons Center
Louisville, KY 40202
James M. Rogers.......................... Executive Vice President None
Hilliard Lyons Center and Director
Louisville, KY 40202
</TABLE>
(c) The principal underwriter does not receive any compensation for the
duties or services rendered to the Registrant pursuant to the Distribution
Agreement.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act and rules
promulgated thereunder are in the possession of State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02105 and J.J.B. Hilliard,
W.L. Lyons, Inc., Hilliard Lyons Center, Louisville, KY 40202.
ITEM 31. MANAGEMENT SERVICES
Registrant is not a party to any management related service contract not
discussed in Parts A or B of this Form.
ITEM 32. UNDERTAKINGS
Not Applicable.
C-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT, HILLIARD-LYONS GOVERNMENT
FUND, INC., CERTIFIES THAT IT MEETS ALL OF THE REQUIREMENTS FOR EFFECTIVENESS
OF THIS REGISTRATION STATEMENT PURSUANT TO RULE 485 (b) UNDER THE SECURITIES
ACT OF 1933 AND HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT
TO BE SIGNED ON BEHALF OF THE UNDERSIGNED, THERETO DULY AUTHORIZED, IN THE
CITY OF LOUISVILLE AND THE STATE OF KENTUCKY ON THE 30TH DAY OF DECEMBER,
1997.
HILLIARD-LYONS GOVERNMENT FUND, INC.
DONALD F. KOHLER
By:__________________________________
Donald F. Kohler, Chairman of the
Board
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
OF THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS
IN SUCH CAPACITIES AND ON THE DATE INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
DONALD F. KOHLER Chairman of the Board )
- - ------------------------------------ (Principal Executive )
Donald F. Kohler Officer) )
)
)
JOSEPH C. CURRY, JR.* President and Director )
- - ------------------------------------ )
Joseph C. Curry, Jr. )
)
)
GILBERT L. PAMPLIN* )
- - ------------------------------------ )
Gilbert L. Pamplin Director )
)
)
J. HENNING HILLIARD* Director ) December 30, 1997
- - ------------------------------------ )
J. Henning Hilliard )
)
)
J. ROBERT SHINE* Director )
- - ------------------------------------ )
J. Robert Shine )
)
)
DILLMAN A. RASH* Director )
- - ------------------------------------ )
Dillman A. Rash )
)
)
SAMUEL G. MILLER* Director )
- - ------------------------------------ )
Samuel G. Miller )
)
)
DONALD F. KOHLER )
*By:___________________________ )
Donald F. Kohler )
Attorney-in-Fact )
</TABLE>
C-4
<PAGE>
HILLIARD-LYONS GOVERNMENT FUND, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE NUMBER
------- ----------- ------------
<C> <S> <C>
1 Restated Articles of Incorporation of Registrant.
(Incorporated by reference to Exhibit 1, Post-Effective
Amendment No. 3.)......................................
1.1 Articles Supplementary to Articles of Incorporation....
2 Amended By-Laws of Registrant. (Incorporated by
reference to Exhibit 2, Post-Effective Amendment No.
11.)...................................................
3 Not applicable.........................................
4 Form of Common Stock Certificate. (Incorporated by
reference to Exhibit 4, Pre-Effective Amendment No.
1.)....................................................
5 Form of Investment Advisory Agreement between
Registrant and J.J.B. Hilliard, W.L. Lyons, Inc.
(Incorporated by reference to Exhibit 6, Pre-Effective
Amendment No. 1.)......................................
6 Form of Distribution Agreement between Registrant and
J.J.B. Hilliard, W.L. Lyons, Inc. (Incorporated by
reference to Exhibit 6, Pre-Effective Amendment No.
1.)....................................................
7 Not applicable.........................................
8 Form of Custodian Agreement between Registrant and
State Street Bank and Trust Company. (Incorporated by
reference to Exhibit 8 to original N-1 filing.)........
9 Form of Transfer Agent's Agreement between Registrant
and State Street Bank and Trust Company. (Incorporated
by reference to Exhibit 9 to original N-1 filing.).....
10 Opinion and Consent of Brown, Todd & Heyburn PLLC......
11 Consent of Ernst & Young LLP, independent auditors.....
12 Not applicable.........................................
13 Form of Letter from contributor of initial capital to
the Registrant that purchase was made for investment
purposes without any present intention of redeeming or
selling. (Incorporated by reference to Exhibit 13, Pre-
Effective Amendment No. 1.)............................
14 Individual Retirement Custodial Account Agreement of
the Internal Revenue Service, Form 5305-A; Application
Information; and Designation of Beneficiary Form.
(Incorporated by reference to Exhibit 14, Post-
Effective Amendment No. 3.)............................
15 Not applicable.........................................
16 Not applicable.........................................
17 Financial Data Schedule................................
18 Not applicable.........................................
19 485(b) Certification from Brown, Todd & Heyburn PLLC...
20 Powers of Attorney executed by J. Henning Hilliard,
Gilbert L. Pamplin, Owsley Brown, II, and Dillman A.
Rash. (Incorporated by reference to Exhibit 15 to
original N-1 filing.)..................................
21 Powers of Attorney executed by Samuel G. Miller and
Joseph C. Curry, Jr. (Incorporated by reference to
Exhibit 17, Post-Effective Amendment No. 9.)...........
22 Power of Attorney executed by J. Robert Shine.
(Incorporated by reference to Exhibit 18, Post-
Effective Amendment No. 11.)...........................
</TABLE>
<PAGE>
EXHIBIT 1.1
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
OF
HILLIARD-LYONS GOVERNMENT FUND, INC.
Pursuant to the provisions of Section 2-105(c) and 2-208.1 of the General
Corporation Law of Maryland, an amendment to the Articles of Incorporation of
Hilliard-Lyons Government Fund, Inc. (the "Corporation") increasing the
Corporation's authorized capital has been adopted as follows:
FIRST: Immediately prior to the amendment to the Corporation's Articles
of Incorporation, Article Five of the Corporation's Articles of
Incorporation stated that "The total number of shares of stock
which the Corporation shall have authority to issue is Eight
Hundred Million (800,000,000) shares of the par value of One Cent
($0.01) per share, all of which shall be of a single class called
Common Stock, such shares having an aggregate par value of Eight
Million Dollars ($8,000,000)."
SECOND: Immediately after the amendment of the Corporation's Articles of
Incorporation, Article Five of the Corporation's Articles of
Incorporation states that "The total number of shares of stock
which the Corporation shall have authority to issue is One
Billion Five Hundred Million (1,500,000,000) shares of the par
value of One Cent ($0.01) per share, all of which shall be of a
single class called Common Stock, such shares having an aggregate
par value of Fifteen Million Dollars ($15,000,000)."
THIRD: The Corporation is registered as an open-end company under the
Investment Company Act of 1940.
FOURTH: The Board of Directors of the Corporation approved this amendment
to the Corporation's Articles of Incorporation increasing the
total number of shares of capital stock that the Corporation has
authority to issue in accordance with Section 2-105(c) of the
General Corporation Law of Maryland.
<PAGE>
IN WITNESS WHEREOF, I have signed these Articles Supplementary and have
acknowledged the same to be the act of Hilliard-Lyons Government Fund, Inc. on
this 23rd day of October, 1997.
/s/ Joseph C. Curry, Jr.
------------------------------
Joseph C. Curry, Jr. President
Witness:
/s/ Penny L. Wellinghurst
- - --------------------------------
Penny L. Wellinghurst, Secretary
Commonwealth of Kentucky )
) SS:
I, a Notary Public in and for the Commonwealth and county aforesaid, do
hereby certify that on this day there personally appeared before me Joseph C.
Curry, Jr., being by me first duly sworn, declared that he is President of
Hilliard-Lyons Government Fund, Inc., that he signed the foregoing document as
President of the Corporation and that the statements contained therein are true
and correct.
IN TESTIMONY WHEREOF, witness my signature and notarial seal this 23rd day
of October, 1997.
/s/ Rebecca D. Gaddie
(Seal) ----------------------------
Notary Public
My commission expires: 7-9-2000
---------
<PAGE>
EXHIBIT 11
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references made to our firm under the caption "Financial
Highlights" in the Prospectus and "Independent Auditors" in the Statement of
Additional Information and to the use, in this Post-Effective Amendment Number
19 to Registration Statement (Form N-1A, Number 2-68290) of Hilliard-Lyons
Government Fund, Inc., of our report dated September 12, 1997.
/s/ Ernst & Young LLP
Louisville, Kentucky
December 29, 1997
