<PAGE>
As filed with the Securities and Exchange Commission on December 1, 1998.
Registration No. 2-68290
File No. 811-3070
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Form N-1A
Post-Effective Amendment No. 20
to
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
and
Amendment No. 22
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
400 West Market, 32nd Floor
Louisville, Kentucky 40202
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[_] on January 1, 1999 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 November 23, 1998.
================================================================================
<PAGE>
PROSPECTUS DATED DECEMBER 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.
- -------------------------------------------------------------------------------
DIVIDENDS
PURCHASES AND COMMISSIONS
Dividends from the Fund's net income
The Fund is no-load, and the full are declared every business day and
amount paid by the purchaser is paid on or shortly after the 15th
invested in shares of the Fund. A day of each month in cash or
purchase is effected after receipt reinvested in additional shares of
of Federal funds. The minimum the Fund.
initial purchase of shares is $1,000
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
December 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.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED,
ENDORSED, OR OTHERWISE SUPPORTED BY PNC BANK CORP. OR ITS AFFILIATES OR THE
U.S. GOVERNMENT, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL.
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............................ 9
General............................................................. 10
NET ASSET VALUE...................................................... 10
DAILY INCOME DIVIDENDS............................................... 11
TAXES................................................................ 11
Other Taxes......................................................... 12
MANAGEMENT OF THE FUND............................................... 12
Directors........................................................... 12
Investment Adviser and Distributor.................................. 12
Transfer and Dividend Agent......................................... 13
Expenses............................................................ 13
Banking Laws........................................................ 13
Year 2000........................................................... 13
ORGANIZATION AND CAPITALIZATION...................................... 14
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........................................................... .33%
Other expenses.......................................................... .18%
----
Total Fund operating expenses........................................... .51%
====
</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............................. $5 $16 $29 $64
</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, 1998) was 4.97%.
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,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<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 .05 .03
--------- --------- --------- --------- ---------
Total From Investment
Operations............ .05 .05 .05 .05 .03
Less Distributions:
Dividend Distributions. ( .05) ( .05) ( .05) ( .05) ( .03)
--------- --------- --------- --------- ---------
Total Distributions.... ( .05) ( .05) ( .05) ( .05) ( .03)
--------- --------- --------- --------- ---------
Net asset value, End of
Year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Number of shares
outstanding (000's
omitted)............... 944,966 587,080 427,494 335,776 210,652
Total Investment Return. 5.11% 4.96% 4.96% 5.04% 2.85%
SIGNIFICANT RATIOS AND
SUPPLEMENTAL DATA
Net assets, End of Year
(000's omitted)....... $944,966 $587,080 $427,494 $335,776 $210,652
Operating expenses to
average net assets.... .51% .57% .61% .72% .75%
Net investment income
to average net assets. 4.99% 4.86% 4.84% 4.97% 2.80%
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------
1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
<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... .03 .04 .06 .08* .08*
--------- --------- --------- --------- ---------
Total From Investment
Operations............ .03 .04 .06 .08 .08
Less Distributions:
Dividend Distributions. ( .03) ( .04) ( .06) ( .08) ( .08)
--------- --------- --------- --------- ---------
Total Distributions.... ( .03) ( .04) ( .06) ( .08) ( .08)
--------- --------- --------- --------- ---------
Net asset value, End of
Year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Number of shares
outstanding (000's
omitted)............... 221,050 234,600 232,660 226,389 111,506
Total Investment Return. 2.54% 3.87% 6.19% 8.04% 8.39%
SIGNIFICANT RATIOS AND
SUPPLEMENTAL DATA
Net assets, End of Year
(000's omitted)....... $221,050 $234,600 $232,660 $226,389 $111,506
Operating expenses to
average net assets.... .71% .68% .70% .60% .79%
Net investment income
to average net assets. 2.51% 3.80% 6.01% 7.71%* 8.12%*
</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-Import 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, 1998, 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, 1998 was 53 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. 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 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 to Hilliard-
Lyons, P.O. Box 32760, Louisville, Kentucky 40232. 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 daily basis, thus avoiding loss of interest from idle cash.
To participate in the "sweep" program, shareholders should contact a financial
consultant of Hilliard-Lyons.
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
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
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.)
Checks delivered to Hilliard-Lyons for investment in shares of the Fund
normally do not become converted into Federal funds available to Hilliard-
Lyons 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 Hilliard-Lyons 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.
7
<PAGE>
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
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 $10.00 charge
for each wiring of proceeds over $5,000 and a $25.00 charge for each wiring of
proceeds under $5,000, 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 Hilliard-Lyons to cover the
administrative expenses of processing the redemption.
8
<PAGE>
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 Hilliard-Lyons, P.O. Box 32760, Louisville, Kentucky 40232, 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 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. 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
9
<PAGE>
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.
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. 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.
10
<PAGE>
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.
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
11
<PAGE>
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. The Statement of Additional Information contains general
background information about each director and officer of the Fund.
INVESTMENT ADVISER AND DISTRIBUTOR
Hilliard-Lyons serves as the Fund's investment adviser. Hilliard-Lyons is a
wholly owned subsidiary of PNC Bank Corp. ("PNC"). Hilliard-Lyons has its
principal offices at Hilliard Lyons Center, Louisville, Kentucky 40202. PNC, a
multi-bank holding company headquartered in Pittsburgh, Pennsylvania, is one
of the largest financial service organizations in the United States. PNC's
address is One PNC Plaza, 249 Fifth Avenue, Pittsburgh, Pennsylvania 15222-
2707. Hilliard-Lyons has been retained by the Fund as its investment adviser
under an Investment Advisory Agreement (the "Agreement") dated December 1,
1998. Under the Agreement, Hilliard-Lyons supervises investment operations of
the Fund and the composition of its portfolio and furnishes 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. 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.
12
<PAGE>
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 October 31, 1998, were over $5,000,000,000.
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, 1998 was .33% of the
Fund's average daily net assets for that fiscal year.
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 a former Executive Vice President and Director of Hilliard-Lyons.
Mr. Joseph C. Curry, Jr., President of the Fund, is a Senior Vice President of
Hilliard-Lyons. Ms. Dianna P. Wengler, Vice President and Treasurer of the
Fund, is a Vice President of Hilliard-Lyons.
Provident Distributors, Inc. (the "Distributor"), Four Falls Corporate
Center, 6th Floor, West Conshohocken, Pennsylvania 19428, acts as the
principal distributor of the Fund's shares. Hilliard-Lyons, a wholly owned
subsidiary of PNC, has entered into a Broker-Dealer Agreement to sell shares
of the Fund. You may invest or redeem in the Fund through 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, 1998, the ratio of operating expenses
to average net assets of the Fund was .51%.
YEAR 2000
Like other mutual funds and financial in business organizations worldwide,
investments in the Fund could be adversely affected if computer systems on
which the Fund relies are unable to distinguish between the year 1900 and the
year 2000 (typically, this is called the "Year 2000 Problem"). The Year 2000
Problem could have a negative impact on handling securities trades, pricing
and account services and could otherwise have a material adverse effect on the
Fund's business, operations and/or investments. Hilliard Lyons has commenced
review of the Year 2000 Problem as it may effect the Fund, both directly and
through the systems of the Fund's other service providers and is taking steps
reasonably designed to address any Year 2000 Problems. In light of these
remedial steps, Hilliard Lyons expects that its systems and the systems of the
Fund's other service providers will be adapted to deal with the Year 2000
Problem before the beginning of the Year 2000. There can be no assurance,
however, that the systems of Hilliard Lyons or the Fund's other service
providers will be successfully adapted to deal with the Year 2000 Problem, or
that interaction with other third-parties computer systems which are not
prepared for that Year 2000 Problem will not impair their services at that
time, or that the Year 2000 Problem will not have an adverse effect on global
markets or economies generally.
BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company engaged continuously in the issuance
of its shares and
13
<PAGE>
prohibit banks generally from issuing, underwriting, selling, or distributing
securities such as fund shares. Such banking laws and regulations do not
prohibit such a holding company or affiliate or banks generally from acting as
investment adviser, transfer agent, or custodian to such an investment company
or from purchasing shares of such a company for and upon the order of
customers. PNC and Hilliard-Lyons are subject to such banking laws and
regulations, but believe that they may perform the services for the Fund
contemplated by their respective agreements, this prospectus and the statement
of additional information without violating applicable banking laws or
regulations.
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.
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>
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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 THE DISTRIBUTOR. 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 SOLICITATION.
HILLIARD-LYONS GOVERNMENT FUND, INC.
HILLIARD LYONS CENTER
LOUISVILLE, KENTUCKY 40202
- -------------------------------------------------------------------------------
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Hilliard-Lyons Government Fund, Inc.
Mailing address: Post Office Box 32760
Hilliard Lyons Center
Louisville, Kentucky 40232
Phone: (502) 588-8400
Investment Adviser
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
Distributor
Provident Distributors Inc.
Four Falls Corporate Center
6th Floor
West Conshohocken, Pennsylvania 19428
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
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 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 December 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................................................................. 9
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 an employer-sponsored plan or the couple has a combined
applicable dollar amount of less than $50,000. The applicable dollar amount
for single filers 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 1998 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. A fee of $10 is
charged for a lump sum 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 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>
J. Henning Hilliard..... Director Retired, former Senior
Hilliard Lyons Center Executive and Director, J.
Louisville, Kentucky J. B. Hilliard, W. L.
40202 Lyons, Inc.
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 $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.
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, 1998.
The Agreement was approved by the Board of Directors, including a majority
of the directors who are not interested persons of Hilliard-Lyons, on
September 17, 1998 and by the shareholders of the Fund, on November 23, 1998.
The Agreement will be in effect for two years from December 1, 1998 through
December 1, 2000
and will continue in effect from year to year thereafter, 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
7
<PAGE>
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 excess of $300 million. The fee accrues daily and
is paid monthly. For the fiscal years ended August 31, 1996, 1997, and 1998
Hilliard-Lyons earned advisory fees, based on the formula described above,
totalling $1,660,231, $1,880,981, and $2,550,536, 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, 1996, 1997, or 1998.
8
<PAGE>
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 of the Fund, is a Senior Vice President 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. Ms. Penny
Wellinghurst, Secretary of the Fund, is an employee 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 and Chief
Financial Officer; Kenneth L. Wagner, Senior Vice President and Secretary;
James R. Allen, Executive Vice President and Director; Samuel C. Harvey,
Executive Vice President and Director; Frank James Walker, Executive Vice
President and Director; James M. Rogers, Executive Vice President, Chief
Operating Officer, and Director; Ronald G. Hollander, Senior Vice President
and Director; and Peter Mahurin, Senior Vice President and Director.
The directors and officers of Hilliard-Lyons, including the aforementioned
officers and directors of the Fund, may be deemed to control Hilliard-Lyons by
reason of their position with Hilliard-Lyons.
The Fund entered into a Distribution Agreement dated as of December 1, 1998
(the "Distribution Agreement") with Provident Distributors, Inc. (the
"Distributor"). The terms of the Distribution Agreement were approved on
November 23, 1998, 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, the Distributor
serves as the principal underwriter and distributor of the Fund's shares.
Pursuant to an agreement with the Distributor, Hilliard-Lyons has agreed to
pay the Distributor a fee of $2,000 per month for services it renders to the
Fund. There is no fee payable by the Fund pursuant to the Distribution
Agreement. The agreement also 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 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 upon 60
days written notice by the Fund and/or the Distributor.
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.
9
<PAGE>
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
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.
10
<PAGE>
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.
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, 1998.
<TABLE>
<S> <C>
Total dividends per share from net investment income (seven
days ended August 31, 1998)................................... $ .00095
Annualized (365 day basis)..................................... $ .04973
Average net asset value per share.............................. $1.00
Annualized net yield per share for seven calendar days ended
August 31, 1998............................................... 4.97%
</TABLE>
11
<PAGE>
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, 1998
<TABLE>
<CAPTION>
PRINCIPAL PURCHASE MATURITY
AMOUNT YIELD DATE VALUE
----------- -------- -------- -----------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 100.3%
$10,000,000 Federal Farm Credit Bank 5.504% 09/01/98 $10,000,000
9,145,000 Federal Home Loan Bank 5.729 09/01/98 9,145,000
20,000,000 Federal Home Loan Bank 5.520 09/02/98 19,997,017
13,000,000 Federal Farm Credit Bank 5.507 09/03/98 12,996,114
15,000,000 Federal Home Loan Bank 5.502 09/04/98 14,993,325
10,000,000 Federal Home Loan Bank 5.485 09/08/98 9,989,558
20,000,000 Federal Home Loan Bank 5.529 09/09/98 19,976,089
9,000,000 Federal Farm Credit Bank 5.524 09/10/98 8,987,895
8,000,000 Federal Farm Credit Bank 5.541 09/11/98 7,988,000
4,500,000 Federal Home Loan Bank 5.512 09/11/98 4,493,300
15,000,000 Federal Home Loan Bank 5.490 09/14/98 14,970,913
7,000,000 Federal Farm Credit Bank 5.510 09/15/98 6,985,409
20,000,000 Federal Home Loan Bank 5.530 09/16/98 19,955,167
17,000,000 Federal Farm Credit Bank 5.508 09/17/98 16,959,276
13,000,000 Federal Home Loan Bank 5.520 09/18/98 12,967,034
5,000,000 Federal Farm Credit Bank 5.510 09/21/98 4,985,139
6,000,000 Federal Farm Credit Bank 5.520 09/21/98 5,982,133
17,000,000 Federal Farm Credit Bank 5.505 09/22/98 16,946,648
8,000,000 Federal Home Loan Bank 5.528 09/23/98 7,973,796
15,000,000 Federal Farm Credit Bank 5.517 09/24/98 14,948,538
20,000,000 Federal Home Loan Bank 5.540 09/25/98 19,928,133
11,000,000 Federal Farm Credit Bank 5.509 09/28/98 10,955,615
7,000,000 Federal Farm Credit Bank 5.522 09/29/98 6,970,818
5,000,000 Federal Farm Credit Bank 5.515 09/30/98 4,978,371
9,000,000 Federal Home Loan Bank 5.510 09/30/98 8,961,140
6,754,000 Federal Farm Credit Bank 5.531 10/01/98 6,723,776
8,000,000 Federal Farm Credit Bank 5.511 10/01/98 7,963,933
20,000,000 Federal Home Loan Bank 5.510 10/02/98 19,907,689
25,000,000 Federal Home Loan Bank 5.512 10/05/98 24,873,444
18,000,000 Federal Farm Credit Bank 5.533 10/06/98 17,905,325
15,000,000 Federal Home Loan Bank 5.526 10/07/98 14,919,750
15,000,000 Federal Home Loan Bank 5.508 10/08/98 14,917,367
12,000,000 Federal Home Loan Bank 5.524 10/09/98 11,932,107
20,000,000 Federal Home Loan Bank 5.543 10/13/98 19,874,933
8,000,000 Federal Home Loan Bank 5.532 10/14/98 7,948,782
8,000,000 Federal Home Loan Bank 5.530 10/14/98 7,948,591
21,000,000 Federal Home Loan Bank 5.515 10/15/98 20,862,170
20,000,000 Federal Home Loan Bank 5.540 10/16/98 19,865,250
10,000,000 Federal Farm Credit Bank 5.538 10/19/98 9,928,533
18,000,000 Federal Farm Credit Bank 5.522 10/20/98 17,867,700
14,000,000 Federal Home Loan Bank 5.540 10/21/98 13,895,194
</TABLE>
See notes to financial statements.
13
<PAGE>
HILLIARD-LYONS GOVERNMENT FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL PURCHASE MATURITY
AMOUNT YIELD DATE VALUE
----------- -------- -------- ------------
<C> <S> <C> <C> <C>
$12,000,000 Federal Home Loan Bank 5.542% 10/23/98 $ 11,906,400
15,000,000 Federal Farm Credit Bank 5.537 10/26/98 14,876,479
23,000,000 Federal Home Loan Bank 5.540 10/28/98 22,803,714
14,000,000 Federal Home Loan Bank 5.540 10/30/98 13,877,247
19,000,000 Federal Home Loan Bank 5.489 11/02/98 18,824,609
15,000,000 Federal Farm Credit Bank 5.523 11/03/98 14,859,563
12,000,000 Federal Farm Credit Bank 5.520 11/04/98 11,885,440
20,000,000 Federal Farm Credit Bank 5.508 11/05/98 19,806,444
12,000,000 Federal Home Loan Bank 5.510 11/06/98 11,882,080
17,000,000 Federal Home Loan Bank 5.508 11/09/98 16,825,353
18,000,000 Federal Farm Credit Bank 5.518 11/10/98 17,812,050
15,000,000 Federal Home Loan Bank 5.531 11/12/98 14,838,900
13,000,000 Federal Farm Credit Bank 5.510 11/13/98 12,859,495
7,000,000 Federal Farm Credit Bank 5.530 11/17/98 6,919,449
30,000,000 Federal Home Loan Bank 5.556 11/18/98 29,648,675
10,000,000 Federal Farm Credit Bank 5.505 11/20/98 9,881,778
5,000,000 Federal Home Loan Bank 5.530 11/20/98 4,940,222
17,000,000 Federal Home Loan Bank 5.530 11/25/98 16,784,053
16,000,000 Federal Home Loan Bank 5.520 11/27/98 15,792,360
9,090,000 Federal Home Loan Bank 5.540 12/02/98 8,965,720
8,000,000 Federal Home Loan Bank 5.486 12/04/98 7,888,871
6,390,000 Federal Home Loan Bank 5.532 12/14/98 6,291,054
12,000,000 Federal Farm Credit Bank 5.511 12/21/98 11,802,420
20,000,000 Federal Home Loan Bank 5.498 01/04/99 19,633,333
17,000,000 Federal Home Loan Bank 5.551 01/06/99 16,679,149
20,000,000 Federal Home Loan Bank 5.501 01/08/99 19,619,450
14,000,000 Federal Home Loan Bank 5.514 01/14/99 13,720,700
13,000,000 Federal Home Loan Bank 5.548 01/15/99 12,737,747
13,000,000 Federal Home Loan Bank 5.534 01/20/99 12,728,615
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(amortized cost -- $947,460,342) 947,460,342
------------
TOTAL INVESTMENTS (100.3%) (cost --
$947,460,342*) $947,460,342
============
</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, 1998
<TABLE>
<S> <C>
ASSETS
Investments in money market instruments, at value:
United States Government Agency Obligations, at value (amortized
cost--$947,460,342)............................................. $947,460,342
------------
Total Investments.............................................. 947,460,342
Cash............................................................. 2,583
Prepaid expenses................................................. 3,666
------------
TOTAL ASSETS................................................... 947,466,591
------------
LIABILITIES
Dividends payable................................................ 2,054,324
Due to J.J.B. Hilliard, W.L. Lyons, Inc.--Note B................. 252,165
Miscellaneous accrued expenses................................... 194,279
------------
TOTAL LIABILITIES.............................................. 2,500,768
------------
NET ASSETS (equivalent to $1.00 per share; 1,500,000,000 shares
authorized and 944,965,823 shares issued and outstanding)--Note
C............................................................... $944,965,823
============
HILLIARD-LYONS GOVERNMENT FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
AUGUST 31, 1998
INVESTMENT INCOME
Interest income.................................................. $ 42,367,727
EXPENSES
Investment Advisory fee--Note B.................................. 2,550,536
Shareholder servicing fees--Note B............................... 772,607
Transfer agent fees.............................................. 221,993
Custodian fees................................................... 123,130
Printing and other expenses...................................... 83,144
Filing fees...................................................... 112,340
Insurance expense................................................ 32,371
Legal and audit fees............................................. 35,107
Directors' fees.................................................. 21,550
------------
Total expenses.................................................. 3,952,778
------------
Net investment income........................................... 38,414,949
------------
Net increase in net assets resulting from operations............ $ 38,414,949
============
</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
1998 1997
------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS
Net investment income............................ $ 38,414,949 $ 24,409,576
------------- -------------
Net increase in net assets resulting from
operations..................................... 38,414,949 24,409,576
Dividends to shareholders ($.049903 and $.048529
per share, respectively)........................ ( 38,414,949) ( 24,409,576)
------------- -------------
Undistributed net investment income.............. 0 0
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
Net capital share transactions (at $1.00 per
share)--Note C.................................. 357,885,980 159,585,459
NET ASSETS
Beginning of year................................ 587,079,843 427,494,384
------------- -------------
End of year...................................... $944,965,823 $587,079,843
============= =============
</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,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<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 .05 .03
-------- -------- -------- -------- --------
Total from investment
operations................. .05 .05 .05 .05 .03
Less distributions:
Dividend distributions...... ( .05) ( .05) ( .05) ( .05) ( .03)
-------- -------- -------- -------- --------
Total distributions.......... ( .05) ( .05) ( .05) ( .05) ( .03)
-------- -------- -------- -------- --------
Net asset value, end of year. $1.00 $1.00 $1.00 $1.00 $1.00
======== ======== ======== ======== ========
Number of shares outstanding
(000's omitted)............. 944,966 587,080 427,494 335,776 210,652
Total investment return...... 5.11% 4.96% 4.96% 5.04% 2.85%
SIGNIFICANT RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of year
(000's omitted)............ $944,966 $587,080 $427,494 $335,776 $210,652
Operating expenses to
average net assets......... .51% .57% .61% .72% .75%
Net investment income to
average net assets......... 4.99% 4.86% 4.84% 4.97% 2.80%
</TABLE>
See notes to financial statements
16
<PAGE>
HILLIARD-LYONS GOVERNMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1998
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
valuation for U.S. Government securities which, in the opinion of the Board of
Directors, 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
interest receivable. Normally, repurchase agreements are not subject to
trading. Repurchase agreements are fully collateralized by U.S. Treasury and
U.S. Government Agency obligations valued at bid prices plus accrued interest.
U.S. Treasury and U.S. Government Agency obligations pledged as collateral for
repurchase 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 proceedings.
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 federal 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
interest and accretion of original issue and market discounts earned and
amortization of premiums, plus or minus any net realized gain or loss on
portfolio securities, 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
"Adviser"), 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 FEES & OTHER TRANSACTIONS WITH AFFILIATES
On October 23, 1997, the Fund renewed its investment advisory agreement with
the Adviser. Under the investment advisory agreement, the Adviser supervises
investment operations of the Fund and the composition of its portfolio, and
furnishes 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 assets 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,
1998. On August 20, 1998, PNC Bank Corp. entered into an Agreement and Plan of
Merger with Hilliard-Lyons, Inc. (the "Merger") pursuant to which the Adviser
will become a subsidiary of PNC Bank Corp. The Merger is expected to become
effective on or after November 30, 1998. This Merger constitutes an assignment
of the Investment Advisory Agreement (the "Agreement") as defined in the
Investment Company Act of 1940. Shareholders are being asked to approve a new
Agreement at a Special Shareholders Meeting scheduled to be held November 6,
1998.
The Fund contracted with the Adviser to provide shareholder accounting
services. The Adviser is paid a fee of $1.00 per open account each month.
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 $3,000, a fee of $750 for each Board of Directors or
committee meeting attended, and all expenses the Directors incur in attending
meetings.
NOTE C--CAPITAL STOCK
The Fund was incorporated in June 1980 under the laws of the state of
Maryland. At August 31, 1998, there were 1,500,000,000 shares of $.01 par
value Common Stock authorized, and capital paid in aggregated $935,516,165.
Transactions in Fund shares at $1.00 per share were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31,
1998 1997
-------------- --------------
<S> <C> <C>
Shares sold 2,979,565,610 1,740,443,413
Shares issued to shareholders in reinvestment
of dividends 36,974,418 23,618,228
-------------- --------------
3,016,540,028 1,764,061,641
Less shares repurchased (2,658,654,048) (1,604,476,182)
-------------- --------------
Net increase in capital shares 357,885,980 159,585,459
============== ==============
</TABLE>
17
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Hilliard-Lyons Government Fund, Inc.
We have audited the accompanying statement of assets and liabilities,
including the schedule of portfolio investments, of the Hilliard-Lyons
Government Fund, Inc. (the Fund) as of August 31, 1998, and the related
statement of operations for the year then ended, statement 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 and financial highlights. Our procedures included
confirmation of securities owned as of August 31, 1998, 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 the
Fund as of August 31, 1998, 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 its financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting
principles.
Louisville, Kentucky
November 30, 1998
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, 1998 (PART B, p. 13)
(3) Statement of Assets and Liabilities at August 31, 1998 (PART B,
p. 15)
(4) Statement of Operations for Year ended August 31, 1998 (PART B, p.
15)
(5) Statement of Changes in Net Assets for Years ended August 31, 1997
and 1998 (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.
(1.1) Articles Supplementary to Articles of Incorporation.
(2) Amended By-Laws of Registrant.
(3) Not applicable.
(4) Form of Investment Advisory Agreement between Registrant and
J.J.B. Hilliard, W.L. Lyons, Inc.
(5) Form of Distribution Agreement between Registrant and Provident
Distributors, Inc.
(6) Not applicable.
(7) Form of Custodian Agreement between Registrant and State Street
Bank and Trust Company.
(8) Form of Transfer Agent's Agreement between Registrant and State
Street Bank and Trust Company.
(9) Consent of Ernst & Young LLP, independent auditors.
(10) Not applicable.
(11) Individual Retirement Custodial Account Agreement of the Internal
Revenue Service, Form 5305-A; Application Information; and
Designation of Beneficiary Form.
(12) Not applicable.
(13) Not applicable.
(14) 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 October 31, 1998, was as follows:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
<S> <C>
Common Stock, $.01 par value 88,594
</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 85 offices and more than 767
financial consultants doing business in 49 states. Hilliard-Lyons maintains an
investment advisory department and is registered under the Investment Advisers
Act of 1940. 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 , 1998) filed on or about November ,
1998 for Hilliard-Lyons.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Provident Distributors, Inc. is Registrant's principal underwriter.
Provident Distributors, Inc. currently serves as distributor and principal
underwriter of Hilliard Lyons Growth Fund, Inc., an open-end non-diversified
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
James W. Stuckert................... Chairman, None
Hilliard Lyons Center Chief Executive Officer,
Louisville, KY 40202 and Director
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH POSITION
NAME AND PRINCIPAL UNDERWRITER WITH
BUSINESS ADDRESS (DISTRIBUTOR) REGISTRANT
------------------ ------------- ----------
<S> <C> <C>
Peter Mahurin............................ Senior Vice President, None
Hilliard Lyons Center and Director
Louisville, KY 40202
E. Neal Cory, II......................... Executive Vice President 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....................... Executive Vice President None
Hilliard Lyons Center and Director
Louisville, KY 40202
Ronald G. Hollander...................... Vice President None
Hilliard Lyons Center and Director
Louisville, KY 40202
James M. Rogers.......................... Executive Vice President, None
Hilliard Lyons Center Chief Operating Officer,
Louisville, KY 40202 and Director
</TABLE>
(c) The principal underwriter receives $1,000.00 per month as 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.
By: DONALD F. KOHLER
-----------------------------------
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>
/s/ DONALD F. KOHLER Chairman of the Board November 23, 1998
- ------------------------------------ (Principal Executive
Donald F. Kohler Officer)
/s/ JOSEPH C. CURRY, JR.* Director November 23, 1998
- ------------------------------------
Joseph C. Curry, Jr.
Director November 23, 1998
- ------------------------------------
Gilbert L. Pamplin
/s/ J. HENNING HILLIARD* Director November 23, 1998
- ------------------------------------
J. Henning Hilliard
/s/ J. ROBERT SHINE* Director November 23, 1998
- ------------------------------------
J. Robert Shine
Director November 23, 1998
- ------------------------------------
Marianne R. Rowe
/s/ SAMUEL G. MILLER* Director November 23, 1998
- ------------------------------------
Samuel G. Miller
*By: DONALD F. KOHLER
---------------------------
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
- ------- ----------- ------------
<S> <C> <C>
1 Restated Articles of Incorporation of Registrant............................
1.1 Articles Supplementary to Articles of Incorporation.........................
2 Amended By-Laws of Registrant...............................................
3 Not applicable..............................................................
4 Form of Investment Advisory Agreement between Registrant and
J.J.B. Hilliard, W.L. Lyons, Inc............................................
5 Form of Distribution Agreement between Registrant and Provident
Distributors, Inc...........................................................
6 Not applicable..............................................................
7 Form of Custodian Agreement between Registrant and State Street Bank and
Trust Company...............................................................
8 Form of Transfer Agent's Agreement between Registrant and State Street
Bank and Trust Company......................................................
9 Consent of Ernst & Young LLP, independent auditors..........................
10 Not applicable..............................................................
11 Individual Retirement Custodial Account Agreement of the Internal Revenue
Service, Form 5305-A; Application Information; and Designation of
Beneficiary Form............................................................
12 Not applicable..............................................................
13 Not applicable..............................................................
14 Not applicable..............................................................
</TABLE>
<PAGE>
Exhibit No. 1
HILLIARD-LYONS CASH MANAGEMENT, INC.
------------------------------------
ARTICLES OF INCORPORATION
FIRST: Formation. The undersigned, Parker W. Duncan, the post office
address of whom is 545 South Third Street, Louisville, Kentucky 40202, being at
least eighteen years of age, does hereby form a corporation under and by virtue
of the General Corporation Law of the State of Maryland.
SECOND: Name.
The name of the Corporation is Hilliard-Lyons Cash Management, Inc.
THIRD: Corporate Purposes.
The purposes for which the Corporation is formed are:
(1) To engage in the business of a management investment company.
(2) To invest and reinvest in, to buy or otherwise acquire, to hold, for
investment or otherwise, to sell or otherwise dispose of, to lend or
to pledge, to trade in or deal in, securities or interests of all
kinds, however evidenced, or obligations of all kinds, however
evidenced, or rights or warrants to acquire such securities,
interests, or obligations, of any private or public company,
corporation, bank, association, general or limited partnership, trust
or other enterprise or organization, foreign or domestic, or issued or
guaranteed by any national or state government, foreign or domestic,
or their instrumentalities or subdivisions; including but not limited
to bonds, debentures, bills, time notes and all other evidences of
indebtedness; negotiable or non-negotiable instruments; government
securities; and money market instruments, including but not limited to
bank certificates of deposit, finance paper, commercial paper, bankers
acceptances, and all kinds of repurchase agreements, of any
corporation, company, bank, trust, association, firm or other business
organization however established, and of any country, state,
municipality or other political subdivision, or of any other
governmental or quasi-governmental agency or instrumentality.
<PAGE>
(3) To invest and reinvest in, to buy or otherwise acquire, to hold, for
investment or otherwise, to sell or otherwise dispose of foreign
currencies, funds, and exchange; deposits in banks, savings banks,
trust companies, and savings and loan associations, foreign or
domestic.
(4) To exercise all rights, powers, and privileges as owner of any
securities, property, or assets which might be exercised by any
individual owning such securities, property, or assets in his own
right.
(5) To acquire (by purchase, lease, or otherwise) and to hold, use,
maintain, develop, and dispose of (by sale or otherwise) any property,
real or personal, and any interest therein.
(6) To aid by further investment any corporation, company, trust,
association, or firm, any obligation of or interest in which is held
by the Corporation or in the affairs of which the Corporation has any
direct or indirect interest; to do all acts and things designed to
protect, preserve, improve, or enhance the value of such obligation
or interest; to guarantee or become surety on any or all of the
contracts, stocks, bonds, notes, debentures, and other obligations of
any such corporation, company, trust, association, or firm.
(7) In general to carry on any other business in connection with or
incidental to any of the foregoing objects and purposes, to have and
exercise all the powers conferred upon corporations by the laws of the
State of Maryland as in force from time to time, to do everything
necessary, suitable, or proper for the accomplishment of any purpose
or the attainment of any object or the furtherance of any power
hereinbefore set forth, either alone or in association with others,
and to do every other act or thing incidental or appurtenant to or
growing out of or connected with the aforesaid business or purposes,
objects, or powers.
The Corporation shall have the power to conduct and carry on its business,
or any part thereof, and to have one or more offices, and to exercise any or all
of its corporate powers and rights, in the State of Maryland, in any other
2
<PAGE>
states, territories, districts, colonies, and dependencies of the United States,
and in any or all foreign countries.
The foregoing clauses shall be construed both as objects and powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Corporation. Nothing herein
shall be construed or deemed to authorize the Corporation to engage in the
business of banking.
FOURTH: Address and Resident Agent.
The post office address of the principal office of the Corporation in the
State of Maryland is:
c/o The Corporation Trust, Incorporated
First Maryland Building
25 South Charles Street
Baltimore, Maryland 21201
The name and post office address of the resident agent of the Corporation in the
State of Maryland is:
The Corporation Trust, Incorporated
First Maryland Building
25 South Charles Street
Baltimore, Maryland 21201
Such resident agent is a Maryland corporation.
FIFTH: Common Stock.
The total number of shares of stock which the Corporation shall have
authority to issue is Five Hundred Million (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 Five Million Dollars
($5,000,000).
SIXTH: Preemptive Rights.
No holder of any of the shares of the Corporation whether now or hereafter
authorized or created shall be entitled as a right to subscribe for, purchase,
or otherwise acquire any shares of the Corporation which the Corporation
proposes to issue; and any and all of such shares of the Corporation, whether
now or hereafter authorized or created, may be issued, or may be reissued or
transferred if the same have been reacquired and have treasury status, to such
persons, firms, corporations, and associations, and for
3
<PAGE>
such lawful consideration, and on such terms as the Board of Directors in its
discretion may determine, without first offering such shares, or any of such
shares, to any said holder.
SEVENTH: Issue, Redemption, and Repurchase of Common Stock.
SECTION I
ISSUE OF THE CORPORATION'S SHARES
1.01 General. The Board of Directors may from time to time issue, reissue,
sell or cause to be issued and sold any of the Corporation's authorized shares
of Common Stock, including any additional shares hereafter authorized and any
shares redeemed or repurchased by the Corporation, for a consideration of not
less than the par value thereof, except that only shares previously contracted
to be sold may be issued during any period when the determination of net asset
value is suspended pursuant to the provisions of Section III hereof. All shares
of such authorized Common Stock, when issued in accordance with the terms of
this Section I, shall be fully paid and nonassessable.
1.02 Price. No shares of Common Stock shall be issued or sold by the
Corporation, except as a stock dividend distributed to stockholders, for less
than an amount which would result in proceeds to the Corporation, in connection
with such transaction, of at least the net asset value per share, determined as
set forth in Section III hereof. The net asset value per share applicable to any
such transaction shall be the net asset value per share next determined after
receipt of an unconditional order for purchase of shares; except, that the Board
of Directors may by resolution fix a time of day, prior to the time of day for
determination of net asset value per share, prior to which orders received will
be transacted at the net asset value per share determined that day, and after
which orders received will be transacted at the net asset value per share
determined on the next succeeding day on which such value is determined. The
criteria for determining what constitutes an unconditional order for purchase of
shares and the receipt of such an order shall be prescribed by resolution of the
Board of Directors or by any officer of the Corporation to whom this duty is
delegated by the Board of Directors.
1.03 On Merger or Consolidation. In connection with the acquisition of all
or substantially all the assets or stock of another investment company,
investment trust, or
4
<PAGE>
of a company classified as a personal holding company under Federal Income Tax
laws, the Board of Directors may issue or cause to be issued shares of Common
Stock of the Corporation and accept in payment therefor, in lieu of cash, such
assets at their market value, or such stock at the market value of the assets
held by such investment company or investment trust, either with or without
adjustment for contingent costs or liabilities, provided such assets are of the
character in which the Board of Directors is permitted to invest the funds of
the Corporation.
1.04 Fractional Shares. The Corporation may issue and sell or cause to be
issued and sold fractions of shares having pro rata all the rights of full
shares, including, without limitation, the right to vote and to receive
dividends.
SECTION II
REDEMPTION AND REPURCHASE OF
THE CORPORATION'S SHARES
2.01 Redemption of Shares. All shares of the Common Stock of the
Corporation now or hereafter authorized shall be "subject to redemption" and
"redeemable" in the sense used in the General Laws of the State of Maryland
authorizing the formation of corporations, at the redemption or repurchase
price for any such shares, determined in the manner set out in these Articles of
Incorporation or in any amendment thereto; provided, however, that the
Corporation shall have the right, at its option, to refuse to redeem the shares
of stock at less than the par value thereof. Redeemed or repurchased shares may
be resold by the Corporation.
The Corporation shall redeem shares of its Common Stock subject to the
conditions and at the price determined as hereinafter set forth.
2.02 Price. Shares shall be redeemed at their net asset value, determined
as set forth in Section III hereof. The net asset value per share applicable to
any such redemption of shares shall be the net asset value per share next
determined after receipt of a proper request for redemption of such shares;
except that the Board of Directors may, by resolution, fix a time of day, prior
to the time of day for determination of net asset value per share, prior to
which requests for redemption received shall be transacted at a net asset value
per share determined that day, and after which requests for redemption received
shall be transacted at the net asset value per share determined on the next
succeeding day on which such value is determined. The criteria
5
<PAGE>
for determining what constitutes a proper request for redemption and the
receipt of such request shall be prescribed by resolution of the Board of
Directors or by any officer of the Corporation to whom this duty is delegated by
the Board of Directors.
2.03 Payment. Payment for such shares shall be made in cash to the
stockholder of record within seven (7) days after the date of receipt of (a) a
written unconditional and irrevocable instruction of the stockholder to redeem
in form acceptable to the Corporation or its designated agent together with any
certificates which may have been issued therefor, endorsed or accompanied by
proper instrument of transfer, and such other documents as the Corporation or
its designated agent may require or (b) such other direction or authorization
of redemption by the stockholder as the Board of Directors shall authorize by
resolution, subject to the provisions of Section 2.04 hereof.
2.04 Effect of Suspension of Determination of Net Asset Value. If, pursuant
to Section 3.03 hereof, the Board of Directors shall declare a suspension of the
determination of net asset value, the rights of stockholders (including those
who shall have requested redemption pursuant to Sections 2.01, 2.02, and 2.03
hereof but who shall not yet have received payment) to have shares redeemed and
paid for by the Corporation shall be suspended until the termination of such
suspension is declared. Any record holder who shall have his redemption right
suspended may, during the period of such suspension, by appropriate written
notice of revocation at the office or agency where request for redemption was
made, revoke any request or instruction for redemption not honored and withdraw
any certificates tendered for redemption. The redemption price of shares for
which redemption requests have not been revoked shall be the net asset value of
such shares next determined as set forth in Section III after the termination of
such suspension, and payment shall be made within seven (7) days after the date
upon which the requirements of Section 2.03 were met plus the period during
which the determination of net asset value was suspended.
2.05 Repurchase by Agreement. The Corporation may repurchase shares of the
Corporation directly, or through its principal underwriter, if any, or another
agent designated for the purpose, by agreement with the owner thereof at a
price not exceeding the net asset value per share determined as of the time when
the purchase or contract of purchase is made or the net asset value as of any
time which may be later determined pursuant to Section III hereof, provided
payment is not made for the shares prior to the time as of which such net asset
value is determined.
6
<PAGE>
2.06 Redemption of Stockholder's Interest. The Corporation shall have the
right at any time without prior notice to the stockholder to redeem shares of
any stockholder for their then current net asset value per share if at such time
the stockholder owns shares having an aggregate net asset value of $1,000 or
less subject to such terms and conditions as the Board of Directors may approve,
and subject to the Corporation giving general notice to all stockholders of its
intention to avail itself of such right, either by publication in the
Corporation's prospectus, if any, or by such other means as the Board of
Directors may determine. The Corporation shall also have the right to redeem any
stockholder's shares or refuse to give effect to any transfer thereof on its
books and records, at the Corporation's option and without notice, if in the
opinion of the Corporation's Board of Directors ownership of the Corporation's
shares has or may become concentrated to an extent which would cause the
Corporation to be deemed to be a personal holding company under Federal Income
Tax laws.
SECTION III
NET ASSET VALUE OF SHARES
3.01 By Whom Determined. The Board of Directors shall have the power and
duty to determine from time to time the net asset value per share of the
outstanding shares of Common Stock of the Corporation. It may delegate such
power and duty to any one or more of the Directors or officers of the
Corporation, to the investment adviser, custodian or depository of the
Corporation's assets, or to another agent of the Corporation appointed for such
purpose; except that the power to declare a suspension of the determination of
net asset value pursuant to Section 3.03 may not be delegated. Any
determination made pursuant to this Section by the Board of Directors or its
delegates shall be binding on all parties concerned.
3.02 When Determined. The net asset value shall be determined at such times
as the Board of Directors shall prescribe by resolution, provided that such net
asset value shall be determined at least once each week. In the absence of a
resolution of the Board of Directors, the net asset value shall be determined as
of the close of trading in the over-the-counter government securities market.
3.03 Suspension of Determination of Net Asset Value. The Board of Directors
of the Corporation may declare a suspension of the determination of net asset
value (a) for any period during which the New York Stock Exchange is closed
7
<PAGE>
(other than customary week-end and holiday closings), or during which trading in
the markets customarily utilized by the Corporation is restricted; (b) for any
period during which an emergency exists as a result of which disposal of the
Corporation's investments or determination of net asset value is not reasonably
practicable; or (c) for such periods as the Securities and Exchange Commission
by order may permit for the protection of the Corporation's investors. Such
suspension shall take effect at such time as the Board of Directors shall
specify and thereafter there shall be no determination of net asset value until
the Board of Directors shall declare the suspension at an end, except that the
suspension shall terminate in any event on the first day on which (1) the
condition giving rise to the suspension shall have ceased to exist and (2) no
other condition exists under which suspension is authorized under this Section
3.03. Each declaration by the Board of Directors pursuant to this Section 3.03
shall be consistent with such rules and regulations, if any, relating to the
subject matter thereof as shall have been promulgated by the Securities and
Exchange Commission or any other governmental body having jurisdiction over the
Corporation and as shall be in effect at the time. To the extent not
inconsistent with such rules and regulations, the determination of the Board of
Directors shall be conclusive.
3.04 Computation of Per Share Net Asset Value.
a. Net Asset Value Per Share. The net asset value of each share as of any
particular time shall be the quotient obtained by dividing the value of the net
assets of the Corporation by the total number of shares outstanding rounded to
such extent as the Board of Directors shall determine from time to time.
b. Value of Corporation's Net Assets. The value of the Corporation's net
assets as of any particular time shall be the value of the Corporation's assets
less its liabilities, determined and computed as follows:
(1) Corporation's Assets. The Corporation's assets shall be deemed to
include: (A) all cash on hand or on deposit, including any interest
accrued thereon, (B) all bills, demand notes, and accounts receivable,
(C) all bonds, time notes, shares of stocks, subscription rights, and
other securities owned or contracted for by the Corporation, (D) all
stock and cash dividends and cash distributions payable to but not yet
received by the Corporation (when the valuation of the underlying
security is being determined ex-dividend), (E) all interest accrued on
any interest-bearing securities owned by the Corporation (except
accrued interest included in the valuation of discount paper on
8
<PAGE>
which interest has been accrued ratably to the date of maturity), (F)
all repurchase agreements, and (G) all other property of every kind
and nature, including prepaid expenses.
(2) Valuation of Assets. The value of such assets is to be determined as
follows:
(i) Cash and Prepaid Expenses. The value of any cash on hand and
of any prepaid expenses shall be deemed to be their face
amount.
(ii) Other Current Assets. The value of any cash on deposit,
accounts receivable, and cash dividends and interest
declared or accrued as aforesaid and not yet received shall
be deemed to be the face amount thereof, unless the Board of
Directors or its delegate shall determine that any such item
is not worth its face amount. In such case the value of the
item shall be deemed to be its reasonable value, as
determined by the Board of Directors or its delegate.
(iii) Securities and All Other Assets. The value of all securities
and all other assets of the Corporation shall be determined
as follows:
(1) The value of securities for which market quotations are
readily available, as determined by the Board of
Directors, shall be the mean between the bid and the
asked prices at the time of appraisal.
(2) All other securities and assets shall be valued at fair
value in the best judgment of the Board of Directors.
(3) Provided, that any or all of the Corporation's
securities may be valued by such other method as the
Board of Directors shall determine accurately reflects
the fair value thereof.
(3) The Corporation's Liabilities. The Corporation's liabilities shall not
be deemed to include outstanding shares and surplus. They shall be
deemed
9
<PAGE>
to include: (A) all bills and accounts payable, (B) all expenses
accrued (which may be accrued daily), (C) all contractual obligations
for the payment of money or property, including the amount of any
unpaid dividends or other unpaid distributions upon the Corporation's
shares declared to stockholders of record at or before the time as of
which the net asset value is being determined, (D) all reserves
authorized or approved by the Board of Directors for taxes or
contingencies, and (E) all other liabilities of whatsoever kind and
nature.
3.05 Interim Determinations. Any determination of net asset value other
than as of the close of trading in the over-the-counter government securities
market may be made either by appraisal or by calculation or estimate. Any such
calculation or estimate shall be based on changes in the market value of
representative or selected securities or on changes in recognized market
averages since the last closing appraisal or such other method as the Board of
Directors shall determine in good faith accurately reflects fair value and made
in a manner which in the opinion of the Board of Directors or its delegate will
fairly reflect the changes in the net asset value.
3.06 Miscellaneous. For the purposes of this Section III:
(a) Shares of the Corporation sold shall be deemed to be outstanding as of
the time immediately after the time for determination of net asset
value per share which, pursuant to Section 1.02 of this Article
SEVENTH, applies to such sale, and thereafter the net sale price
thereof shall be deemed an asset of the Corporation.
(b) Shares of the Corporation for which a proper request for redemption
has been made or which are subject to repurchase by the Corporation
shall be deemed to be outstanding up to and including the time as of
which the redemption or repurchase price is determined. After such
time, they shall be deemed to be no longer outstanding and the price
until paid shall be deemed to be a liability of the Corporation.
(c) Funds on deposit and contractual obligations payable to the
Corporation in foreign currency and liabilities and contractual
obligations payable by the Corporation in foreign currency shall be
taken at the current cable rate of exchange as nearly as practicable
at the time as of which the net asset value is computed.
10
<PAGE>
SECTION IV
COMPLIANCE WITH INVESTMENT
COMPANY ACT OF 1940
Notwithstanding any of the foregoing provisions of this Article SEVENTH,
the Board of Directors may prescribe, in its absolute discretion, such other
bases and times for determining the per share net asset value of the
Corporation's Common Stock as it shall deem necessary, desirable or appropriate,
provided that such bases and times are not inconsistent with the Investment
Company Act of 1940, or any rule, regulation, order or interpretation
thereunder, including any rule, regulation, order or interpretation adopted
pursuant to Section 22 of the Investment Company Act of 1940 by the Securities
and Exchange Commission or any securities association registered under the
Securities Exchange Act of 1934, all as in effect now or as hereafter amended or
added.
EIGHTH: Board of Directors.
The number of Directors of the Corporation shall be seven, which number may
be increased or decreased pursuant to the By-Laws of the Corporation, but shall
never be less than three; and the names and addresses of the Directors, who
shall act until the first annual meeting or until their successors are duly
chosen and qualified are:
Donald F. Kohler
545 S. Third Street
Louisville, KY 40202
Gilbert L. Pamplin
545 S. Third Street
Louisville, KY 40202
Henning Hilliard
545 S. Third Street
Louisville, KY 40202
Owsley Brown, II
850 Dixie Highway
Louisville, KY 40210
Robert E. Gable
303 McClure Building
Frankfort, KY 40601
J. V. Norman, Jr.
352 Starks Building
Louisville, KY 40202
Dillman A. Rash
545 S. Third Street
Louisville, KY 40202
11
<PAGE>
NINTH: Stockholder Liability.
Neither the stockholders personally nor their property shall be liable to
any extent for the payment of the Corporation's debts.
TENTH: Management of the Affairs of the Corporation.
(1) Powers of the Corporation. All corporate powers and authority of the
Corporation (except as at the time otherwise provided by statute, by
these Articles of Incorporation, or by the By-Laws) shall be vested in
and exercised by the Board of Directors or, to the extent specifically
delegated by the Board of Directors, by one or more of the directors
or officers of the Corporation, by the investment adviser, custodian
or depository of the Corporation's assets, or by another agent of the
Corporation appointed for such purpose, and in so acting such delegate
shall be exercising the authority of the Board of Directors.
(2) By-Laws. The Board of Directors shall have the power to make, alter,
or repeal the By-Laws of the Corporation except to the extent that the
By-Laws otherwise provide.
(3) Compensation of Directors. The Board of Directors shall have power
from time to time to authorize payment of compensation to the
directors for services to the Corporation, including fees and expenses
for attendance at meetings of the Board of Directors and of
committees.
(4) Inspection of Corporation's Books. The Board of Directors shall have
power from time to time to determine whether and to what extent, and
at what times and places and under what conditions and regulations,
the accounts and books of the Corporation (other than the stock
ledger) or any of them shall be open to the inspection of
stockholders; and no stockholder shall have any right to inspect any
account, book, or document of the Corporation except as at the time
conferred by statute, unless authorized by a resolution of the
stockholders or the Board of Directors.
(5) Majority of Votes. Notwithstanding any provision of the General
Corporation Laws of the State of Maryland requiring a greater
proportion than a majority of the votes entitled to be cast in order
to take or authorize any action, any such action may be taken or
authorized upon the concurrence of at least a majority of the
aggregate number of votes entitled to be cast thereon.
12
<PAGE>
(6) Determination of Net Profits, etc.; Dividends. The Board of Directors
or its authorized officer is expressly authorized to determine
pursuant to applicable law and/or in accordance with generally
accepted accounting principles and practices what constitutes net
income, profits or earnings, or surplus and capital, to include in net
income, profits or earnings the portion of subscription or redemption
prices attributable to accrued net income, profits or earnings in such
prices, and to determine what accounting periods shall be used by the
Corporation for any purpose, whether annual or any other period,
including daily; to set apart out of any funds of the Corporation such
reserves for such purposes as it shall determine and to abolish the
same; to declare and pay dividends and distributions in cash,
securities, or other property from surplus or any funds legally
available therefor, at such intervals (which may be as frequently as
daily) or on such other periodic basis as it shall determine; to
declare such dividends or distributions by means of a formula or other
method of determination at meetings held less frequently than the
frequency of the effectiveness of such declarations; to establish
payment dates for dividends or any other distributions on any basis,
including dates occurring less frequently than the effectiveness of
the declaration thereof; and to provide for the payment of declared
dividends on a date earlier than the specified payment date in the
case of stockholders of the Corporation redeeming their entire
ownership of shares of the Corporation. Inasmuch as the computation of
net income, profits or earnings for Federal income tax purposes may
vary from the computation thereof on the books, the above provisions
shall be interpreted to give to the Board of Directors the power in
its discretion to distribute for any fiscal year as dividends and as
distributions, respectively, additional amounts sufficient to enable
the Corporation to avoid or reduce its liability for taxes.
ELEVENTH: Indemnification.
(1) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (other than an
13
<PAGE>
action by or in the right of the Corporation) by reason of the fact
that he is or was a director, officer, employee, or agent of the
Corporation, or is or was serving at the request of the Corporation as
a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise. The
indemnification shall be against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and
reasonably incurred by him in connection with the action, suit, or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding,
had reasonable cause to believe that his conduct was unlawful.
(2) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed
action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise. The indemnification shall be against
expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of the action or
suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation;
except that no indemnification shall be made in respect of any claim,
issue, or matter as to which the person has been adjudged to be liable
for negligence or misconduct in the performance of his duty to the
Corporation, unless and only to the extent that the court in which the
action or suit was brought, or a court of competent jurisdiction
14
<PAGE>
determines upon application that, despite the adjudication of
liability but in view of all circumstances of the case, the person is
fairly and reasonably entitled to indemnity for the expenses which the
court shall deem proper.
(3) Unless otherwise expressly provided in these Articles of
Incorporation, to the extent that a director, officer, employee, or
agent of a corporation has been successful on the merits or otherwise
in defense of any action, suit or proceeding referred to in subsection
(1) or (2), or in defense of any claim, issue, or matter therein, he
shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
(4) Any indemnification under subsection (1) or (2) (unless ordered by a
court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the
director, officer, employee, or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsection (1) or (2). The determination shall be made (1) by the
Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the action, suit, or proceeding, or
(2) if a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders in accordance with the
Articles of Incorporation and By-Laws of the Corporation.
(5) Expenses (including attorneys' fees) incurred in defending a civil or
criminal action, suit or proceeding shall be paid by the Corporation
in advance of the final disposition thereof if authorized in the
specific case by the Board of Directors, upon receipt of an
undertaking by or on behalf of the director, officer, employee or
agent reasonably assuring that such amount will be repaid unless it
shall ultimately be determined that he is entitled to be indemnified
by the Corporation as authorized in this section.
(6) The indemnification provided by this section shall not be deemed
exclusive of any other rights to which a person may be entitled by any
By-Law,
15
<PAGE>
agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action
in another capacity while holding the office, and shall continue as to
a person who has ceased to be a director, officer, employee, or agent
and inure to the benefit of the heirs, executors, and administrators
of the person.
(7) The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, or
agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise
against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not
the Corporation would have the power to indemnify him against the
liability under the provisions of this section.
(8) For the purposes of this section, references to "the Corporation"
include any constitutent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and authority
to indemnify its directors, officers, employees or agents as well as
the resulting or surviving corporation; so that any person who is or
was a director, officer, employee or agent of such a constituent
corporation or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
shall stand in the same position under the provisions of this section
with respect to the resulting or surviving corporation as he would
have with respect to such a constituent corporation if its separate
existence had continued.
(9) Anything herein contained to the contrary notwithstanding, no officer
or director of the Corporation shall be indemnified for any liability
to the Corporation or its security holders to which he would otherwise
be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office.
16
<PAGE>
TWELFTH: Reservation of Right to Amend.
------- -----------------------------
The Corporation reserves the right to amend or repeal any provision
contained in these Articles of Incorporation from time to time and at any time
in the manner now or hereafter prescribed by the law of the State of Maryland
and all rights herein conferred upon stockholders are granted subject to such
reservation.
THIRTEENTH: Name.
---------- ----
The Corporation acknowledges that it is adopting and can maintain its
corporate name only through the continuing permission of J. J. B. Hilliard, W.
L. Lyons, Inc., a Kentucky corporation, and agrees that J. J. B. Hilliard, W. L.
Lyons, Inc., reserves to itself and any successor to its business the right to
withdraw its permission at any time and may grant the exclusive or non-exclusive
right to use the name "Hilliard-Lyons Cash Management, Inc." or "Hilliard-Lyons"
or "Hilliard", or "Lyons" or "H-L" or any similar name, now or at any time in
the future, to any other corporation or entity, including but not limited to any
investment company of which J. J. B. Hilliard, W. L. Lyons, Inc. or any
subsidiary or affiliate thereof or any successor to the business thereof shall
be the investment adviser.
FOURTEENTH: Contracts.
---------- ---------
Any contract for services as investment adviser, underwriter, custodian,
transfer agent, distributor, or disbursing agent or related services may be
entered into with any corporation, firm, trust, or association, although one or
more of the Board of Directors or officers of the Corporation may be an officer,
director, trustee, shareholder, or member of such other party to the contract,
and no such contract shall be invalidated or rendered voidable by reason of the
existence of any such relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Corporation under or by reason of said contract or accountable
for any profit realized directly or indirectly therefrom, provided that the
contract when entered into was reasonable and fair. The same person (including
a firm, corporation, trust, or association) may be the other party to any or all
of the contracts for such services, and any individuals who may be members of
the Board of Directors or officers of the Corporation may be financially
interested or otherwise affiliated with persons who are parties to any or all of
the contracts for such services.
17
<PAGE>
IN WITNESS WHEREOF, I have signed these Articles of Incorporation and have
acknowledged the same to be my act on this 12th day of May, 1980.
Witness: /s/ Parker W Duncan
--------------------------
Parker W. Duncan
Janyce M. Hormung
- -----------------
18
<PAGE>
EXHIBIT NO. 1.1
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
OF
HILLIARD-LYONS GOVERNMENT FUND, INC.
Pursuant to the provisions of Sections 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 to 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.
(Seal) /s/ Rebecca D. Gaddie
-------------------------------
Notary Public
My commission expires: 7-9-2000
--------
<PAGE>
Amendment to the Articles of Incorporation
Increasing Capitalization
RESOLVED, that the Board of Directors hereby approves and adopts the following
proposed amendment to Article Five to the Corporation's Articles of
Incorporation so that Article Five shall be read in its entirety as follows:
FIFTH: Common Stock
- ----- ------------
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).
FURTHER RESOLVED, that the President and the Secretary be, and hereby are,
authorized, empowered and directed to execute and file the Articles
Supplementary on behalf of the Corporation, and are hereby authorized, empowered
and directed to do all further acts and things, and to execute all further
documents in writing, which they determine to be necessary or desirable in order
to effect the adoption of the foregoing amendment to the Corporation's Articles
of Incorporation increasing its authorized capital.
<PAGE>
ON BEHALF OF: HILLIARD LYONS
FUND NO. 1701
CHECK NO. DATE
[STATE STREET LOGO] --------- --------
181030 10/20/97
STATE STREET BANK AND TRUST AMOUNT OF CHECK
P.O. BOX 1031 -------------------
BOSTON, MA 02105 **********$160.00
PAY
EXACTLY One hundred sixty and 00/100 Dollars
TO
THE STATE DEPARTMENT OF ASSESSMENT
ORDER & TAXATION
OF
/s/ Jenny Gordon
-------------------------------------
??? STATE STREET BANK & TRUST COMPANY
CUSTODIAN
181030 011000028 49122344
<PAGE>
EXHIBIT NO. 2
HILLIARD-LYONS CASH MANAGEMENT, INC.
(A Maryland Corporation)
AMENDED
BY-LAWS
ARTICLE I
---------
NAME OF CORPORATION, LOCATION OF OFFICES,
AND SEAL
-----------------------------------------
Section 1.01. Name: The name of the Corporation is Hilliard-Lyons Cash
Management, Inc.
Section 1.02. Principal Office: The principal office of the Corporation in
the State of Maryland shall be located in the City of Baltimore. The Corporation
may also maintain an office in the City of Louisville, State of Kentucky. The
Corporation may, in addition, establish and maintain such other offices and
places of business as the Board of Directors may, from time to time, determine.
Section 1.03. Seal: The corporate seal of the Corporation shall be
circular in form and shall bear the name of the Corporation, and the words
"Corporate Seal, Maryland." The form of the seal shall be subject to alteration
by
<PAGE>
the Board of Directors and the seal may be used by causing it or a facsimile to
be impressed or affixed or printed or otherwise reproduced. Any officer or
Director of the Corporation shall have authority to affix the corporate seal of
the Corporation to any document requiring the same.
ARTICLE II
----------
SHAREHOLDERS
------------
Section 2.01. Annual Meetings: The annual shareholders' meeting, commencing
with the year 1981, for the election of Directors and the transaction of other
proper business shall be held on such day, not a legal holiday, as the Board of
Directors shall establish. Any business of the Corporation may be transacted at
the annual meeting without being specifically designated in the notice of
meeting, except such business as is specifically required by statute to be
stated in the notice. Notwithstanding the foregoing, the Corporation shall not
be required to hold an annual shareholders' meeting in any year in which the
election of directors is not required to be acted upon under the Investment
Company Act of 1940.
Section 2.02. Special Meetings: Special meetings of the shareholders may
be called at any time by the President or the Board of Directors. Special
meetings of the shareholders shall be called by the Secretary upon the written
request of the holders of shares entitled to not less than 25% of all the votes
entitled to be cast at such meetings, provided that (a) such request shall
state the purposes of
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such meeting and the matters proposed to be acted upon, and (b) the shareholders
requesting such meeting shall have paid to the Corporation the reasonably
estimated cost of preparing and mailing the notice thereof, which the Secretary
shall determine and specify to such shareholders. No special meeting need be
called upon the request of the holders of shares entitled to cast less than a
majority of all votes entitled to be cast at such meeting to consider any matter
which is substantially the same as a matter voted upon at any special meeting of
the shareholders held during the preceding 12 months. Business transacted at all
special meetings shall be confined to the objects stated in the notice of
meeting.
Section 2.03. Place of Meeting: All shareholders' meetings shall be held at
the office of the Corporation in the City of Louisville, State of Kentucky,
except that the Board of Directors may fix a different place of meeting, within
the United States, which shall be specified in each notice or waiver of notice
of the meeting.
Section 2.04. Notice of Meetings: The Secretary or any Assistant Secretary
shall cause notice of the place, date, and hour, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, to be mailed,
postage prepaid, not less than 10 nor more than 90 days before the date of the
meeting, to each shareholder entitled to vote at such meeting, at his address as
it
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<PAGE>
appears on the records of the Corporation. Notice of any shareholders' meeting
need not be given to any shareholder who shall sign a written waiver of such
notice whether before or after the time of such meeting, which waiver shall be
filed with the record of such meeting, or to any shareholder who shall attend
such meeting in person or by proxy. Notice of adjournment of a shareholders'
meeting to another time or place need not be given, if such time and place are
announced at the meeting.
Section 2.05. Voting - In General: At every shareholders' meeting each
shareholder shall be entitled to one vote for each share and a proportionate
vote for each portion of a share of stock of the Corporation validly issued and
outstanding and held by such shareholder, except that no shares held by the
Corporation shall be entitled to a vote. Except as otherwise specifically
provided in the Articles of Incorporation or these By-Laws or as required by
provisions of the Investment Company Act of 1940, as amended from time to time,
all matters shall be decided by a vote of the majority of the votes cast at a
meeting of shareholders, duly called and at which a quorum is present. The vote
upon any question shall be by written ballot whenever requested by any person
entitled to vote, but, unless such a request is made, voting may be conducted in
any way approved by the meeting.
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Section 2.06. Shareholders Entitled to Vote: If, pursuant to Section 7.06
hereof, a record date has been fixed for the determination of shareholders
entitled to notice of or to vote at any shareholders' meeting, each shareholder
of the Corporation shall be entitled to vote, in person by written ballot or by
proxy, each share of stock outstanding in his name on the books of the
Corporation on such record date and outstanding at the time of the meeting. If
no record date has been fixed for the determination of shareholders, the record
date for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders shall be at the close of business on the day on which
notice of the meeting is mailed or the day 30 days before the meeting, whichever
is the closer date to the meeting, or, if notice is waived by all shareholders,
at the close of business on the tenth day next preceding the day on which the
meeting is held.
Section 2.07. Voting - Proxies: The right to vote by proxy shall exist only
if the instrument authorizing such proxy to act shall have been executed in
writing by the shareholder himself or by his attorney thereunto duly authorized
in writing. No proxy shall be voted on after eleven months from its date unless
it provides for a longer period. Each proxy shall be in writing subscribed by
the shareholder or his duly authorized attorney and shall be dated, but need not
be sealed, witnessed, or acknowledged. Proxies shall be delivered to the
Secretary of the Corporation or person
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acting as Secretary of the meeting before being voted. A proxy with respect to
stock held in the name of two or more persons shall be valid if executed by one
of them unless at or prior to exercise of such proxy the Corporation receives a
specific written notice to the contrary from any one of them. A proxy purporting
to be executed by or on behalf of a shareholder shall be deemed valid unless
challenged at or prior to its exercise. At all meetings of shareholders, unless
the voting is conducted by inspection, all questions relating to the
qualification of voters and the validity of proxies and the acceptance or
rejection of votes shall be decided by the Chairman of the meeting.
Section 2.08. Quorum: The presence at any shareholders' meeting in person
or by proxy, of shareholders entitled to cast a majority of the votes thereat
shall be necessary and sufficient to constitute a quorum for the transaction of
business.
Section 2.09. Absence of Quorum: In the absence of a quorum, the holders of
a majority of shares entitled to vote at the meeting and present thereat in
person or by proxy, or, if no shareholder entitled to vote is present thereat in
person or by proxy, any officer present thereat entitled to preside or act as
Secretary of such meeting, may adjourn the meeting. Any business that might have
been transacted at the meeting originally called may be transacted at any such
adjourned meeting at which a quorum is present.
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Section 2.10. Stock Ledger and List of Shareholders: It shall be the duty
of the Secretary or Assistant Secretary of the Corporation to cause an original
or duplicate stock ledger to be maintained at the office of the Corporation's
transfer agent in Boston, Massachusetts. Such stock ledger may be in written
form or any other form capable of being converted into written form within a
reasonable time for visual inspection. Any one or more persons, each of whom has
been a shareholder of record of the Corporation for more than six months next
preceding such request, who owns in the aggregate 5% or more of the outstanding
capital stock of the Corporation, may submit (unless the Corporation at the time
of the request maintains a duplicate stock ledger at its principal office in
Maryland) a written request to any officer of the Corporation or its resident
agent in Maryland for a list of the shareholders of the Corporation. Within 20
days after such a request, there shall be prepared and filed at the
Corporation's principal office in Maryland, a list containing the names and
addresses of all shareholders of the Corporation and the number of shares of
each class held by each shareholder, certified as correct by an officer of the
Corporation, by its stock transfer agent, or by its registrar.
Section 2.11. Action Without Meeting: Any action required or permitted to
be taken at any meeting of shareholders may be taken without a meeting, if a
consent in writing, setting forth such action, is signed by all the
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shareholders and such consent is filed with the records of the Corporation.
ARTICLE III
-----------
BOARD OF DIRECTORS
------------------
Section 3.01. Number and Term of Office: The Board of Directors shall
consist of seven Directors, which number may be increased or decreased by a
resolution of a majority of the entire Board of Directors, provided that the
number of Directors shall not be less than three nor more than fifteen. Each
Director (whenever selected) shall hold office until his successor is elected
and qualified or until his earlier death, resignation, or removal.
Section 3.02. Qualification of Directors: A majority of the members of the
Board of Directors shall be persons who are not "interested persons" of the
underwriter of the Corporation's shares, as defined in the Investment Company
Act of 1940.
Section 3.03. Election of Directors: Initially the Directors of the
Corporation shall be those persons named as such in the Articles of
Incorporation. Thereafter, except as otherwise provided in Section 3.04 and 3.05
hereof, the Directors shall be elected by shareholders to serve until the next
meeting of shareholders (provided, however, that a Director's term shall not
cease following any special meeting of shareholders unless such special meeting
of shareholders was called for the purpose of electing
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Directors) and until their respective successors have been duly elected and
qualified. Except as otherwise provided in Section 3.04 and 3.05 hereof,
Directors may be elected at an annual or special shareholders' meeting. At any
such meeting, Directors shall be elected by vote of the holders of the majority
of the shares present in person or by proxy and entitled to vote thereon.
Section 3.04. Removal or Resignation of Directors: At any shareholders'
meeting, provided a quorum is present, any Director may be removed (either with
or without cause) by the vote of the holders of a majority of the shares
represented at the meeting, and at the same meeting a duly qualified person may
be elected in his stead by a majority of the votes validly cast. Any Director
may resign at any time by giving written notice to the Board of Directors, the
President, or the Secretary of the Corporation. Such resignation shall take
effect at the time specified in such notice or, if none be specified, at the
time of its receipt, and unless tendered to take effect upon acceptance, the
acceptance of such resignation shall not be necessary to make it effective.
Section 3.05. Vacancies and Newly Created Directorships: If any vacancies
shall occur in the Board of Directors by reason of death, resignation, removal,
or otherwise, or if the authorized number of Directors shall be increased, the
Directors then in office shall continue to act, and such vacancies (if not
previously filled by the shareholders) may be filled by a majority of the
Directors then in office,
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although less than a quorum; provided, that immediately after filling such
vacancy at least two-thirds of the Directors then holding office shall have been
elected to such office by the shareholders of the Corporation. In the event that
at any time, other than the time preceding the first annual shareholders'
meeting, less than a majority of the Directors of the Corporation holding office
at that time were so elected by the shareholders, a meeting of the shareholders
shall be held promptly and in any event within 60 days for the purpose of
electing Directors to fill any existing vacancies in the Board of Directors
unless the Securities and Exchange Commission shall by order extend such period.
Section 3.06. General Powers:
(a) The property, affairs, and business of the Corporation shall be
managed by or under the direction of the Board of Directors, which may exercise
all the powers of the Corporation except those powers vested solely in the
shareholders of the Corporation by statute, by the Articles of Incorporation, or
by these By-Laws.
(b) All acts done by any meeting of the Directors or by any person acting
as a Director, so long as his successor shall not have been duly elected or
appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the Directors or of such person acting as
aforesaid or that they or any of them were
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disqualified, be as valid as if the Directors or such other person, as the case
may be, had been duly elected and were or was qualified to be Directors or a
Director of the Corporation.
Section 3.07. Power to Issue and Sell Stock: The Board of Directors may
from time to time issue and sell or cause to be issued and sold any of the
Corporation's authorized shares to such persons and for such consideration,
consistent with the Corporation's Articles of Incorporation, as the Board of
Directors shall deem advisable.
Section 3.08. Power to Declare Dividends:
(a) The Board of Directors, from time to time as they may deem advisable,
may declare and pay dividends in cash or other property of the Corporation, out
of any source available for dividends, to the shareholders according to their
respective rights and interests in accordance with the applicable provisions of
the Articles of Incorporation.
(b) The Board of Directors may prescribe from time to time that dividends
declared may be payable at the election of any of the shareholders (exercisable
before or after the declaration of the dividend), either in cash or in shares of
the Corporation; provided, that the sum of the cash dividend actually paid to
any shareholder and the net asset value of the shares received (determined as of
such time as the Board
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of Directors shall have prescribed, in accordance with the Articles of
Incorporation, with respect to shares sold on the date of such election) shall
not exceed the full amount of cash to which the shareholder would be entitled if
he elected to receive only cash.
(c) In accordance with Section 19 of the Investment Company Act of 1940,
the Board of Directors shall cause any dividend payment to be accompanied by a
written statement if wholly or partly from any source other than:
(i) the Corporation's accumulated undistributed net income (determined in
accordance with generally accepted accounting principles and the rules and
regulations of the Securities and Exchange Commission then in effect) and
not including profits or losses realized upon the sale of securities or
other properties; or
(ii) the Corporation's net income so determined for the current or
preceding fiscal year.
Such statement shall adequately disclose the source or sources of such payment
and the basis of calculation, and shall be in such form as the Securities and
Exchange Commission may prescribe.
Section 3.09. Annual and Regular Meetings: The annual meeting of the Board
of Directors for choosing officers and
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transacting other proper business shall be held without notice following the
annual meeting of shareholders each year. The Board of Directors from time to
time may provide by resolution for the holding of regular meetings and fix their
time and place (within or outside the State of Maryland). Notice of such
regular meetings need not be given; provided, that notice of any change in the
time or place of such meetings shall be sent promptly to each Director not
present at the meeting at which such change was made in the manner provided for
notice of special meetings. Members of the Board of Directors or any committee
designated thereby may participate in a meeting of such Board or committee by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time and participation by such means shall constitute presence in person at a
meeting.
Section 3.10. Special Meetings: Special meetings of the Board of Directors
shall be held whenever called by the President or Secretary (or, in the absence
or disability of the President and Secretary, by any Vice President), or a
majority of the Directors then in office; at the time and place (within or
outside the State of Maryland) specified in the respective notices or waivers of
notice of such meetings.
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Section 3.11. Notice: Notice of special meetings, stating the time and
place, shall be mailed to each Director at his residence or regular place of
business at least five days before the day on which a special meeting is to be
held or caused to be delivered to him personally or to be transmitted to him by
telegraph, cable, or wireless at least one day before the meeting.
Section 3.12. Waiver of Notice: No notice of any meeting need be given to
any Director who attends such meeting in person or to any Director who waives
notice of such meeting in writing (which waiver shall be filed with records of
such meeting), whether before or after the time of the meeting.
Section 3.13. Quorum and Voting: At all meetings of the Board of Directors
the presence of one-half or more of the number of Directors then in office shall
constitute a quorum for the transaction of business, provided that there shall
be present no less than one-third of the entire Board of Directors, and in no
event less than two Directors. In the absence of a quorum, a majority of the
Directors present may adjourn the meeting, from time to time, until a quorum
shall be present. The action of a majority of the Directors present at a meeting
at which a quorum is present shall be the action of the Board of Directors
unless the concurrence of a greater proportion is required for such action by
law, by the Articles of Incorporation, or by these By-Laws.
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Section 3.14. Compensation: Each Director may receive such remuneration for
his services, including reimbursement of expenses incurred, as shall be fixed
from time to time by resolution of the Board of Directors. Nothing herein
contained shall be construed to preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 3.15. Action Without a Meeting: Any action required or permitted to
be taken at any meeting of the Board of Directors may be taken without a meeting
if written consents thereto are signed by all members of the Board and such
written consents are filed with the minutes of proceedings of the Board.
ARTICLE IV
----------
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
----------------------------------------
Section 4.01. How Constituted: By resolution adopted by the Board of
Directors, the Board may designate one or more committees, including an
Executive Committee, each consisting of at least three Directors. Each member
of a committee shall be a Director and shall hold office during the pleasure of
the Board. The President shall be a member of the Executive Committee.
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Section 4.02. Powers of the Executive Committee: Unless otherwise provided
by resolution of the Board of Directors, when the Board of Directors is not in
session the Executive Committee shall have and may exercise all powers of the
Board of Directors in the management of the business and affairs of the
Corporation that may lawfully be exercised by an Executive Committee, except the
power to declare a dividend, to authorize the issuance of stock, or to recommend
to shareholders any matter requiring shareholders' approval.
Section 4.03. Other Committees of the Board of Directors: To the extent
provided by resolution of the Board, other committees shall have and may
exercise any of the powers that may lawfully be granted to the Executive
Committee.
Section 4.04. Proceedings, Quorum, and Manner of Acting: In the absence of
appropriate resolution of the Board of Directors, each committee may adopt such
rules and regulations governing its proceedings, quorum, and manner of acting as
it shall deem proper and desirable, provided that the quorum shall not be less
than two Directors. In the absence of any member of any such committee, the
members thereof present at any meeting, whether or not they constitute a
quorum, may appoint a member of the Board of Directors to act in the place of
such absent member.
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Section 4.05. Other Committees: The Board of Directors may appoint other
committees, each consisting of one or more persons, who need not be Directors.
Each such committee shall have such powers and perform such duties as may be
assigned to it from time to time by the Board of Directors, but shall not
exercise any power which may lawfully be exercised only by the Board of
Directors or a committee thereof.
ARTICLE V
---------
OFFICERS
--------
Section 5.01. General: The officers of the Corporation shall be a
President, a Secretary, and a Treasurer, and may include one or more Vice
Presidents, Assistant Secretaries or Assistant Treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 5.11
hereof. The Board of Directors may elect, but shall not be required to elect, a
Chairman of the Board.
Section 5.02. Election, Term of Office, and Qualifications: The officers of
the Corporation (except those appointed pursuant to Section 5.11 hereof) shall
be chosen by the Board of Directors at its first meeting or such subsequent
meetings as shall be held prior to its first annual meeting, and thereafter
annually at its annual meeting. If any officers are not chosen at any annual
meeting, such
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officers may be chosen at any subsequent regular or special meeting of the
Board. Except as provided in Section 5.03, 5.04, and 5.05 hereof, each officer
chosen by the Board of Directors shall hold office until the next annual meeting
of the Board of Directors and until his successor shall have been chosen and
qualified. Any person may hold one or more offices of the Corporation except the
offices of President and Vice President shall not be held by the same person,
but no officer shall execute, acknowledge, or verify any instrument in more
than one capacity, if such instrument is required by law, by the Articles of
Incorporation, or by these By-Laws to be executed, acknowledged, or verified by
two or more officers. The Chairman of the Board and the President shall be
chosen from among the Directors of the Corporation and may hold such offices
only so long as they continue to be Directors. No other officer need be a
Director.
Section 5.03. Resignation: Any officer may resign his office at any time by
delivering a written resignation to the Board of Directors, the President, the
Secretary, or any Assistant Secretary. Unless otherwise specified therein, such
resignation shall take effect upon delivery.
Section 5.04. Removal: Any officer may be removed from office, whenever in
the Board's judgment the best interest of the Corporation will be served
thereby, by the vote of a majority of the Board of Directors given at any
regular meeting or any special meeting called for such
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purpose. In addition, any officer or agent appointed in accordance with the
provisions of Section 5.11 hereof may be removed, either with or without cause,
by any officer upon whom such power of removal shall have been conferred by the
Board of Directors.
Section 5.05. Vacancies and Newly Created Offices: If any vacancy shall
occur in any office by reason of death, resignation, removal, disqualification,
or other cause, or if any new office shall be created, such vacancies or newly
created offices may be filled by the Board of Directors at any regular or
special meeting or, in the case of any office created pursuant to Section 5.11
hereof, by any officer upon whom such power shall have been conferred by the
Board of Directors.
Section 5.06. Chairman of the Board: The Chairman of the Board, if there be
such an officer, shall, in the absence or disability of the President, preside
at all shareholders' meetings and shall preside at all meetings of the Board of
Directors. He shall have such other powers and perform such other duties as may
be assigned to him from time to time by the Board of Directors.
Section 5.07. President: The President shall be the chief executive officer
of the Corporation and shall preside at all shareholders' meetings and, unless
there shall be a Chairman of the Board, at all meetings of the Board of
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Directors. Subject to the supervision of the Board of Directors, he shall have
general charge of the business, affairs, and property of the Corporation and
general supervision over its officers, employees, and agents. Except as the
Board of Directors may otherwise order, he may sign in the name and on behalf of
the Corporation all deeds, bonds, contracts, or agreements. He shall exercise
such other powers and perform such other duties as from time to time may be
assigned to him by the Board of Directors.
Section 5.08. Vice President: The Board of Directors may from time to time,
designate and elect one or more Vice Presidents who shall have such powers and
perform such duties as from time to time may be assigned to them by the Board of
Directors or the President. At the request or in the absence or disability of
the President, the Vice President (or, if there are two or more Vice
Presidents, then the senior of the Vice Presidents present and able to act) may
perform all the duties of the President and, when so acting, shall have all the
powers of and be subject to all the restrictions upon the President.
Section 5.09. Treasurer and Assistant Treasurers: The Treasurer shall be
the principal financial and accounting officer of the Corporation and shall have
general charge of the finances and books of account of the Corporation. Except
as otherwise provided by the Board of Directors, he shall have general
supervision of the funds and property of
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the Corporation and of the performance by the custodian of the Corporation of
its duties with respect thereto. He shall render to the Board of Directors,
whenever directed by the Board, an account of the financial condition of the
Corporation and of all his transactions as Treasurer. He shall cause to be
prepared annually a full and correct statement of the affairs of the
Corporation, including a balance sheet and a financial statement of operations
for the preceding fiscal year, which shall be submitted at the annual meeting of
shareholders and filed within twenty days thereafter at the principal office of
the Corporation in the State of Maryland. He shall perform all the acts
incidental to the office of Treasurer, subject to the control of the Board of
Directors.
Any Assistant Treasurer may perform such duties of the Treasurer as the
Treasurer or the Board of Directors may assign, and, in the absence of the
Treasurer, he may perform all the duties of the Treasurer.
Section 5.10. Secretary and Assistant Secretaries: The Secretary shall
attend to the giving and serving of all notices of the Corporation and shall
record all proceedings of the meetings of the shareholders, Directors, the
Executive Committee, and other committees in a book to be kept for that purpose.
He shall keep in safe custody the seal of the Corporation, and shall have charge
of the records of the Corporation, including the stock books and such other
books
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and papers as the Board of Directors may direct and such books, reports,
certificates, and other documents required by law to be kept, all of which shall
at all reasonable times be open to inspection by any Director. He shall perform
such other duties as pertain to his office or as may be required by the Board of
Directors.
Any Assistant Secretary may perform such duties of the Secretary as the
Secretary or the Board of Directors may assign, and, in the absence of the
Secretary, he may perform all the duties of the Secretary.
Section 5.11. Subordinate Officers: The Board of Directors from time to
time may appoint such other officers or agents as it may deem advisable, each of
whom shall have such title, hold office for such period, have such authority and
perform such duties as the Board of Directors may determine. The Board of
Directors from time to time may delegate to one or more officers or agents the
power to appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities, and duties.
Section 5.12. Remuneration: The salaries, if any, or other compensation of
the officers of the Corporation shall be fixed from time to time by resolution
of the Board of Directors, except that the Board of Directors may by resolution
delegate to any person or group of persons the power to fix the salaries or
other compensation of any subordinate
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officers or agents appointed in accordance with the provisions of Section 5.11
hereof.
Section 5.13. Surety Bonds: The Board of Directors may require any officer
or agent of the Corporation to execute a bond (including, without limitation,
any bond required by the Investment Company Act of 1940, as amended, and the
rules and regulations of the Securities and Exchange Commission) to the
Corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his duties
to the Corporation, including responsibility for negligence and for the
accounting of any of the Corporation's property, funds, or securities that may
come into his hands.
ARTICLE VI
----------
EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES
----------------------------------------------
Section 6.01. General: Subject to the provisions of Section 5.07 hereof,
all deeds, documents, transfers, contracts, agreements, and other instruments
requiring execution by the Corporation shall be signed by the President or a
Vice President and by the Treasurer or Secretary or an Assistant Treasurer or an
Assistant Secretary, or as the Board of Directors may otherwise, from time to
time, authorize. Any such authorization may be general or confined to
specific instances.
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Section 6.02. Checks, Notes, Drafts, etc.: Except as otherwise authorized
by the Board of Directors, all checks and drafts for the payment of money shall
be signed in the name of the Corporation by its Custodian, and all requisitions
or orders for the payment of money by the custodian or for the issue of checks
and drafts therefore, all promissory notes, all assignments of shares or
securities standing in the name of the Corporation, and all requisitions or
orders for the assignment of shares or securities standing in the name of the
Custodian or its nominee, or for the execution of powers to transfer the same,
shall be signed in the name of the Corporation by not less than two of its
officers. Promissory notes, checks, or drafts payable to the Corporation may be
endorsed only to the order of the Custodian or its nominee.
Section 6.03. Voting of Securities: Unless otherwise ordered by the Board
of Directors, any officer shall have full power and authority on behalf of the
Corporation to attend and to act and to vote, or in the name of the Corporation
to execute proxies to vote, at any meeting of stockholders of any company in
which the Corporation may hold stock. At any such meeting any officer shall
possess and may exercise (in person or by proxy) any and all rights, powers, and
privileges incident to the ownership of such stock.
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ARTICLE VII
-----------
CAPITAL STOCK
-------------
Section 7.01. Certificates: Each shareholder shall be entitled, upon
request and upon payment of such charge as the Board of Directors may establish,
to a certificate or certificates which shall represent and certify the number
and kind and class of full shares owned by him in the Corporation. No
certificates shall be issued for fractional shares. Each certificate shall be
signed by the President or a Vice President and countersigned by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer and shall
be sealed with the corporate seal. The signatures may be either manual or
facsimile signatures and the seal may be either facsimile or any other form of
seal. In case any officer who has signed any certificate ceases to be an officer
of the Corporation before the certificate is issued, the certificate may
nevertheless be issued by the Corporation with the same effect as if the officer
had not ceased to be such officer as of the date of its issue.
Section 7.02. Uncertificated Shares: The Corporation's stock ledger shall
be deemed to represent and certify the number of full and/or fractional shares
owned of record by a shareholder in those instances where a stock certificate
for such shares has not been issued.
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Section 7.03. Transfers of Shares: The shares of stock of the Corporation
shall be transferable on the books of the Corporation at the request of the
record holder thereof in person or by a duly authorized attorney, upon
presentation to the Corporation or its transfer agent of a duly executed
assignment or authority to transfer, or proper evidence of succession, and, if
the shares are represented by a certificate, a duly endorsed certificate or
certificates of stock surrendered for cancellation, and with such proof of the
authenticity of the signatures as the Corporation or its transfer agent may
reasonably require. The transfer shall be recorded on the books of the
Corporation, the old certificates, if any, shall be cancelled, and the new
record holder, upon request, shall be entitled to a new certificate or
certificates.
Section 7.04. Registered Shareholders: The Corporation shall be entitled to
treat the holder of record of any shares as the holder in fact thereof and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Maryland.
Section 7.05. Transfer Agents and Registrars: The Board of Directors may,
from time to time, appoint or remove transfer agents and/or registrars of
transfers of shares of stock of the Corporation, and it may appoint the same
person
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as both transfer agent and registrar. Upon any such appointment being made all
certificates representing shares of capital stock thereafter issued shall be
countersigned by one of such transfer agents or by one of such registrars of
transfers or by both and shall not be valid unless so countersigned. If the same
person shall be both transfer agent and registrar, only one countersignature by
such person shall be required.
Section 7.06. Fixing of Record Date. The Board of Directors may fix in
advance a date as a record date for the determination of the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend or other distribution
or allotment of any rights, or to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
provided that such record date shall not be a date more than 60 days, and in the
case of a meeting of shareholders not less than 10 days, prior to the date on
which the particular action requiring such determination of shareholders is to
be taken. In such case only such shareholders as shall be shareholders of record
on the record date so fixed shall be entitled to such notice of, and to vote at,
such meeting or adjournment, or to give such consent, or to receive payment of
such dividend or other distribution, or to receive such allotment of rights, or
to exercise such rights, or to take
27
<PAGE>
such other action, as the case may be, notwithstanding any transfer of any
shares on the books of the Corporation after any such record date.
Section 7.07. Lost, Stolen, or Destroyed Certificates: Before issuing a new
certificate for stock of the Corporation alleged to have been lost, stolen, or
destroyed, the Board of Directors or any officer authorized by the Board may, in
its discretion, require the owner of the lost, stolen, or destroyed certificate
(or his legal representative) to give the Corporation a bond or other indemnity,
in such form and in such amount as the Board or any such officer may direct and
with such surety or sureties as may be satisfactory to the Board or any such
officer, sufficient to indemnify the Corporation against any claim that may be
made against it on account of the alleged loss, theft, or destruction of any
such certificate or the issuance of such new certificate.
ARTICLE VIII
------------
CUSTODY OF SECURITIES
---------------------
Section 8.01. Employment of a Custodian: The Corporation shall retain the
services of a Custodian (including any sub-custodian for its Custodian) for all
funds, securities, and similar investments owned by the Corporation pursuant to
a written contract with such Custodian. The Custodian (and any sub-custodian)
shall be a bank or trust
28
<PAGE>
company having not less than $2,000,000 aggregate capital, surplus, and
undivided profits (as shown in its last published report) and shall be appointed
from time to time by the Board of Directors, which shall fix its remuneration.
Section 8.02. Action Upon Termination of Custodian Contract: Upon
termination of a Custodian Contract or inability of the Custodian to continue
to serve, the Board of Directors shall promptly appoint a successor Custodian,
but in the event that no successor Custodian can be found who has the required
qualifications and is willing to serve, the Board of Directors shall call as
promptly as possible a special meeting of the shareholders to determine whether
the Corporation shall function without a Custodian or shall be liquidated. If so
directed by vote of the holders of a majority of the outstanding shares of stock
of the Corporation, the Custodian shall deliver and pay over all property of the
Corporation held by it as specified in such vote.
Section 8.03. Provisions of Custodian Contract: The Custodian Contract
shall be upon such terms and conditions and may provide for such compensation as
the Board of Directors deem necessary or appropriate, provided such contract
shall further provide that the Custodian shall deliver securities owned by the
Corporation only upon sale of such securities for the account of the Corporation
and receipt of payment therefor by the Custodian or when such securities may be
called, redeemed, retired, or otherwise become payable. Such limitations shall
not prevent:
29
<PAGE>
(a) The delivery of securities for examination to the broker selling the
same in accord with the "street delivery" custom whereby such
securities are delivered to such broker in exchange for a delivery
receipt exchanged on the same day for an uncertified check of such
broker to be presented on the same day for certification.
(b) The delivery of securities of an issuer in exchange for or conversion
into other securities alone or cash and other securities pursuant to
any plan of merger, consolidation, reorganization, recapitalization,
or readjustment of the securities of such issuer.
(c) The conversion by the Custodian of securities owned by the Corporation
pursuant to the provisions of such securities into other securities.
(d) The surrender by the Custodian of warrants, rights, or similar
securities owned by the Corporation in the exercise of such warrants,
rights, or similar securities, or the surrender of interim receipts or
temporary securities for definitive securities.
(e) The delivery of securities as collateral on borrowing effected by the
Corporation.
30
<PAGE>
(f) The delivery of securities owned by the Corporation as a redemption
in kind of securities issued by the Corporation.
(g) The deposit of all or any part of the securities owned by the
Corporation with a clearing agency registered with the Securities and
Exchange Commission under Section 17A of the Securities Exchange Act
of 1934, which acts as a securities depository in the book-entry
system of the Federal Reserve Banks and the use of the facilities of
such system, all as provided under the provisions of Rule 17f-4 of the
Investment Company Act of 1940.
(h) Such other deposits, deliveries and transfers of securities owned by
the Corporation which are permitted or authorized by applicable rules
and orders of the Securities and Exchange Commission.
The Custodian shall deliver funds of the Corporation only upon the purchase of
securities for the portfolio of the Corporation and the delivery of such
securities to the Custodian, but such limitation shall not prevent the release
of funds by the Custodian for redemption of shares issued by the Corporation,
for payment of interest, dividend disbursements, taxes, management fees, for
payments in connection with the conversion, exchange, or surrender of
securities owned by the Corporation as set forth in sub-
31
<PAGE>
paragraphs (b), (c), and (d) above and for operating expenses of the
Corporation.
ARTICLE IX
----------
FISCAL YEAR, ACCOUNTANT
-----------------------
Section 9.01. Fiscal Year: The fiscal year of the Corporation shall, unless
otherwise ordered by the Board of Directors, be twelve calendar months beginning
on the 1st day of September in each year and ending on the 31st day of the
following August.
Section 9.02. Accountant: The Corporation shall employ an independent
public accountant or firm of independent public accountants as its Accountant
to examine the accounts of the Corporation and to sign and certify financial
statements of the Corporation.
ARTICLE X
---------
AMENDMENTS
----------
Section 10.01. General: Except as provided in Section 10.02 hereof, all
By-Laws of the Corporation, whether adopted by the Board of Directors or the
shareholders, shall be subject to amendment, alteration, or repeal, and new
By-Laws may be made, by the affirmative vote of a majority of either:
32
<PAGE>
(a) the holders of record of the outstanding shares of stock of the
Corporation entitled to vote, at any annual or special meeting the
notice or waiver of notice of which shall have specified or summarized
the proposed amendment, alteration, repeal, or new By-Law; or
(b) the Directors, at any regular or special meeting, the notice or waiver
of notice of which shall have specified or summarized the proposed
amendment, alteration, repeal, or new By-Law.
Section 10.02. By Shareholders Only:
(a) No amendment of any section of these By-Laws shall be made except by
the shareholders of the Corporation if the By-Laws provide that such section may
not be amended, altered or repealed except by the shareholders.
(b) From and after the issue of any shares of the Common Stock of the
Corporation, no amendment of this Article X or Article XI shall be made except
by the shareholders of the Corporation.
33
<PAGE>
ARTICLE XI
----------
MISCELLANEOUS
-------------
(A) Except as hereinafter provided, no officer or Director of the
Corporation and no officer or director of the Investment Adviser of the
Corporation (as that term is defined in the Investment Company Act of 1940) or
of any underwriter of the Corporation, and no Investment Adviser or underwriter
of the Corporation, shall take long or short positions in the securities issued
by the Corporation. The foregoing provision shall not prevent the purchase from
the Corporation of shares issued by the Corporation by any officer or Director
of the Corporation or by any partner, officer, director or shareholder of the
Investment Adviser of the Corporation at the price available to the public
generally at the moment of such purchase or, to the extent that any such person
is a shareholder, at the price available to shareholders of the Corporation
generally at the moment of such purchase, or as described in the current
Prospectus of the Corporation.
(B) The Corporation shall not lend assets of the Corporation to any
officer or Director of the Corporation, or to any partner, officer, director, or
shareholder of, or person financially interested in, the Investment Adviser or
any underwriter of the Corporation, or to the Investment Adviser of the
Corporation or to any underwriter of the Corporation.
34
<PAGE>
(C) The Corporation shall not impose any restrictions upon the transfer of
the shares of the Corporation, but this requirement shall not prevent the
charging of customary transfer agent fees.
(D) The Corporation shall not permit any officer or Director, or any
officer, director or shareholder of the Investment Adviser or any underwriter of
the Corporation to deal for or on behalf of the Corporation with himself as
principal or agent, or with any partnership, association, or corporation in
which he has a financial interest; provided, that the foregoing provisions shall
not prevent (a) officers and Directors of the Corporation from buying, holding,
or selling shares in the Corporation, or from being officers, directors or
shareholders of or otherwise financially interested in the Investment Adviser or
any underwriter of the Corporation; (b) purchases or sales of securities or
other property by the Corporation from or to an affiliated person or to the
Investment Adviser or any underwriter of the Corporation if such transaction is
exempt from the applicable provisions of the Investment Company Act of 1940; (c)
purchases of investments for the portfolio of the Corporation or sales of
investments owned by the Corporation through a security dealer who is, or one or
more of whose shareholders, officers, or directors is, an officer or Director of
the Corporation, if such transactions are handled in the capacity of broker
only and commissions charged do not exceed customary brokerage charges for such
services;
35
<PAGE>
(d) employment of legal counsel, registrar, transfer agent, dividend disbursing
agent, or custodian who is, or has a partner, shareholder, officer, or director
who is, an officer or Director of the Corporation, if only customary fees are
charged for services to the Corporation; (e) sharing statistical, research,
legal, and management expenses and office hire and expenses with any other
investment company in which an officer or Director of the Corporation is an
officer or director or otherwise financially interested.
END OF BY-LAWS
36
<PAGE>
EXHIBIT NO. 4
INVESTMENT ADVISORY AGREEMENT
This Agreement ("Advisory Agreement") made as of the 1st day of December,
1998/1/ 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
WITNESSETH:
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
- -------------------
/1/ The Agreement shall 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>
Company may be a member. Adviser will pay all costs and expenses incurred in
connection with the 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
-2-
<PAGE>
in excess of that amount. Such expense reimbursements, if any, will be
reimbursed to 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: November 30, 1998 HILLIARD-LYONS GOVENMENT FUND, INC
___________________________
By: /s/ Joseph C. Curry, Jr.
____________________________________
J.J.B. HILLIARD, W.L. LYONS, INC.
By: /s/ Samuel Harvey
____________________________________
-4-
<PAGE>
Exhibit No. 5
DISTRIBUTION AGREEMENT
Agreement, made as of the 1st day of December, 1998 between Hilliard-Lyons
Government Fund, a Maryland corporation (the "Company"), and Provident
Distributors, Inc., a Delaware corporation ("Distributor").
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, the Company desires to appoint Distributor as its distributor to
provide for the sale and distribution of the shares of Common stock, $0.01 par
value, of the Company ("Common Stock"), and Distributor is willing to render
such services;
NOW, THEREFORE, this Agreement
WITNESSETH:
that for and in consideration of the premises and the covenants contained herein
and for other
<PAGE>
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
1. Except as otherwise provided herein, the Company hereby appoints the
Distributor as its exclusive agent to sell and distribute shares of
Common Stock of the Company at the net asset value thereof as described
and set forth in the current prospectus of the Company, and Distributor
accepts such appointment and agrees to render the services and perform
the duties set forth in this Agreement without further compensation.
The Distributor may make sales of the shares of Common Stock of the
Company directly to the public or to or through dealers. The
compensation of any such dealers shall be the responsibility of
Distributor.
2. Notwithstanding the foregoing appointment, the Company may distribute
its shares.
3. In performing its duties as Distributor, Distributor will act in
conformity with the Articles of Incorporation, By-Laws and prospectus
for the Company and with the instructions and directions of the
Company's Board of Directors and the requirements of the Securities Act
of 1933, the 1940 Act and all other applicable Federal and State laws
and regulations.
4. After effectiveness of the Company's Registration Statement,
Distributor will hold itself available to receive by mail, telex and/or
telephone, orders for the purchase
-2-
<PAGE>
of Common Stock and will accept or reject such orders on behalf of the
Company in accordance with the provisions of the prospectus, and will
transmit such orders as are so accepted to the Company's transfer
agent as promptly as possible.
5. Distributor shall not be obligated to sell any certain number of
shares of the Company's Common Stock.
6. The sale of the Company's shares may be suspended with or without
prior notice whenever in the judgment of the Company it is in its best
interest to do so.
7. Neither the Distributor nor any other person is authorized by the
Company to give any information or to make any representation relative
to the Company's shares other than those contained in the Registration
Statement or prospectus filed with the Securities and Exchange
Commission as the same may be amended from time to time or in any
supplemental information to said prospectus approved by the Company.
The Distributor agrees that any other information or representation
other than those specified above which it or any dealer or other
person who purchases shares through the Distributor may make in
connection with the offer or sale of shares, shall be made entirely
without liability on the part of the Company. No person or dealer
other than the Distributor shall be deemed to be authorized hereby to
act as agent for the Company for any purpose. The Distributor agrees
that in offering or selling shares as agent for the Company it will in
all respects duly conform to all applicable State and Federal laws and
the rules and regulations of the National Association of Securities
Dealers, Inc. including its
-3-
<PAGE>
Code of Conduct. The Distributor will submit to the Company copies of all
sales literature before using the same and will not use literature if
disapproved by the Company.
8. Subsequent to the effectiveness of the Company's initial registration
statement under the Securities Act of 1933, J.J.B. Hilliard, W.L. Lyons,
Inc. will bear 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 Company.
9. This Agreement shall continue in effect for two years from the date of its
execution and thereafter for successive periods of one year each if such
continuance is approved at least annually by the Board of Directors of the
Company including a majority of the Directors of the Company who are not
"interested persons" cast in person at a meeting called for that purpose.
The term "interested persons" shall be construed in accordance with its
definition in section 2(a)(19) of the 1940 Act. This Agreement may be
terminated upon 60 days written notice by the Company and/or the
Distributor.
10. This Agreement may not be assigned by the Distributor and shall
automatically terminate in the event of an assignment as defined in the
1940 Act; provided, however, that the Distributor may employ such other
person, persons, corporation
-4-
<PAGE>
or corporations as it shall determine, in order to assist it in carrying
out this Agreement.
11. Distributor shall not be liable for any error of judgment or mistake of law
or for any loss suffered by the Company in connection with the matters to
which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance
of its duties or from reckless disregard by it of its obligations and
duties under the Agreement. Any person, even though also an officer,
employee or agent of Distributor, who may be or become an officer,
director, employee or agent of the Company shall be deemed, when rendering
services to the Company or acting in any business of the Company, to be
rendering such services to or acting solely for the Company and not as an
officer, partner, employee or agent or one under the control or direction
of Distributor even though paid by it.
12. This Agreement may not be amended without the affirmative votes of a
majority of the Board of Directors, including a majority of those directors
who are not "interested persons" of the Company or of the Distributor,
voting in person at a meeting called for the purpose of voting on such
approval. Subject to this condition, this Agreement may be amended at any
time by mutual agreement in writing of the parties hereto.
-5-
<PAGE>
13. This Agreement shall be construed in accordance with and governed by
the laws of the State of Maryland.
IN WITNESS WHEREOF, this Agreement has been executed for the Distributor
and the Company and their respective corporate seals affixed hereto by their
duly authorized officers the day and year first above written.
PROVIDENT DISTRIBUTORS, INC.
Attest:
By:__________________________
________________________________
Secretary
(SEAL)
HILLIARD-LYONS
GOVERNMENT
FUND, INC.
Asset:
By: /s/ Joseph C. Curry, Jr.
__________________________
________________________________
Secretary
-6-
<PAGE>
Exhibit No. 7
CUSTODIAN CONTRACT
This Contract between HILLIARD-LYONS CASH MANAGEMENT, INC., a Maryland
corporation, hereinafter called the "Fund", and STATE STREET BANK AND TRUST
COMPANY, hereinafter called the "Custodian",
WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
I. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of its assets
pursuant to the provisions of the By-Laws of the Fund. The Fund agrees to
deliver to the Custodian all securities and cash owned by it, and all payments
of income, payments of principal or capital distributions received by it with
respect to all securities owned by the Fund from time to time, and the cash
consideration received by it for such new or treasury shares of its Common
Stock, $.01 par value ("Shares"), of the Fund as may be issued or sold from time
to time. The Custodian shall not be responsible for any property of the Fund
held or received by the Fund and not delivered to the Custodian.
The Custodian may from time to time employ one or more sub-custodians, but
only in accordance with an applicable vote by the Board of Directors of the
Fund, and provided
<PAGE>
that the Custodian shall have no more or less responsibility or liability to the
Fund on account of any actions or omissions of any sub-custodian so employed
than any such sub-custodian has to the Custodian.
II. Duties of the Custodian with Respect to Property of the Fund Held by the
Custodian
A. Holding Securities. The Custodian shall hold and physically segregate for
the account of the Fund all non-cash property, including all securities
owned by the Fund, other than securities which are maintained pursuant to
Section L of Article II in a clearing agency which acts as a securities
depository or in a book-entry system authorized by the U.S. Department of
the Treasury, collectively referred to herein as "Securities System".
B. Delivery of Securities. The Custodian shall release and deliver securities
owned by the Fund held by the Custodian or in a Securities System account
of the Custodian only upon receipt of proper instructions, which may be
continuing instructions when deemed appropriate by the parties, and only in
the following cases:
l) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund,
2
<PAGE>
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section L hereof;
4) To the Issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
5) To the Issuer thereof, or its agent, for transfer into the name
of the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section K of Article II or into the name or nominee
name of any sub-custodian appointed pursuant to Article I; or for
exchange for a different number of bonds, certificates or other
evidence representing the same aggregate face amount or number of
units; provided that, in any such case, the new securities are
to be delivered to the Custodian;
6) To the broker selling the same for examination in accordance with
the "street delivery" custom; provided that the Custodian shall
adopt such procedures, as the Fund from time to time shall
approve, to ensure their
3
<PAGE>
prompt return to the Custodian by the broker in the event the
broker elects not to accept them;
7) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the Issuer of such securities, pursuant to
provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
8) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
9) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, but only against
receipt of amounts borrowed;
10) Upon receipt of instructions from the transfer agent for the Fund
(the "Transfer Agent"), for delivery to such
4
<PAGE>
Transfer Agent or to holders of shares in connection with
distributions in kind, as may be described from time to time in
the Fund's currently effective prospectus, in satisfaction of
requests by holders of Shares for repurchase or redemption; and
11) For any other proper corporate purposes, but only upon receipt
of, in addition to proper instructions, a certified copy of a
resolution of the Board of Directors or of the Executive
Committee signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, specifying the securities to
be delivered, setting forth the purpose for which such delivery
is to be made, declaring such purposes to be proper corporate
purposes, and naming the person or persons to whom delivery of
such securities shall be made.
C. Registration of Securities. Securities held by the Custodian (other than
bearer securities) shall be registered in the name of the Fund or in the
name of any nominee of the Fund or of any nominee of the Custodian which
nominee shall be assigned exclusively to the Fund, unless the Fund has
authorized in writing the appointment of a nominee to be used in common
with
5
<PAGE>
other registered investment companies having the same investment adviser or
in the name or nominee name of any agent appointed pursuant to Section K of
Article II or in the name or nominee name of any sub-custodian appointed
pursuant to Article I. All securities accepted by the Custodian on behalf
of the Fund under the terms of this Contract shall be in "street" or other
good delivery form.
D. Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the name of the Fund, subject only to draft or order
by the Custodian acting pursuant to the terms of this Contract, and shall
hold in such account or accounts, subject to the provisions hereof, all
cash received by it from or for the account of the Fund, other than cash
maintained by the Fund in a bank account established and used in accordance
with Rule 17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for the Fund may be deposited by the Custodian to its credit as
Custodian in the Banking Department of the Custodian or in such other banks
or trust companies as it may in its discretion deem necessary or desirable;
provided, however, that every such bank or trust company shall be qualified
to act as a custodian under the Investment Company Act of 1940 and that
each such bank or trust company and the funds to be deposited with each
such
6
<PAGE>
bank or trust company shall be approved by vote of a majority of the Board
of Directors of the Fund. Such funds shall be deposited by the Custodian in
its capacity as Custodian and shall be withdrawable by the Custodian only
in that capacity.
E. Payments for Shares. The Custodian shall receive from the distributor of
the Fund's Shares or from the transfer agent of the Fund and deposit into
the Fund's account such payments as are received for Shares of the Fund
issued or sold from time to time by the Fund. The Custodian will provide
timely notification to the Fund and the Transfer Agent of any receipt by it
of payments for Shares of the Fund.
F. Investment and Availability of Federal Funds. Upon mutual agreement between
the Fund and the Custodian, the Custodian shall, upon the receipt of proper
instructions, which may be continuing instructions when deemed appropriate
by the parties,
1) invest in such instruments as may be set forth in such
instructions on the same day as received all federal funds
received before a time agreed upon between the Custodian and the
Fund; and
2) make federal funds available to the Fund as of specified times
agreed upon from time to time by the Fund and the Custodian in
the
7
<PAGE>
amount of checks received in payment for Shares of the Fund which
are deposited into the Fund's account.
G. Collection of Income. The Custodian shall collect on a timely basis all
income and other payments with respect to registered securities held
hereunder to which the Fund shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis all
income and other payments with respect to bearer securities if, on the date
of payment by the Issuer, such securities are held by the Custodian or
agent thereof and shall credit such income, as collected, to the Fund's
custodian account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and other income
items requiring presentation as and when they become due and shall collect
interest when due on securities held hereunder.
H. Payment of Fund Moneys. Upon receipt of proper instructions, which may be
continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out moneys of the Fund in the following cases only:
1) Upon the purchase of securities for the account of the Fund
but only (a) against the delivery of such securities to the
Custodian (or any bank, banking firm or trust company
8
<PAGE>
doing business in the United States or abroad which is qualified
under the Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its agent
for this purpose) registered in the name of the Fund or in the
name of a nominee of the Custodian referred to in Section C of
Article II hereof or in proper form for transfer; (b) in the case
of a purchase effected through a Securities System, in accordance
with the conditions set forth in Section L of Article II hereof
or (c) in the case of repurchase agreements entered into between
the Fund and the Custodian, or another bank, (i) against delivery
of the securities either in certificate form or through an entry
crediting the Custodian's account at the Federal Reserve Bank
with such securities or (ii) against delivery of the receipt
evidencing purchase by the Fund of securities owned by the
Custodian along with written evidence of the agreement by the
Custodian to repurchase such securities from the Fund;
2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section B of Article
II hereof;
9
<PAGE>
3) For the redemption or repurchase of Shares issued by the Fund as
set forth in Section J of Article II hereof;
4) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the
account of the Fund: interest, taxes, management, accounting,
Transfer Agent and legal fees, and operating expenses of the Fund
whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends declared pursuant to the
governing documents of the Fund;
6) For any other proper purposes, but only upon receipt of, in
addition to proper instructions, a certified copy of a resolution
of the Board of Directors or of the Executive Committee of the
Fund signed by an officer of the Fund and certified by its
Secretary or an Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for which such payment is
to be made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be made.
10
<PAGE>
I. Liability for Payment in Advance of Receipt of Securities Purchased. In any
and every case where payment for purchase of securities for the account of
the Fund is made by the Custodian in advance of receipt of the securities
purchased in the absence of specific written instructions from the Fund to
so pay in advance, the Custodian shall be absolutely liable to the Fund for
such securities to the same extent as if the securities had been received
by the Custodian, except that in the case of repurchase agreements entered
into by the Fund with a bank which is a member of the Federal Reserve
System, the Custodian may transfer funds to the account of such bank prior
to the receipt of written evidence that the securities subject to such
repurchase agreement have been transferred by book-entry into a segregated
non-proprietary account of the Custodian maintained with the Federal
Reserve Bank of Boston or of the safe-keeping receipt, provided that such
securities have in fact been so transferred by book-entry.
J. Payments for Repurchases or Redemptions of Shares of the Fund. From such
funds as may be available for the purpose but subject to the limitations of
the Articles of Incorporation and the By-Laws and any applicable votes of
the Board of Directors of the Fund pursuant thereto, the Custodian shall,
upon receipt of instructions from the Transfer Agent, make funds available
for
11
<PAGE>
payment to holders of Shares who have delivered to the Transfer Agent a
request for redemption or repurchase of their Shares. In connection with
the redemption or repurchase of Shares of the Fund, the Custodian is
authorized upon receipt of instructions from the Transfer Agent to wire
funds to or through a commercial bank designated by the redeeming
shareholders. In connection with the redemption or repurchase of Shares of
the Fund, the Custodian shall honor checks drawn on the Custodian by the
holder of Shares, which checks have been furnished by the Fund to the
holder of Shares, when presented to the Custodian in accordance with such
procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
K. Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of 1940,
as amended, to act as a custodian, as its agent to carry out such of the
provisions of this Article II as the Custodian may from time to time
direct; provided, however, that the appointment of any agent shall
not relieve the Custodian of any of its responsibilities or liabilities
hereunder.
L. Deposit of Fund Assets in Securities Systems. The Custodian may deposit
and/or maintain securities owned
12
<PAGE>
by the Fund in a clearing agency registered with the Securities and
Exchange Commission under Section 17A of the Securities Exchange Act of
1934, which acts as a securities depository, or in the book-entry system
authorized by the U.S. Department of the Treasury and certain federal
agencies, collectively referred to herein as "Securities System" in
accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the
following provisions:
1) The Custodian may keep securities of the Fund in a Securities
System provided that such securities are represented in an
account ("Account") of the Custodian in the Securities System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian, or otherwise for
customers.
2) The records of the Custodian with respect to securities of the
Fund which are maintained in a Securities System shall identify
by book-entry those securities belonging to the Fund.
3) The Custodian shall pay for securities purchased for the account
of the Fund upon (i) receipt of advice from the Securities System
13
<PAGE>
that such securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the Fund.
The Custodian shall transfer securities sold for the account of
the Fund upon (i) receipt of advice from the Securities System
that payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of
the Fund. Copies of all advices from the Securities System of
transfers of securities for the account of the Fund shall
identify the Fund, be maintained for the Fund by the Custodian
and be provided to the Fund at its request. The Custodian shall
furnish the Fund confirmation of each transfer to or from the
account of the Fund in the form of a written advice or notice and
shall furnish to the Fund copies of daily transaction sheets
reflecting each day's transactions in the Securities System for
the account of the Fund on the next business day.
14
<PAGE>
4) The Custodian shall provide the Fund with any report obtained by
the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding
securities deposited in the Securities System.
5) The Custodian shall have received the initial or annual
certificate, as the case may be, required by Article IX hereof.
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the Securities System by reason of
any negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from any
failure of the Custodian or any such agent to enforce effectively
such rights as it may have against the Securities System; at the
election of the Fund, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claim against the
Securities System or any other person which the Custodian may
have as a consequence of any such loss or damage if and to the
extent that the Fund has not been made whole for any such loss or
damage.
15
<PAGE>
M. Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to securities of the Fund held by it and in connection with
transfers of securities.
N. Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Fund or a nominee of the Fund, all proxies, without indication of the
manner in which such proxies are to be voted, and shall promptly deliver to
the Fund such proxies, all proxy soliciting materials and all notices
relating to such securities.
O. Communications Relating to Fund Portfolio Securities. The Custodian shall
transmit promptly to the Fund all written information (including, without
limitation, pendency of calls and maturities of securities and expirations
of rights in connection therewith) received by the Custodian from issuers
of the securities being held for the Fund. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the Fund all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or his
agents) making the
16
<PAGE>
tender or exchange offer. If the Fund desires to take action with respect
to any tender offer, exchange offer or any other similar transaction, the
Fund shall notify the Custodian at least three business days prior to the
date on which the Custodian is to take such action.
P. Proper Instructions. "Proper instructions" as used throughout this Article
II and in Article III means a writing signed or initialled by one or more
person or persons as the Board of Directors shall have from time to time
authorized. Each such writing shall set forth the specific transaction or
type of transaction involved, including a specific statement of the
purpose for which such action is requested. Oral instructions will be
considered proper instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all oral
instructions to be confirmed in writing. Upon receipt of a certificate of
the Secretary or an Assistant Secretary as to the authorization by the
Board of Directors of the Fund accompanied by a detailed description of
procedures approved by the Board of Directors, "proper instructions" may
include communications effected directly between electro-mechanical or
electronic
17
<PAGE>
devices provided that the Board of Directors and the Custodian are
satisfied that such procedures afford adequate safeguards for the Fund's
assets.
Q. Actions Permitted without Express Authority. The Custodian may in its
discretion, without express authority from the Fund:
l) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under
this contract, provided that all such payments shall be
accounted for to the Fund;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Fund, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and
other dealings with the securities and property of the Fund
except as otherwise directed by the Board of Directors of the
Fund.
R. Evidence of Authority. The Custodian shall be protected in acting upon
any instructions, notice, request, consent, certificate or other instrument
or paper believed by it to be genuine and to have been properly
18
<PAGE>
executed by or on behalf of the Fund. The Custodian may receive and accept
a certified copy of a vote of the Board of Directors of the Fund as
conclusive evidence (a) of the authority of any person to act in accordance
with such vote or (b) of any determination or of any action by the Board of
Directors as described in such vote, and such vote may be considered as in
full force and effect until receipt by the Custodian of written notice to
the contrary.
III. Duties of Custodian with Resect to Books of Account and Calculation of Net
Asset Value and Net Income
The Custodian shall keep books of account and render statements, including
interim monthly and complete quarterly financial statements, or copies thereof
from time to time as requested by the Fund.
Unless otherwise directed by receipt of proper instructions, the Custodian
shall compute and determine, in accordance with the Fund's currently effective
prospectus, the "net asset value" of a share in the Fund and promptly notify the
Fund of the result of such computation and determination. In computing the "net
asset value" the Custodian shall rely upon security quotations received by
telephone or otherwise from sources designated by the Fund by proper
instructions and may further rely upon information furnished to it by any
officer of the Fund "thereunto duly authorized
19
<PAGE>
relative (a) to liabilities of the Fund not appearing on the books of account,
(b) to the existence, status and proper treatment of any reserve or reserves and
(c) to the fair value of any security or other property for which market
quotations are not readily available.
Upon receipt of proper instructions, which may be continuing instructions
when deemed appropriate by the parties, the Custodian shall calculate daily the
"net income" of the Fund in a manner consistent with the Fund's Articles of
Incorporation and in accordance with the then current prospectus of the Fund,
and shall advise the Fund and the Transfer Agent daily of the total amount of
such "net income".
IV. Records
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder,
applicable federal and state tax laws and any other law or administrative rules
or procedures which may be applicable to the Fund. All such records shall be the
property of the Fund and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the Securities and Exchange
Commission. The Custodian shall, at the Fund's request,
20
<PAGE>
supply the Fund with a tabulation of securities owned by the Fund and held by
the Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
V. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's Form N-1, and Form N-1R or other annual
reports to the Securities and Exchange Commission and with respect to any other
requirements of such Commission.
VI. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this Contract;
such reports, which shall be of sufficient scope and in sufficient detail, as
may reasonably be required by the Fund, to provide reasonable assurance that any
material inadequacies would be disclosed, shall state in detail material
inadequacies disclosed by such
21
<PAGE>
examination, and, if there are not such inadequacies, shall so state.
VII. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund and the Custodian.
VIII. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties. The Custodian shall
be held to the exercise of reasonable care in carrying out the provisions of
this Contract, but shall be kept indemnified by and shall be without liability
to the Fund for any action taken or omitted by it in good faith without
negligence. It shall be entitled to rely on and may act upon advice of counsel
(who may be counsel for the Fund) on all matters, and shall be without liability
for any action reasonably taken or omitted pursuant to such advice.
Notwithstanding the foregoing, the responsibility of the Custodian with respect
to redemptions effected by check shall be in accordance with a separate
Agreement entered into between the Custodian and the Fund.
22
<PAGE>
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
IX. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not act under Section L of Article II hereof in
the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Directors of the Fund have approved the
initial use of a particular Securities System and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of
Directors have reviewed the use by the Fund of such Securities System, as
required in each case by Rule 17f-4 under the Investment Company Act of 1940, as
23
<PAGE>
amended; provided further, however, that the Fund shall not amend or terminate
this Contract in contravention of any applicable federal or state regulations,
or any provision of the Articles of Incorporation or the By-Laws of the Fund,
and further provided, that the Fund may at any time by action of its Board of
Directors (i) substitute another bank or trust company for the Custodian by
giving notice as described above to the Custodian, or (ii) immediately terminate
this Contract in the event of the appointment of a conservator or receiver for
the Custodian by the Comptroller of the Currency or upon the happening of a like
event at the direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
X. Successor Custodian
If a successor custodian shall be appointed by the Board of Directors of
the Fund, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer, all securities then held by it hereunder.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver
24
<PAGE>
at the office of the Custodian such securities, funds and other properties in
accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract.
Thereafter, such bank or trust company shall be the successor of the Custodian
under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of vote referred to or of the
Board of Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
25
<PAGE>
XI. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Articles of Incorporation or the By-Laws of the Fund. No interpretive or
additional provisions made as provided in the preceding sentence shall be deemed
to be an amendment of this Contract.
XII. Directors
All references to actions of or by the Directors herein shall require
action by such Directors acting as a Board of Directors or formally constituted
group and not individually.
XIII. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts.
26
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by a duly authorized officer as of the 24 day
of December, 1980.
HILLIARD-LYONS CASH MANAGEMENT, INC.
ATTEST:
/s/ Frederic H. Courtenary By: /s/ Donald F. Kohler
- -------------------------- --------------------------------
STATE STREET BANK AND TRUST COMPANY
ATTEST:
/s/ Charles R. Baryski By: /s/ Bob Gashlil
- -------------------------- --------------------------------
Assistant Secretary Vice President
27
<PAGE>
Exhibit No. 8
TRANSFER AGENCY AND SERVICE AGREEMENT
between
HILLIARD-LYONS GOVERNMENT FUND, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Article 1 Terms of Appointment; Duties of the Bank .................. 1
Article 2 Fees and Expenses ......................................... 5
Article 3 Representations and Warranties of the Bank ................ 6
Article 4 Representations and Warranties of the Fund ................ 7
Article 5 Indemnification ........................................... 7
Article 6 Covenants of the Fund and the Bank ........................ 10
Article 7 Termination of Agreement .................................. 12
Article 8 Assignment ................................................ 12
Article 9 Amendment ................................................. 13
Article 10 Massachusetts Law to Apply ................................ 13
Article 11 Merger of Agreement ....................................... 13
Article 12 Counterparts .............................................. 13
</TABLE>
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the day of , 1991, by and between
HILLIARD-LYONS GOVERNMENT FUND, INC., a Maryland corporation, having its
principal office and place of business at 545 South Third Street, Louisville,
Kentucky, 40202 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company having its principal office and place of business at
225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund desires to appoint the Bank as its transfer agent,
dividend disbursing agent, custodian of certain retirement plans and agent in
connection with certain other activities, and the Bank desires to accept such
appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank
1.01 Subject to the terms and conditions set forth in this Agreement,
the Fund hereby employs and appoints the Bank to act as, and the Bank agrees to
act as its transfer agent for the Fund's authorized and issued shares of its
common stock, $.001 par value, ("Shares"), dividend disbursing agent, custodian
of certain retirement plans and agent in connection with any accumulation, open-
account or similar plans provided to the shareholders of the Fund
("Shareholders") and set out in the currently effective prospectus and statement
of additional information ("prospectus") of the Fund, including without
limitation any periodic investment plan or periodic withdrawal program.
-1-
<PAGE>
1.02 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation thereof to
the Custodian of the Fund authorized pursuant to the Articles of
Incorporation of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof to
the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall in addition to executing transactions
directly with shareholders execute transactions directly with
J.J.B. Hilliard, W.L. Lyons, Inc. and other broker-dealers
authorized by the Fund who shall thereby be deemed to be acting
on behalf of the Fund;
(v) At the appropriate time as and when it receives monies paid to it
by the Custodian with respect
-2-
<PAGE>
to any redemption, pay over or cause to be paid over in the
appropriate manner such monies as instructed by the redeeming
Shareholders;
(vi) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Fund;
(viii) If applicable, issue replacement certificates for those
certificates alleged to have been lost, stolen or destroyed upon
receipt by the Bank of indemnification satisfactory to the Bank
and protecting the Bank and the Fund, and the Bank at its option,
may issue replacement certificates in place of mutilated stock
certificates upon presentation thereof and without such
indemnity;
(ix) Report abandoned property to the various states as authorized by
the Fund per policies and principles agreed upon by the Fund and
the Bank;
(x) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(xi) Record the issuance of shares of the Fund and maintain pursuant
to SEC Rule 17Ad-10(e) a record of the total number of shares of
the Fund which are authorized, based upon data provided to it by
the Fund, and issued and outstanding. The Bank shall also provide
the Fund on a regular basis
-3-
<PAGE>
with the total number of shares which are authorized and issued
and outstanding and shall have no obligation, when recording the
issuance of shares, to monitor the issuance of such shares or to
take cognizance of any laws relating to the issue or sale of such
shares, which functions shall be the sole responsibility of the
Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i) perform the
customary services of a transfer agent, dividend disbursing agent, custodian of
certain retirement plans and, as relevant, agent in connection with
accumulation, open-account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to: maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing proxies, receiving and tabulating proxies, mailing Shareholder
reports and prospectuses to current Shareholders, withholding taxes on U.S.
resident and non-resident alien accounts, preparing and filing U.S. Treasury
Department Forms 1099 and other appropriate forms required with respect to
dividends and distributions by federal authorities for all Shareholders,
preparing and mailing confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and mailing activity statements
for Shareholders, and providing Shareholder account information
-4-
<PAGE>
and (ii) provide a system which will enable the Fund to monitor the total number
of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in writing
those transactions and assets to be treated as exempt from blue sky reporting
for each State and (ii) verify the establishment of transactions for each State
on the system prior to activation and thereafter monitor the daily activity for
each State. The responsibility of the Bank for the Fund's blue sky State
registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Fund and the reporting of
such transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services in
Article 1 may be established from time to time by agreement between the Fund and
the Bank per the attached service responsibility schedule. The Bank may at times
perform only a portion of these services and the Fund or its agent may perform
these services on the Fund's behalf.
Article 2 Fees and Expenses
2.01 For the performance by the Bank pursuant to this Agreement, the
Fund agrees to pay the Bank an annual maintenance fee for each Shareholder
account as set out in the initial fee schedule attached hereto. Such fees and
out-of-pocket expenses and advances identified under Section 2.02 below may be
changed from time to time subject to mutual written agreement between the Fund
and the Bank.
-5-
<PAGE>
2.02 In addition to the fee paid under Section 2.01 above, the Fund
agrees to reimburse the Bank for out-of-pocket expenses or advances incurred by
the Bank for the items set out in the fee schedule attached hereto. In addition,
any other expenses incurred by the Bank at the request or with the consent of
the Fund, will be reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses within
five days following the receipt of the respective billing notice. Postage for
mailing of dividends, proxies, Fund reports and other mailings to all
shareholder accounts shall be advanced to the Bank by the Fund at least seven
(7) days prior to the mailing date of such materials.
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.01 It is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the Commonwealth
of Massachusetts.
3.03 It is empowered under applicable laws and by its Charter and By-
Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
-6-
<PAGE>
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.01 It is a corporation duly organized and existing and in good
standing under the laws of Maryland.
4.02 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Articles of
Incorporation and By-Laws have been taken to authorize it to enter into and
perform this Agreement.
4.04 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of 1933, as
amended is currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with respect
to all Shares of the Fund being offered for sale.
Article 5 Indemnification
5.01 The Bank shall not be responsible for, and the Fund shall
indemnify and hold the Bank harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and liability arising
out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors required
to be taken pursuant to this Agreement, provided that such actions are taken in
good faith and without negligence or willful misconduct.
-7-
<PAGE>
(b) The Fund's lack of good faith, negligence or willful misconduct or
breach of any representation or warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors
of information, records and documents or services which (i) are received or
relied upon by the Bank or its agents or subcontractors and/or furnished to it
or performed by or on behalf of the Fund, and (ii) have been prepared,
maintained and/or performed by the Fund or any other person or firm on behalf of
the Fund.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws or regulations
of any state that such Shares be registered in such state or in violation of any
stop order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such Shares in such state.
5.02 The Bank shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to any action or failure
or omission to act by the Bank as a result of the Bank's lack of good faith,
negligence or willful misconduct.
5.03 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel
-8-
<PAGE>
with respect to any matter arising in connection with the services to be
performed by the Bank under this Agreement, and the Bank and its agents or
subcontractors shall not be liable and shall be indemnified by the Fund for any
action taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel. The Bank, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document furnished by or
on behalf of the Fund, reasonably believed to be genuine and to have been signed
by the proper person or persons, or upon any instruction, information, data,
records or documents provided the Bank or its agents or subcontractors by
machine readable input, telex, CRT data entry or other similar means authorized
by the Fund, and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the Fund. The Bank,
its agents and subcontractors shall also be protected and indemnified in
recognizing stock certificates which are reasonably believed to bear the proper
manual or facsimile signatures of the officers of the Fund, and the proper
countersignature of any former transfer agent or former registrar, or of a co-
transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
<PAGE>
5.05 Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in
any case in which the other party may be required to indemnify it except with
the other party's prior written consent.
Article 6 Covenants of the Fund and the Bank
6.01 The Fund shall promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Board of Directors of
the Fund authorizing the appointment of the Bank and the execution and delivery
of this Agreement.
(b) A copy of the Articles of Incorporation and By-Laws of the Fund
and all amendments thereto.
6.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile
-10-
<PAGE>
signature imprinting devices, if any; and for the preparation or use, and for
keeping account of, such certificates, forms and devices.
6.03 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
6.04 The Bank and the Fund agree that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
-11-
<PAGE>
Article 7 Termination of Agreement
7.01 This Agreement may be terminated by either party upon one
hundred twenty (120) days written notice to the other.
7.02 Should the Fund exercise its right to terminate, all out-of-
pocket expenses associated with the movement of records and material will be
borne by the Fund. Additionally, the Bank reserves the right to charge for any
other reasonable expenses associated with such termination and/or a charge
equivalent to the average of three (3) months' fees.
Article 8 Assignment
8.01 Except as provided in Section 8.03 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
8.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
8.03 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data Services,
Inc., a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(l) of the Securities Exchange Act of
1934, as amended ("Section 17A(c)(l)"), (ii) a BFDS subsidiary duly registered
as a transfer agent pursuant to Section 17A(c)(l) or (iii) a BFDS affiliate;
provided, however, that the Bank shall be as fully responsible to the Fund for
the acts and omissions of any subcontractor as it is for its own acts and
omissions.
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<PAGE>
Article 9 Amendment
9.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the Board
of Directors of the Fund.
Article 10 Massachusetts Law to Apply
10.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
Article 11 Merger of Agreement
11.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
Article 12 Counterparts
12.01 This Agreement may be executed by the parties hereto on any
number of counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf by and through their duly
authorized officers, as of the day and year first above written.
HILLIARD-LYONS GOVERNMENT FUND, INC.
BY:
-----------------------------------
ATTEST:
/s/ Michael L. Howard
- ------------------------------
STATE STREET BANK AND TRUST COMPANY
BY:
-----------------------------------
Vice President
ATTEST:
- ------------------------------
Assistant Secretary
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<PAGE>
Exhibit No. 9
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references made to our firm under the captions "Financial
Highlights" in the Prospectus and "Independent Auditors" in the Statement of
Additional Information and to the use, in this Post-Effective Amendment Number
20 to Registration Statement (Form N-IA, Number 2-68290) of Hilliard-Lyons
Government Fund, Inc., of our report dated September 18, 1998.
Ernst & Young LLP
Louisville, Kentucky
November 25, 1998
<PAGE>
EXHIBIT NO. 11
OMB No. 1545--0365
Expires 10-31-84
Form 5305-A ------------------
(Rev. (Dec. 1981) Do NOT File
Department of the Treasury with Internal
Internal Revenue Service Revenue Service
Individual Retirement Custodial Account
(Under Section 408(a) of the Internal Revenue Code)
For Paperwork Reduction Act Notice, see back of this form.
- --------------------------------------------------------------------------------
State of )
------------------------------- SS For Use With
County of ) Hilliard-Lyons Government Fund, Inc.
- --------------------------------------------------------------------------------
Depositor's name Depositor's Date of birth
---------------------------- --------
Depositor's social security number
----------------------------------------------
Depositor's address
-------------------------------------------------------------
Custodian's name State Street Bank and Trust Company
----------------------------------------------------------------
Custodian's address or principal place of business Boston, Massachusetts
------------------------------
The Depositor whose name appears above is establishing an individual
retirement account (under section 408(a) of the Internal Revenue Code) to
provide for his or her retirement and for the support of his or her
beneficiaries after death.
The Custodian named above has given the Depositor the disclosure
statement required under the Income Tax Regulations under section 408(i) of the
Code.
The Depositor has deposited with the Custodian
-----------------------------
($ ) in cash.
-----------------
The Depositor and the Custodian make the following agreement.
Article I
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The additional cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in section 402(a)(5), 402(a)(7), 403(a)(4), 403(b)(8),
405(d)(3), 408(d)(3), or 409(b)(3)(C) of the Code or an employer contribution to
a simplified employee pension plan as described in section 408(k).
Article II
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
Article III
No part of the custodial funds may be invested in life insurance contracts
nor may the assets of the custodial account be commingled with other property
except in a common trust fund or common investment fund (within the meaning of
section 408(a)(5) of the Code).
Article IV
1. The Depositor's entire interest in the custodial account must be, or
begin to be, distributed before the end of the tax year in which the Depositor
reaches 70 1/2. By the end of that tax year, the Depositor may elect, in a
manner acceptable to the Custodian, to have the balance in the custodial
account distributed in:
(a) A single-sum payment.
(b) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the life of the Depositor.
The payments must begin by the end of that tax year.
(c) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the joint and last
survivor lives of the Depositor and his or her spouse. The payments
must begin by the end of the tax year.
(d) Equal or substantially equal monthly, quarterly, or annual payments
over a specified period that may not be longer than the Depositor's
life expectancy.
(e) Equal, or substantially equal monthly, quarterly, or annual payments
over a specified period that may not be longer than the joint life and
last survivor expectancy of the Depositor and his or her spouse.
Even if distributions have begun to be made under option (d) or (e), the
Depositor may receive a distribution of the balance in the custodial account at
any time by giving written notice to the Custodian. If the Depositor does not
choose any of the methods of distribution described above by the end of the tax
year in which he or she reaches age 70 1/2, distribution to the Depositor will
be made before the end of that tax year by a single-sum payment. If the
Depositor elects as a means of distribution (b) or (c) above, the annuity
contract must satisfy the requirements of section 408(b)(1), (3), (4), and (5)
of the Code. If the Depositor elects as a means of distribution (d) or (e)
above, figure the payments made in tax years beginning in the tax year the
Depositor reaches age 70 1/2 as follows:
(i) For the minimum annual payment, divide the Depositor's entire
interest in the custodial account at the beginning of each year by
the life expectancy of the Depositor (or the joint life and last
survivor expectancy of the Depositor and his or her spouse, or the
period specified under (d) or (e), whichever applies). Determine the
life expectancy in either case on the date the Depositor reaches
70 1/2 minus the number of whole years passed since the Depositor
became 70 1/2.
(ii) For the minimum monthly payment, divide the result in (i) above by
12.
(iii) For the minimum quarterly payment, divide the result in (i) by 4.
2. If the Depositor dies before his or her entire interest in the
account is distributed to him or her, or if distribution is being made as
provided in (e) above to his or her surviving spouse, and the surviving spouse
dies before the entire interest is distributed, the entire remaining
undistributed interest will, within 5 years after the Depositor's death or the
death of the surviving spouse, be distributed in a single sum or be applied to
purchase an immediate annuity for the beneficiary or beneficiaries of the
Depositor or the Depositor's surviving spouse. Under the terms of the annuity,
payments will be made either over the life of the beneficiary or beneficiaries,
or over a specified term not longer than the life expectancy of the beneficiary
or beneficiaries. Any annuity contract purchased will be immediately distributed
to the beneficiary or beneficiaries.
3. Exceptions.
(a) No annuity contract needs to be purchased if distributions over a
specified term began before the death of the Depositor and the term is
for a period permitted under (d) or (e) above.
(b) No distribution need be made if the beneficiary elects to treat the
entire interest in the account under the distribution rules in
paragraph 1 of this article.
Article V
Unless the Depositor dies, is disabled (as defined in section 72(m) of the
Code), or reaches age 59 1/2 before any amount is distributed from the account,
the Custodian must receive from the Depositor a statement explaining how he or
she intends to dispose of the amount distributed.
Article VI
1. The Depositor agrees to provide the Custodian with information
necessary for the Custodian to prepare any reports required under section 408(i)
of the Code and the related regulations.
2. The Custodian agrees to submit reports to the Internal Revenue Service
and the Depositor as prescribed by the Internal Revenue Service.
- -------------------------------------------------------------------------------
<PAGE>
ADDITIONAL INSTRUCTIONS
I. It is important that Depositor read carefully the Prospectus about the
shares of the Fund. The Prospectus for such shares, required to be delivered to
Depositor by or on behalf of the Fund, describes any additional information
Depositor should be aware of before making that selection. CUSTODIAN ASSUMES NO
LIABILITY FOR INVESTMENT RESULTS OF DEPOSITOR'S SELECTION.
II. Depositor should seek advice from Depositor's attorney regarding the legal
consequences (including but not limited to federal and state tax matters) of
entering into this Agreement, contributing to the custodial account, and
ordering Custodian to make distributions from the account. Depositor should
understand that Custodian and the Fund (or any company associated therewith) are
prohibited by law from rendering such advice.
APPENDIX "A" INCORPORATED
INTO ARTICLE IX OF AGREEMENT
ON I.R.S. FORM 5305-A BETWEEN
State Street Bank and Trust Company, Custodian
and
The Depositor
2. Depositor's Selection of Mutual Fund
Depositor directs Custodian to invest all custodial funds in investment
shares issued by the Fund until Depositor hereafter gives Custodian contrary
instructions pursuant to Article IX, paragraph ("para.") 6 below, which governs
investment of the custodial account in Fund shares.
3. Opening Contribution
(a) Initial Periodic Contribution. Initial contributions hereunder shall be
in cash and are to be invested under this Agreement, which Depositor intends to
be tax-deductible. Depositor contemplates future periodic contributions within
the limits specified under heading "General Instructions" at bottom of page 2 of
I.R.S. Form 5305-A, of which this is a part. Depositor assumes full and sole
responsibility for making sure that the sum of periodic contributions during a
single taxable year of Depositor do not exceed those limits. Depositor should
not contribute after the custodial account ceases to be exempt by reason of
either section 406(e) or 415(g) of the Internal Revenue Code.
(b) Rollover Contribution. A rollover contribution by Depositor shall be a
one-time deposit in cash to be invested under this Agreement. DEPOSITOR AGREES
TO MAKE NO ADDITIONAL CONTRIBUTIONS, AND WARRANTS
(1) that the entire such amount is a "rollover contribution" received within
sixty (60) days prior to reinvestment hereunder by Depositor as a lump-sum
distribution within one taxable year from an employees' trust, an employee
annuity, another individual retirement account or annuity, or a U.S. retirement
bond, as described in Internal Revenue Code section 402(a)(5), 403(a)(4),
408(d) (3), or 409(b)(3)(C);
(2) that in the case of a rollover from an employees' trust or employee annuity,
only the excess of the lump-sum distribution over amounts contributed thereto by
Depositor makes up this rollover contribution, and no part of such distribution
to Depositor consisted of property other than cash;
(3) within one (1) year of receiving such distribution, Depositor did not
receive another distribution thereof which in turn constituted a "rollover"
referred to in Code section 408(d)(3)(B); and
(4) the contribution as made satisfies all the requirements for rollover
contributions as set forth under the Internal Revenue Code.
4. Tax and Other Legal Matters
DEPOSITOR ACKNOWLEDGES HAVING READ THE SECTIONS ENTITLED "INSTRUCTIONS" AT
BOTTOM OF PAGE 2 OF I.R.S. FORM 5305-A (of which this is a part), which describe
tax matters important to Depositor, and "ADDITIONAL INSTRUCTIONS" preceding
Appendix "A."
5. Custodian's Fees
(a) For establishing this Agreement, Depositor shall pay Custodian a $5.00
one-time charge. Payment may be by separate check enclosed with the initial
deposit; or Custodian will deduct it from the initial deposit.
(b) In addition, Custodian shall be paid the following fees:
Annual Maintenance Fee..........................................$10.00
Fee for processing either a lump-sum distribution or transfer
of assets of entire custodial account, or returning an excess
contribution....................................................$10.00
Fee for processing each periodic distribution (other than excess
contribution)...................................................$ 2.00
(c) Upon thirty (30) days' prior written notice, Custodian may substitute a
fee schedule differing from the one above. Custodian's fees, any income, gift,
estate and inheritance taxes and other taxes of any kind whatsoever, including
transfer taxes incurred in connection with the investment or reinvestment of the
assets of the custodial account, that may be levied or assessed in respect to
such assets, and all other administrative expenses incurred by Custodian in the
performance of its duties including fees for legal services rendered to
Custodian, may be charged to the custodial account, with the right to liquidate
Fund shares for this purpose, or (at Custodian's option) to the Depositor.
6. Custodial Account
(a) This Agreement shall take effect only when accepted and signed by
Custodian. As directed, Custodian shall then open and maintain a separate
custodial account for Depositor and invest the initial contribution hereunder in
shares of the Fund. "Fund" means Hilliard-Lyons Government Fund, Inc., a
regulated investment company as defined in Internal Revenue Code section 851(a).
(b) The Custodian does not undertake to render any investment advice
whatsoever to Depositor; its sole duties are those prescribed in Article IX,
para. 8(c).
(c) The Custodian shall invest subsequent contributions as directed.
However, if any such written instructions are not received as required, or if
received, are in the opinion of Custodian unclear, or if the accompanying
contribution exceeds $2,000, Custodian may hold or return all or a portion of
the contribution uninvested without liability for loss, of income or
appreciation, and without liability for interest, pending receipt of written
instructions or clarification.
(d) All dividends and capital gain distributions received on shares of the
Fund held in the custodial account shall (unless received in additional shares)
be reinvested in shares of the Fund, if available, which shall be credited to
the account. If any distribution on such shares may be received at the election
of the shareholder in additional such shares or in cash or other property,
Custodian shall elect to receive it in additional such shares.
(e) All Fund shares acquired by Custodian hereunder shall be registered in
the name of Custodian (with or without identifying Depositor) or of its nominee.
Custodian shall deliver, or cause to be executed and delivered, to Depositor
all notices, prospectuses, financial statements, proxies, and proxy soliciting
materials relating to such Fund shares held in the custodial account. Custodian
shall not vote any such Fund shares except in accordance with written
instructions received from Depositor.
7. Distributions
(This paragraph 7 supplements Article IV on Form 5305-A of the Agreement
and must be read in conjunction with it).
(a) Distribution of the custodial account assets in accordance with Article
IV shall be made in a manner set forth in subparagraph (c)(1) or (2), whichever
applies, except as Article IV otherwise requires and at such time as Depositor
(or Depositor's Beneficiary if Depositor is deceased) shall elect by written
order to Custodian, provided that distribution (except for distribution on
account of Depositor's disability or death, return of an "excess contribution"
referred to in subparagraph (d), or a "rollover" from this account), must be no
earlier than age 59 1/2 if Depositor wants to avoid an "early distribution
additional tax" under Code section 408(f). For that purpose, Depositor will be
considered disabled if Depositor can prove, as provided in Code section
72(m)(7), that Depositor is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment which can
be expected to result in death or be of long-continued and indefinite duration.
Depositor (or Depositor's Beneficiary if Depositor is deceased) will order
distribution in the manner and at the time permitted or required by Article IV
and this paragraph. Custodian assumes no responsibility for the tax treatment of
any distribution from the custodial account; such responsibility accrues solely
to the person ordering the distribution.
(b) Custodian assumes (and shall have) no responsibility to make any
distribution on order of Depositor (or Depositor's Beneficiary if Depositor is
deceased) unless and until such order specifies the occasion for
<PAGE>
9. Amendment
(This paragraph 9 supplements Article VIII on Form 5305-A.)
(a) Depositor retains the right to amend this Agreement in any respect
at any time, effective on a stated date which shall be at least sixty (60) days
after giving written notice of the amendment (including its exact terms) to
Custodian by registered or certified mail unless Custodian waives such notice as
to that amendment. If Custodian does not wish to continue serving in that
capacity under this Agreement as so amended, it may resign in accordance with
Article IX, para 10. Depositor also delegates to the distributor (principal
underwriter) of the Fund Depositor's right so to amend, including retroactively,
as necessary or appropriate in the opinion of counsel satisfactory to the
distributor, in order to conform with pertinent provisions of the Code and other
laws or successor provisions of law or to obtain a governmental ruling that such
requirements are met, to adopt a prototype or master plan for investment in
shares of the Fund, or as otherwise may be advisable in the opinion of such
counsel. Such an amendment by the distributor shall be communicated in writing
to Depositor and Custodian, and Depositor shall be deemed to have consented
thereto unless, within thirty (30) days after such communication to Depositor is
mailed, Depositor either (1) gives Custodian a proper written order for a
lump-sum distribution of the custodial account, or (2) removes Custodian and
simultaneously appoints a Successor Custodian under Article IX, para. 10.
(b) This paragraph 9 shall not be construed to restrict Custodian's
freedom to substitute fee schedules in the manner provided by Article IX, para.
5(c), and no such substitution shall be deemed to be an amendment of this
Agreement.
10. Resignation or Removal of Custodian
(a) Custodian may resign at any time upon at least thirty (30) days
prior notice in writing to Depositor, and may be removed by Depositor at any
time upon at least thirty (30) days' prior notice in writing to Custodian. Upon
such resignation or removal, Depositor shall appoint a Successor Custodian to
serve under this Agreement. Upon receipt by Custodian of written acceptance of
such appointment by the Successor Custodian, Custodian shall transfer to such
Successor the assets of the custodial account and all necessary records (or
copies thereof) pertaining thereto, provided that (if so requested by Custodian)
any Successor Custodian agrees not to dispose of any such records without
Custodian's consent. Custodian is authorized, however, to reserve such a portion
of such assets as it may deem advisable for payment of all its fees,
compensation, costs, and expenses, or for payment of any other liabilities
constituting a charge on or against the assets of the custodial account or on or
against Custodian, with any balance of such reserve remaining after the payment
of all such items to be paid over to the Successor Custodian.
(b) If within thirty (30) days after Custodian's resignation or
removal or such longer time as Custodian may agree to, Depositor has not
appointed a Successor Custodian which has accepted such appointment, Custodian
shall terminate the custodial account pursuant to Article IX, para. 11, unless
within that time the distributor referred to in Article IX, para. 9(a), appoints
such Successor and gives written notice thereof to Depositor and Custodian.
(c) Custodian shall not be liable for the acts or omissions of such
Successor.
(d) The Custodian, and every Successor Custodian appointed to serve
under this Agreement, must be a bank as defined in Code section 401(d) (1) or
such other person who qualifies to serve in the manner prescribed by Code
section 408(a) (2) and satisfies the Depositor, distributor, or Custodian, upon
request, as to such qualification.
(e) After Custodian has transferred the custodial account assets
(including any reserve balance as contemplated above) to the Successor
Custodian, Custodian shall be relieved of all further liability with respect to
this Agreement, the custodial account, and the assets thereof.
11. Termination of Account
(a) Custodian shall terminate the custodial account if, within the
time specified in Article IX, para. 10(b), after Custodian's resignation or
removal, neither Depositor nor the distributor has appointed a Successor
Custodian which has accepted such appointment. Termination of custodian account
shall be effected by distributing all assets thereof in a lump sum in cash or in
kind to Depositor, subject to Custodian's right to reserve funds as provided
in Article IX, para. 10(a).
(b) Upon termination of the custodial account this Agreement shall
terminate and have no further force and effect, and Custodian shall be relieved
from all further liability with respect to this Agreement, the custodial
account, and all assets thereof so distributed.
12. Miscellaneous
(a) References herein to the "Internal Revenue Code" or "Code" and
sections thereof shall mean the same as amended from time to time hereafter,
including successors to such sections.
(b) Except where otherwise specifically required in this Agreement,
any notice from Custodian to any person provided for in this Agreement shall be
effective if sent by first-class mail to such person at that person's last
address on Custodian's records.
(c) This agreement is accepted by Custodian in, and shall be construed
and administered in accordance with the laws of, the Commonwealth of
Massachusetts. This Agreement is intended to qualify under section 408 of the
Code as an Individual Retirement Account and to entitle Depositor to the
Retirement Savings deduction under section 219 of the Code, and if any provision
hereof is subject to more than one interpretation or any term used herein is
subject to more than one construction, such ambiguity shall be resolved in favor
of that interpretation or construction which is consistent with that intent.
However, neither the Custodian nor the Fund (or company associated therewith),
shall be responsible for whether or not such intentions are achieved through use
of this Agreement, and Depositor is referred to Depositor's attorney for any
such assurances.
<PAGE>
<TABLE>
<CAPTION>
HILLIARD-LYONS GOVERNMENT FUND, INC.
INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
Important Notice on Reverse Side
Please Read Carefully
BENEFICIARY DESIGNATION
UNDER ARTICLE IX, PARAGRAPH 7(c) (2)
<S> <C>
TO: State Street Bank and Trust Company, Custodian Custodial Account Number, (if assigned)__________________________
P.O. Box 1912
Boston, Massachusetts 02105
Name of Depositor __________________________________________________________________________________________________________________
Name of person making this designation, if Depositor is deceased: __________________________________________________________________
Upon my death while having any interest in the custodial account, the following person or persons shall receive the account. All
previous beneficiary designations hereby are revoked.
Beneficiary: _______________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________
Address of each Beneficiary specifically named above:
_______________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________
Date _________________________________ Depositor's Signature________________________________________________________________________
SAMPLE BENEFICIARY DESIGNATIONS
1. Priscilla Alden, wife, if living, otherwise to James Alden, son, if living.
2. James Alden, son, and Mary Alden, daughter, in equal shares or all to the survivor if any.
3. Priscilla Alden, wife, if living, otherwise to James Alden, son, and Mary Alden, daughter, in equal shares or all to the
survivor if any.
4. Priscilla Alden, wife, if living, otherwise in equal shares to all children of the Depositor who survives.
- -------------------------------------------------------------DETACH HERE------------------------------------------------------------
HILLIARD-LYONS GOVERNMENT FUND, INC.
INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
Important Notice on Reverse Side
Please Read Carefully
BENEFICIARY DESIGNATION
UNDER ARTICLE IX, PARAGRAPH 7(c) (2)
<S> <C>
TO: State Street Bank and Trust Company, Custodian Custodial Account Number, (if assigned)__________________________
P.O. Box 1912
Boston, Massachusetts 02105
Name of Depositor __________________________________________________________________________________________________________________
Name of person making this designation, if Depositor is deceased: __________________________________________________________________
Upon my death while having any interest in the custodial account, the following person or persons shall receive the account. All
previous beneficiary designations hereby are revoked.
Beneficiary: _______________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________
Address of each Beneficiary specifically named above:
_______________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________
Date _________________________________ Depositor's Signature________________________________________________________________________
SAMPLE BENEFICIARY DESIGNATIONS
1. Priscilla Alden, wife, if living, otherwise to James Alden, son, if living.
2. James Alden, son, and Mary Alden, daughter, in equal shares or all to the survivor if any.
3. Priscilla Alden, wife, if living, otherwise to James Alden, son, and Mary Alden, daughter, in equal shares or all to the
survivor if any.
4. Priscilla Alden, wife, if living, otherwise in equal shares to all children of the Depositor who survives.
</TABLE>
