<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2)
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
HILLIARD-LYONS GOVERNMENT FUND, INC.
_______________________________________________________________________
(Name of Registrant as Specified In Its Charter)
__________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock
________________________________________________________________
<PAGE>
(2) Aggregate number of securities to which transaction applies:
N/A
________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
N/A
________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
N/A
________________________________________________________________
(5) Total fee paid:
N/A
________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
2
<PAGE>
- -------------------------------------------------------------------------
(3) Filing Party:
- -------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
3
<PAGE>
Hilliard-Lyons Government Fund, Inc.
Hilliard Lyons Center
Louisville, Kentucky 40202
DEAR SHAREHOLDER:
You are cordially invited to attend a special meeting of shareholders
(the "Meeting") of Hilliard-Lyons Government Fund, Inc. to be held on
November 6, 1998 at 10:00 a.m. at the Holiday Inn Lakeview, Clarksville,
Indiana. At the Meeting, shareholders will be asked to elect the Fund's
Board of Directors and to approve or disapprove the new Investment Advisory
Agreement between Hilliard-Lyons Government Fund, Inc. and J.J.B. Hilliard,
W.L. Lyons, Inc.( the "Adviser"), in anticipation of the acquisition of the
parent company of the Adviser, Hilliard-Lyons, Inc., by PNC Bank Corp. I
strongly believe these proposals are in the best interest of all
shareholders and ask you to vote FOR them. All proposals have the full
support of the Fund's Board of Directors.
PLEASE COMPLETE, SIGN, AND RETURN THE ENCLOSED PROXY CARD(S) PROMPTLY.
We look forward to receiving your proxy card(s) so your shares may be voted
at the Meeting. A POSTAGE-PAID ENVELOPE IS ENCLOSED FOR THIS PURPOSE
Sincerely yours,
DONALD F. KOHLER
Chairman of the Board
YOUR VOTE IS IMPORTANT. WE WOULD APPRECIATE YOUR PROMPTLY VOTING, SIGNING AND
RETURNING THE ENCLOSED PROXY. THE ENCLOSED ADDRESSED ENVELOPE REQUIRES NO
POSTAGE AND IS PROVIDED FOR YOUR CONVENIENCE.
4
<PAGE>
Hilliard-Lyons Government Fund, Inc.
Hilliard Lyons Center
Louisville, Kentucky 40202
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 6, 1998
A special meeting of shareholders ("Meeting") of Hilliard-Lyons Government
Fund, Inc. (the "Fund"), will be held on November 6, 1998 at 10:00 a.m. at the
Holiday Inn Lakeview, Clarksville, Indiana, to vote on the following proposals:
PROPOSAL 1. A proposal to approve or disapprove the new Investment Advisory
Agreement between the Fund and J.J.B. Hilliard, W.L. Lyons, Inc., as described
in the attached Proxy.
PROPOSAL 2. A proposal to elect the Fund's Board of Directors.
PROPOSAL 3. Any other matters that may properly come before the Meeting.
(The Board of Directors of the Fund does not know of any other matter that will
come before the Meeting.)
Only shareholders of record at the close of business on Friday, October 2,
1998 are entitled to vote at the Meeting and any adjournments thereof.
PENNY L. WELLINGHURST
Secretary
October , 1998
5
<PAGE>
Hilliard-Lyons Government Fund, Inc.
Hilliard Lyons Center
Louisville, Kentucky 40202
----------------
PROXY STATEMENT
----------------
SPECIAL MEETING OF SHAREHOLDERS
NOVEMBER 6, 1998
----------------
INTRODUCTION
This Proxy Statement ("Proxy Statement") is being furnished to shareholders
of Hilliard-Lyons Government Fund, Inc. (the "Fund") in connection with the
solicitation of proxies by the Board of Directors of the Fund for use at the
Special Meeting of Shareholders (including any adjournments or postponements
thereof) to be held on November 6, 1998 (such meeting and any adjournments and
postponements thereof are hereinafter referred to as the "Meeting") for the
purposes set forth in the accompanying Notice of the Special Meeting of
Shareholders.
Shareholders of the Fund of record at the close of business on October 2,
1998 (the "Record Date") are the only shareholders (the "Shareholders") entitled
to vote at the Meeting. Shares of the Fund were issued and outstanding as of
October 2, 1998. Each share is entitled to one vote and each fractional share is
entitled to a proportionate fractional vote on each matter to be acted upon at
the Meeting by the Shareholders.
This Proxy Statement and Notice of Special Meeting of Shareholders
with accompanying proxy card ("Proxy") are being mailed to Shareholders on or
about October , 1998.
THE MEETING
MATTERS TO BE CONSIDERED AT THE MEETING
At the Meeting, holders of shares of common stock of the Fund will consider
and vote upon:
PROPOSAL 1. A proposal to approve the new Investment Advisory Agreement between
the Fund and J.J.B. Hilliard, W.L. Lyons, Inc.
PROPOSAL 2. A proposal to elect the Fund's Board of Directors.
PROPOSAL 3. Any other matters that may properly come before the Meeting. (The
Board of Directors of the Fund does not know of any other matter
that will come before the Meeting.)
6
<PAGE>
In addition to the solicitation of Proxies by mail, officers and employees
of J.J.B. Hilliard, W.L. Lyons, Inc., the Fund's distributor (the
"Distributor"), may solicit proxies in person or by telephone. The Distributor
may hire outside solicitation firms to assist in the solicitation process.
Employees of the Distributor will not be paid for their solicitation activities.
The cost of solicitation will be borne by the Adviser.
Shares represented by duly executed Proxies will be voted in accordance
with the instructions given. If no instructions are given, Proxies will be voted
FOR the specific Proposals set forth in the Proxies and, in accordance with the
best judgment of the persons named in the Proxies, on such other business that
may properly come before the Meeting. A Proxy may be revoked at any time by a
Shareholder before it is exercised by (i) sending a written revocation to Donald
F. Kohler, Chairman, at Hilliard Lyons Center, Louisville, Kentucky 40202, (ii)
by properly executing a later dated Proxy and providing it to the Fund prior to
the Meeting, or (iii) by attending the Meeting and specifically revoking such
Proxy or Proxies and voting in person.
THOSE SHAREHOLDERS WHO WISH TO VOTE FOR OR AGAINST ALL OF THE NOMINEES FOR THE
BOARD OF DIRECTORS MAY CHECK A SINGLE BOX ON THE PROXY CARD, OR MAY VOTE FOR OR
AGAINST THE NOMINEES INDIVIDUALLY.
REQUIRED VOTE FOR NEW INVESTMENT ADVISORY AGREEMENT
Approval of the new Investment Advisory Agreement of the Fund requires the
affirmative vote of a "majority of the outstanding voting securities" of the
Fund. As defined in the Investment Company Act of 1940, as amended (the "1940
Act"), a "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's outstanding voting securities present at a meeting, if
the holders of more than 50% of the outstanding voting securities of the Fund
are present or represented by proxy, or (ii) more than 50% of the Fund's
outstanding voting securities, whichever is less.
REQUIRED VOTE FOR THE ELECTION OF DIRECTORS
If a quorum is present in person or by Proxy, the favorable vote of a
majority of shares represented at the Meeting is required to elect Directors.
The presence at the Meeting of the holders of one-third of the outstanding
shares of the Fund as of the Record Date, either in person or by Proxy,
constitutes a quorum. If any nominee is not approved by the Shareholders, the
Board will consider alternative nominations.
7
<PAGE>
1. APPROVAL OR DISAPPROVAL OF THE NEW INVESTMENT ADVISORY
AGREEMENT
BACKGROUND
On August 20, 1998, PNC Bank Corp. ("PNC") entered into an Agreement and
Plan of Merger with Hilliard-Lyons, Inc. (the "Merger Agreement") pursuant to
which Hilliard-Lyons, Inc., the parent of the Adviser, will merge (the "Merger")
into PNC Bank Corp. PNC will become the owner of all outstanding capital stock
of the Adviser. The Board of Directors is recommending that Shareholders of the
Fund approve the new Investment Advisory Agreement (the "New Agreement") between
the Fund and the Adviser. Approval of the New Agreement is being sought because
the Merger will result in an "assignment" (as defined in the 1940 Act) of the
existing Investment Advisory Agreement between the Fund and the Adviser (the
"Existing Agreement"), resulting in its automatic termination. The New
Agreement, if approved by Shareholders of the Fund, will replace the Existing
Agreement. The Board of Directors has approved the New Agreement, subject to
approval by the Shareholders of the Fund, to become effective upon the
consummation of the Merger.
THE AGREEMENT AND PLAN OF MERGER ("THE MERGER AGREEMENT")
Under the terms of the Merger, Hilliard-Lyons, Inc. will be merged with and
into PNC and will cease to exist as a separate entity. (The surviving entity in
the Merger, together with its direct and indirect subsidiaries, are referred to
in this Proxy Statement as the "Surviving Entity").
PNC will pay a total amount of consideration of $275,000,000, consisting of
$192,500,000 of PNC Common Stock (the "Stock Consideration") and $82,500,000 in
cash (the "Cash Consideration"). If the Average Closing Price (as defined in
the Merger Agreement) of PNC Bank Corp. Common Stock is less than $52.00, then
at the option of PNC, the Stock Consideration may be decreased and the Cash
Consideration may be increased (provided they together aggregate $275,000,000)
so that no more than 3,700,000 shares of PNC Common Stock are issued in the
Merger.
On the Effective Date, PNC will establish a retention pool (the "Retention
Pool") to be used to retain certain officers and brokers of Hilliard-Lyons, Inc.
and its subsidiaries. Payments from the Retention Pool established for brokers
will be paid to the brokers over a three-year period. Payments from the
Retention Pool established for officers will be paid to the officers over a
five-year period. An officer or broker whose employment with the Surviving
Entity is terminated before he receives all of the payments from the Retention
Pool to which he is entitled (unless that person's employment is terminated by
reason of death or disability or by the Surviving Entity without cause or unless
that person leaves for "good reason", as defined in his employment contract)
will forfeit any such amount not yet paid at the time of the termination. In
addition, certain senior officers of the Adviser are expected to enter into
employment agreements with the Surviving Entity.
The following officers and employees of the Adviser who are also officers
or directors of the
8
<PAGE>
Fund will receive a portion of the purchase price in the Merger: Donald F.
Kohler, Gilbert L. Pamplin, Joseph C. Curry, Jr. and Dianna P. Wengler.
It is presently anticipated that the transaction will close on or before
November 30, 1998, subject to satisfaction of conditions to closing, which
include (a) approval of the New Agreement between the Fund and the Adviser; (b)
consents of clients accounting for specified fee revenues of the annualized fees
as of June 30, 1998; and (c) approval of all necessary regulatory approvals,
including the approval of the Board of Governors of the Federal Reserve System.
The Federal Reserve may require satisfaction of certain conditions as part of
its approval, which could affect the terms of the Mergers or the services the
Adviser can provide to the Funds.
PNC BANK CORP.
PNC is a bank holding company registered under the Bank Holding Company Act
of 1956, as amended. Through its network of subsidiaries, PNC Bank Corp.
provides banking and other financial services throughout the United States and
in selected international markets to consumers and business customers, including
corporations, governments, and other institutions. As a global financial
intermediary, PNC provides capital-raising services, trade finance, cash
management, investment banking, capital markets and credit products, and
financial advisory services to large public and private sector institutions that
are part of the global economy.
THE EXISTING INVESTMENT ADVISORY AGREEMENT
The business and affairs of the Fund are managed under the direction of its
Board of Directors. The Adviser has been retained by the Fund as its
investment adviser under the Existing Agreement dated December 1, 1980.
The Existing Agreement was approved by the Board of Directors, including a
majority of the directors who are not interested persons of the Adviser, and by
the initial shareholders of the Fund, prior to the initial public offering of
the Fund's shares. The Existing Agreement was re-approved for one year on
October 23, 1997, by the Board of Directors, including a majority of the
directors who are not interested persons of the Adviser. The Existing Agreement
provides that it 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 the Adviser 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 Act).
The Existing Agreement requires the Adviser 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. The Adviser 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. The Adviser 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
9
<PAGE>
Fund's Custodian) and one-half of the fees of any trade association of which the
Fund may be a member. The Adviser 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 1940
Act, including legal, accounting and printing expenses.
Under the Existing 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 recordkeeping,
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 the
Adviser, with the exception of sales and promotional expenses which are borne by
the Adviser.
For the services the Adviser renders, and the facilities it furnishes,
pursuant to the Existing Agreement, the Fund is obligated to pay the Adviser
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 excess of $300 million. The fee accrues
daily and is paid monthly. For the fiscal years ended August 31, 1996, 1997, and
1998 the Adviser earned advisory fees, based on the formula described above,
totaling $1,660,231, $1,880,981, and $2,550,536, respectively.
The Adviser 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. The Adviser would reimburse 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, 1996, 1997, or 1998.
The Existing Agreement provides that in the absence of willful misfeasance,
bad faith, gross
10
<PAGE>
negligence or reckless disregard for its obligations thereunder, Hilliard-Lyons
will not be 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 Existing Agreement is
terminated to withdraw its consent to the continuing use of its name by the
Fund.
THE NEW INVESTMENT ADVISORY AGREEMENT
The Existing Agreement will by its terms terminate upon the consummation of
the Merger, since the Merger will constitute a change of control of the Fund for
purposes of the 1940 Act. As a result, the Board of Directors is recommending
that Shareholders of the Fund approve the New Agreement to be effective
immediately upon consummation of the Merger. The New Agreement is
substantially identical to the Existing Agreement it replaces, other than its
effective and termination dates. The New Agreement provides that, subject to
the supervision and direction of the Board of Directors, the Adviser will render
investment advice and investment management services with respect to the Fund's
assets, consistent with the Fund's investment objective and policies; make
investment decisions for the Fund; and place all orders for the purchase and
sale of the Fund's investments with broker-dealers. There are no existing plans
to alter the investment personnel and those responsible for the investment
policies of the Fund will continue to direct the policies following the Merger.
The New Agreement provides that it will continue for a two-year period
following the date it becomes effective and will continue automatically from
year to year thereafter only so long as such Agreement is approved at least
annually by (i) the vote, cast in person at a meeting called for such purpose,
of a majority of the Directors who are not "interested persons" (as defined in
the 1940 Act) of the Adviser and (ii) the Board of Directors or the vote of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
the Fund in question. It is intended that the New Agreement will take effect
upon consummation of the Merger, with its continuing effectiveness subject to
the receipt of Shareholder approval, as described below.
It is possible that Shareholders will not have acted on the New Agreement
prior to the consummation of the Merger. The Fund and Hilliard-Lyons have filed
with the Securities and Exchange Commission an application for an exemption from
relevant provisions of the 1940 Act permitting the Fund to enter into a New
Agreement following the consummation of the Merger, even if the Fund's
Shareholders have not yet approved the New Agreement by that time. Any New
Agreement implemented under those circumstances will provide that the fees
payable by the Fund under the New Agreement prior to Shareholder approval of the
New Agreement will be held in an interest-bearing escrow account to be paid to
Hilliard-Lyons, as the case may be, only upon Shareholder approval of the New
Agreement, or, if Shareholders do not approve the New Agreement within the 60
days following consummation of the Merger, to the Fund.
If the New Agreement is not approved by the Fund's Shareholders, the
Existing Agreement will continue in effect in accordance with its terms. In
that event, the Fund understands that the parties to the Merger could
nevertheless agree to proceed with the transaction and, if the transaction
11
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occurs, the Existing Agreement would be deemed to terminate automatically upon
the consummation of the Merger. If such a termination were to occur, the Board
of Directors of the Fund would then make arrangements for the management of the
Fund's investments as they believed appropriate and in the best interests of the
Shareholders. A vote to approve a New Agreement with respect to the Fund will
include a vote in favor of this provision and in favor of the release to
Hilliard-Lyons, as the case may be, upon receipt of Shareholder approval of the
New Agreement, of any amounts held in the escrow account. A copy of the form of
the New Agreement is attached to this proxy statement as Exhibit A.
The Board of Directors of the Fund believe that the terms of the New
Agreement are fair to, and in the best interest of, the Fund and the
Shareholders. The Board of Directors, including all of the disinterested
Directors, recommend that the Shareholders of the Fund approve the New Agreement
between the Fund and the Adviser.
On September 17, 1998, the Board of Directors of the Fund met with
representatives of the Adviser to review the terms of the Merger and to consider
the possible effects of the Merger on the Fund. James W. Stuckert, President and
Chief Executive Officer, of Hilliard-Lyons, Inc. attended the meeting and
discussed the terms of the Merger and its effect on the Adviser. At the meeting,
the Board of Directors voted to approve the New Agreement and recommend the New
Agreement to Shareholders of the Fund for their approval.
In evaluating the New Agreement, the Board of Directors reviewed materials
furnished by the Adviser and PNC. Those materials included information regarding
the Adviser, PNC, their respective affiliates and their personnel, operations
and financial condition and the terms of the Merger and the possible effects on
the Fund and the shareholders of the Fund as a result of the Merger.
Representatives of the Adviser discussed the anticipated effects on the Fund
and, indicated their belief that as a consequence of the Merger, the operations
of the Board and the capability of the Adviser to provide services to the Fund
would not be adversely affected and could be enhanced from the resources of PNC,
although there could be no assurance as to any particular benefits that would
result.
12
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SPECIAL LEGAL REQUIREMENTS FOR THE MERGER
Section 15(f) of the 1940 Act provides that, when a change in control of an
investment adviser occurs, the investment adviser and its affiliated persons may
receive any amount or benefit as long as two conditions are satisfied. First, no
"unfair burden" may be imposed on the investment company as a result of the
transaction relating to the change of control, or as a result of any express or
implied terms, conditions or understandings. The term "unfair burden," as
defined in the 1940 Act, includes any arrangement during the two-year period
after the change in control whereby the investment adviser (or predecessor or
successor adviser), or any interested person of any such adviser, may directly
or indirectly receive anything of value from the investment company or its
Shareholders (other than fees for bona fide investment advisory or other
services) or from any person as part of a securities or property transaction
with the investment company (other than fees for bona fide principal
underwriting services). PNC has agreed contractually not to engage in or cause
to occur and will use all commercially reasonable efforts to prevent any of its
affiliates from engaging in or causing any act, practice, arrangement, thing or
matter that imposes, results in, or gives rise to, an unfair burden on any
Investment Companies within the meaning of Section 15(f) of the Investment
Company Act.
The second condition is that, during the three-year period immediately
following
13
<PAGE>
consummation of the transaction, at least 75% of the investment company's board
of directors must not be "interested persons" of the investment adviser or
predecessor investment adviser within the meaning of the 1940 Act. The Fund and
the Adviser have filed with the Securities and Exchange Commission an
application for an exemption from Section 15(f)(1)(A). However, in the event the
application is not approved prior to the consummation of the Merger, J. Henning
Hilliard, a director of the Fund, who is an "interested person" has submitted
his resignation to become effective on the Effective Date. Pursuant to
applicable federal banking laws, two of the three Directors of the Fund who are
employees of the Adviser (Messrs. Kohler, Pamplin and Curry) will be required to
resign as Directors of the Fund upon consummation of the Merger. It has not been
determined which two of these directors will resign.
The Board of Directors of the Fund recommends that the Shareholders vote FOR
approval of the new Investment Advisory Agreement.
2. ELECTION OF BOARD OF DIRECTORS
The Shareholders will also vote upon the election of seven nominees to the
Board of Directors at the Meeting. Because the Fund does not hold regular annual
shareholder meetings, each nominee, if elected, will hold office until his
successor is elected and qualified or until his earlier death, resignation or
removal. The nominees for election as Directors are listed below. The persons
named in the accompanying Proxy intend, in the absence of contrary instructions,
to vote all Proxies in favor of the election of such nominees. A Shareholder
using the Proxy can vote for or against any or all of the nominees. If no voting
instructions are given, but an executed Proxy is returned, the shares
represented by the Proxy will be voted for all nominees named herein for
Director. Should any of the nominees become unable or unwilling to accept
nomination or election prior to the Meeting, the persons named in the Proxy will
exercise their voting power to vote for such substitute person or persons as the
management of the Fund may recommend. All of the nominees have consented to
being named in this Proxy Statement and to serve if elected. However, as
indicated above, two of three Directors who are employees of the Adviser will
resign as of the Effective Date. In addition, J. Henning Hilliard will resign if
the Fund is unable to obtain an exemption from Section 15(f)(1)(A) of the 1940
Act. The Fund knows of no reason why any other nominee would be unable or
unwilling to serve if elected.
INFORMATION REGARDING NOMINEES FOR THE BOARD OF DIRECTORS
The following information is provided for each of the seven nominees. It
includes his or her name, number of shares of the Fund beneficially owned on
September 16, 1998, principal occupation(s) or employment during the past five
years.
14
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<TABLE>
<CAPTION>
Shares Percent of Principal Occupation;
Name of Nominee Age Owned Fund Service as Director
<S> <C> <C> <C> <C>
Donald F. Kohler (1)(2) 67 338,136 * Investment Consultant; Chairman of the
Board of the Fund since inception;
Executive Vice President of Hilliard-Lyons
from 1986 to 1996 and Director of Hilliard-
Lyons from 1981 to 1996.
Gilbert L. Pamplin (1)(2) 68 666,113 * Investment Consultant; Chairman of
the Board of Hilliard-Lyons from 1988 to
1995; Chief Executive Officer of Hilliard-
Lyons from 1982 to 1995 and President
from 1982 to 1988; Director of the Fund
since inception.
Joseph C. Curry, Jr. (1) 53 35,856 * President and Director; Senior Vice
President, Hilliard-Lyons
J. Henning Hilliard (1) 82 33,468 * Retired, former Senior Executive and
Director, Hilliard-Lyons
J. Robert Shine 74 13,152 * Chairman and Certified Public Accountant,
Monroe Shine & Co., Inc.
Samuel G. Miller 73 150,000 * Retired, former Chairman of Vineyard
Village.
Marianne R. Rowe 63 0 * Fund Raising Consultant since 1995;
prior to 1995, Director of Development,
Children's Hospital Medical Center.
</TABLE>
- --------
* Less than 1%.
(1) Deemed to be an "interested person" of the Fund for purposes of the
Investment Company Act by virtue of an affiliation with Hilliard-Lyons.
(2) Director of Hilliard-Lyons Growth Fund, Inc., an open-end mutual fund, the
investment adviser of which is Hilliard-Lyons.
COMPENSATION OF DIRECTORS
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 $3,000, a fee of $750 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, 1998, unaffiliated
directors received, in the aggregate, $15,000 from the Fund, excluding
reimbursed expenses.
The Fund's officers and directors together own less than 1% of its
outstanding shares. The following table sets forth information concerning
compensation received by directors of the Fund during the year ended August 31,
1998.
15
<PAGE>
<TABLE>
<CAPTION>
PENSION OR
AGGREGATE RETIREMENT BENEFITS ESTIMATED TOTAL COMPENSATION
COMPENSATION ACCRUED AS PART OF ANNUAL BENEFITS FROM FUND
NAME OF PERSON FROM FUND FUND EXPENSES UPON RETIREMENT PAID TO DIRECTORS
<S> <C> <C> <C> <C>
Donald F. Kohler $ 0.00 0 0 $ 0.00
Gilbert L. Pamplin $ 0.00 0 0 $ 0.00
Joseph C. Curry, Jr. $ 0.00 0 0 $ 0.00
J. Henning Hilliard $ 0.00 0 0 $ 0.00
Samuel J. Miller $6,000.00 0 0 $6,000.00
J. Robert Shine $6,000.00 0 0 $6,000.00
Dillman A. Rash $3,000.00 0 0 $3,000.00
</TABLE>
MEETING OF BOARD OF DIRECTORS
The current Board of Directors met four times during the fiscal year ended
August 31, 1997. All of the Directors attended each such meeting except for Mr.
Rash who was unable to attend any meetings. The current Audit Committee, which
consists of all of the Fund's independent Directors, met once during the fiscal
year ended August 31, 1998. The function of the Audit Committee is to advise the
Board of Directors with regard to the appointment of the Fund's independent
accountants, review and approve audit and non-audit services of the Fund's
independent accountants, and meet with the Fund's financial officers to review
the conduct of accounting and internal controls. The Board has no compensation
or nominating committees.
The Board of Directors of the Fund recommends that the Shareholders vote FOR all
nominees.
ADDITIONAL INFORMATION
EXECUTIVE OFFICERS
Information about the Fund's principal executive officers, including their
names, ages, positions with the Fund, length of such positions and principal
occupation or employment during the past five years, is set forth below.
16
<PAGE>
<TABLE>
<CAPTION>
position(s)
officer held with Principal Occupation
Name and address Age since the Fund during last five years
<S> <C> <C> <C> <C>
Donald F. Kohler (1) 67 1980 Chairman of the Investment Consultant; Executive Vice
Board President of Hilliard-Lyons from 1986 to
1996 and Director of Hilliard-Lyons from
1981 to 1996.
Joseph C. Curry, Jr. (1) 53 1982 President and Senior Vice President of Hilliard-Lyons
Director since July 1994 and Vice President prior
thereto.
Dianna P. Wengler (1) 38 1984 Vice President Vice President of Hilliard-Lyons since
and Treasurer December 1990.
Penny L. Wellinghurst (1) 42 1997 Secretary Investment Advisory Department,
Hilliard-Lyons.
</TABLE>
- ---------
(1) An "interested person", as defined by the 1940 Act.
The officers of the Fund do not receive any compensation from the Fund.
As of September 16, 1998, the executive officers and Directors of the Fund
beneficially owned in the aggregate 1,251,697 shares of the Fund (1.3% of the
shares outstanding).
GENERAL INFORMATION ABOUT THE FUND AND OTHER MATTERS
5% SHAREHOLDERS
To the knowledge of the Fund, no person beneficially owned 5% or more of
the Fund's outstanding shares as of September 16, 1998.
VOTING INFORMATION; ADJOURNMENT
The presence at the Meeting of the holders of one-third of the outstanding
shares of the Fund as of the Record Date, either in person or by Proxy,
constitutes a quorum. Abstentions and "broker non-votes" will not be counted for
or against the Proposal to which they relate, but will be counted for purposes
of determining whether a quorum is present. Abstentions and broker non-votes
will be counted as votes present for purposes of determining a "majority of the
outstanding voting securities" present at the Meeting and a majority of shares
represented at the Meeting at which a quorum is present, and will, therefore,
have the effect of counting against the Proposal to which they relate.
In the event that sufficient votes in favor of either Proposal set forth in
the Notice of the Special Meeting of Shareholders are not received by the time
scheduled for the Meeting, the persons named as proxies may propose one or more
adjournments of the Meeting for a period or periods of
17
<PAGE>
not more than 120 days to permit further solicitation of Proxies with respect to
such Proposal. Any such adjournment will require the affirmative vote of a
majority of the votes cast on the question in person or by Proxy at the session
of the Meeting to be adjourned. The persons named as proxies will vote in favor
of such adjournment those Proxies which they are entitled to vote in favor of
such Proposal. They will vote against any such adjournment those Proxies
required to be voted against such Proposal.
SHAREHOLDER PROPOSALS
The Fund does not hold annual shareholder meetings. Shareholders wishing to
submit proposals for inclusion in a proxy statement for a subsequent meeting
should send their written proposals to the Secretary of the Fund.
REPORTS TO SHAREHOLDERS
The Fund sends reports to Shareholders semi-annually. Each of these
includes a schedule of portfolio securities. In addition, the semi-annual report
contains unaudited financial statements and the annual report contains audited
financial statements.
OTHER MATTERS
The Directors know of no other business to be brought before the Meeting.
However, if any other matters properly come before the Meeting, it is their
intention that proxies which do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of Proxy.
PLEASE FILL IN, SIGN, AND RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
By order of the Board of Directors,
Hilliard-Lyons Government Fund, Inc.
Donald F. Kohler
Chairman of the Board
Louisville, Kentucky
October , 1998
18
<PAGE>
HILLIARD-LYONS GOVERNMENT FUND, INC.
HILLIARD LYONS CENTER
LOUISVILLE, KENTUCKY 40202
PROXY--SPECIAL MEETING OF SHAREHOLDERS
The undersigned, a shareholder of Hilliard-Lyons Government Fund, Inc., a
Maryland corporation (the "Fund"), hereby appoints DONALD F. KOHLER, GILBERT L.
PAMPLIN and JOSEPH C. CURRY, JR. and each of them, the true and lawful attorneys
and proxies with full power of substitution, for and in the name, place and
stead of the undersigned, to vote all of the shares of Common Stock of the Fund
which the undersigned would be entitled to vote if personally present at the
Special Meeting of Shareholders to be held November 6, 1998 at 10:00 a.m. at the
Holiday Inn Lakeview, Clarksville, Indiana and at any adjournment thereof.
The undersigned hereby instructs said proxies and their substitutes:
1. PROPOSAL TO APPROVE THE NEW INVESTMENT ADVISORY AGREEMENT
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. ELECTION OF DIRECTORS:
Donald F. Kohler, Gilbert L. Pamplin, Joseph C. Curry, Jr., J. Henning
Hilliard, J. Robert Shine, Samuel G. Miller, and Marianne R. Rowe
[ ] Vote FOR all nominees listed above [ ] WITHHOLD AUTHORITY
(except those listed below) to vote for all nominees listed above
INSTRUCTION: To withhold authority to vote for any individual nominee write that
nominee's name in the space below.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
This Proxy is continued on the reverse side. Please sign on the reverse side and
return promptly.
19
<PAGE>
- --------------------------------------------------------------------------------
This Proxy, when properly executed, will be voted in accordance with any
directions given. Unless otherwise specified, the Proxy will be voted FOR
Proposals 1 and 2.
3. DISCRETIONARY AUTHORITY: To vote with discretionary authority with
respect to all other matters which may properly come before the
Meeting.
The undersigned hereby revokes all proxies heretofore given and
ratifies and confirms all that the proxies appointed hereby, or any
of them, or their substitutes, may lawfully do or cause to be done by
virtue thereof. The undersigned hereby acknowledges receipt of a copy
of the Notice of Special Meeting and Proxy Statement, both dated
October, 1998.
Please sign exactly as shares are registered. If
shares are held by joint tenants, all parties in
the joint tenancy must sign. When signing as
attorney, executor, administrator, trustee or
guardian, please indicate the capacity in which
signing. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership or limited liability
company, please sign in partnership or limited
liability company name by authorized person.
__________________________________________
Signature Date
__________________________________________
Signature, if held jointly Date
20
<PAGE>
EXHIBIT A
INVESTMENT ADVISORY AGREEMENT
-----------------------------
This Agreement ("Advisory Agreement") made as of the _____ day of ________
____________, 199__/1/ between Hilliard-Lyons Government Fund, Inc., a Maryland
corporation (the "Company"), and J. J. B. Hilliard, W. L. Lyons, Inc., a
Kentucky corporation ("Adviser"),
WHEREAS, the Company is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, Adviser is engaged in the business of rendering investment
advisory services and is registered as an Investment Adviser under the
Investment Advisers Act of 1940; and
WHEREAS, Company desires to retain Adviser as its investment adviser and
Adviser is willing to render such services to Company;
NOW, THEREFORE, this Agreement
W I T N E S S E T H:
that in consideration of the payment to Adviser of the sum of $1.00, the receipt
of which is hereby acknowledged, and in further consideration of the premises
and the promises and covenants hereinafter set forth, the parties hereto agree
as follows:
1. Adviser shall manage the investment and reinvestment of the assets of
Company for the period and on the terms set forth in this Agreement, subject to
the overall control of the Board of Directors of Company. Adviser shall for all
purposes be deemed to be an independent contractor and not an agent of Company
and shall, unless otherwise expressly provided or authorized, have no authority
to act for or represent Company in any way.
2. Adviser at its own expense shall furnish office space to Company and
all necessary office facilities, equipment, and personnel for managing the
assets of Company. Adviser shall pay the compensation of Directors who are
affiliated with Adviser. Adviser shall also assume and pay all other expenses
incurred by it in connection with managing the assets of Company, including, but
not limited to, the cost and expense of research, analysis and supervision of
the investment portfolio. Adviser shall pay all expenses in determination of
daily pricing of the shares of Company and related bookkeeping expenses (other
than for such services as are provided by the Company's custodian), the
Company's organization expenses, and one-half of the fees of any trade
association of which the Company may be a member. Adviser will pay all costs and
expenses incurred in connection with the
- ---------------
/1/ The Agreement will be executed and become effective upon the later of
(a) the closing of the transactions contemplated by the Agreement and Plan of
Merger by and between Hilliard-Lyons, Inc. and PNC Bank Corp. or (b) approval by
the shareholders of the Company.
<PAGE>
initial registration for offer and sale of Company's shares under the Securities
Act of 1933 and under applicable state securities laws and the initial
registration under the 1940 Act.
3. Company shall pay 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 recordkeeping, dividend disbursing,
and redemption agents; all charges of legal counsel and of independent auditors;
all compensation of directors other than those affiliated with Adviser; interest
expense; all expenses 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; all expenses of printing and
mailing Company stock certificates; all expenses of bond and insurance
coverage required by law; all brokers' commissions and other normal charges
incident to the purchase and sale of portfolio securities; all taxes and
corporate fees payable to Federal, state, or other governmental agencies,
domestic or foreign; all stamp or other transfer taxes; all expenses of
complying with Federal, state, and other laws regulating the issue or sale of
shares except for those expenses attributable to initial Federal and state
securities law compliance and those deemed to be sales or promotional expenses;
one-half of the fees of any trade association of which Company may be a member;
all extraordinary expenses as may arise including expenses incurred in
connection with litigation, proceedings and claims and the legal obligations of
Company to indemnify its Directors, employees, shareholders and agents with
respect thereto; all expenses of meetings of the Board of Directors and
shareholders; and all other expenses incidental to its organization and
operations not specifically assumed by Adviser pursuant to paragraphs 2 and 5.
4. For all services rendered by Adviser hereunder, Company shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, an annual gross investment advisory fee equal to 1/2 of 1%
of the first $200 million of the average daily net assets of Company; 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 excess of $300 million. Such fee shall be accrued daily and
shall be paid to Adviser on the last day of each month. For the purpose of
computing the advisory fee, monies deposited with the Federal Reserve pursuant
to the Credit Control Act will be excluded from the Company's net assets. [TO
BE INCLUDED IF THIS AGREEMENT IS IMPLEMENTED PRIOR TO ITS APPROVAL BY THE
COMPANY'S SHAREHOLDERS -- Any fees payable by the Company under this Agreement
during the period commencing on the effective date of this Agreement and ending
on the date of the initial approval of this Agreement by a majority of the
outstanding voting securities of the Company shall be paid into an interest-
bearing escrow account with an unaffiliated financial institution, as the
Company and the Adviser may establish, to be released to the Adviser only upon
such initial approval of this Agreement, or, if such approval shall not occur
within the 60 days following consummation of the merger, to the Company.]
5. The total expenses of Company exclusive of taxes, of interest, of all
brokers' and any bank commissions and other normal charges incident to the
purchase and sale of portfolio securities, and (with the prior written consent
of the necessary state securities commissions) of any extraordinary expenses of
Directors and Adviser, but including fees paid to Adviser, shall not exceed on
an annual basis 1-1/2% of the first $30,000,000 of average net assets and 1% of
average net assets over $30,000,000, and Adviser agrees to reimburse Company for
any sums expended for such expenses in excess of that amount. Such expense
reimbursements, if any, will be reimbursed to
-2-
<PAGE>
Company by Adviser monthly as an offset against any amounts receivable by
Adviser from Company. All such reimbursements and offsets will be subject to
adjustment as of the end of each fiscal year of the Company.
6. The services of Adviser to Company hereunder are not to be deemed
exclusive, and Adviser shall be free to render similar services to others.
Adviser may employ or contract with such other person, persons, corporation or
corporations at its own cost and expense as it shall determine in order to
assist it in carrying out this Agreement.
7. Neither Adviser nor any of its officers, directors, agents or employees
shall be liable or responsible to Company or its shareholders for any error of
judgment, mistake of law or any loss arising out of any investment, or for any
other act or omission in the performance by Adviser of its duties under this
Agreement, except for liability resulting from willful misfeasance, bad faith or
gross negligence on the Adviser's part or from reckless disregard by Adviser of
its obligations and duties under this Agreement.
8. This Agreement may not be amended without the affirmative votes (a) of
a majority of the Board of Directors, including a majority of those directors
who are not "interested persons" of Company or of Adviser, voting in person at a
meeting called for the purpose of voting on such approval, and (b) of a
"majority of the outstanding shares" of Company. The terms "interested person"
and "vote of a majority of the outstanding shares" shall be construed in
accordance with their respective definitions in sections 2(a)(19) and 2(a)(42)
of the 1940 Act.
9. This Agreement may be terminated at any time, without payment of any
penalty, by the Board of Directors of Company, or by a vote of a majority of the
outstanding shares of Company upon at least sixty (60) days' written notice to
Adviser. This Agreement may be terminated by Adviser at any time upon at least
sixty (60) days' written notice to Company. This Agreement shall terminate
automatically in the event of its assignment (as defined in Section 2(a)(4) of
the Act). Unless terminated as hereinbefore provided, this Agreement shall
continue in effect until two years from the date on which this Agreement is
executed, and thereafter from year to year only so long as such continuance is
specifically approved at least annually (a) by a majority of those directors who
are not interested persons of Company or of Adviser, voting in person at a
meeting called for the purpose of voting on such approval, and (b) by either the
Board of Directors of Company or by a vote of a majority of the outstanding
shares of Company.
10. The Company may use the name "Hilliard-Lyons Government Fund, Inc." or
any other name derived from the name "J. J. B. Hilliard, W. L. Lyons, Inc." only
for so long as this Agreement or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization which
shall have succeeded to the business of the Adviser as investment adviser. At
such time as this Agreement or such other agreement shall no longer be in
effect, the Fund will (by corporate action, if necessary) cease to use any name
derived from the name "J. J. B. Hilliard, W. L. Lyons, Inc.", any name similar
thereto or any other name indicating that it is advised by or otherwise
connected with the Adviser or with any organization which shall have succeeded
to the Adviser's business.
-3-
<PAGE>
Dated: HILLIARD-LYONS GOVERNMENT FUND, INC.
___________________
-------------------------------------
J. J. B. HILLIARD, W. L. LYONS, INC.
By:
----------------------------------
By:
----------------------------------
-4-
