HILLIARD LYONS GROWTH FUND INC, 497, 1997-05-08

HILLIARD LYONS GROWTH FUND INC
497, 1997-05-08

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HILLIARD LYONS GROWTH FUND, INC.

Hilliard Lyons Center
Louisville, Kentucky 40202
Telephone: (502) 588-8400
(800) 444-1854

PROSPECTUS
APRIL 28, 1997

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 28, 1997, 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.

----------------

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.................................................................. 10
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. As a non-diversified fund, the Fund's portfolio may be more
concentrated than the portfolio of a diversified fund. Because of this, the
Fund may experience greater volatility in investment performance. 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, 1996, 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................................. 0.74%(4)
Distribution (Rule 12b-1) Fee................................... 0.13%
Other Expenses (audit, legal, stockholder services, transfer
agent and custodian)............................................ 0.71%
Total Operating Expenses After Fee Waiver....................... 1.58%(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, 1997, 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
1.30% of average daily net assets. The Adviser also agreed to limit fees
for the year ended December 31, 1996. If the Adviser had not so agreed,
the ratio of total operating expenses to average daily net assets for the
year would have been 1.64% and the ratio of the management fee to average
daily net assets for the year would have been .80%. See "Management".

----------------

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.
<TABLE>
<S> <C>
One Year..................................... $ 63
Three Years.................................. $ 96
Five Years................................... $132
Ten Years.................................... $238
</TABLE>

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%.

3
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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
JANUARY 6,
FOR THE YEAR ENDED DECEMBER 31, 1992* TO
----------------------------------------------- DECEMBER 31,
1996 1995 1994 1993 1992
-------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period.... $20.20 $ 15.98 $15.69 $15.19 $14.29
-------- -------- -------- -------- --------
Net investment income... 0.11 0.15 0.12 0.13 0.10
Net realized and change
in unrealized gain on
investments............ 3.92 4.82 0.29 0.50 0.90
-------- -------- -------- -------- --------
Total from investment
operations............. 4.03 4.97 0.41 0.63 1.00
-------- -------- -------- -------- --------
Less dividends from net
investment income...... ( 0.11) ( 0.15) ( 0.12) ( 0.13) ( 0.10)
Less dividends from net
realized capital gains. ( 1.17) ( 0.60) ( 0.00) ( 0.00) ( 0.00)
-------- -------- -------- -------- --------
Total distributions..... ( 1.28) ( 0.75) ( 0.12) ( 0.13) ( 0.10)
-------- -------- -------- -------- --------
Net asset value:
End of period.......... $22.95 $20.20 $15.98 $15.69 $15.19
======== ======== ======== ======== ========
Total Investment
Return(1).............. 19.98% 31.10% 2.60% 4.13% 7.09%**

SIGNIFICANT RATIOS AND
SUPPLEMENTAL DATA
Operating expenses to
average net assets..... 1.58%(d) 1.75%(c) 1.75%(b) 1.75% 1.71%**(a)
Net investment income to
average net assets..... .52%(d) .82%(c) .68%(b) .75% 1.07%**(a)
Portfolio turnover rate. 18.79% 27.50% 20.10% 59.64% 19.63%
Average commission rate
paid per share......... $0.0600 $0.0604 $0.0609 $0.0705 $0.0706
Net assets, end of
period (000s omitted).. $35,628 $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.
(d) 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 1.64% and .45%,
respectively, for the year ended December 31, 1996.

(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 must, however, comply with the diversification requirements imposed by
the Internal Revenue Code of 1986, as amended (the "Code"). As a non-
diversified fund, the Fund's portfolio may be more concentrated than the
portfolio of a diversified fund. Because of this the Fund may experience
greater volatility in investment performance. 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 the 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. In addition, when the Adviser believes that market conditions
warrant it, the Fund has adopted a policy whereby it may take a temporary

5
<PAGE>

defensive posture and may hold part or all of its assets in cash or fixed
income securities that will generally have less than a year 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 or Aa
by Moody's Investors Service.

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 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.

6
<PAGE>

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
---- ---------------------- --------------------
<S> <C> <C>
Donald F. Investment Consultant
Kohler Chairman of the Board of
(1)(2) Directors
Gilbert Director Investment Consultant
L.
Pamplin
(1)(2)
Samuel C. President Executive Vice President and Director of
Harvey Hilliard Lyons
Joseph C. Senior Vice President of Hilliard Lyons
Curry, Vice President,
Jr. (2) Treasurer and Secretary
Thomas A. Vice President of Hilliard Lyons
Corea Vice President
Dianna P. Vice President of Hilliard Lyons
Wengler Vice President
William Director Vice President, Deputy General Counsel
A. Brown-Forman Corporation,
Blodgett, Louisville, Kentucky
Jr.
John C. Director Private Investor, formerly Managing Partner
Owens of Owens and Company, Certified Public
Accountants, Lexington, Kentucky
Dillman Director Investment Consultant, Major General
A. Rash (Retired), U.S. Army
(2)
</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, 1996 of approximately $480,000,000. As of December 31, 1996, the
Adviser and its affiliates managed individual, corporate, fiduciary and
institutional accounts with assets aggregating approximately $2,634,000,000.

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 is the Executive
Vice-President and a Director of Hilliard Lyons and was the head of the
Investment Management Group (IMG) of Hilliard Lyons from January 1, 1993 until
August 30, 1996. 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.

7
<PAGE>

The Adviser bears all expenses of its employees and overhead incurred by it
in connection with its duties under the 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.

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, on an
annualized basis, exceeded 1.75% for the period from January 1, 1996 to October
14, 1996 and 1.30% for the period from October 15, 1996 to December 31, 1996.
For the year ending December 31, 1996, there was no reimbursement necessary
from the Adviser and the waiver of the management fee amounted to $19,678. With
the management fee waiver, total operating expenses for the year ending
December 31, 1996 amounted to 1.58% of average daily net assets. Had there been
no management fee waiver, total operating expenses would have been 1.64% 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 Fund paid trail fees to the Distributor in the amount of
$37,833 for the year ending December 31, 1996. 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

8
<PAGE>

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 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.

9
<PAGE>

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
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

10
<PAGE>

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.

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.

11
<PAGE>

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
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.

12
<PAGE>

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 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.

13
<PAGE>

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 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 name 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.

14
<PAGE>

CONTINGENT DEFERRED SALES CHARGE ON CERTAIN REDEMPTIONS. Purchases of $1
million or more are not subject to an initial sales charge; however, a
contingent deferred sales charge is payable on these investments in the event
of a share redemption within 12 months following the share purchase, at the
rate of 1% of the lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the total cost of such
shares. In determining whether a contingent deferred sales charge is payable,
and the amount of the charge, it is assumed that shares purchased with
reinvested dividend and capital gain distributions and then other shares held
the longest are the first redeemed. 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 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

15
<PAGE>

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 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, U.S. 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 U.S.
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

16
<PAGE>

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".

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

17
<PAGE>

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.

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.
- -------------------------------------------------------------------------------
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
(Fund Account Number if known)
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
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 NameInitial Last Name Social
Right of Sur- [_] 3. Security No.
vivorship-- ------------------------------------- --------------
use Line 2 First Name Initial Last Name Tax I.D. No.
-------------- ------------------------------------------

Name of Officer, Managing Partner,
Corporation, Trustee or Custodian
Partnership, [_] 4.
Trust, or -------------------------------------- --------------
others in any Custodian's First
fiduciary or Name Initial Last Name
representative ------------------------------------------ --------------
capacity--use Minor's First Name Initial Last Minor's
Line 3 Name Social
-------------- Security No.

Under the ____________________ Uniform Gifts to Minors Act
Gifts to Mi-
nors--use
Line 4

State of Minor's Residence
--------------
2.ADDRESS
------------------------------------- -------------------------------------
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

19
<PAGE>

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 stockholder'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, Joint owner, Other Date
Trustee, Trustee,
etc. etc.

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)

20
<PAGE>

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21
<PAGE>

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22
<PAGE>

- ----------------------------------

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
Brown, Todd & Heyburn PLLC
3200 Providian Center
Louisville, KY 40202

- ----------------------------------
- ----------------------------------

[PROSPECTUS AND APPLICATION LOGO]

[LOGO HILLIARD LYONS]
HILLIARD LYONS
GROWTH FUND

APRIL 28, 1997

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 40202-2817
Telephone (502) 588-8400

__________________________

STATEMENT OF ADDITIONAL INFORMATION

Dated April 28, 1997

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 28, 1997 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.

<PAGE>

TABLE OF CONTENTS
-----------------

PAGE
----
<S> <C>

Investment Objective and Policies........................................ 3

Management............................................................... 12

Distribution Arrangements................................................ 16

Portfolio Transactions and Brokerage..................................... 19

Expenses of the Fund..................................................... 20

Dividends, Distributions and Taxes....................................... 21

Net Asset Value.......................................................... 23

Calculation of Investment Performance.................................... 24

Transfer Agent and Custodian............................................. 25

Counsel.................................................................. 25

Independent Auditors..................................................... 25

General Information...................................................... 25
</TABLE>

2
<PAGE>

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

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

3
<PAGE>

(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 has adopted a policy whereby it may take a temporary defensive posture and
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

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

4
<PAGE>

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 1997.

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
<PAGE>

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 1997.

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 1997.

6
<PAGE>

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 advantageous 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 1997.

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") or the availability of an appropriate exemption from
registration. 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
<PAGE>

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 1997.

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 1997.

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
<PAGE>

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 decreased from 27.5% for the year
ending December 31, 1995 to 18.8% for the year ending December 31, 1996.

Fundamental Policies

The Fund has adopted the following fundamental policies 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 policies, 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
<PAGE>

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 1933 Act, 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.

(17) Issue any senior securities.

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.

11
<PAGE>

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.

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

William A. Blodgett, Jr. Director Vice President, Deputy General
Brown-Forman Corporation Counsel of Brown-Forman Cor-
850 Dixie Highway poration since October 1994;
Louisville, KY 40210 Partner, Law Firm of Wood-
ward, 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 Investment Consultant; Executive
Hilliard Lyons Center the Board Vice President of Hilliard Lyons
Louisville, KY 40202 from 1986 to 1996 and Director
of Hilliard Lyons from 1981 to
1996

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 Lyons Center President, Hilliard Lyons since July 1994
Louisville, KY 40202 Secretary and and Vice 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, Invest-
Louisville, KY 40202 ment 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 Hilliard Lyons.

(2) Directors of Hilliard-Lyons Government Fund, Inc., an open-end money
market mutual fund, the investment adviser of which is Hilliard Lyons.

Compensation of Directors

The Fund pays each of its directors who is not affiliated with the Advisor
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.
Directors of the Fund who were not affiliated persons

13
<PAGE>

of the Fund as a group received aggregate compensation of $24,000 from the Fund
during its fiscal year ended December 31, 1996. The following table sets forth
information concerning compensation received by directors of the Fund during the
year ending December 31, 1996. At April 28, 1997, the officers and directors
of the Fund as a group owned beneficially 66,205 shares of the Fund (4.1% of the
shares outstanding).

<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Estimated Compensation
Aggregate Accrued as part Annual Benefits from Fund
Name of Perons, Compensation of Fund upon Paid to
Position From Fund Expenses Retirement Directors
- -------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Donald F. Kohler, $ 0 0 0 $ 0
Director

Gilbert L. Pamplin, $ 0 0 0 $ 0
Director

William A. Blodgett, $8,000 0 0 $8,000
Jr., Director

John C. Owens, $8,000 0 0 $8,000
Director

Dillman A. Rash, $8,000 0 0 $8,000
Director

</TABLE>

At April 28, 1997, J.J.B. Hilliard, W.L. Lyons, Inc. Employees Profit
Sharing Plan Fund D owned beneficially and of record 27.1% of the outstanding
shares of the Fund.

Investment Adviser

As stated in the Prospectus, the Adviser of 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 is located at Hilliard Lyons Center, Louisville, Kentucky
40202. 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

14
<PAGE>

Government Fund, Inc., an open-end money market fund with assets as of December
31, 1996 of approximately $480,000,000. As of December 31, 1996, the Adviser
and its affiliates managed individual, corporate, fiduciary and institutional
accounts with assets aggregating approximately $2,634,000,000.

The Adviser's administrative obligations pursuant to the 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 SEC 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, 1997, the Adviser voluntarily agreed to reduce the fees payable to
it under the 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 1.30% of average net assets. The Adviser also
agreed to limit fees payable to it under the Advisory Agreement during previous
years. 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, 1996, the advisory fees totaled $255,228, of which $19,678 was waived. For
the year ending December 31, 1995, the advisory fees totaled $193,004, of which
$24,783 was waived. For the year ending December 31, 1994, the advisory fees
totaled $175,323, of which $41,103 was waived.

The 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 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

15
<PAGE>

effective on January 2, 1992. It will continue in effect until March 31, 1998
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 Advisory Agreement or "interested
persons" (as such term is defined in the 1940 Act) of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement will terminate automatically if assigned (as defined in the
1940 Act) and is terminable at any time without penalty by the 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 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, 1996 and 1995, the
aggregate amounts of the Fund's sales charges were $101,176 and $48,601,
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

16
<PAGE>

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.

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 then 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 was a
reasonable likelihood that the Plan would 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

17
<PAGE>

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, 1996:

(a) printing of prospectus and financial reports for delivery to
other than current stockholders: $4,345; and

(b) trail fees to Hilliard Lyons brokers: $37,833.

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.

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 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.

<PAGE>

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.

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 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. 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.

<PAGE>

The Fund paid total brokerage commissions during the year ending December
31, 1996 of $13,275. During such year, no brokerage commissions were paid to any
broker: (a) which is an affiliated person of the Fund; (b) which is an
affiliated person of such person; or (c) an affiliated person of which is an
affiliated person of the Fund or Hilliard Lyons.

The Fund paid total brokerage commissions during the year ended December
31, 1995 of $14,643 of which $405 was paid to Hilliard Lyons. The Fund paid
total brokerage commissions during the year ended December 31, 1994 of $12,284
of which $3,880 was paid to Hilliard Lyons.

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.

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 are 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

<PAGE>

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.

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

<PAGE>

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 98% of its investment company taxable income (as defined in
the Code). In addition, the Fund must diversify its holdings so that, at the end
of each fiscal quarter, (i) at least 50% of the market value of the Fund's
assets is represented by cash, cash items, United States Government securities,
securities of other regulated investment companies and other securities with
such other securities limited, in respect of any one issuer, to an amount not
greater than 5% of the value of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than United States
Government securities or the securities of other regulated investment
companies). The Fund does not anticipate any difficulty in meeting these
requirements. Dividends out of net ordinary income and distributions of net
short-term capital gains are taxable to 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

<PAGE>

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.

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.

<PAGE>

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, 1996 of $22.95
per share, the maximum offering price per share was $24.09 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:

P(1+T)/n/=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.

24
<PAGE>

The table below provides investment results for the Fund for one year and
since inception. The results shown represent "total return" investment
performance, which assumes the reinvestment of all capital gains and income
dividends for the indicated periods. The tables do not make any allowance for
federal, state or local income taxes, which stockholders must pay on a current
basis.

Average Annual Return* for Hilliard Lyons Growth Fund
Percentage Change
-----------------
<TABLE>
<CAPTION>
Fiscal Periods Ended Hilliard Lyons
December 31, 1996 Growth Fund
-------------------- -----------
<S> <C>
1 Year 14.31%

Since Inception 11.36%

</TABLE>
* Returns have been reduced by the maximum sales charge of 4.75%.

The results should not be considered a representation of the total return
form an investment made in the Fund today. This information is provided to help
investors better understand the Fund and may not provide a basis for comparison
with other investments or mutual funds which use a different method to calculate
performance.

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 Brown,
Todd & Heyburn PLLC, 3200 Providian Center, 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

25
<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.

26
<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.

27
<PAGE>

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 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 characteristi cally 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.

28
<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.