<PAGE>
As filed with the Securities and
Exchange Commission on March 11, 1996
Registration No. 33-43177; 811-6423
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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Pre-Effective Amendment No. ___ ---
Post-Effective Amendment No. 5 X
--- ---
and
REGISTRATION UNDER THE INVESTMENT COMPANY ACT OF 1940
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Amendment No. 7 X
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(Check appropriate box or boxes)
HILLIARD LYONS GROWTH FUND, INC.
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(Exact Name of Registrant as Specified in Charter)
Hilliard Lyons Center
Louisville, Kentucky 40202
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(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (502) 588-8400
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Dianna P. Wengler
Vice President
HILLIARD LYONS GROWTH FUND, INC.
Hilliard Lyons Center
Louisville, Kentucky 40202
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(Name and address of agent for service)
With a copy to:
William G. Strench
Hirn Doheny & Harper
2000 Meidinger Tower
Louisville, Kentucky 40202
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Amending Parts A, B and C
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It is proposed that this filing will become effective:
X immediately upon filing pursuant to paragraph (b)
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--- on __________ pursuant to paragraph (b)
--- 60 days after filing pursuant to paragraph (a)(1)
--- on __________ pursuant to paragraph (a)(1)
--- 75 days after filing pursuant to paragraph (a)(2)
--- on _____________ 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 elected to register an indefinite number of securities pursuant
to Rule 24f-2. On February 6, 1996 registrant filed its Rule 24f-2 Notice for
the fiscal year ended December 31, 1995.
Page 1 of ___ sequential pages (including exhibits)
The index of exhibits is on sequential page __.
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HILLIARD LYONS GROWTH FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
PART A
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Items in Part A
of Form N-1A Prospectus Caption
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1 Cover Page
2 Summary of Expenses
3 Financial Highlights; The Fund's Performance
4 Cover Page; The Fund and Its Investment Objective and
Policies; General Information
5 Summary of Expenses; Financial Highlights; Management;
Expenses of the Fund; Brokerage; Back Cover Page
6 Dividends, Distributions and Taxes; General Information
7 Distribution Arrangements; Purchase of Shares; Net Asset
Value; Back Cover Page
8 Redemption of Shares
9 *
PART B
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Items in Part B
of Form N-1A Statement of Additional Information Caption
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10 Cover Page
11 Table of Contents
12 *
13 Investment Objective and Policies
*Omitted since answer is negative or inapplicable.
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14 Management
15 General Information
16 Management; Distribution Arrangements; Transfer Agent and
Custodian
17 Portfolio Transactions and Brokerage
18 General Information
19 Net Asset Value; See Prospectus - Purchase of Shares; See
Prospectus - Redemption of Shares
20 Dividends, Distributions and Taxes
21 Distribution Arrangements
22 Calculation of Investment Performance
23 Report of Independent Auditors;
Statement of Assets and Liabilities
PART C
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Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C to this
Registration Statement.
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
Hilliard Lyons Center
Louisville, Kentucky 40202
Telephone: (502) 588-8400
(800) 444-1854
PROSPECTUS
APRIL 29, 1996
Hilliard Lyons Growth Fund, Inc. (the "Fund") is an open-end, non-diversified
management investment company. The primary investment objective of the Fund is
long-term growth of capital. Current income is a secondary consideration. The
fund seeks to achieve its objective by investing primarily in common stock of
companies believed to have superior potential for capital appreciation.
This Prospectus sets forth concisely the information an investor should know
before investing. This Prospectus should be retained for future reference.
Additional information about the Fund has been filed with the Securities and
Exchange Commission. Such information, including the Fund's Statement of
Additional Information dated April 29, 1996, which as amended or supplemented
from time to time is incorporated by reference into this Prospectus, is
available without charge by writing or telephoning the Fund at the address or
telephone numbers set forth above.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
J.J.B. HILLIARD, W.L. LYONS, INC.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND INFORMATION
OR REPRESENTATIONS NOT HEREIN CONTAINED, IF GIVEN OR MADE, MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Introduction............................................................... 2
Summary of Expenses........................................................ 3
Financial Highlights....................................................... 4
The Fund and Its Investment Objective and Policies......................... 5
Management................................................................. 6
Distribution Arrangements.................................................. 8
Expenses of the Fund....................................................... 9
Brokerage.................................................................. 9
Purchase of Shares......................................................... 10
Redemption of Shares....................................................... 13
Dividends, Distributions and Taxes......................................... 15
Net Asset Value............................................................ 16
The Fund's Performance..................................................... 17
General Information........................................................ 17
Account Application........................................................ 19
</TABLE>
INTRODUCTION
Hilliard Lyons Growth Fund, Inc. (the "Fund") is an open-end, non-diversified
management investment company. The primary investment objective of the Fund is
long-term growth of capital. Current income is a secondary consideration. The
Fund seeks to achieve its objective by investing primarily in common stock of
companies believed to have superior potential for capital appreciation. See
"The Fund and Its Investment Objective and Policies."
The Fund's shares of common stock, par value $.001 per share, may be
purchased at the current net asset value plus a sales charge of 4.75% of the
amount invested (4.99% of the net amount invested). Sales charges are reduced
for purchases of $50,000 or more. The minimum initial investment is $1,000 and
the minimum investment for subsequent purchases is $100. See "Purchase of
Shares." Fund shares may be redeemed without charge at their net asset value.
See "Redemption of Shares."
Hilliard Lyons Investment Advisors (the "Adviser"), a division of J.J.B.
Hilliard, W.L. Lyons, Inc. ("Hilliard Lyons"), serves as investment adviser to
the Fund and receives a management fee equal to 0.80% per annum of the Fund's
average daily net assets. See "Management." Hilliard Lyons, a registered
broker-dealer, is the distributor of shares of the Fund. See "Distribution
Arrangements."
2
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SUMMARY OF EXPENSES
The following table is provided to assist investors in understanding the
various costs and expenses that an investor will incur, either directly or
indirectly, as a stockholder of the Fund, based upon the maximum sales charge
that may be incurred at the time of purchase of shares, and the Fund's actual
operating expenses for the year ended December 31, 1995, except as noted. For
further information about the Fund's expenses, see "Expenses of the Fund" and
"Management".
<TABLE>
<S> <C>
STOCKHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price)................................................. 4.75%(1)
Sales Charge Imposed on Reinvested Dividends.................... None
Deferred Sales Charge........................................... None(2)
Redemption Fees................................................. None(3)
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fee After Fee Waiver................................. 0.70%(4)
Distribution (Rule 12b-1) Fee................................... 0.15%
Other Expenses (audit, legal, stockholder services, transfer
agent and custodian)............................................ 0.90%
Total Operating Expenses After Fee Waiver....................... 1.75%(4)
</TABLE>
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(1) Sales charges are reduced for purchases of $50,000 or more. No sales charge
is imposed on purchases by certain classes of investors. See "Purchase of
Shares".
(2) Purchases of $1 million or more are not subject to an initial sales charge;
however, a contingent deferred sales charge of 1% is imposed in the event
of certain redemption transactions within 12 months following such
purchases. See "Redemption of Shares".
(3) A transaction fee of $5.00 may be charged for redemption proceeds paid by
wire.
(4) For the year ending December 31, 1996, the Adviser voluntarily agreed to
reduce the fees payable to it under the advisory agreement and, if
necessary, reimburse the Fund on a quarterly basis, by the amount by which
the Fund's total annual operating expenses for such fiscal year exceed
1.75% of the first $50 million of average daily net assets and 1.50% of
average daily net assets in excess of $50 million. The Adviser agreed to
the same limit on fees for the year ended December 31, 1995. If the Adviser
had not so agreed, the ratio of total operating expenses to average daily
net assets for the year would have been 1.85%.
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EXAMPLE. You would pay the following total expenses on a $1,000 investment,
assuming (a) 5% annual return, (b) redemption at the end of each time period
and (c) payment of the maximum sales charge of 4.75% of the offering price.
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<S> <C>
One Year..................................... $ 65
Three Years.................................. $101
Five Years................................... $140
Ten Years.................................... $258
</TABLE>
3
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This table is provided to assist an investor in understanding the various
costs and expenses that an investor will bear, directly or indirectly, as a
stockholder of the Fund. It should not be considered a representation of past
or future expenses, as actual expenses fluctuate and may be greater or less
than these 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%.
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share of common 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, which may be obtained from the Fund
upon request without charge. The information has been audited by Ernst & Young
LLP, the Fund's independent auditors, whose report thereon appears in the
Statement of Additional Information. Further information about the performance
of the Fund is contained in the Fund's Annual Report to Stockholders which may
be obtained directly from the Fund without charge.
<TABLE>
<CAPTION>
PERIOD FROM
FOR THE YEAR ENDED JANUARY 6,
DECEMBER 31, 1992* TO
---------------------------------- DECEMBER 31,
1995 1994 1993 1992
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
Net asset value:
Beginning of period...... $15.98 $15.69 $15.19 $14.29
-------- -------- -------- --------
Net investment income..... 0.15 0.12 0.13 0.10
Net realized and change in
unrealized gain on
investments.............. 4.82 0.29 0.50 0.90
-------- -------- -------- --------
Total from investment
operations............... 4.97 0.41 0.63 1.00
-------- -------- -------- --------
Less dividends from net
investment income........ ( 0.15) ( 0.12) ( 0.13) ( 0.10)
Less dividends from net
realized capital gains... ( 0.60) ( 0.00) ( 0.00) ( 0.00)
-------- -------- -------- --------
Total distributions....... ( 0.75) ( 0.12) ( 0.13) ( 0.10)
-------- -------- -------- --------
Net asset value:
End of period............ $20.20 $15.98 $15.69 $15.19
======== ======== ======== ========
Total Investment
Return(1)................ 31.10% 2.60% 4.13% 7.09%**
SIGNIFICANT RATIOS AND
SUPPLEMENTAL DATA
Operating expenses to
average net assets....... 1.75%(c) 1.75%(b) 1.75% 1.71%**(a)
Net investment income to
average net assets....... .82%(c) .68%(b) .75% 1.07%**(a)
Portfolio turnover rate... 27.50% 20.10% 59.64% 19.63%
Net assets, end of period
(000s omitted)........... $28,259 $20,476 $23,758 $22,404
</TABLE>
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(a) Net of voluntary expense reimbursement and management fee waiver by the
Adviser. If the Fund had borne all expenses that were assumed by the
Adviser and paid the full management fee, the annualized ratios of
expenses and net investment income to average net assets would have been
2.76% and 0.02%, respectively, for the period January 6, 1992 through
December 31, 1992.
(b) Net of voluntary management fee waiver by the Adviser. If the Fund had
paid the full management fee, the annualized ratios of expenses and net
investment income to average net assets would have been 1.94% and 0.50%,
respectively, for the year ended December 31, 1994.
(c) Net of voluntary management fee waiver by the Adviser. If the Fund had
paid the full management fee, the annualized ratios of expenses and net
investment income to average net assets would have been 1.85% and 0.71%,
respectively, for the year ended December 31, 1995.
(1) Excludes maximum sales charge of 4.75%.
* Commencement of operations
** Annualized
4
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THE FUND AND ITS INVESTMENT OBJECTIVE AND POLICIES
The Fund is an open-end, non-diversified management investment company
organized as a corporation under the laws of the State of Maryland on September
5, 1991. The Fund's investment objective is long-term growth of capital.
Current income, which will be derived from dividends and interest on portfolio
securities, is a secondary consideration. The investment objective is
fundamental and may not be changed without a vote of a majority of the Fund's
outstanding shares. There is, however, no assurance that the Fund will achieve
its investment objective. As a "non-diversified" investment company, the Fund
is not subject to the provisions of the Investment Company Act of 1940, as
amended (the "1940 Act"), that otherwise would limit the proportion of its
assets that may be invested in the securities of a single issuer. The Fund
will, however, comply with the diversification requirements imposed by the
Internal Revenue Code of 1986, as amended (the "Code"). For further information
on the Code's diversification requirements, see "Dividends, Distributions and
Taxes."
INVESTMENT POLICIES. The Fund seeks to meet its investment objective by
investing in securities that are considered by its investment adviser to have
long-term capital appreciation possibilities. It is expected that under normal
circumstances at least 65% of the Fund's total assets will be invested in such
securities. Emphasis is placed on common stocks the Adviser believes are priced
low in relation to the underlying value of the enterprise or to its anticipated
growth rate. Investment analysis focuses on fundamental factors such as balance
sheet strength and earnings generation ability. Quality and integrity of
management, competitive advantage in the marketplace and consistently high
returns on invested capital are particularly stressed. A guiding principle is
the consideration of common stocks as units of ownership of a business, and the
purchase of them when the price appears low in relation to the underlying value
of the enterprise or to its anticipated growth rate.
The Fund primarily invests in securities of companies having a market
capitalization in excess of $500 million but may invest up to 30% of its total
assets in smaller companies that fit its investment criteria. The Fund does
not, however, invest more than 5% of its total assets in companies, including
predecessors, which have operated less than three years. Smaller companies may
offer greater potential for capital appreciation than larger companies due to
new products or technologies, new distribution methods or similar
characteristics that may result in sales and earnings growth rates in excess of
those of larger companies. In addition, because they are less actively followed
by stock analysts and less information is available on which to base stock
price evaluations, the market may overlook favorable trends in particular
smaller companies, and then adjust its valuation more quickly once investor
interest is gained. On the other hand, higher market risks are often associated
with smaller companies. They may have limited product lines, markets, market
share and financial resources, or they may be dependent on a small or
inexperienced management team. In addition, their stocks may trade less
frequently and in more limited volume and be subject to greater and more abrupt
price swings than stocks of larger companies.
For cash management purposes, to meet Fund expenses and to permit the Fund to
take advantage of investment opportunities, the Fund may, at any time, hold a
portion of its assets (not to exceed 35% under normal circumstances) in cash
and short-term investments, primarily obligations of the U.S. government, its
agencies or instrumentalities, or repurchase agreements collateralized by such
obligations.
The Fund enters into repurchase agreements with primary government securities
dealers recognized by the Federal Reserve Bank of New York and member banks of
the Federal Reserve System which furnish collateral at least equal in value or
market price to the amount of their repurchase obligation. Under the
5
<PAGE>
terms of a typical repurchase agreement, the Fund acquires an underlying debt
obligation for a relatively short period subject to an obligation of the seller
to repurchase the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. This arrangement
results in a fixed rate of return that is not subject to market fluctuations
during the Fund's holding period. The value of the underlying securities is
monitored on an ongoing basis by the Adviser to ensure that the value is at
least equal at all times to the total amount of the repurchase obligation,
including interest. The Fund bears a risk of loss in the event that the other
party to a repurchase agreement defaults on its obligations and the Fund is
delayed or prevented from exercising its rights to dispose of the underlying
securities, including the risk of a possible decline in the value of the
underlying securities during the period in which the Fund seeks to assert its
rights to them, the risk of incurring expenses associated with asserting those
rights and the risk of losing all or a part of the income from the agreement.
PORTFOLIO TURNOVER. The Fund does not seek to realize profits by
participating in short-term market movements and purchases securities primarily
for long-term capital appreciation. Annual portfolio turnover is not expected
to exceed 75%. Portfolio turnover is calculated by dividing the lesser of the
Fund's purchases or sales of portfolio securities during the period by the
monthly average of the value of the Fund's portfolio securities during that
period. Excluded from the calculation are all securities with maturities of one
year or less when purchased by the Fund.
OTHER RESTRICTIONS. The Fund is subject to certain investment restrictions
which have been adopted as fundamental policies and cannot be changed without
the approval of a majority of the Fund's outstanding shares. The Fund may not
invest more than 25% of its total assets in any one industry. The Fund may
borrow money from banks only for temporary or emergency purposes in an
aggregate amount not exceeding 10% of the value of its total assets and the
Fund may not purchase securities while such borrowings exceed 5% of the value
of the Fund's assets. The Fund will not invest in restricted securities if the
then aggregate value of all restricted securities and all other illiquid
investments (including repurchase agreements maturing in more than seven days
and securities not readily marketable) would exceed 10% of the Fund's net
assets at the time of such investment. See the Statement of Additional
Information for a more detailed description of the Fund's investment policies
and restrictions.
MANAGEMENT
Overall responsibility for management and supervision of the Fund rests with
the Fund's Board of Directors. The directors approve all significant agreements
between the Fund and the entities that furnish services to the Fund, including
agreements with its investment adviser, distributor, custodian and transfer
agent. The day-to-day operations of the Fund are delegated to the Fund's
investment adviser.
DIRECTORS AND OFFICERS. The directors and officers of the Fund are listed
below together with their respective positions with the Fund and their
principal occupation.
<TABLE>
<CAPTION>
NAME POSITION WITH THE FUND PRINCIPAL OCCUPATION
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<S> <C> <C>
Donald F. Kohler Chairman of the Board of Executive Vice President and Direc-
(1)(2) Directors tor of Hilliard Lyons
Gilbert L. Director Investment Consultant
Pamplin (1)(2)
Samuel C. Harvey President Executive Vice President and Direc-
tor of Hilliard Lyons
</TABLE>
6
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<TABLE>
<CAPTION>
NAME POSITION WITH THE FUND PRINCIPAL OCCUPATION
---- ---------------------- --------------------
<S> <C> <C>
Joseph C. Vice President, Senior Vice President of Hilliard Lyons
Curry, Treasurer and Secretary
Jr. (2)
Thomas A. Vice President Vice President of Hilliard Lyons
Corea
Dianna P. Vice President Vice President of Hilliard Lyons
Wengler
William A. Director Vice President, Deputy General Counsel
Blodgett, Brown-Forman Corporation,
Jr. Louisville, Kentucky
John C. Director Private Investor, formerly Managing Partner
Owens of Owens and Company, Certified Public
Accountants, Lexington, Kentucky
Dillman A. Director Investment Consultant, Major General
Rash (2) (Retired), U.S. Army
</TABLE>
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(1) Directors deemed to be "interested persons" of the Fund for purposes of the
1940 Act by virtue of an affiliation with the Adviser and/or J.J.B.
Hilliard, W.L. Lyons, Inc.
(2) Directors of Hilliard-Lyons Government Fund, Inc., an open-end money market
mutual fund, the investment adviser of which is J.J.B. Hilliard, W.L.
Lyons, Inc.
INVESTMENT ADVISER. The Adviser, located at Hilliard Lyons Center,
Louisville, Kentucky 40202, is a division of Hilliard Lyons. Hilliard Lyons and
its affiliate, Hilliard Lyons Trust Company, a Kentucky chartered trust
company, are wholly-owned subsidiaries of Hilliard-Lyons, Inc., a Kentucky
corporation. Together with predecessor firms, Hilliard Lyons has been in the
investment banking business since 1854. It is a registered investment adviser
and a registered broker-dealer and member firm of the New York Stock Exchange,
Inc. Hilliard Lyons also serves as investment adviser to Hilliard-Lyons
Government Fund, Inc., an open-end money market fund with assets as of December
31, 1995 of approximately $400,000,000. As of December 31, 1995, the Adviser
and its affiliates managed individual, corporate, fiduciary and institutional
accounts with assets aggregating approximately $2,201,000,000.
Pursuant to an investment advisory agreement (the "Advisory Agreement") with
the Fund, the Adviser provides investment research and a continuous investment
program for the Fund consistent with the Fund's investment objectives. Samuel
C. Harvey is the portfolio manager of the Fund. Mr. Harvey has been the head of
the Investment Management Group (IMG) of Hilliard Lyons since January 1, 1993.
He was the head of Investment Policy of the IMG from June 1990 through December
31, 1992. Prior to that time, he was the head of the Research Department of
Hilliard Lyons. Mr. Harvey has managed or co-managed the Fund on behalf of the
Adviser since its inception.
The Adviser bears all expenses of its employees and overhead incurred by it
in connection with its duties under the Investment Advisory Agreement. It also
pays the compensation of all officers and directors of the Fund who are
affiliates of the Adviser or Hilliard Lyons. In addition, the Adviser has
certain administrative obligations to the Fund which include providing (i)
office facilities and related office equipment and services, (ii) supervision
of all aspects of the Fund's non-investment operations to the extent not
provided by others pursuant to the Fund's custodian and transfer agent
agreements, and (iii) personnel to perform such executive, administrative and
clerical services as are reasonably necessary for the effective administration
of the Fund.
7
<PAGE>
As compensation for its services and related expenses, the Fund has agreed to
pay the Adviser a fee, accrued daily and payable quarterly, equal to 0.80% per
annum of the Fund's average daily net assets. This fee is higher than the
management fee paid by most investment companies. For the year ending December
31, 1996, the Adviser voluntarily agreed to reduce the fees payable to it under
the Advisory Agreement and, if necessary, reimburse the Fund on a quarterly
basis, by the amount by which the Fund's total annual operating expenses for
such year exceed 1.75% of the first $50 million of average daily net assets and
1.50% of average daily net assets in excess of $50 million. In addition, the
Adviser has obligated itself to reduce its management fees (to the extent of
such fees) by the amount the Fund's expenses exceed the expense limitations, if
any, imposed by state securities administrators in states where shares of the
Fund are registered. For the year ending December 31, 1995, there was no
reimbursement necessary from the Adviser and the waiver of the management fee
amounted to $24,783. With the management fee waiver, total operating expenses
for the year ending December 31, 1995 amounted to 1.75% of average daily net
assets. Had there been no management fee waiver, total operating expenses would
have been 1.85% of average daily net assets.
The advisory clients of the Adviser include individuals, personal trusts,
estates, employee benefit trusts, corporations and non-profit institutions,
many of which have investment objectives which may be similar to those of the
Fund. The Adviser invests assets of such accounts in investments substantially
similar to, or the same as, those which are expected to constitute the
principal investments of the Fund. When the same securities are purchased or
sold by the Fund and any of such other accounts at the same time, it is the
policy of the Adviser to allocate such purchases and sales in a manner which is
deemed equitable by the Adviser to all of the accounts involved, including the
Fund. However, it cannot be expected that all of the Adviser's clients,
including the Fund, will receive equal treatment at all times.
DISTRIBUTION ARRANGEMENTS
DISTRIBUTOR. Hilliard Lyons serves as the exclusive distributor (the
"Distributor") of the shares of the Fund pursuant to a Distribution Agreement
with the Fund. The Distributor conducts a continuous public offering of shares
of the Fund on a "best efforts" basis. It may enter into sales agreements with
certain securities dealers and financial advisers ("authorized dealers") to
permit them to solicit subscriptions for shares of the Fund and, if so, may pay
them a continuing fee (not in excess of 0.25% annually of the Fund's average
daily net assets) for distributing the Fund's shares, promoting the maintenance
of holdings by established stockholders and servicing stockholder accounts. The
Distributor may also pay its own investment brokers a similar fee for
performing the same services. It may also enter into servicing agreements
providing for payments (not in excess of 0.25% annually of the Fund's average
daily net assets) to financial institutions and others who perform stockholder
servicing and administrative functions for certain stockholders. The
Distributor at its own expense may also provide promotional incentives to
investment brokers of the Distributor and to authorized dealers. In some
instances, such incentives may be made available only to certain investment
brokers or authorized dealers who have sold or are expected to sell,
significant amounts of shares. The Fund has agreed to indemnify the Distributor
against certain liabilities, including liabilities under the Securities Act of
1933.
DISTRIBUTION PLAN. In accordance with a distribution plan (the "Plan")
adopted by the Fund's Board of Directors pursuant to Rule 12b-1 under the 1940
Act, the Fund reimburses the Distributor quarterly at an annualized rate of up
to 0.25% of the Fund's average daily net assets for distribution expenses
actually incurred. Rule 12b-1 regulates the manner in which a mutual fund may
assume the costs of distributing and
8
<PAGE>
promoting the sale of its shares. In unanimously approving the Plan, the Fund's
Board of Directors determined that there is a reasonable likelihood that the
Plan will benefit the Fund and its stockholders. The Distributor may be
reimbursed for expenses incurred in connection with any activity primarily
intended to result in the sale of the Fund's shares, including: payments to its
investment brokers and to authorized dealers for distributing Fund shares,
promoting the maintenance of holdings by established stockholders and servicing
stockholder accounts; payments of commissions to investment brokers of the
Distributor and to authorized dealers who are responsible for purchases of $1
million or more with no initial sales charge; payments to financial
institutions and others who have entered into servicing agreements with the
Distributor; and payments for printing and distributing Prospectuses,
Statements of Additional Information and annual and interim reports for other
than existing stockholders. The Distributor may also be reimbursed for an
allocable portion of its overhead related to distribution of the Fund's shares.
If the amount reimbursed is insufficient to pay the expenses of distribution,
the Distributor bears the additional expenses. Any amount of excess
distribution expenses incurred by the Distributor in any quarter for which the
Distributor is not reimbursed can be carried forward from one quarter to the
next but no expenses may be carried over from year to year.
Under its terms, the Plan remains in effect so long as it is approved at
least annually by vote of the Fund's Board of Directors, including a majority
of the directors who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Plan. The
Distributor is obligated to provide the directors quarterly reports of amounts
expended under the Plan and the purpose for which the expenditures were made.
EXPENSES OF THE FUND
The Fund bears its own expenses, which generally include all costs not
specifically borne by the Adviser and Distributor. Included among the Fund's
expenses are: investment advisory fees and reimbursements payable to the
Distributor under the Plan; fees for necessary professional and brokerage
services; costs incurred in having the Fund's net asset value calculated; the
fees and expenses, if any, of directors, officers and employees of the Fund who
are not affiliated with the Adviser; fees and certain expenses of the Fund's
custodian and transfer agent; taxes; brokerage fees and commissions;
reimbursement of the organization expenses of the Fund and fees and expenses of
registering and qualifying the Fund and its shares for distribution under
federal and state securities laws, including expenses of preparing and printing
the Fund's Registration Statement, Prospectuses and Statements of Additional
Information for such purposes; insurance expense; trade association dues; and
the expense of reports to stockholders, stockholders' meetings and proxy
solicitations. The Fund is also liable for nonrecurring expenses as may arise,
including litigation to which the Fund may be a party. The Fund may have an
obligation to indemnify its directors and officers, and, in certain situations,
the Distributor, with respect to such litigation.
BROKERAGE
Execution of the Fund's portfolio transactions is arranged by the Adviser.
The Adviser is authorized by the Fund's Board of Directors to employ securities
brokers which, in its best judgment, will implement the policy of the Fund to
seek "best execution" of its portfolio transactions at a reasonable cost. "Best
execution" means prompt, efficient and reliable execution at the most favorable
price obtainable. In making this
9
<PAGE>
determination, the Adviser takes into account, among other factors, the overall
net economic result to the Fund including both execution price and any
commissions and other costs paid, the efficiency with which the specific
transaction is effected, the ability to effect the transaction where a large
block is involved, the known practices of brokers and their availability to
execute possibly difficult transactions in the future and the financial
strength and stability of the broker.
Subject to the policy of the Fund to seek "best execution" of its portfolio
transactions, the Adviser may pay commissions to brokers, other than the
Adviser, which are higher than might be charged by another qualified broker to
obtain brokerage and/or research services considered by the Adviser to be
useful or desirable for its investment management of the Fund and its other
advisory accounts.
PURCHASE OF SHARES
INITIAL PURCHASES. Fund shares may be purchased through a Hilliard Lyons
investment broker who will open a Hilliard Lyons account, explain the
stockholder services available from the Fund and answer any questions. Shares
may also be purchased directly from the Fund's transfer agent (the "Transfer
Agent") by completing and signing the purchase application included in this
Prospectus and sending it, together with a check payable to Hilliard Lyons
Growth Fund, Inc., to State Street Bank and Trust Company, Attention: Hilliard
Lyons Growth Fund, Inc., P.O. Box 8315, Boston, MA 02266-8315. The minimum
initial investment is $1,000 and the minimum for additional investments is
$100. The Distributor may in the future enter into sales agreements with
authorized dealers allowing Fund shares to be purchased through such authorized
dealers.
ADDITIONAL PURCHASES. After an initial investment is made and a stockholder's
account is established, additional purchases may be made either by telephoning
the investment broker and placing an order, or by mailing the transmittal
portion of the latest confirmation statement together with a check made payable
to the Fund directly to the Transfer Agent. If a stockholder does not have the
transmittal portion of the confirmation statement, the stockholder may simply
provide the exact name or names in which the account was opened and the account
number.
GENERAL. Purchase orders received by a Hilliard Lyons investment broker, by
the Distributor, or by the Transfer Agent prior to "closing time" on any
"business day" are executed at the public offering price determined that day.
Purchase orders received by an authorized dealer on any "business day" are
executed at the public offering price determined that day, provided the order
is received by the Distributor in Louisville, Kentucky, or by the Transfer
Agent prior to "closing time" on that day. Authorized dealers are responsible
for transmitting purchase orders to the Distributor or Transfer Agent promptly.
The failure of an authorized dealer to promptly transmit an order may cause the
purchase price to be more or less than the amount an investor otherwise would
have paid. Purchase orders received after "closing time" or on a day that is
not a "business day" are priced as of "closing time" on the next succeeding
"business day". A "business day" is any day on which the New York Stock
Exchange is open for business; "closing time" is the close of trading on the
Exchange, currently 4:00 p.m., Eastern time; or such other day or time as the
Fund's directors may establish in the future. The Fund and the Distributor
reserve the right to reject any purchase order and to suspend the offering of
shares for a period of time.
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<PAGE>
Payment for Fund shares purchased through a Hilliard Lyons investment broker
or an authorized dealer is normally due on the third business day after an
order is placed with the Distributor. Investors may pay for purchases with
checks drawn on domestic offices of U.S. banks or with funds in brokerage
accounts maintained with Hilliard Lyons or the authorized dealer. When payment
is made to a brokerage firm by an investor before a settlement date, unless
otherwise directed by the investor, the monies may be held as a free credit
balance in the investor's brokerage account and the brokerage firm may benefit
from the temporary use of these monies. Purchase orders placed directly with
the Transfer Agent by mail must be accompanied by payment.
STOCKHOLDERS' OPEN ACCOUNTS. At the initial purchase of shares, the Transfer
Agent creates an open account for the stockholder or the authorized dealer
holding shares for the investor. Additional shares purchased are likewise
credited to the open account. The Transfer Agent maintains a continuous
permanent record of each open account and sends a written statement of every
transaction in the account as well as an annual statement of account activity.
In the interest of economy and convenience, stock certificates are not issued.
Upon the transfer of Fund shares out of a Hilliard Lyons account, an account in
the transferring stockholder's name may be opened at the Transfer Agent.
Stockholders considering transferring a tax-deferred retirement account, such
as an IRA, from Hilliard Lyons to another brokerage firm or financial
institution should be aware that if the firm to which the retirement account is
to be transferred will not accept the transfer of shares of the Fund, a
stockholder must either redeem the shares (paying any applicable contingent
deferred sales charge) so that cash proceeds can be transferred to the account
at the new firm or such stockholder must continue to maintain a retirement
account at Hilliard Lyons for those shares.
PUBLIC OFFERING PRICE. The Fund's public offering price is the next
determined net asset value per share plus a sales charge paid at the time of
purchase as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM AUTHORIZED
AS PERCENTAGE SALES CHARGE AS DEALER ALLOWANCE AS
OF OFFERING PERCENTAGE OF NET PERCENTAGE OF
AMOUNT OF PURCHASE PRICE AMOUNT INVESTED OFFERING PRICE
- ------------------ ------------- ----------------- -------------------
<S> <C> <C> <C>
Less than $50,000.......... 4.75% 4.99% 4.25%
$50,000 up to (but less
than) $100,000............ 4.00% 4.17% 3.50%
$100,000 up to (but less
than) $250,000............ 3.00% 3.09% 2.50%
$250,000 up to (but less
than) $500,000............ 2.25% 2.30% 2.00%
$500,000 up to (but less
than) $1 million.......... 1.75% 1.78% 1.50%
$1 million or more......... None None None
</TABLE>
No sales charge is payable at the time of purchase on investments of $1
million or more; however, a 1% contingent deferred sales charge is imposed in
the event of redemption within 12 months following any such purchase. See
"Redemption of Shares". The Distributor may pay a commission to its investment
brokers or to authorized dealers who initiate and are responsible for purchases
of $1 million or more as follows: 1% on sales to $3 million plus 0.50% on the
excess over $3 million.
COMBINED PURCHASE PRIVILEGE. The following purchases may be combined for
purposes of determining the "Amount of Purchase": (a) individual purchases, if
made at the same time, by a single purchaser, the purchaser's spouse and
children under the age of 25 purchasing shares for their own account, including
shares purchased by an employee benefit plan(s) exclusively for the benefit of
such individual(s) (such as an IRA, individual-type 403(b) plan or single-
participant Keogh-type plan) or by a Company, as defined in Section
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<PAGE>
2(a)(8) of the 1940 Act, solely controlled, as defined in the 1940 Act, by such
individual(s), or (b) individual purchases by trustees or other fiduciaries
purchasing shares (i) for a single trust estate or a single fiduciary account,
including an employee benefit plan, or (ii) concurrently by two or more
employee benefit plans of a single employer or of employers affiliated with
each other in accordance with Section 2(a)(3)(c) of the 1940 Act (excluding in
either case an employee benefit plan described in "(a)" above), provided such
trustees or other fiduciaries purchase shares in a single payment. Purchases
made for nominee or street name accounts may not be combined with purchases
made for such other accounts.
CUMULATIVE QUANTITY DISCOUNT. A stockholder may combine the value of shares
held in the Fund, along with the dollar amount of shares being purchased, to
qualify for a cumulative quantity discount. The value of shares held is the
higher of their cost or current net asset value. For example, if a stockholder
holds shares having a value of $75,000 and purchases $25,000 of additional
shares, the sales charge applicable to the additional investment would be 3.0%,
the rate applicable to a single purchase of $100,000. In order to receive the
cumulative quantity discount, the value of shares held must be brought to the
attention of the Distributor or Transfer Agent.
LETTER OF INTENT. If a stockholder anticipates purchasing at least $50,000 of
shares within a 13-month period, the shares may be purchased at a reduced sales
charge by completing the Letter of Intent (the "Letter") section of the Account
Application and furnishing it to the Distributor or Transfer Agent. The reduced
sales charge may also be obtained on shares purchased within the 90 days prior
to the date of the Account Application. Shares purchased under a Letter are
eligible for the same reduced sales charge that would have been available had
all the shares been purchased at the same time. There is no obligation to
purchase the full amount of shares indicated in the Letter. Should the
stockholder invest more or less than indicated in the Letter during the 13-
month period, the sales charge will be recalculated based on the actual amount
purchased. The Transfer Agent holds in escrow shares purchased with the first
5% of the total intended amount of purchase which can be redeemed to make up
any deficiency in the sales charge.
AUTOMATIC INVESTMENT PLAN. The automatic investment plan enables stockholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With stockholder authorization and bank
approval, the Distributor or authorized dealer (or, with respect to
stockholders who do not maintain brokerage accounts at Hilliard Lyons or an
authorized dealer, the Transfer Agent) automatically charges the bank account
for the amount specified ($100 minimum) which is automatically invested in
shares at the public offering price on or about the date specified by the
stockholder. Bank accounts are charged on the day or a few days before
investments are credited, depending on the bank's capabilities, and
stockholders receive a confirmation statement showing the current transaction.
Participation in the plan begins within 30 days after receipt of the Automatic
Investment Plan Application. If the bank account cannot be charged due to
insufficient funds, a stop-payment order or the closing of the account, the
plan may be terminated and the related investment reversed. The stockholder may
change the amount of the investment or discontinue the plan at any time by
notifying the Distributor or authorized dealer or by writing to the Transfer
Agent.
SALES CHARGE WAIVERS. The Fund sells shares at net asset value without
imposition of a sales charge to the following persons: (i) current and retired
(as determined by Hilliard Lyons) employees of Hilliard Lyons and its
affiliates, their spouses and children under the age of 25 and employee benefit
plans for such employees, provided orders for such purchases are placed by the
employee; (ii) any other investment company in
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<PAGE>
connection with the combination of such company with the Fund by merger,
acquisition of assets or otherwise; (iii) employees and directors of the Fund
and registered representatives of authorized dealers; (iv) existing advisory
fee clients of Hilliard Lyons Investment Management Group or Hilliard Lyons
Trust Company on purchases effected by transferring all or a portion of their
investment management or trust account to the Fund provided that such account
had been maintained for a period of six months prior to the date of purchase of
Fund shares; (v) investors purchasing shares through a Hilliard Lyons
investment broker to the extent that the purchase of such shares is funded by
the proceeds from the sale of shares of any mutual fund (for which the investor
paid a front-end sales charge) other than a money market fund (a) purchased
within three years of the date of the purchase of Fund shares and held for at
least six months or (b) purchased at any time and for which Hilliard Lyons was
not a selling dealer, provided that in either case the order for Fund shares
must be received within 30 days after the sale of the other fund; (vi) trust
companies, bank trust departments and registered investment advisers purchasing
for accounts over which they exercise investment authority and which are held
in a fiduciary, agency, advisory, custodial or similar capacity, provided that
the amount collectively invested or to be invested in the Fund by such entity
or adviser during the subsequent 13-month period totals at least $100,000.
In order to take advantage of a sales charge waiver, a purchaser must certify
to the Distributor eligibility for a waiver and must notify the Distributor
whenever eligibility for a waiver ceases to exist. The Distributor reserves the
right to request additional information from a purchaser in order to verify
that such purchaser is so eligible.
RETIREMENT PLANS. Shares of the Fund may be purchased in connection with
various retirement plans, including IRAs, Section 403(b) Plans and retirement
plans for self-employed individuals, partnerships and corporations and their
employees. Detailed information concerning retirement plans, including any
applicable annual fee, is available from the Distributor.
REDEMPTION OF SHARES
Fund shares may be redeemed without charge at their net asset value.
Stockholders who maintain brokerage accounts at Hilliard Lyons or at an
authorized dealer may redeem shares through Hilliard Lyons or the authorized
dealer; all other stockholders must redeem Fund shares through the Transfer
Agent.
REDEMPTION THROUGH HILLIARD LYONS OR AN AUTHORIZED DEALER. Stockholders who
maintain accounts at Hilliard Lyons or at an authorized dealer may submit
redemption requests to their Hilliard Lyons investment broker or such
authorized dealer in person or by telephone, mail or wire. Redemption requests
directed to a Hilliard Lyons investment broker are effected at the net asset
value next computed after receipt of the request. Redemption requests directed
to an authorized dealer are effected at the net asset value next computed after
receipt of the request by the Distributor in Louisville, Kentucky. Redemption
proceeds are credited to the stockholder's brokerage account for disbursement
according to the stockholder's instructions and will normally be credited to
the Stockholder's brokerage account within three business days. Authorized
dealers are responsible for transmitting redemption requests to the Distributor
promptly. The failure of an authorized dealer to promptly transmit a redemption
request may cause the redemption proceeds to be more or less than the amount an
investor otherwise would have received.
REDEMPTION THROUGH THE TRANSFER AGENT. Stockholders who do not maintain
brokerage accounts at Hilliard Lyons or an authorized dealer must redeem their
shares through the Transfer Agent by mail; other
13
<PAGE>
stockholders also may redeem Fund shares through the Transfer Agent.
Stockholders should mail redemption requests directly to the Transfer Agent:
State Street Bank and Trust Company, Attention: Hilliard Lyons Growth Fund,
Inc., P.O. Box 8315, Boston, MA 02266-8315. A redemption request is executed at
the net asset value next computed after it is received in "good order". "Good
order" means that the request must be accompanied by the following: (1) a
letter of instructions specifying the number of shares or amount of investment
to be redeemed (or that all shares credited to the Fund account be redeemed)
signed by all registered owners of the shares in the exact named in which they
are registered, (2) a guarantee of the signature of each registered owner by
any commercial bank, trust company or member of a recognized stock exchange,
and (3) other supporting legal documents in the case of an estate, trust,
guardianship, custodianship, partnership or corporation. Stockholders are
responsible for ensuring that a request for a redemption is received in "good
order". A stockholder may elect to have redemption proceeds of $1,000 or more
wired to a commercial bank account designated by the stockholder. A transaction
fee of $5.00 may be charged for payments by wire.
ADDITIONAL INFORMATION ON REDEMPTIONS. If the shares were recently purchased,
the redemption proceeds are not sent until the check (including a certified or
cashier's check) received for the shares purchased has cleared. Payment for
shares requested to be redeemed may be delayed when the purchase check has not
cleared, but the delay will be no longer than required to verify that the
purchase check has cleared. The Fund may suspend the right of redemption or
postpone the date of payment during any period when (i) trading on the New York
Stock Exchange is restricted or the New York Stock Exchange is closed, other
than customary weekend and holiday closings, (ii) the Securities and Exchange
Commission (the "SEC") has by order permitted such suspension or (iii) an
emergency, as defined by rules of the SEC, exists making disposal of portfolio
investments or determination of the value of the net assets of the Fund not
reasonably practicable.
The Fund has filed a formal election with the Securities and Exchange
Commission pursuant to which the Fund reserves the right to effect a redemption
in portfolio securities where the particular stockholder of record is redeeming
more than $250,000 or 1% of the Fund's total net assets, whichever is less,
during any 90-day period. In the opinion of the Fund's management, however, the
amount of a redemption request would have to be significantly greater than
$250,000 or 1% of total net assets before a redemption wholly or partly in
portfolio securities was made. The securities distributed in kind would be
readily marketable and would be valued for this purpose using the same method
employed in calculating the Fund's net asset value per share. If a stockholder
receives a distribution in kind, the stockholder should expect to incur
transaction costs upon the disposition of the securities received in the
distribution.
Questions about redemption requirements should be referred to the
stockholder's Hilliard Lyons investment broker or authorized dealer, or to the
Transfer Agent if the stockholder does not maintain a brokerage account.
Because the Fund incurs certain fixed costs in maintaining stockholder
accounts, the Fund reserves the right to redeem stockholder accounts of less
than $500 in net asset value. Such stockholder accounts will be redeemed only
if the balance has decreased below that level as a result of stockholder
redemptions and not because of fluctuations in the net asset value of the
Fund's shares. If the Fund elects to redeem such shares, it will notify the
stockholder of its intention to do so and provide the stockholder with an
opportunity to increase the amount invested to $500 or more within 30 days of
the notice.
CONTINGENT DEFERRED SALES CHARGE ON CERTAIN REDEMPTIONS. Purchases of $1
million or more are not subject to an initial sales charge; however, a
contingent deferred sales charge is payable on these investments
14
<PAGE>
in the event of a share redemption within 12 months following the share
purchase, at the rate of 1% of the lesser of the value of the shares redeemed
(exclusive of reinvested dividends and capital gain distributions) or the total
cost of such shares. In determining whether a contingent deferred sales charge
is payable, and the amount of the charge, it is assumed that shares purchased
with reinvested dividend and capital gain distributions and then other shares
held the longest are the first redeemed. Pursuant to an order of the Securities
and Exchange Commission, the contingent deferred sales charge is waived in the
event of (a) the death or disability (as defined in (S)72(m)(7) of the Internal
Revenue Code) of the stockholder, (b) a lump sum distribution from a benefit
plan qualified under the Employee Retirement Income Security Act of 1974
("ERISA"), or (c) systematic withdrawals from ERISA plans if the stockholder is
at least 59 1/2 years old. The Fund applies the waiver for death or disability
to shares held at the time of death or the initial determination of disability
of either an individual stockholder or one who owns the shares of a joint
tenant with the right of survivorship or as a tenant in common.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for stockholders of the Fund whose shares have a minimum
net asset value of $10,000. The Withdrawal Plan allows for monthly or quarterly
payments to the participating stockholder in amounts not less than $100.
Dividends and capital gain distributions on shares held under the Withdrawal
Plan are reinvested in additional full and fractional shares of the Fund at net
asset value. The Transfer Agent acts as agent for the
stockholder in redeeming sufficient full and fractional shares to provide the
amount of the systematic withdrawal payment. The Withdrawal Plan may be
terminated at any time. Withdrawal payments should not be considered to be
dividends, yield or income. If periodic withdrawals continuously exceed
reinvested dividend and capital gain distributions, the stockholder'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. As
it generally would not be advantageous to a stockholder to make additional
investments in the Fund while participating in the Withdrawal Plan, purchases
of shares in amounts less than $5,000 by participants in the Withdrawal Plan
will not ordinarily be permitted. Stockholders should consult their tax adviser
regarding the tax consequences of participating in the Withdrawal Plan.
REINSTATEMENT PRIVILEGE. A stockholder who redeems shares and who has not
exercised the reinstatement privilege within the previous twelve months may
reinvest the proceeds of such redemption in new shares of the Fund without
sales charge and, if applicable, with credit for any contingent deferred sales
charge by exercise of the reinstatement privilege. Reinvestment will be at the
net asset value next determined after the Distributor receives a letter
requesting reinstatement and payment therefor. The Distributor must receive the
letter requesting reinstatement and payment therefor within 60 days following
the redemption. A reinstatement fee of $25 will be charged by the Distributor.
Stockholders should consult their tax adviser regarding the tax consequences of
exercising the reinstatement privilege.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. It is the present policy of the Fund to make
distributions annually of its net investment income and its net realized
capital gains, if any, at the end of the year in which earned or at the
beginning of the next year. Dividends and capital gain distributions are
normally reinvested in additional shares at net asset value without a sales
charge, unless otherwise elected at purchase. A stockholder may
15
<PAGE>
change such election at any time prior to the record date for a particular
dividend or distribution by written request to the Transfer Agent. The Fund is
subject to a 4% non-deductible excise tax measured with respect to certain
undistributed amounts of taxable income and capital gains. If necessary to
avoid the imposition of this tax and if in the best interests of its
stockholders, the Fund will declare and pay distributions of its net investment
income and net capital gains more frequently than stated above.
TAXES. The Fund intends to continue to qualify each year as a "regulated
investment company" within the meaning of the Code. If the Fund qualifies as a
regulated investment company and if certain distribution requirements are met,
the Fund will not be subject to federal income tax on its investment income and
net capital gains that it distributes to its stockholders. To qualify, the Fund
must meet certain relatively complex tests relating to the source of its income
and the diversification of its assets, including the requirement that less than
30% of its gross income (generally exclusive of losses) may be derived from the
sale or other disposition of securities held for less than three months. In
addition, the Fund must diversify its holdings so that, at the end of each
fiscal quarter, (i) at least 50% of the market value of the Fund's assets is
represented by cash, cash items, United States Government securities,
securities of other regulated investment companies and other securities with
such other securities limited, in respect of any one issuer, to an amount not
greater than 5% of the value of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of
its assets is invested in the securities of any one issuer (other than United
States Government securities or the securities of other regulated investment
companies).
Dividends paid by the Fund from investment income and distributions of short-
term capital gains are taxable to stockholders as ordinary income for federal
income tax purposes, whether received in cash or reinvested in additional
shares. Distributions of long-term capital gains are taxable to stockholders as
long-term capital gains, whether paid in cash or reinvested in additional
shares, regardless of the length of time the stockholder has held shares of the
Fund. Each stockholder receives an annual statement as to the tax status and
dollar amounts of dividends and distributions, if any, for the prior calendar
year. The Fund may be subject to state or local taxes in jurisdictions in which
the Fund may be deemed to be doing business. Dividends and distributions
declared by the Fund may also be subject to state and local taxes.
The Fund generally is required to withhold federal income tax at a rate of
31% ("backup withholding") from dividends paid to stockholders if (i) the payee
fails to furnish the Fund with and to certify the payee's correct taxpayer
identification number or social security number, (ii) the Internal Revenue
Service (the "IRS") notifies the Fund that the payee has failed to report
properly certain interest and dividend income to the IRS and to respond to
notices to that effect, or (iii) the payee fails to certify that backup
withholding is not required.
NET ASSET VALUE
The net asset value per share is computed by dividing the net assets of the
Fund (assets, including securities at market value, minus liabilities) by the
number of shares outstanding. Investments that are traded on an exchange or in
the over-the-counter market are valued based upon market quotations. Short-term
obligations with maturities of 60 days or less are valued at amortized cost.
Foreign securities are valued based on quotations from the primary market in
which they are traded and are translated from the local currency into U.S.
dollars using current exchange rates. Other securities for which market
quotations are not readily available are valued at their fair value, as
determined in good faith by the Adviser under procedures established by, and
under the supervision and responsibility of, the Fund's Board of Directors. The
Fund computes its net assets value as of "closing time" on each "business day".
16
<PAGE>
THE FUND'S PERFORMANCE
The Fund may periodically advertise its "average annual total return" over
various periods of time. This figure shows the average annual percentage change
in value of an investment in the Fund from the beginning date to the ending
date of the measuring period. It reflects changes in the price of the Fund's
shares and assumes that any dividends or distributions paid by the Fund during
the period are reinvested in shares of the Fund at net asset value on the
reinvestment dates during the period and does not reflect the payment of a
sales charge. Figures will be given for recent one, five and ten-year periods
(if applicable), and may be given for other periods as well (such as from
commencement of the Fund's operations, or on a year-by-year basis). When
considering "average" total return figures for periods longer than one year,
investors should note that the Fund's annual total return for any one year in
the period might have been greater or less than the average for the entire
period. The Fund may also use "aggregate" total return figures for various
periods, representing the cumulative change in value of an investment in the
Fund for the specific period.
The Fund's investment results vary from time to time depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Fund, so that any investment results reported by the Fund should not be
considered representative of how an investment in the Fund may perform in any
future period. These factors and possible differences in calculation methods
should be considered when comparing the Fund's investment results with those
published for other mutual funds, other investment vehicles and unmanaged
indices which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs and expenses. The Fund's
results also should be considered relative to the risks associated with the
Fund's investment objective and policies.
The Fund's annual report, which contains additional performance information,
is available upon request without charge by writing or calling the Fund at the
address and telephone number set forth on the cover of this prospectus.
GENERAL INFORMATION
DESCRIPTION OF SHARES. The Fund was incorporated under the laws of the State
of Maryland on September 5, 1991. The authorized capital stock of the Fund
consists of 150,000,000 shares of common stock, par value $.001 per share. The
directors of the Fund have authority under the Articles of Incorporation to
increase the number of shares the Fund is authorized to issue and to authorize
and issue additional classes of stock by classifying and reclassifying unissued
shares, without further action by stockholders. When matters are submitted for
stockholder vote, each stockholder will have one vote for each full share owned
and fractional votes for fractional shares held. All shares, when issued and
paid for in accordance with the terms of the offering, will be fully paid and
non-assessable. Shares of the Fund have equal rights with respect to voting,
dividends and distributions upon liquidation. Shares have no preemptive,
subscription or conversion rights and are freely transferable.
STOCKHOLDER MEETINGS. As a Maryland corporation, the Fund is not required and
does not intend to hold regular annual stockholder meetings. It will hold an
annual meeting if directors are required to be elected under the 1940 Act and
may hold special meetings for the consideration of proposals requiring
stockholder approval such as changing fundamental policies. A meeting will be
called to consider replacing the Fund's directors upon the written request of
the holders of 10% of the Fund's shares. Stockholders who satisfy certain
criteria will be assisted by the Fund in communicating with other stockholders
in seeking the holding of the meeting. The record holders of at least 25% of
the Fund's shares may require the Fund to hold a special meeting of
stockholders for any purpose.
17
<PAGE>
REPORTS TO STOCKHOLDERS. The Fund sends reports to stockholders quarterly.
Each of these includes a schedule of portfolio securities. In addition, the
semi-annual report contains unaudited financial statements and the annual
report contains audited financial statements.
TRANSFER AGENT AND CUSTODIAN. State Street Bank and Trust Company, P.O. Box
8315, Boston, MA 02266-8315: telephone (617) 774-4991, acts as the Fund's
transfer agent and as custodian of the Fund's cash and securities. State Street
Bank and Trust Company does not assist in and is not responsible for investment
decisions involving assets of the Fund.
INFORMATION FOR STOCKHOLDERS. All stockholder inquiries regarding
administrative procedures should be directed to your Hilliard Lyons investment
broker, your authorized dealer or to the administrative office of the Adviser,
Hilliard Lyons Investment Advisors, Hilliard Lyons Center, P.O. Box 32760,
Louisville, Kentucky 40232-2760: telephone (502) 588-8400 or (800) 444-1854.
18
<PAGE>
ACCOUNT APPLICATION HILLIARD LYONS GROWTH FUND, INC.
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Do Not Use This Application To Open An IRA. Please Contact Your Investment
Broker For The Special Application Required.
This Application may be used to open a new account or to add stockholder
options listed on reverse to an existing account.
[_] Check box if adding stockholder options to an existing account
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(Fund Account Number if known)
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RETURN THIS COMPLETED APPLICATION TO:
State Street Bank and Trust Company
Attention: Hilliard Lyons Growth Fund, Inc.
P.O. Box 8315
Boston, MA 02266-8315
For additional information, call the Distributor, J.J.B.
Hilliard, W.L. Lyons, Inc. at (800) 444-1854 or (502) 588-
9145
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1. TELL US HOW YOU WOULD LIKE TO REGISTER YOUR ACCOUNT
REGISTRATION
Individual-- [_] 1.
use Line 1 ------------------------------------- --------------
-------------- First Name Initial Last Name Social
Security No.
[_] 2.
Joint Tenant ------------------------------------- --------------
(if any) With First Name Initial Last Name Social
Right of Sur- Security No.
vivorship-- ------------------------------------- --------------
use Line 2
-------------- [_] 3.
------------------------------------- --------------
Corporation, First Name Initial Last Name Tax I.D. No.
Partnership,
Trust, or -------------------------------------
others in any Name of Officer, Managing Partner,
fiduciary or Trustee or Custodian
representative [_] 4.
capacity--use ------------------------------------- --------------
Line 3 Custodian's Initial Last Name
-------------- First Name
------------------------------------------ --------------
Minor's First Name Initial Last Name Minor's
Gifts to Mi- Social
nors--use Security No.
Line 4
-------------- Under the _____________________ Uniform Gifts to Minors Act
State of Minor's
Residence
2. ADDRESS
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Street Area Code Telephone
-------------------------------------
City State Zip Citizen of U.S. Other _____________
(Specify)
3. TELL US HOW MUCH YOU WOULD LIKE TO INVEST
AMOUNT OF INITIAL INVESTMENT
Please open a new account. My check for $____________ is enclosed payable to
Hilliard Lyons Growth Fund, Inc. (Minimum initial investment $1,000)
CAPITAL GAINS AND DIVIDEND DISTRIBUTIONS
All capital gains and dividend distributions will be reinvested in
additional shares unless appropriate boxes below are checked:
[_] Pay capital gains distributions in cash
[_] Pay income dividends in cash
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4. YOU MAY BE ELIGIBLE TO REDUCE YOUR SALES CHARGE
LETTER OF INTENT--Please complete this section if opening a Letter of Intent
Although I am not obligated to do so, I intend to purchase shares of
Hilliard Lyons Growth Fund, Inc. over the 13-month period following the
effective date of this application in amounts (not less than 5% of the total
intended amount for the initial purchase) which will equal or exceed:
[_] $50,000[_] $100,000[_] $250,000[_] $500,000[_] $1,000,000
I remit herewith payment for $___________ of such Shares. Each purchase will
be made at the then reduced Offering Price applicable to the amount checked
above, as described in the Prospectus. By completing this section of the
application and signing it below, I agree to the terms and conditions of the
Letter of Intent as described in the Prospectus and I irrevocably constitute
and appoint State Street Bank and Trust Company my attorney, with full power
of substitution, to surrender for redemption any or all shares of the Fund
held in escrow to make up any deficiency in the sales charge if my total
purchases over the 13-month period are less than the total intended amount.
CUMULATIVE QUANTITY DISCOUNT
See "Purchase of Shares" in Prospectus
Cumulative quantity discounts are applicable if a shareholder's current
holdings of existing shares total the requisite amount for receiving a
discount as described in the Prospectus. Below are listed all the accounts
(account name and number) which should be aggregated for a cumulative
quantity discount.
Name ___________________ Name ___________________ Name __________________
Acct. No. ______________ Acct. No. ______________ Acct. No. _____________
COMBINED PURCHASE PRIVILEGE
List the names of the individuals, plans or trustees who are also opening
Fund accounts at this time with whom you are entitled to combine your
purchase as provided in the Prospectus under "Purchase of Shares".
Name _______________________________
Name _______________________________
5. YOU MAY WISH TO AVAIL YOURSELF OF OTHER STOCKHOLDER OPTIONS
SYSTEMATIC WITHDRAWAL PLAN
This service is available only for accounts with a minimum net asset value
of $10,000 or more. You may receive payments of $100 or more.
[_] I wish to activate the automatic cash withdrawal service.
I would like a check for $_______________ mailed on the following basis:
[_] monthly[_] quarterly
Withdrawals will be taken on the last business day of the month or calendar
quarter.
AUTOMATIC INVESTMENT PLAN
You may make regular monthly or quarterly investments of $100 or more in
your Fund account with automatic transfers from your bank account subject to
your bank's approval.
Please contact your Investment Broker or call (800) 444-1854, extension 145,
to receive a Plan Authorization Form.
6. PLEASE SIGN YOUR NAME AND CERTIFY YOUR TAXPAYER IDENTIFICATION NUMBER
I (we) have full right, power, and legal capacity and am (are) of legal age
in my (our) state of residence to purchase shares of the Fund. I (we) affirm
that I (we) have received and read the current Prospectus of the Fund and
agree to its terms.
I (we) certify, under penalty of perjury, that (1) I (we) am (are) not
subject to backup withholding for underreporting interest or dividends
(strike out this clause (1) if the Internal Revenue Service has notified you
that you are subject to backup withholding) and (2) that my (our) correct
Social Security (taxpayer identification) number is as indicated on this
application. SIGN BELOW EXACTLY AS THE ACCOUNT IS TO BE REGISTERED
(CORPORATIONS, ETC., INDICATE TITLES):
AUTHORIZED SIGNATURE(S)
-------------------- -------------------------- ------------- ------------
Owner, Trustee, etc. Joint owner, Trustee, etc. Other Date
7. FOR USE BY AUTHORIZED DEALERS ONLY
Firm ________________________________
Home Office Address _________________
City, State, Zip ____________________ Branch Office Address _______________
_____________________________________ City, State, Zip ____________________
Rep's Name __________________________ _____________________________________
Rep's Number ________________________ Telephone ___________________________
(if known)
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INVESTMENT ADVISER
Hilliard Lyons Investment Advisors
Hilliard Lyons Center
Louisville, KY 40202-2517
DISTRIBUTOR
J.J.B. Hilliard, W.L. Lyons, Inc.
Hilliard Lyons Center
P.O. Box 32760
Louisville, KY 40232-2760
(502) 588-9145
(800) 444-1854
TRANSFER AGENT AND CUSTODIAN
State Street Bank
and Trust Company
225 Franklin Street
Boston, MA 02266
AUDITORS
Ernst & Young LLP
400 West Market Street
Louisville, KY 40202
LEGAL COUNSEL
Hirn Doheny & Harper
2000 Meidinger Tower
Louisville, KY 40202
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PROSPECTUS AND APPLICATION
LOGO
HILLIARD LYONS
GROWTH FUND
APRIL 29, 1996
J.J.B. HILLIARD, W.L. LYONS,
INC.
HILLIARD LYONS CENTER
LOUISVILLE, KENTUCKY 40202
(502) 588-9145
(800) 444-1854
================================================================================
<PAGE>
PART B
HILLIARD LYONS GROWTH FUND, INC.
Hilliard Lyons Center
Louisville, Kentucky 40202-2517
Telephone (502) 588-8400
__________________________
STATEMENT OF ADDITIONAL INFORMATION
Dated April 29, 1996
Hilliard Lyons Growth Fund, Inc. (the "Fund") is an open-end, non-
diversified management investment company. The primary investment objective of
the Fund is long-term growth of capital. Current income is a secondary
consideration. The Fund seeks to achieve its objective by investing primarily
in common stock of companies that the Fund's investment adviser, Hilliard Lyons
Investment Advisors (the "Adviser"), a division of J.J.B. Hilliard, W.L. Lyons,
Inc. ("Hilliard Lyons"), believes have superior potential for capital
appreciation.
This Statement of Additional Information is not a prospectus. It
contains information in addition to that set forth in the prospectus for the
Fund dated April 29, 1996 and is to be read in conjunction with such prospectus
(the "Prospectus"). Some of the information required in this Statement of
Additional Information has been included in the Prospectus. A copy of the
Prospectus may be obtained from the Fund at Hilliard Lyons Center, Louisville,
Kentucky 40202-2517.
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Investment Objective and Policies.......................... 3
Management................................................. 12
Distribution Arrangements.................................. 15
Portfolio Transactions and Brokerage....................... 18
Expenses of the Fund....................................... 20
Dividends, Distributions and Taxes......................... 20
Net Asset Value............................................ 23
Calculation of Investment Performance...................... 23
Transfer Agent and Custodian............................... 24
Counsel.................................................... 24
Independent Auditors....................................... 24
General Information........................................ 24
</TABLE>
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INVESTMENT OBJECTIVE AND POLICIES
---------------------------------
The Fund's investment objective is long-term growth of capital. Current
income, which will be derived from dividends and interest on portfolio
securities, is a secondary consideration. The investment objective is
fundamental and may not be changed without a vote of a majority of the Fund's
outstanding shares. The achievement of its objective depends upon the Adviser's
analytical and portfolio management skills. There is, however, no assurance that
the Fund will achieve its investment objective.
The Fund seeks to meet its investment objective by investing in
securities that are considered by the Adviser to have long-term capital
appreciation possibilities. While it is anticipated that most of the time the
major portion of the Fund's portfolio will be invested in common stocks, the
Fund may also invest in convertible debt obligations and convertible preferred
stock. Under normal circumstances, at least 65% of the Fund's total assets will
be invested in such securities. Emphasis is placed on common stocks the Adviser
believes are priced low in relation to the underlying value of the enterprise or
to its anticipated growth rate. Investment analysis will focus on fundamental
factors such as balance sheet strength and earnings generation ability. Quality
and integrity of management, competitive advantage in the marketplace and
consistently high returns on invested capital are particularly stressed. A
guiding principle is the consideration of common stocks as units of ownership of
a business, and the purchase of them when the price appears low in relation to
the underlying value of the enterprise or to its anticipated growth rate.
The Fund primarily invests in securities of companies having a market
capitalization in excess of $500 million but may invest up to 30% of its total
assets in smaller companies that fit its investment criteria. The Fund will
not, however, invest more than 5% of its total assets in companies, including
predecessors, which have operated less than three years. Smaller companies may
offer greater potential for capital appreciation than larger companies due to
new products or technologies, new distribution methods or similar
characteristics that may result in sales and earnings growth rates in excess of
those of larger companies. In addition, because they are less actively followed
by stock analysts and less information is available on which to base stock price
evaluations, the market may overlook favorable trends in particular smaller
companies, and then adjust its valuation more quickly once investor interest is
gained. On the other hand, higher market risks are often associated with
smaller companies. They may have limited product lines, markets, market share
and financial resources, or they may be dependent on a small or inexperienced
management team. In addition, their stocks may trade less frequently and in
more limited volume and be subject to greater and more abrupt price swings than
stocks of larger companies.
Short-Term Investments
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For cash management purposes, to meet Fund expenses and to permit the
Fund to take advantage of investment opportunities, the Fund may, at any time,
hold a portion of its assets
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(not to exceed 35% under normal circumstances) in cash and short-term
investments, primarily obligations of the U.S. government, its agencies or
instrumentalities or repurchase agreements collateralized by such obligations.
In addition, when the Adviser believes that market conditions warrant it, the
Fund may take a temporary defensive posture and without limitation may hold part
or all of its assets in cash or fixed income securities that will generally have
less than a year to maturity and will be limited to: (1) obligations of the
U.S. government, its agencies and instrumentalities; (2) high quality commercial
paper; and (3) corporate notes, bonds and debentures rated at least AA by
Standard & Poor's Corporation ("Standard & Poor's") or Aa by Moody's Investors
Service ("Moody's") (See Appendix A - "Description of Securities Ratings"). For
temporary defensive purposes, the Fund may also invest in nonconvertible
preferred stocks considered by the Adviser to be high grade. To the extent that
it holds cash or invests in fixed income securities, the Fund will not achieve
its investment objective of long-term growth of capital.
Convertible Securities
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The Fund may invest in investment grade convertible securities having a
rating of or equivalent to Standard & Poor's BBB or higher, or if unrated,
judged by the Adviser to be of comparable quality. These may include corporate
notes or preferred stock, but are ordinarily long-term debt obligations
convertible at a stated exchange rate into common stock of the issuer. All
convertible securities entitle the holder to exchange the securities for a
specified number of shares of common stock, usually of the same company, at
specified prices within a certain period of time. They also entitle the holder
to receive interest or dividends until the holder elects to exercise the
conversion privilege.
As with all debt securities, the market value of convertible securities
tends to decline as interest rates increase and, conversely, to increase as
interest rates decline. Convertible securities generally offer lower interest
or dividend yields than non-convertible securities of similar quality. However,
when the market price of the common stock underlying a convertible security
approaches or exceeds the conversion price, the price of the convertible
security tends to reflect the value of the underlying common stock. As the
market price of the underlying common stock declines, the convertible security
tends to trade increasingly on a yield basis, and thus may not depreciate to the
same extent as the underlying common stock.
The provisions of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible
debentures, the holders' claims on assets and earnings are subordinated to the
claims of other creditors, and are senior to the claims of preferred and common
stockholders. In the case of convertible preferred stock, the holders' claims
on assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common stockholders.
Securities rated less than "A" by Standard & Poor's may have speculative
characteristics. The Fund will not invest more than 5% of its total assets in
such securities. The issuers of debt obligations having speculative
characteristics may experience difficulty in paying principal and
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interest when due in the event of a downturn in the economy or unanticipated
corporate developments. The market prices of such securities may become
increasingly volatile in periods of economic uncertainty. Moreover, adverse
publicity or the perceptions of investors over which the Adviser has no control,
whether or not based on fundamental analysis, may decrease the market price and
liquidity of such investments. Although the Adviser may attempt to avoid
exposing the Fund to such risks, there is no assurance that it will be
successful or that a liquid secondary market will be available for the
disposition of such securities.
Since its inception, the Fund has not invested in convertible securities
and the Fund does not currently intend to invest in such securities during
1996.
Foreign Investments
- -------------------
It is expected that no more than 10% of total assets will be invested in
securities of foreign corporations. However, the Fund has the right to invest
up to 15% of its total assets at the time of purchase and after giving effect
thereto in common stocks and convertible securities of foreign corporations.
The Fund may invest in issuers in Canada, Western Europe and the Pacific Basin.
No more than 25% of the Fund's total foreign investments will be invested in
securities of issuers in developing countries as a whole. The Fund may purchase
foreign securities that are listed on a principal foreign securities exchange or
are traded in an over-the-counter market or may invest in securities of foreign
issuers in the form of sponsored American Depositary Receipts. Generally, these
are receipts issued by a bank or trust company that evidence ownership of
underlying securities issued by a foreign corporation and that are designed for
use in the domestic securities market. In addition, subject to the restrictions
described below under "Investment Restrictions", the Fund may invest in the
common stocks of closed-end investment companies that (i) invest primarily in
foreign equity securities and (ii) are traded in United States or foreign
markets. Securities of such closed-end investment companies will be treated as
foreign securities for purposes of the 15% limitation described above.
Investments in foreign securities offer potential benefits not available
from investments solely in securities of domestic issuers. Such benefits
include the opportunity to invest in foreign issuers that appear to offer
greater potential for long-term capital appreciation than investments in
domestic securities, and to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that may not move in a manner parallel to
U.S. markets.
Investment in foreign securities may involve risks which differ from
investments in securities of U.S. issuers, including political and economic
instability in certain countries, the imposition of exchange controls or other
government restrictions, difficulties in enforcing judgments, higher brokerage
commissions and transaction costs, the lack of public information about issuers,
and differing accounting and financial reporting standards. Since investment in
foreign securities involves foreign currencies, the value of the Fund's assets
as measured in United States dollars may be affected by changes in currency
rates and in exchange control regulations, including currency blockage. The
Fund will not enter into forward commitments for the purchase or sale of foreign
currencies in connection with the settlement of foreign
5
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securities transactions or to hedge the underlying currency exposure related to
foreign investments.
There may be limited publicly available information with respect to
foreign issuers and foreign issuers are not generally subject to uniform
accounting, auditing and financial standards and requirements comparable to
those applicable to United States companies. There may also be less government
supervision and regulation of foreign securities exchanges, brokers and listed
companies than exists in the United States. Foreign securities markets may have
substantially less volume than domestic securities exchanges and securities of
some foreign companies are less liquid and more volatile than securities of
comparable domestic companies. Brokerage commissions and other transaction
costs on foreign securities exchanges are generally higher than in the United
States. Dividends paid by foreign issuers may be subject to withholding and
other foreign taxes which may decrease the net return on such investments as
compared to dividends and interest paid to the Fund by domestic companies.
Since its inception, the Fund has not invested in securities of foreign
corporations and the Fund does not currently intend to invest in such securities
during 1996.
When-Issued and Delayed Delivery Securities
- -------------------------------------------
The Fund may purchase securities on a when-issued or delayed delivery
basis. Delivery of and payment for these securities may occur a month or more
after the date of the transaction. The purchase price and the interest rate
payable, if any, are fixed on the purchase commitment date or at the time the
settlement date is fixed. The securities so purchased are subject to market
fluctuation and no income accrues to the Fund until settlement takes place. At
the time the Fund makes the commitment to purchase securities on a when-issued
or delayed delivery basis, it must record the transaction and reflect the value
of such securities each day in determining its net asset value. At the time it
is received, a when-issued security may be valued at less than its purchase
price. The Fund must make commitments for such when-issued transactions only
when it intends to acquire the securities. To facilitate such purchases, the
Fund must maintain with the custodian a segregated account of liquid assets in
the name of the Fund, consisting of cash, United States government securities or
other appropriate high grade debt obligations in an amount at least equal to
such commitments. On delivery dates for such transactions, the Fund must meet
its obligations from maturities or sales of the securities held in the
segregated account or from cash on hand. It is the intention of the Fund not to
enter into when-issued commitments exceeding in the aggregate 15% of the market
value of the Fund's total assets less liabilities other than the obligations
created by when-issued commitments.
Since its inception, the Fund has not invested in securities on a when-
issued or delayed basis and the Fund does not currently intend to invest in such
securities during 1996.
6
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Corporate Reorganizations
- -------------------------
The Fund may invest up to 10% of its total assets in securities for
which a tender or exchange offer has been made or announced and in securities
of companies for which a merger, consolidation, liquidation or reorganization
proposal has been announced if, in the judgment of the Adviser, there is a
reasonable prospect of capital appreciation significantly greater than the
brokerage and other transaction expenses involved.
In general, securities which are the subject of such an offer or proposal
sell at a premium to their historic market price immediately prior to the
announcement of the offer or may also sell at a discount to what the stated or
appraised value of the security would be if the contemplated transaction were
approved or consummated. Such investments may be advanta geous when the
discount significantly overstates the risk of the contingencies involved or
fails adequately to recognize the possibility that the offer or proposal may be
replaced or superseded by an offer or proposal of greater value. The evaluation
of such contingencies requires unusually broad knowledge and experience on the
part of the Adviser which must appraise not only the value of the issuer and its
component businesses as well as the assets or securities to be received as a
result of the contemplated transaction but also the financial resources and
business motivation of the offeror and the market dynamics and business climate
when the offer or proposal is in process. In making these investments, the Fund
may not violate any of its investment restrictions (see "Investment
Restrictions") including the requirement that (a) as to 50% of its total assets,
it will not invest more than 5% of its total assets in the securities of any one
issuer other than obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities and (b) it will not invest more than 25% of its
total assets in any one industry. Since such investments are ordinarily short-
term in nature, they will tend to increase the turnover ratio of the Fund
thereby increasing its brokerage and other transaction expenses. If the Adviser
selects investments of the type described, in its view, they will have a
reasonable prospect of capital appreciation which is significant in relation to
both risk involved and the potential of available alternate investments.
Since its inception, the Fund has not invested in securities for which a
tender or exchange offer has been made or announced and in securities of
companies for which a merger, consolidation, liquidation or reorganization
proposal has been announced and the Fund does not currently intend to invest in
such securities during 1996.
Restricted Securities
- ---------------------
The Fund may invest in securities acquired in a privately negotiated
transaction from the issuer or a holder of the issuer's securities and which may
not be distributed publicly without registration under the Securities Act of
1933 (the "1933 Act"). Such restricted securities may not thereafter ordinarily
be sold by the Fund except in another private placement, to "qualified
institutional buyers" under Rule 144A under the 1933 Act or under an effective
registration statement filed pursuant to the 1933 Act.
7
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The purchase price and subsequent valuation of restricted securities
normally reflect the discount from the price at which such securities trade when
they are not restricted, since the restriction makes them less liquid. The
amount of the discount from the prevailing market price will vary, depending
upon the type of security, the character of the issuer, the provisions for
registration, if any, and prevailing supply and demand.
The Fund may not invest in any restricted securities which will cause the
then aggregate value of all of such restricted securities and all other illiquid
investments (including repurchase agreements maturing in more than seven days
and securities not readily marketable) to exceed 5% of the Fund's net assets at
the time of such investment and after giving effect thereto. Restricted
securities are valued at their fair value in such manner as the Board of
Directors in good faith deems appropriate.
Since its inception, the Fund has not invested in restricted securities
and the Fund does not currently intend to invest in such securities during
1996.
Investments in Small, Unseasoned Companies
- ------------------------------------------
The Fund may invest up to 5% of its total assets in companies (including
predecessors) which have operated less than three years. The securities of
small, unseasoned companies may have a limited trading market, which may
adversely affect their disposition and can result in their being priced lower
than might otherwise be the case. If other investment companies and investors
who invest in such issuers trade the same securities when the Fund attempts to
dispose of its holdings, the Fund may receive lower prices than might otherwise
be obtained.
Since its inception, the Fund has not invested in securities of companies
which have operated less than three years and the Fund does not currently intend
to invest in such securities during 1996.
Repurchase Agreements
- ---------------------
From time to time, the Fund may enter into repurchase agreements with
primary government securities dealers recognized by the Federal Reserve Bank of
New York and member banks of the Federal Reserve System which furnish collateral
at least equal in value or market price to the amount of their repurchase
obligation. Under the terms of a typical repur chase agreement, the Fund
acquires an underlying debt obligation for a relatively short period (usually
not more than seven days) subject to an obligation of the seller to repurchase,
and the Fund to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. This arrangement
results in a fixed rate of return that is not subject to market fluctuations
during the Fund's holding period. The value of the underlying securities is
monitored on an ongoing basis by the Adviser to ensure that the value is at
least equal at all times to the total amount of the repurchase obligation,
including interest. The Fund bears a risk of loss in the event that the other
party to a repurchase agreement defaults on its obligations and the Fund is
delayed or prevented from exercising its rights to dispose of the
8
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underlying securities, including the risk of a possible decline in the value of
the underlying securities during the period in which the Fund seeks to assert
its rights to them, the risk of incurring expenses associated with asserting
those rights and the risk of losing all or a part of the income from the
agreement. In addition, if bankruptcy proceedings are commenced with respect to
the seller of the security, realization upon the collateral by the Fund may be
delayed or limited.
The Fund only enters into repurchase agreements involving U.S. government
obligations, or obligations of its agencies or instrumentalities, usually for a
period of seven days or less. The term of each of the Fund's repurchase
agreements is always less than one year and the Fund does not enter into
repurchase agreements of a duration of more than seven days if, taken together
with all other illiquid securities in the Fund's portfolio, more than 5% of its
net assets would be so invested.
Portfolio Turnover
- ------------------
The Fund does not seek to realize profits by participating in short-term
market movements and intends to purchase securities for long-term capital
appreciation. While the rate of portfolio turnover is not a limiting factor
when the Adviser deems changes appropriate, it is anticipated, given the Fund's
investment objective, that its annual portfolio turnover should not exceed 75%.
Portfolio turnover is calculated by dividing the lesser of the Fund's purchases
or sales of portfolio securities during the period in question by the monthly
average of the value of the Fund's portfolio securities during that period.
Excluded from consideration in the calculation are all securities with
maturities of one year or less when purchased by the Fund.
The portfolio turnover rate of the Fund increased from 20.1% for the year
ending December 31, 1994 to 27.5% for the year ending December 31, 1995.
Investment Restrictions
- -----------------------
The Fund has adopted the following investment restrictions for the
protection of stockholders that may not be changed without the approval of a
majority of the Fund's outstanding shares, defined in the Investment Company Act
of 1940 (the "1940 Act") as the lesser of (i) 67% of the Fund's shares present
at a meeting if the holders of more than 50% of the outstanding shares are
present in person or by proxy, or (ii) more than 50% of the Fund's outstanding
shares. Under these restrictions, the Fund may not:
(1) Invest more than 25% of the value of its total assets in the
securities of one or more issuers conducting their principal business activities
in the same industry. This limitation does not apply to investments or
obligations of the U.S. Government or any of its agencies or instrumentalities.
(2) Borrow money, except that the Fund may borrow from banks for
temporary or emergency (not leveraging) purposes, including the meeting of
redemption requests that might
9
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otherwise require the untimely disposition of securities, in an amount not to
exceed 10% of the value of the Fund's total assets (including the amount
borrowed) valued at market less liabilities (not including the amount borrowed)
at the time the borrowing is made. Whenever the Fund's borrowings exceed 5% of
the value of its total assets, the Fund will not make any additional
investments.
(3) Purchase securities on margin, but it may obtain such short-term
credits from banks as may be necessary for the clearance of purchases and sales
of securities.
(4) Pledge, hypothecate, mortgage, or otherwise encumber its assets
except to the extent necessary to secure borrowings permitted by restriction (2)
above and in connection with the deposit of assets when purchasing securities on
a when-issued or forward commitment basis.
(5) Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933, in disposing of a
portfolio security.
(6) Make short sales of securities, except "short sales against-the-box".
(7) Make loans, except through (i) repurchase agreements and (ii) in
connection with purchasing debt securities, consistent with applicable
regulatory requirements and as set forth in the Prospectus.
(8) Purchase the shares of any open-end investment company other than as
part of a merger, consolidation or acquisition of assets. The Fund may not
purchase shares of any closed-end investment company in an amount exceeding 3%
of such company's total outstanding voting stock or 5% of the Fund's total
assets or, together with all other closed-end investment company shares held by
the Fund, 10% of the Fund's total assets. In addition, the Fund may not
purchase shares of a closed-end investment company if immediately after such
purchase the Fund and all other investment companies having the same investment
adviser own more than 10% of the total outstanding voting securities of such
closed-end company. Shares of closed-end investment companies may be purchased
only in the open market in transactions involving customary brokers'
commissions.
(9) Invest more than 10% of its average net assets at time of purchase in
illiquid investments, including (a) repurchase agreements having a duration of
more than seven days, (b) securities lacking a readily available market, and (c)
restricted securities. For purposes of this investment restriction, securities
lacking readily available markets include securities of foreign issuers not
listed on a recognized foreign or United States stock exchange. "Restricted
securities" means securities acquired under circumstances in which the Fund
might not be free to sell such securities without their registration under the
1933 Act or the availability of an appropriate exemption from registration.
(10) Purchase or sell real property (including limited partnership
interests, but excluding readily marketable interests in real estate investment
trusts or readily marketable
10
<PAGE>
securities of companies which invest in real estate). Nothing in this
restriction shall prohibit the Fund from owning real estate used principally for
its own office space.
(11) Invest in oil, gas or other mineral exploration or development
programs or leases, except that the Fund may invest in the securities of
companies that invest in or sponsor these programs.
(12) Purchase or sell commodities or commodity futures contracts.
(13) Write or sell puts, calls, straddles, spreads or combinations
thereof.
(14) Purchase any security if, as a result, the Fund would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three years.
(15) Purchase warrants if, thereafter, more than 5% of the value of the
Fund's net assets would consist of warrants or more than 2% of the value of the
Fund's net assets would consist of warrants which are not listed on the New York
or American Stock Exchange, but warrants attached to other securities acquired
in units by the Fund are not subject to this restriction.
(16) Invest in companies for the purpose of exercising control, except
transactions involving investment companies for the purpose of effecting mergers
or other corporate reorganizations between the Fund and such other investment
companies.
In addition to the investment restrictions mentioned above, the directors
of the Fund have voluntarily adopted the following policies and restrictions
which are observed in the conduct of its affairs. These represent intentions of
the directors based upon current circumstances. They differ from fundamental
investment policies in that they may be changed or amended by action of the
directors without prior notice to or approval of stockholders. Accordingly, the
Fund may not:
(1) Purchase or retain the securities of any issuer if, to the knowledge
of the Fund, the officers or directors of the Fund or its investment adviser
individually owning beneficially more than one-half of one percent of the
securities of such issuer, together own beneficially more than 5% of such
securities; and
(2) Purchase the securities of any issuer if, immediately after such
purchase, the Fund would own more than 10% of the outstanding voting securities
of such issuer.
If any percentage limitation is adhered to at the time of an investment,
a later increase or decrease in the percentage resulting from a change in the
value of portfolio securities or in the amount of the Fund's assets will not
constitute a violation of such restriction. In order to
11
<PAGE>
permit the sale of the Fund's shares in certain states, the Fund may adopt
investment policies more restrictive than those described above.
MANAGEMENT
----------
Directors and Officers
- ----------------------
The following table sets forth information concerning the directors and
officers of the Fund, including their addresses and principal business
experience for the past five years.
<TABLE>
<CAPTION>
Principal
---------
Position with Occupation During
------------- -----------------
Name and Address the Fund Last Five Years
- ---------------- -------- ---------------
<S> <C> <C>
Gilbert L. Pamplin/(1)(2)/ Director Investment Consultant; Chairman
Hilliard Lyons Center of the Board of Hilliard Lyons
Louisville, KY 40202 from 1988 to 1995; Chief Executive
Officer of Hilliard Lyons
since December 1982 and President
from 1982 to 1988
William A. Blodgett, Jr. Director Vice President, Deputy General
Brown-Forman Corporation Counsel Brown-Forman Corpora-
850 Dixie Highway tion since October 1994; Partner,
Louisville, KY 40210 Law Firm of Woodward, Hobson
& Fulton prior thereto
John C. Owens Director Private Investor
116 Chinoe Road
Lexington, KY 40502
Dillman A. Rash/(2)/ Director Investment Consultant
Hilliard Lyons Center
Louisville, KY 40202
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Donald F. Kohler/(1)(2)/ Chairman of Executive Vice President and
Hilliard Lyons Center the Director of Hilliard Lyons
Louisville, KY 40202 Board
Samuel C. Harvey President Executive Vice President and
Hilliard Lyons Center Director of Hilliard Lyons since
Louisville, KY 40202 January 1993; Senior Vice Presi-
dent prior thereto
Joseph C. Curry, Jr./(2)/ Vice Senior Vice President of Hilliard
Hilliard Lyons Center President, Lyons since July 1994 and Vice
Louisville, KY 40202 Secretary and President prior thereto
Treasurer
Thomas A. Corea Vice President Vice President of Hilliard Lyons
Hilliard Lyons Center since December 1991
Louisville, KY 40202
Dianna P. Wengler Vice President Vice President of Hilliard Lyons
Hilliard Lyons Center since 1990 and employee, Investment
Louisville, KY 40202 Management Group, prior thereto
- ----------------------
</TABLE>
(1)Directors deemed to be "interested persons" of the Fund for purposes of
the Investment Company Act of 1940 by virtue of an affiliation with the Fund's
investment adviser and/or J.J.B. Hilliard, W.L. Lyons, Inc.
(2)Directors of Hilliard-Lyons Government Fund, Inc., an open-end money
market mutual fund, the investment adviser of which is J.J.B. Hilliard, W.L.
Lyons, Inc.
The Fund pays each of its directors who is not affiliated with the Adviser or
Hilliard Lyons annual compensation of $5,000 and a fee of $500 for each Board or
Committee meeting attended, in addition to certain out-of-pocket expenses. At
February 29, 1996, the officers and directors of the Fund as a group owned
beneficially 58,083 shares of the Fund, 4.1% of the shares outstanding).
At February 29, 1996, J.J.B. Hilliard, W.L. Lyons, Inc. Employees Profit
Sharing Plan Fund D owned beneficially and of record 22.9% of the outstanding
shares of the Fund.
13
<PAGE>
Investment Adviser
- ------------------
As stated in the Prospectus, Hilliard Lyons Investment Advisors (the
"Adviser"), a division of J.J.B. Hilliard, W.L. Lyons, Inc. ("Hilliard Lyons"),
acts as the Fund's investment adviser and performs certain administrative
services for the Fund. See "MANAGEMENT - Investment Adviser" in the Prospectus
for a description of the Adviser's duties as investment adviser.
The Adviser, located at Hilliard Lyons Center, Louisville, Kentucky 40202, is
a division of J.J.B. Hilliard, W.L. Lyons, Inc. Hilliard Lyons and its
affiliate, Hilliard Lyons Trust Company, a Kentucky chartered trust company, are
wholly-owned subsidiaries of Hilliard-Lyons, Inc., a Kentucky corporation.
Together with predecessor firms, Hilliard Lyons has been in the investment
banking business since 1854. It is a registered investment adviser and a
registered broker-dealer and member firm of the New York Stock Exchange, Inc.
Hilliard Lyons also serves as investment adviser to the Hilliard-Lyons
Government Fund, Inc., an open-end money market fund with assets as of December
31, 1995 of approximately $400,000,000. As of December 31, 1995, the Adviser
and its affiliates managed individual, corporate, fiduciary and institutional
accounts with assets aggregating approximately $2,201,000,000.
The Adviser's administrative obligations pursuant to the Investment Advisory
Agreement with the Fund include, subject to the general supervision of the Board
of Directors of the Fund (a) providing supervision of all aspects of the Fund's
non-investment operations (the parties giving due recognition to the fact that
certain of such operations are performed by others pursuant to agreements with
the Fund), (b) providing the Fund with personnel to perform such executive,
administrative and clerical services as are reasonably necessary to provide
effective administration of the Fund, (c) arranging for the preparation, at the
Fund's expense, of its tax returns, reports to stockholders, periodic updating
of the Prospectus and Statement of Additional Information and reports filed with
the Securities and Exchange Commission and other regulatory authorities, (d)
providing the Fund with adequate office space and certain related office
equipment and services, and (e) maintaining all of the Fund's records, other
than those maintained by others pursuant to agreements with the Fund.
As compensation for its services and related expenses, the Fund has agreed to
pay the Adviser a fee, accrued daily and payable quarterly, equal to 0.80% per
annum of the Fund's average daily net assets. This fee is higher than the
investment advisory fee paid by most investment companies. For the year ending
December 31, 1996, the Adviser voluntarily agreed to reduce the fees payable to
it under the Investment Advisory Agreement and, if necessary, reimburse the
Company on a quarterly basis, by the amount by which the Fund's total annual
operating expenses for such year exceed 1.75% of the first $50 million of
average daily net assets and 1.50% of average daily net assets in excess of $50
million. The Adviser voluntarily agreed to the same reductions and
reimbursements for the years ending December 31, 1995 and December 31, 1994. In
addition, the Adviser has obligated itself to reduce its advisory fees (to the
extent of such fees) by the amount the Fund's expenses exceed the expense
limitations, if any, imposed by state securities administrators in states where
shares of the Fund are registered. For the year ending December 31, 1995, the
advisory fees totaled $193,004, of which $24,783 was waived.
14
<PAGE>
For the year ending December 31, 1994, the advisory fees totaled $175,323, of
which $41,103 was waived.
The Investment Advisory Agreement does not prohibit the Adviser or any of its
affiliates from providing similar services to other investment companies and
other clients (whether or not their investment objectives and policies are
similar to those of the Fund) or from engaging in other activities. When other
clients of the Adviser desire to purchase or sell a security at the same time
such security is purchased or sold for the Fund, such purchases and sales will,
to the extent feasible, be allocated among the Fund and such clients in a manner
believed by the Adviser to be equitable to such clients and the Fund. However,
it cannot be expected that all of the Adviser's clients, including the Fund,
will receive equal treatment at all times.
The Investment Advisory Agreement was approved by the directors of the Fund
and by a majority of the directors who are not parties to the Investment
Advisory Agreement or "interested persons" (as such term is defined in the 1940
Act) of any party thereto, on September 30, 1991 and became effective on January
2, 1992. It will continue in effect until March 31, 1997 and from year to year
thereafter provided such continuance is specifically approved at least annually
(a) by the vote of a majority of the outstanding shares of the Fund (as defined
under "Investment Restrictions") or by a majority of the directors of the Fund,
and (b) by the vote of a majority of the directors of the Fund who are not
parties to the Investment Advisory Agreement or "interested persons" (as such
term is defined in the 1940 Act) of any party thereto, cast in person at a
meeting called for the purpose of voting on such approval. The Investment
Advisory Agreement will terminate automatically if assigned (as defined in the
1940 Act) and is terminable at any time without penalty by the directors of the
Fund or by vote of a majority of the outstanding shares of the Fund on 60 days
written notice to the Adviser and by the Adviser on 60 days written notice to
the Fund.
The Fund's name is derived from the name "J.J.B. Hilliard, W.L. Lyons, Inc."
and therefore is the property of Hilliard Lyons. The Fund has agreed by the
terms of the Advisory Agreement that any name derived from the name "J.J.B.
Hilliard, W.L. Lyons, Inc." may freely be used by the Adviser for other
investment companies, entities, products or services. The Fund has further
agreed that upon termination of the Advisory Agreement the Fund will, unless the
Adviser otherwise consents in writing, promptly take all steps necessary to
change its name to one which is not derived from "J.J.B. Hilliard, W.L. Lyons,
Inc."
DISTRIBUTION ARRANGEMENTS
-------------------------
Distributor
- -----------
Hilliard Lyons serves as the exclusive distributor of shares of the Fund
pursuant to a "best efforts" arrangement as provided by a Distribution Agreement
with the Fund dated January 2, 1992. Hilliard Lyons may enter into sales
agreements with certain securities dealers and financial advisers (collectively
referred to as "authorized dealers") to permit them to solicit subscriptions for
shares of the Fund and may pay them a continuing fee (not in excess of 0.25%
annually of the Fund's
15
<PAGE>
average daily net assets) for distributing the Fund's shares, promoting the
maintenance of holdings by established stockholders and servicing stockholder
accounts. It may also enter into servicing agreements providing for payments to
financial institutions (including banks) and others who perform stockholder
servicing and administrative functions for certain stockholders. During the
fiscal years ended December 31, 1995 and 1994, the aggregate amounts of the
Fund's sales charges were $48,601 and $49,390, respectively.
The Glass-Steagall Act and other applicable laws prohibit banks from engaging
in the business of underwriting, selling or distributing securities. Although
the scope of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or regulatory agencies, the Distributor believes that the
Glass-Steagall Act should not preclude a bank from performing stockholder
servicing and administrative functions. The Distributor may engage banks to
perform such functions. However, judicial or administrative decisions or
interpretations of such laws, as well as changes in either federal or state
statutes or regulations relating to the permissible activities of banks and
their affiliates, could prevent a bank from servicing accounts of stockholders
of the Fund. In that case, its stockholder clients, if any, would be permitted
to remain stockholders of the Fund, and alternative means for continuing the
servicing of such stockholders would be sought. It is not expected that
stockholders would suffer any adverse financial consequences as a result of any
of these occurrences. In addition, state securities laws may differ from
federal law and may require banks and financial institutions to register as
dealers.
After the Prospectus, Statement of Additional Information and annual and
interim reports of the Fund have been prepared and set in type, Hilliard Lyons
pays for the printing and distribution of copies thereof used in connection with
the offering of shares of the Fund to prospective investors. Hilliard Lyons
also pays for the cost of preparing, printing and distributing any other
literature used by it or furnished by it for use by authorized dealers in
connection with the offering of shares of the Fund for sale to the public and
any expenses of advertising.
Distribution Plan
- -----------------
The Fund has adopted a plan of distribution (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. Under the Plan, the Fund reimburses the Distributor
quarterly at the annualized rate of up to 0.25% of the Fund's average daily net
assets for distribution expenses actually incurred. The amount of reimbursement
is computed on an interim basis within 30 days of the end of each quarter and is
paid promptly after such computation. The aggregate amount of such quarterly
reim bursements are subject to adjustment within 60 days after the end of the
year so that the Distributor is reimbursed for distribution expenses incurred by
it during the year up to a maximum of 0.25% of the average daily net assets of
the Fund. Any amount of excess distribution expenses incurred by the
Distributor in any quarter for which the Distributor is not reimbursed can be
carried forward from one quarter to the next but no expenses may be carried over
from year to year. The Distributor can only be reimbursed for expenses incurred
primarily in connection with the sale of shares of the Fund.
16
<PAGE>
As required by Rule 12b-1, the Plan was approved on September 30, 1991 by the
Board of Directors of the Fund, including a majority of the directors who are
not "interested persons" of the Fund (as defined in the 1940 Act) and who have
no direct or indirect financial interest in the operation of the Plan or the
Distribution Agreement (the "Independent Directors"), and on October 30, 1991 by
the Fund's sole stockholder, Hilliard Lyons. In unanimously approving the Plan,
the Fund's Board of Directors determined, in the exercise of their business
judgment and in light of their fiduciary duties, that there is a reasonable
likelihood that the Plan will benefit the Fund and its stockholders.
Continuance of the Plan is subject to annual approval by a majority of the
Fund's directors and a majority of the Independent Directors. The Plan may be
terminated at any time by vote of the Independent Directors or by vote of a
majority of the outstanding shares of the Fund (as defined in the 1940 Act).
Under the Plan, the expenses for which the Distributor may be reimbursed
include, but are not limited to: (i) payments to investment brokers of the
Distributor and to authorized dealers for distribution of shares of the Fund,
for promotion of the maintenance of holdings by established stockholders and for
stockholder servicing; (ii) payments to financial institutions (including banks)
and others ("Service Agents") for stockholder servicing and administrative
services with respect to shares of the Fund owned by stockholders for whom the
Service Agent is the holder of record or for whom the Service Agent performs
administrative or servicing functions; (iii) payments to the Distributor for
organizing and conducting sales seminars, printing Prospectuses, Statements of
Additional Information and interim and annual reports for other than existing
stockholders, and preparation and distribution of advertising material and sales
literature; (iv) an allocation of distribution-related overhead expenses of the
Distributor; and (v) payments of commissions to investment brokers of the
Distributor and to authorized dealers on sales of $1 million or more with no
initial sales charge.
The following amounts were incurred by the Fund under the Plan for the year
ending December 31, 1995:
(a) printing of prospectus and financial reports for delivery to other than
current stockholders: $3,268; and
(b) trail fees to Hilliard Lyons brokers: $33,585.
Stockholder servicing and administrative services may include: answering
client inquiries regarding the Fund; assisting clients in changing dividend and
redemption options, account designations and addresses; performing
subaccounting; establishing and maintaining stockholder accounts and records;
processing purchase and redemption transactions; investing client cash account
balances automatically in Fund shares; providing periodic statements showing a
client's account balance and integrating such statements with those of other
transactions and balances in the client's other accounts serviced by the
financial institution; arranging for bank wires; and such other services as the
Fund may request, to the extent the financial institution is permitted to
perform such services by applicable statute, rule or regulations.
17
<PAGE>
The amounts and purposes of expenditures under the Plan must be reported to
the Independent Directors quarterly. The Independent Directors may require or
approve changes in the operation of the Plan and may require that total
expenditures by the Fund under the Plan be kept within limits lower than the
maximum amount permitted by the Plan as stated above.
Any change in the Plan that would materially increase the distribution
expenses of the Fund provided for in the Plan requires stockholder approval.
Otherwise, the Plan may be amended by votes of the majority of both (a) the
Fund's directors and (b) the Independent Directors, cast in person at a meeting
called for the purpose of voting on such amendment. While the Plan is in
effect, the Fund is required to commit the selection and nomination of
candidates for Independent Directors to the discretion of the Independent
Directors.
In addition, if and to the extent that the advisory fee paid by the Fund to
the Adviser pursuant to the Investment Advisory Agreement is considered as
indirectly financing any activity on the part of the Adviser, which is primarily
intended to result in the sale of Fund shares, such payments (which do not
involve any additional payments by the Fund under the Plan) are authorized under
the Plan.
PORTFOLIO TRANSACTIONS AND BROKERAGE
------------------------------------
In addition to making the investment decisions of the Fund, the Adviser
implements such decisions by arranging the execution of the purchase or sale of
portfolio securities with the objective of obtaining prompt, efficient and
reliable executions of such transactions at the most favorable price obtainable
("best execution"). Transactions in securities other than those for which a
securities exchange is the principal market are generally made with principals
or market makers at a negotiated "net" price which usually includes a profit to
the dealer or distributor. Brokerage commissions are paid primarily for
effecting transactions in securities traded on an exchange although transactions
in the over-the-counter market may be executed on an agency basis if it appears
likely that a more favorable overall price can be obtained. Subject to the
condition of obtaining "best execution", Hilliard Lyons, an affiliated
corporation and (through its division, Hilliard Lyons Investment Advisors) the
Fund's investment adviser, serves as the Fund's primary broker and channel
through which securities transactions (other than on a principal basis) flow.
With respect to transactions handled by Hilliard Lyons on a national
securities exchange, the commissions must conform to Rule 17e-1 under the 1940
Act which permits an affiliated person of a registered investment company to
receive brokerage commissions from such registered invest ment company provided
that such commissions are reasonable and fair compared to commissions received
by other brokers in connection with comparable transactions involving similar
securities during a comparable period of time. The Board of Directors of the
Fund has adopted "procedures" which provide that commissions paid to Hilliard
Lyons may not exceed (i) those which would have been charged by other qualified
brokers for comparable customers in similar transactions or (ii) those charged
by Hilliard Lyons for comparable customers in similar transactions. The Rule
requires that the Board, including its directors who are not "interested
persons" of the Fund or Hilliard Lyons determine no less frequently than
quarterly that all transactions effected pursuant
18
<PAGE>
to the Rule during the preceding quarter were effected in compliance with such
procedures. Hilliard Lyons is also required to furnish reports and maintain
records in connection with such reviews.
The use of Hilliard Lyons as a broker for the Fund is subject to the
provisions of Section 11(a) under the Securities Exchange Act of 1934. Recently
amended Section 11(a)(1)(H) permits an exchange member to execute on that
exchange's floor, using its own floor brokers, trades on behalf of its managed
accounts, including affiliated investment advisers and investment companies.
Members must comply with the following two conditions, set out in Section
11(a)(1)(H), in order to execute these trades lawfully: (1) A member must
obtain from the person(s) authorized to transact business for a managed account
written authorization permitting the member to effect trades on behalf of the
account before doing so. If a customer already has provided a member with an
authorization pursuant to Rule 11(a)2-2(T), the member need not obtain another
written authorization to meet the Section 11(a)(1)(H) authorization requirement;
and (2) At least annually, the member must disclose to the same person(s) the
amount of the aggregate compensation the member received in effecting such
transactions. Further, members will be required to comply with any rules the
SEC may prescribe with respect to the above two express requirements. The SEC
has not indicated any such plans to date. The Adviser previously obtained
authorization from the Fund pursuant to Rule 11a2-2(T) and has disclosed to the
Fund the amount of the aggregate compensation the Adviser received in effecting
all such transactions.
The Fund paid total brokerage commissions during the year ending December 31,
1995 of $14,643. Of that amount, $405 (2.77%) was paid to Hilliard Lyons in
connection with transactions having an aggregate dollar value of 2.95% of the
aggregate dollar value of all transactions as to which commissions were paid.
The Fund paid commissions aggregating $14,238 (97.23%) of total commissions to
brokers in connection with transactions having an aggregate dollar value of
97.05% of the aggregate dollar value of all transactions as to which Commissions
were paid.
When consistent with the objective of obtaining best execution, Fund
brokerage may be directed to brokers or dealers, other than Hilliard Lyons,
which charge commissions that are higher than might be charged by another
qualified broker or dealer and which furnish at no extra charge brokerage and/or
research services to the Adviser considered by the Adviser to be useful or
desirable in its investment management of the Fund and its other advisory
accounts. Such brokerage and research services are of the type described in
Section 28(e) of the Securities Exchange Act of 1934. Under Section 28(e), the
commissions charged by a broker furnishing such brokerage or research services
may be greater than that which another qualified broker might charge if the
Adviser determines, in good faith, that the amount of such commission is
reasonable in relation to the value of brokerage or research services provided
by the executing broker, viewed in terms of either the particular transaction or
the overall responsibilities of the Adviser or its affiliate to the accounts
over which they exercise investment discretion. The Adviser need not place or
attempt to place a specific dollar value on such services or on the portion of
the commission which reflects such services but is required to keep records
sufficient to demonstrate the basis of its determinations.
19
<PAGE>
Investment research obtained by allocations of Fund brokerage is used to
augment the internal research and investment strategy capabilities of the
Adviser. Research services furnished by brokers through which the Fund effects
securities transactions is used by the Adviser in carrying out its investment
management responsibilities with respect to all of its accounts. Such
investment information may be useful to one or more of the other accounts of the
Adviser and research information received for the commissions of such other
accounts may be useful to the Fund as well as such other accounts.
EXPENSES OF THE FUND
--------------------
Except as indicated above under "Adviser", the Fund is responsible for the
payment of its expenses, including (a) the fees payable to the Adviser, (b) the
reimbursements payable to the Distributor under the Distribution Plan for
expenses incurred in connection with the offering and sale of shares of the
Fund, (c) the fees and expenses of the Fund's directors, officers and employees
who are not affiliated with the Adviser, (d) the fees and certain expenses of
the Fund's custodian and transfer agent, (e) the fees and expenses of the Fund's
legal counsel and independent auditors, (f) brokerage and commission expenses,
(g) all federal, state and local taxes and corporate fees payable by the Fund to
governmental agencies, including any issue or transfer taxes chargeable to the
Fund in connection with its securities transactions, and any foreign taxes, (h)
the dues, fees and other charges of any trade association of which the Fund is a
member, (i) the cost of fidelity and liability insurance, (j) reimbursement of
the organization expenses of the Fund and the fees and expenses involved in
registering and maintaining registration of the Fund and of its shares with the
Securities and Exchange Commission and registering the Fund as a broker or
dealer and qualifying its shares under state securities laws, including the
preparation and printing of the Fund's Registration Statements, Prospectuses and
Statements of Additional Information for such purposes, (k) costs incurred in
having the Fund's net asset value computed at the times and in the manner
specified in the Fund's prospectus and/or statement of additional information,
(l) allocable communications expenses with respect to investor services and all
expenses of stockholders' and directors' meetings and preparing, printing and
mailing Prospectuses, Statements of Additional Information, reports and proxy
materials to stockholders, and (m) such non-recurring or extraordinary expenses
as may arise outside the ordinary course of the Fund's business, including
litigation affecting the Fund and the legal obligation the Fund may have to
indemnify its officers and directors and, in certain situations, the
Distributor, with respect thereto.
DIVIDENDS, DISTRIBUTIONS AND TAXES
----------------------------------
Each dividend and capital gain distribution, if any, declared by the Fund on
its outstanding shares will be paid on the payment date fixed by the Board of
Directors in cash or in additional shares of the Fund having an aggregate net
asset value as of the record date of such dividend or distribution equal to the
cash amount of such dividend or distribution. Dividends and capital gain
distributions will normally be reinvested in additional shares at net asset
value without a sales charge, unless otherwise elected at purchase. A
stockholder may change such election at any time prior to the record date for a
particular dividend or distribution by written request to the Fund's transfer
agent.
20
<PAGE>
It is the present policy of the Fund to make distributions annually of its
net investment income and of its net realized capital gains, if any, at the end
of the year in which earned or at the beginning of the next year. There is no
fixed dividend rate, and there can be no assurance that the Fund will pay any
dividends or realize any capital gains. Investors considering buying shares of
the Fund just prior to a dividend or capital gain distribution record date
should be aware that, although the price of shares purchased at that time may
reflect the amount of the forthcoming distribution, those who purchase just
prior to such date will receive a distribution that will nevertheless be taxable
to them.
The Fund is subject to a nondeductible 4% excise tax measured with respect to
certain undistributed amounts of ordinary income and capital gains. If
necessary to avoid this tax, and if in the best interests of the stockholders,
the Fund's Board of Directors will, to the extent permitted by the SEC, declare
and pay distributions of its net investment income and net realized capital
gains more frequently than stated above. To avoid the tax, the Fund must
distribute during each calendar year, at least the sum of (1) 98% of its
ordinary income (not taking into account any capital gains or losses) for the
calendar year, (2) 98% of its capital gains in excess of its capital losses for
the twelve-month period ending on October 31 of the calendar year, and (3) all
ordinary income and net capital gains for previous years that were not
previously distributed. A distribution will be treated as paid during the
calendar year if it is actually paid during the calendar year or declared by the
Fund in October, November or December of the year, payable to stockholders of
record as of a specified date in such a month and actually paid by the Fund
during January of the following year. Any such distributions paid during
January of the following year will be deemed to be paid and received on December
31 of the year the distributions are declared, rather than when the
distributions are received.
If the Fund invests in foreign securities, it will be subject to withholding
taxes of the foreign country of the issuer on dividends which vary depending on
the particular jurisdiction. The Fund may at its election deduct such amounts
in computing taxable income or receive a credit against federal income taxes
owed for the taxable year.
The Fund intends to qualify for tax treatment as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code").
Qualification as a regulated investment company relieves the Fund of federal
income tax on that part of its net ordinary income and net realized capital
gains which it pays out to its stockholders. To qualify, the Fund must meet
certain relatively complex tests relating to the source of its income and the
diversification of its assets, including the requirement that less than 30% of
its gross income (generally exclusive of losses) may be derived from the sale or
other disposition of securities held for less than three months, and must
distribute at least 90% of its investment company taxable income (as defined in
the Code). In addition, the Fund must diversify its holdings so that, at the
end of each fiscal quarter, (i) at least 50% of the market value of the Fund's
assets is represented by cash, cash items, United States Government securities,
securities of other regulated investment companies and other securities with
such other securities limited, in respect of any one issuer, to an amount not
greater than 5% of the value of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one
21
<PAGE>
issuer (other than United States Government securities or the securities of
other regulated investment companies). The Fund does not anticipate any
difficulty in meeting these requirements. Dividends out of net ordinary income
and distributions of net short-term capital gains are taxable to stockholders as
ordinary income. In the case of corporate stockholders, such distributions are
eligible for the 70% dividends-received deduction subject to proportionate
reduction of the amount eligible for deduction if the aggregate qualifying
dividends received by the Fund from domestic corporations in any year are less
than its "gross income" as defined by the Code. A corporation's dividends-
received deduction will be disallowed unless the corporation holds shares in the
Fund at least 46 days. Furthermore, a corporation's dividends-received
deduction will be disallowed to the extent a corporation's investment in shares
of the Fund is financed with indebtedness.
The excess of net long-term capital gains over the net short-term capital
losses realized and distributed by the Fund to its stockholders as capital gain
distributions are taxable to the stockholders as long-term capital gains,
irrespective of the length of time a stockholder may have held the shares. Such
long-term capital gain distributions are not eligible for the dividends-received
deduction referred to above. Any dividend or distribution received by a
stockholder on shares of the Fund shortly after the purchase of such shares will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, such dividend or distribution,
although in effect a return of capital, is subject to applicable income taxation
as described above regardless of the length of time the shares may have been
held. If a stockholder held shares less than six months and during that period
received a distribution taxable to such stockholder as long-term capital gain,
any loss realized on the sale of such shares during such six-month period would
be a long-term loss to the extent of such distribution. The tax treatment of
distributions from the Fund is the same whether the distributions are received
in additional shares or in cash. Stockholders receiving distributions in the
form of additional shares will have a cost basis for federal income tax purposes
in each share received equal to the net asset value on the reinvestment date.
The Fund generally is required to withhold federal income tax at a rate of
31% ("backup withholding") from dividends paid to stockholders if (a) the payee
fails to furnish the Fund with and to certify the payee's correct taxpayer
identification number or social security number, (b) the Internal Revenue
Service (the "IRS") notifies the Fund that the payee has failed to report
properly certain interest and dividend income to the IRS and to respond to
notices to that effect, or (c) the payee fails to certify that backup
withholding is not required.
The Fund may be subject to state or local taxes in the jurisdiction in which
the Fund may be deemed to be doing business. Dividends and distributions
declared by the Fund may also be subject to state and local taxes. Prior to
investing in shares of the Fund, prospective stockholders should consult their
tax adviser concerning the federal, state and local tax consequences of such an
investment.
22
<PAGE>
NET ASSET VALUE
---------------
Each security traded on a national securities exchange or traded over-the-
counter and quoted on the NASDAQ System is valued at the last sale price at
"closing time" on the date of valuation. Securities so traded for which there
was no sale on the date of valuation and other securities are valued at the mean
of the most recent bid and asked quotations, except that bonds not traded on a
securities exchange or quoted on the NASDAQ System are valued at prices provided
by a recognized pricing service unless the Adviser believes that any such price
does not represent a fair value. Each money market instrument having a maturity
of 60 days or less from the valuation date is valued on an amortized cost basis.
Other securities and assets are valued at fair value, as determined in good
faith by the Adviser under procedures established by, and under the supervision
and responsibility of, the Fund's Board of Directors.
As stated in the Prospectus, the net asset value per share of the Fund's
shares is determined on each "business day", currently any day the New York
Stock Exchange is open for business. The New York Stock Exchange is presently
scheduled to be closed on New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day, and on
the preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively.
As stated in the Prospectus, the Fund's public offering price is the next
determined net asset value per share plus a sales charge paid at the time of
purchase. Based on the net asset value per share at December 31, 1995 of $20.20
per share, the maximum offering price per share was $21.21 per share. The
offering price is reduced on sales of $50,000 or more and in certain other
circumstances.
Generally, trading in foreign securities, as well as corporate bonds, U.S.
government securities and money market instruments is substantially completed
each day at various times. The prices of such securities used in computing the
net asset value of the Fund's shares are determined as of such times. Foreign
currency exchange rates are also generally determined prior to "closing time".
Occasionally, events affecting the value of such securities may occur in the
interim which will not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of the Fund's securities occur
during such period, then these securities are valued at their fair value as
determined in good faith by the Board of Directors.
CALCULATION OF INVESTMENT PERFORMANCE
-------------------------------------
From time to time, the Fund quotes its performance in advertisements or in
reports and other communications to stockholders. The Fund's "average annual
total return" figures described in the Prospectus are computed according to a
formula prescribed by the SEC. The formula can be expressed as follows:
23
<PAGE>
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000 investment
made at the beginning of a 1, 5, or 10-year period at the end
of a 1, 5, or 10-year period (or fractional portion thereof),
assuming reinvestment of all dividends and distributions.
Total return figures assume that the maximum 4.75% sales charge has been
deducted from the investment at the time of purchase.
The Fund's performance varies from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance calculation should not be considered
representative of the Fund's performance for any specified period in the future.
In addition, because the performance fluctuates, it may not provide a basis for
comparing an investment in the Fund with certain bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors
comparing the Fund's performance with that of other mutual funds should give
consideration to the quality and maturity of the respective investment
companies' portfolio securities.
TRANSFER AGENT AND CUSTODIAN
----------------------------
State Street Bank and Trust Company, 225 Franklin Street, P.O. Box 8315,
Boston, Massachusetts 02266-8315, is the Fund's transfer agent and is custodian
for the Fund's cash and securities. State Street Bank and Trust Company does not
assist in and is not responsible for investment decisions involving assets of
the Fund.
COUNSEL
-------
The legality of the shares offered hereby have been passed upon by Hirn
Doheny & Harper, 2000 Meidinger Tower, Louisville, Kentucky 40202.
INDEPENDENT AUDITORS
--------------------
Ernst & Young LLP, 400 West Market Street, Louisville, Kentucky 40202, are
the independent auditors of the Fund, and such firm also prepares the Fund's
Federal and state income tax returns.
GENERAL INFORMATION
-------------------
The Fund's Articles of Incorporation provide that to the fullest extent
permitted by the General Laws of the State of Maryland, directors and officers
shall be indemnified by the Fund
24
<PAGE>
against all liabilities and expenses, including, but not limited to, amounts
paid in satisfaction of judgments, in compromise or as fines and penalties, and
counsel fees reasonably incurred in connection with the defense or disposition
of any action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such person may be or may
have been involved as a party or otherwise. To the fullest extent permitted by
Maryland General Corporation Law, as amended from time to time, the Fund's
Articles of Incorporation also provide that no director or officer of the Fund
shall be personally liable to the Fund or its stockholders for money damages,
except to the extent such exemption from liability or limitation thereof is not
permitted by the 1940 Act. Nothing in the Articles of Incorporation protects a
director against any liability to which such director would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office.
The directors of the Fund have authority under the Articles of
Incorporation to increase the number of shares the Fund is authorized to issue
and to authorize and issue additional classes of stock by classifying and
reclassifying unissued shares, without further action by stockholders.
Stockholders are entitled to one vote for each full share held and
fractional votes for fractional shares held and may vote in the election of
directors and on other matters submitted to meetings of stockholders. It is not
contemplated that regular annual meetings of stockholders will be held. A
meeting will be called to consider replacing the Fund's directors upon the
written request of the holders of 10% of the Fund's shares. The record holders
of at least 25% of the Fund's shares may require the Fund to hold a special
meeting of stockholders for any purpose. Stockholders have no preemptive or
conversion rights.
25
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
COMMON STOCKS -- 84.5%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Company Cost Value
------ ------- ---- ------
BASIC INDUSTRY -- 3.6%
----------------------------------------------------------------------
<C> <S> <C> <C>
27,700 Nalco Chemical Co. ............................ $ 910,845 $ 834,462
7,350 Sonoco Products Co. ........................... 136,910 192,938
---------- ----------
1,047,755 1,027,400
CAPITAL GOODS -- 12.2%
----------------------------------------------------------------------
26,000 Dover Corp. ................................... 630,550 958,750
14,000 General Electric Co. .......................... 565,278 1,008,000
8,400 Hubbell Inc. CL B ............................. 408,960 552,300
4,000 Minnesota Mining & Manufacturing Co. .......... 186,952 265,000
12,000 Nordson Corp. ................................. 664,500 675,000
---------- ----------
2,456,240 3,459,050
CONSUMER NON-DURABLE -- 13.7%
----------------------------------------------------------------------
25,500* Bush Boake Allen Inc. ......................... 708,904 698,062
8,000 CPC International Inc. ........................ 339,924 549,000
14,000 International Flavors & Fragrances ............ 477,681 672,000
24,000 PepsiCo Inc. .................................. 886,525 1,341,000
7,500 Procter & Gamble Co. .......................... 365,983 622,500
---------- ----------
2,779,017 3,882,562
FINANCIAL -- 29.4%
----------------------------------------------------------------------
18,000 American International Group Inc. ............. 869,512 1,665,000
23* Berkshire Hathaway Inc. ....................... 208,980 738,300
22,000 Cincinnati Financial Corp. .................... 1,148,724 1,435,500
12,000 Federal Home Loan Mortgage Corp. .............. 554,652 1,002,000
16,000 Fifth Third Bancorp ........................... 816,000 1,172,000
51,500 Synovus Financial Corp. ....................... 983,277 1,467,750
18,000 Wachovia Corp. ................................ 655,830 823,500
---------- ----------
5,236,975 8,304,050
</TABLE>
See notes to financial statements.
3
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Market
Shares Company Cost Value
------ ------- ---- ------
HEALTH CARE -- 11.0%
----------------------------------------------------------------------
<C> <S> <C> <C>
38,500 Allergan Inc. ................................. 926,295 1,251,250
21,500 Johnson & Johnson.............................. 919,321 1,840,938
----------- ----------
1,845,616 3,092,188
RETAIL & SERVICES -- 13.4%
----------------------------------------------------------------------
16,500 Brady WH Co. CL A.............................. 270,375 445,500
12,000 Gannett Inc. .................................. 654,720 736,500
20,000 May Department Stores Co. ..................... 622,663 845,000
59,000 Walgreen Co. .................................. 1,074,435 1,762,625
----------- ----------
2,622,193 3,789,625
TECHNOLOGY -- 1.2%
----------------------------------------------------------------------
8,000 Teleflex Inc. ................................. 227,310 328,000
----------- ----------
227,310 328,000
TOTAL COMMON STOCKS............................ $16,215,106 23,882,875
</TABLE>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 16.7%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Purchase Maturity Market
Amount Description Yield Date Value
---------- ----------- -------- -------- -----------
<C> <S> <C> <C> <C>
$4,710,000 Federal Farm Credit Bank .......... 5.884% 01/02/96 4,709,241
-----------
TOTAL U. S. GOVERNMENT AGENCY
OBLIGATIONS (COST -- $4,709,241)... 4,709,241
-----------
TOTAL INVESTMENTS (COST --
$20,924,347) (101.2%)............. $28,592,116
===========
</TABLE>
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.
*Non-income producing security.
See notes to financial statements.
4
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Common stocks (cost $16,215,106)................................ $23,882,875
U.S. Government Agency Obligations at value (amortized cost
$4,709,241).................................................... 4,709,241
------------
Total investments.............................................. 28,592,116
Cash............................................................. 3,035
Receivables:
Dividends....................................................... 53,620
Shares sold..................................................... 42,242
Deferred organizational expenses -- Note A....................... 23,691
Prepaid expenses................................................. 1,326
------------
Total Assets................................................... $28,716,030
============
LIABILITIES:
Payables:
Investments..................................................... $ 284,254
Due to advisor -- Note B........................................ 57,280
Organizational expenses -- Note A............................... 29,550
Dividends payable............................................... 15,947
Shares redeemed................................................. 3,258
Accrued expenses................................................. 66,520
------------
Total Liabilities.............................................. 456,809
------------
CAPITAL:
Common stock ($.001 par value; 150,000,000 shares authorized and
1,399,281 shares issued and outstanding)........................ 1,400
Paid-in surplus.................................................. 20,591,377
Net unrealized appreciation on investments....................... 7,667,769
Distributions in excess of net investment income -- Note A....... ( 1,325)
------------
Total Capital (Net Assets) (equivalent to $20.20 per share).... 28,259,221
------------
Total Liabilities and Capital.................................. $28,716,030
============
</TABLE>
See notes to financial statements.
5
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends........................................................ $ 422,766
Interest......................................................... 196,517
-----------
Total investment income........................................ 619,283
EXPENSES:
Management fees -- Note B........................................ 193,004
Custodian fees................................................... 50,630
Audit fees....................................................... 37,680
12b-1 expenses -- Note B......................................... 37,325
Transfer Agent fees.............................................. 30,970
Directors' fees.................................................. 23,900
Organizational expenses -- Note A................................ 23,243
Legal fees....................................................... 16,315
Insurance expense................................................ 15,122
Shareholder reports.............................................. 12,830
Filing fees...................................................... 4,120
Trade Association................................................ 1,840
-----------
446,979
Waiver of management fee by Adviser -- Note B.................... ( 24,783)
-----------
Total expenses................................................. 422,196
-----------
Net investment income........................................ 197,087
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments -- Note A....................... 919,975
Change in unrealized appreciation on investments................. 5,335,064
-----------
Net gain on investments........................................ 6,255,039
-----------
Net increase in net assets resulting from operations......... $6,452,126
===========
</TABLE>
See notes to financial statements.
6
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the year ended
December 31,
1995 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income............................. $ 197,087 $ 149,934
Net realized gain on investments.................. 919,975 117,418
Net change in unrealized appreciation on
investments...................................... 5,335,064 265,872
------------ ------------
Net increase in net assets from operations...... 6,452,126 533,224
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................. ( 196,792) ( 149,934)
Realized gain from investment transactions........ ( 811,088) ( 0)
Distributions in excess of net investment income.. ( 0) ( 1,071)
------------ ------------
Total distributions............................. ( 1,007,880) ( 151,005)
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from 49,498 and 9,146 shares issued in
reinvestment of dividends, respectively.......... 991,935 146,516
Proceeds from 446,320 and 107,940 shares sold,
respectively..................................... 8,924,169 1,688,277
Cost of 377,902 and 350,126 shares repurchased,
respectively..................................... ( 7,576,898) ( 5,499,786)
------------ ------------
Net increase (decrease) in net assets from
capital share transactions..................... 2,339,206 ( 3,664,993)
------------ ------------
Total increase (decrease) in net assets........ 7,783,452 ( 3,282,774)
NET ASSETS:
Beginning of year................................. 20,475,769 23,758,543
------------ ------------
End of year (includes distributions in excess of
net investment income of ($1,325) and ($1,621),
respectively).................................... $28,259,221 $20,475,769
============ ============
</TABLE>
See notes to financial statements.
7
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A -- ACCOUNTING POLICIES
Hilliard Lyons Growth Fund, Inc. (the "Fund") is a diversified open-end
management investment company registered under the Investment Company Act of
1940, as amended. The Fund was incorporated under the laws of the state of
Maryland and commenced operations on January 6, 1992. The following is a
summary of significant accounting policies followed by the Fund in preparation
of its financial statements.
SECURITY VALUATION: Securities traded on a national securities exchange or
traded over-the-counter and quoted on the NASDAQ System are valued at last
sales prices. Securities so traded for which there were no sales and other
securities are valued at the mean of the most recent bid-asked quotations
except that bonds not traded on a securities exchange nor quoted on the NASDAQ
System will be valued at prices provided by a recognized pricing service unless
the Adviser believes that such price does not represent a fair value. Each
money market instrument having a maturity of 60 days or less from the valuation
date is valued on an amortized cost basis. Other securities and assets will be
valued at fair value, as determined in good faith by the Adviser under
procedures established by, and under the supervision and responsibility of, the
Fund's Board of Directors.
Normally, repurchase agreements are not subject to trading. U.S. Government
obligations pledged as collateral for repurchase agreements are held by the
Fund's custodian bank until maturity of the repurchase agreement. Provisions of
the agreement provide that the market value of the collateral is sufficient in
the event of default; however, in the event of default or bankruptcy by the
other party to the agreement, realization and/or retention of the collateral
may be subject to legal proceedings.
FEDERAL INCOME TAXES: It is the policy of the Fund 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. The Fund intends to utilize provisions of Federal income
tax laws which allow a realized capital loss to be carried forward for eight
years following the year of loss and offset such losses against any future
realized gains. At December 31, 1995, the Fund did not have a tax-basis capital
loss carryforward. In addition, from November 1, 1995 through December 31,
1995, the Fund did not incur any net realized capital losses. If the Fund had
incurred net capital losses during this period, as permitted by tax
regulations, the Fund would elect to defer these losses and treat them as
arising in the fiscal year ended December 31, 1996.
DIVIDEND POLICY: It is the policy of the Fund to make distributions annually of
its net investment income and its net realized capital gains, if any, at the
end of the year in which earned or at the beginning of the next year. Dividends
and capital gain distributions will normally be reinvested in additional shares
at net asset value without a sales charge, unless otherwise elected at
purchase.
DEFERRED ORGANIZATIONAL EXPENSES: Deferred organizational expenses included on
the statement of assets and liabilities include organizational costs incurred
during the start up of the Fund that J. J. B. Hilliard, W. L. Lyons, Inc., the
Distributor, had paid for the Fund. It is the policy of the Fund that the Fund
will reimburse these organizational expenses. These expenses are being
amortized using the straight-line method over sixty (60) months.
The Distributor has agreed that in the event that any of the initial 34,990
shares that it purchased are redeemed during the period of amortization of the
Fund's organizational and start-up expenses, the redemption proceeds will be
reduced by any such unamortized organizational expenses in the same proportion
as the number of initial shares being redeemed bears to the number of initial
shares outstanding at the time of redemption.
8
<PAGE>
OTHER: The accounts of the Fund are kept on the accrual basis of accounting.
Security transactions are recorded on the trade date. Realized gains or losses
from sales of securities are determined on the specific identified cost basis.
Dividend income is recognized on the ex-dividend date.
NOTE B -- INVESTMENT ADVISORY AGREEMENT
The investment adviser, Hilliard Lyons Investment Advisors (the "Adviser") is
a division of J. J. B. Hilliard, W. L. Lyons, Inc. which owns 37,098 shares of
the Fund. Under the Investment Advisory Agreement, the Adviser receives a fee,
accrued daily and paid quarterly, at an annual rate of .80% of the Fund's
average daily net assets. The Adviser has voluntarily agreed to reduce the fee
payable to it under the Advisory Agreement and, if necessary, reimburse the
Fund on a quarterly basis, by the amount by which the Fund's total annualized
operating expenses (exclusive of taxes, interest, brokerage commissions and
extraordinary expenses but including the Adviser's compensation) for the
fiscal year ending December 31, 1995 exceed 1.75% of the first $50 million of
average daily net assets and 1.50% of average daily net assets in excess of
$50 million. For the year ended December 31, 1995, there was no reimbursement
necessary from the Adviser and the waiver of the management fee amounted to
$24,783.
The Fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "Plan"). Under the Plan, the
Fund reimburses the Distributor quarterly at an annualized rate of up to .25%
of the Fund's average daily net assets for distribution expenses actually
incurred provided the expenses for which reimbursement is made are primarily
intended to result in the sale of Fund shares and are approved by the Fund's
Board of Directors. Expenses for which the Distributor may be reimbursed under
the Plan include, but are not limited to, payments to investment brokers of
the Distributor and to authorized dealers for distribution of shares of the
Fund and for promotion of the maintenance of holdings by established
stockholders and stockholder servicing.
For transactions executed during the year ended December 31, 1995, the Fund
incurred brokerage commissions of $14,643 of which $405 was paid to J. J. B.
Hilliard, W. L. Lyons, Inc., an affiliated corporation. Additionally, J. J. B.
Hilliard, W. L. Lyons, Inc., the Distributor, received sales charges of
approximately $48,601. The Hilliard Lyons profit sharing plan, as directed by
each participant, owns 310,542 shares of the Fund as of December 31, 1995.
No compensation is paid by the Fund to officers and directors of the Fund who
are affiliated with the Adviser or Hilliard Lyons. The Fund pays each
unaffiliated director an annual retainer of $5,000 and a fee of $500 for each
Board or Committee meeting attended and certain expenses the directors incur
in attending meetings.
NOTE C -- PORTFOLIO TRANSACTIONS
For the year ended December 31, 1995, purchases and proceeds from sale of
investment securities (excluding short-term securities) were $5,702,325 and
$6,332,153, respectively.
The cost of investments for Federal income tax purposes and financial
reporting is the same. At December 31, 1995, the gross unrealized appreciation
and depreciation on investments was $7,754,993 and $87,224, respectively,
resulting in net unrealized appreciation of $7,667,769.
9
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share of capital stock
outstanding throughout each period and other performance information derived
from the financial statements. It should be read in conjunction with the
financial statements and notes thereto.
<TABLE>
<CAPTION>
Period from
January 6,
For the year ended 1992* to
December 31, December 31,
1995 1994 1993 1992
-------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period.... $ 15.98 $ 15.69 $ 15.19 $ 14.29
-------- -------- -------- --------
Net investment income... 0.15 0.12 0.13 0.10
Net realized and change
in unrealized gain on
investments............ 4.82 0.29 0.50 0.90
-------- -------- -------- --------
Total from investment
operations............. 4.97 0.41 0.63 1.00
-------- -------- -------- --------
Less dividends from net
investment income...... ( 0.15) ( 0.12) ( 0.13) ( 0.10)
Less dividends from net
realized capital gains. ( 0.60) ( 0.00) ( 0.00) ( 0.00)
-------- -------- -------- --------
Total distributions..... ( 0.75) ( 0.12) ( 0.13) ( 0.10)
-------- -------- -------- --------
Net asset value:
End of period.......... $ 20.20 $ 15.98 $ 15.69 $ 15.19
======== ======== ======== ========
Total Investment
Return(1).............. 31.10% 2.60% 4.13% 7.09%**
SIGNIFICANT RATIOS AND
SUPPLEMENTAL DATA
Operating expenses to
average net assets..... 1.75%(c) 1.75%(b) 1.75% 1.71%**(a)
Net investment income to
average net assets..... .82%(c) .68%(b) .75% 1.07%**(a)
Portfolio turnover rate. 27.50% 20.10% 59.64% 19.63%
Net assets, end of
period (000s omitted).. $28,259 $20,476 $23,758 $22,404
</TABLE>
(a) Net of voluntary expense reimbursement and management fee waiver by the
Adviser. If the Fund had borne all expenses that were assumed by the
Adviser and paid the full management fee, the annualized ratios of expenses
and net investment income to average net assets would have been 2.76% and
0.02%, respectively, for the period January 6, 1992 through December 31,
1992.
(b) Net of voluntary management fee waiver by the Adviser. If the Fund had paid
the full management fee, the annualized ratios of expenses and net
investment income to average net assets would have been 1.94% and 0.50%,
respectively, for the year ended December 31, 1994.
(c) Net of voluntary management fee waiver by the Adviser. If the Fund had paid
the full management fee, the annualized ratios of expenses and net
investment income to average net assets would have been 1.85% and 0.71%,
respectively, for the year ended December 31, 1995.
(1) Excludes maximum sales charge of 4.75%.
* Commencement of operations
** Annualized
10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Directors and Shareholders
Hilliard Lyons Growth Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Hilliard Lyons Growth Fund, Inc., including the schedule of investments, as of
December 31, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and financial highlights for each of the three years in the
period then ended, and for the period from January 6, 1992 (commencement of
operations) to December 31, 1992. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Hilliard Lyons Growth Fund, Inc. at December 31, 1995, the results of its
operations for the year ended, the changes in its net assets for each of the
two years in the period then ended, and financial highlights for each of the
three years in the period then ended, and for the period from January 6, 1992
(commencement of operations) to December 31, 1992, in conformity with generally
accepted accounting principles.
LOGO SIGNATURE OF Ernst & Young LLP
Louisville, Kentucky
January 12, 1996
11
<PAGE>
Appendix A
DESCRIPTION OF SECURITIES RATINGS
---------------------------------
Standard & Poor's Corporation
- -----------------------------
AAA: Debt rated AAA has the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC: Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Moody's Investors Service, Inc.
- -------------------------------
Aaa: Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are
<PAGE>
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements,
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated
as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's Investors Services, Inc.'s publications.
<PAGE>
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be formed;
if a bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believe
possess the strongest investment attributes are designated by the symbols Aa-1,
A-1, Baa-1, Ba-1 and B-1.
<PAGE>
PART C
OTHER INFORMATION
-----------------
ITEM 24. Financial Statements and Exhibits
---------------------------------
a) Financial Statements included in Part B:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statements of Changes in Net Assets
b) Exhibits:
(1) Articles of Incorporation.*
(2) Bylaws.*
(3) Not applicable.
(4) Not applicable.
(5) (a) Investment Advisory Agreement between Registrant and
Hilliard Lyons Investment Advisors, a division of J.J.B.
Hilliard, W.L. Lyons, Inc.*
(b) Amendment No. 1 to Investment Advisory Agreement.*
(6) (a) Distribution Agreement between Registrant and J.J.B.
Hilliard, W.L. Lyons, Inc.*
(b) Amendment No. 1 to Distribution Agreement.*
(c) Form of Sales Agreement between J.J.B. Hilliard, W.L.
Lyons, Inc. and selected dealers.*
(7) Not applicable.
____________________
*Previously filed.
1
<PAGE>
(8) Form of Custodian Agreement between Registrant and State Street
Bank and Trust Company.*
(9) Form of Transfer Agency and Service Agreement between Registrant
and State Street Bank and Trust Company.*
(10) Opinion and consent of Hirn Reed Harper & Eisinger, counsel to
the Fund.*
(11) Consent of Ernst & Young LLP, Independent Auditors.
(12) Not applicable.
(13) Subscription Agreement with initial stockholder.*
(14) Not applicable.
(15) Amended and Restated Distribution Plan pursuant to Rule 12b-1.*
(16) Not applicable.
(17) Not applicable.
____________________
*Previously filed.
ITEM 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
None.
ITEM 26. Number of Holders of Securities
-------------------------------
As of February 29, 1996, the number of record holders of the Registrant's
shares of common stock was approximately 1,405.
ITEM 27. Indemnification
---------------
Reference is made to Article IX of Registrant's Articles of Incorporation
and Article V of Registrant's Bylaws which are filed as exhibits to this
Registration Statement.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the
2
<PAGE>
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a director, officer or controlling
person of Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Pursuant to the Distribution Agreement, as amended, between the Fund and
J.J.B. Hilliard, W.L. Lyons, Inc. (the "Distributor"), the Fund is required to
indemnify and hold harmless the Distributor and each person, if any, who
controls the Distributor against any loss, liability, claim, damage or expense
(including the reasonable cost of investigating or defending any alleged loss,
liability, claim, damage or expense and reasonable counsel fees incurred in
connection therewith), arising by reason of any person acquiring any shares of
the Fund, which may be based upon the Securities Act of 1933, or on any other
statute or at common law, on the ground that the Fund's Registration Statement
or related Prospectus and Statement of Additional Information, as from time to
time amended and supplemented, or an annual or interim report to stockholders of
the Fund, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon, and in conformity with, information furnished to the Fund in
connection therewith by or on behalf of the Distributor.
ITEM 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
J.J.B. Hilliard, W.L. Lyons, Inc., through its division, Hilliard Lyons
Investment Advisors, is the investment adviser of the Registrant. For
information concerning the business, profession, vocation or employment of a
substantial nature of J.J.B. Hilliard, W.L. Lyons, Inc., reference is made to
Form ADV filed by it under the Investment Advisers Act of 1940.
Set forth below is a list as of March 30, 1996 of all directors and of all
officers (at the Executive Vice President level and above) of J.J.B. Hilliard,
W.L. Lyons, Inc. and the name and business address of the company (if any),
other than J.J.B. Hilliard, W.L. Lyons, Inc. and its affiliates, with which each
such individual has been connected since January 1, 1995, as well as the
capacity in which such individual was connected:
3
<PAGE>
Name and Title of Name and Address of
Officer or Director Company with which
of J.J.B. Hilliard, Officer or Director
W.L. Lyons, Inc. Is Connected Capacity
- ---------------- ------------------ --------
James M. Rogers none
Executive Vice
President
Donald F. Kohler Hilliard-Lyons director
Executive Vice Government Fund, Inc.
President and director Hilliard Lyons Center
Louisville, KY 40202
Chester B. Stem Inc. director
P.O. Box 69
New Albany, IN 47150
James R. Allen
Executive Vice
President and director none
James C. Stone III none
Executive Vice
President, Treasurer
and director
4
<PAGE>
James W. Stuckert Royal Gold, Inc. director
Chairman of the Board, 1600 Wynkoop Street
President and director Suite 1000
Denver, CO 80202
DataBeam Corporation director
3256 Lochness Drive
Lexington, KY 40517
J.J. Skinner, Inc. director
1595 Starks Building
Louisville, KY 40202
Kenneth W. Moore Hadley Pottery, President
Senior Vice President, Incorporated
Secretary and director 1570 Story Avenue
Louisville, KY 40206
Stephen L. Grossman none
Senior Vice President,
Investment Broker and director
Samuel C. Harvey none
Executive Vice President
and director
G. Michael Perros 301 West Main Street General Partner
First Vice President, Partners Commercial
Investment Broker Real Estate
and director
F. James Walker none
Senior Vice President
and director
5
<PAGE>
In addition to the foregoing connections, all of the directors of J.J.B.
Hilliard, W.L. Lyons, Inc. serve as directors of Hilliard-Lyons, Inc., the
parent of J.J.B. Hilliard, W.L. Lyons, Inc., and some of the directors and
officers of J.J.B. Hilliard, W.L. Lyons, Inc. serve as officers of Hilliard-
Lyons, Inc. and as directors or officers, or both, of other subsidiaries of
Hilliard-Lyons, Inc., each of which subsidiaries, other than Hilliard Lyons
Trust Company, is organized for the purpose of carrying out the investment
banking activities of J.J.B. Hilliard, W.L. Lyons, Inc. or activities in support
thereof.
ITEM 29. Principal Underwriters
----------------------
(a) J.J.B. Hilliard, W.L. Lyons, Inc. is Registrant's principal
underwriter. J.J.B. Hilliard, W.L. Lyons, Inc. currently serves as
investment adviser and principal underwriter of Hilliard-Lyons
Government Fund, Inc., an open-end money market 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:
Positions
Name and Principal Positions and Offices and Offices
Business Address with Underwriter with Registrant
- ---------------------- --------------------- ---------------
James M. Rogers Executive Vice none
Hilliard Lyons Center President
Louisville, KY 40202
James R. Allen Executive Vice none
Hilliard Lyons Center President; Manager,
Louisville, KY 40202 Branch and Marketing
Administration and director
Donald F. Kohler Executive Vice Chairman of
Hilliard Lyons Center President and director the Board
Louisville, KY 40202
Robert M. Lee Executive Vice none
Hilliard Lyons Center President; Manager,
Louisville, KY 40202 Fixed Income Group
and director
6
<PAGE>
James C. Stone III Executive Vice none
Hilliard Lyons Center President, General
Louisville, KY 40202 Counsel, Treasurer;
Manager, Operations
Department and director
James W. Stuckert Chairman of the Board; none
Hilliard Lyons Center President, and director
Louisville, KY 40202
Kenneth W. Moore Senior Vice President none
Hilliard Lyons Center and Secretary; Invest-
Louisville, KY 40202 ment Broker and director
Samuel C. Harvey Executive Vice President; President
Hilliard Lyons Center Manager, Investment
Louisville, KY 40202 Management Group and director
Stephen L. Grossman Senior Vice President; none
106 West Vine Street Investment Broker
Lexington, KY 40507 and director
G. Michael Perros Senior Vice President; none
446 East Main Street Investment Broker
Danville, KY 42101 and director
F. James Walker Senior Vice President; none
Hilliard Lyons Center Manager, Financial Services
Louisville, KY 40202 Group and director
(c) Not applicable.
ITEM 30. Location of Accounts and Records
--------------------------------
All such accounts, books and other documents are maintained at the office
of State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02105 and Hilliard Lyons Growth Fund, Inc., Hilliard Lyons Center,
Louisville, Kentucky 40202.
ITEM 31. Management Services
-------------------
Not applicable.
7
<PAGE>
ITEM 32. Undertakings
------------
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to furnish to each person to whom a
prospectus is delivered with a copy of Registrant's latest annual
report to shareholders, upon request and without change.
8
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(a)(1) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment No. 5 to the Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Louisville
and Commonwealth of Kentucky, on the 8th day of March, 1996.
HILLIARD LYONS GROWTH FUND, INC.
By: /S/ SAMUEL C. HARVEY
___________________________
Samuel C. Harvey, President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 5 to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
*/s/ DONALD F. KOHLER Chairman of the Board of March 8, 1996
__________________________ Directors (Principal
Donald F. Kohler Executive Officer)
/s/ SAMUEL C. HARVEY
__________________________ President March 8, 1996
Samuel C. Harvey
*/s/ JOSEPH C. CURRY, JR. Vice President and Treasurer March 8, 1996
__________________________ (Principal Financial Officer
Joseph C. Curry, Jr. and Principal Accounting Officer)
*/s/ WILLIAM A. BLODGETT, JR. Director March 8, 1996
_____________________________
William A. Blodgett, Jr.
*/s/ JOHN C. OWENS Director March 8, 1996
__________________________
John C. Owens
*/s/ GILBERT L. PAMPLIN Director March 8, 1996
__________________________
Gilbert L. Pamplin
*/s/ DILLMAN A. RASH Director March 8, 1996
__________________________
Dillman A. Rash
<PAGE>
*By: /s/ SAMUEL C. HARVEY
--------------------
Samuel C. Harvey,
Attorney-in-Fact pursuant
to Power of Attorney
previously filed with
the Commission
10
<PAGE>
EXHIBIT INDEX
-------------
Exhibits:
- --------
(1) Articles of Incorporation.*
(2) Bylaws.*
(3) Not applicable.
(4) Not applicable.
(5) (a) Investment Advisory Agreement between Registrant and Hilliard Lyons
Investment Advisors, a division of J.J.B. Hilliard, W.L. Lyons, Inc.*
(b) Amendment No. 1 to Investment Advisory Agreement.*
(6) (a) Distribution Agreement between Registrant and J.J.B. Hilliard, W.L.
Lyons, Inc.*
(b) Amendment No. 1 to Distribution Agreement.*
(c) Form of Sales Agreement between J.J.B. Hilliard, W.L. Lyons, Inc. and
selected dealers.*
(7) Not applicable.
(8) Form of Custodian Agreement between Registrant and State Street Bank
and Trust Company.*
(9) Form of Transfer Agency and Service Agreement between Registrant and
State Street Bank and Trust Company.*
(10) Opinion and consent of Hirn Reed Harper & Eisinger, counsel to the
Fund.*
(11) Consent of Ernst & Young LLP, Independent Auditors.
(12) Not applicable.
____________________
*Previously filed.
11
<PAGE>
(13) Subscription Agreement with initial stockholder.*
(14) Not applicable.
(15) Amended and Restated Distribution Plan pursuant to Rule 12b-1.*
(16) Not applicable.
(17) Not applicable.
____________________
*Previously filed.
12
<PAGE>
Exhibit 11
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 5 to Registration Statement (Form N-1A, Number 33-43177) of Hilliard
Lyons Growth Fund, Inc., of our report dated January 12, 1996.
/s/ Ernst & Young LLP
--------------------------
ERNST & YOUNG LLP
Louisville, Kentucky
March 12, 1996
