HILLIARD LYONS GROWTH FUND INC, 485BPOS, 1998-04-17

HILLIARD LYONS GROWTH FUND INC
485BPOS, 1998-04-17

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<PAGE>

As filed with the Securities and
Exchange Commission on April 17, 1998

Registration No. 33-43177; 811-6423
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ___

Pre-Effective Amendment No. ___ ___

Post-Effective Amendment No. 9 x
--- ---

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 ___

Amendment No. 11 x
--- ---

(Check appropriate box or boxes)

HILLIARD LYONS GROWTH FUND, INC.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)

Hilliard Lyons Center
Louisville, Kentucky 40202
--------------------------------------------------
(Address of Principal Executive Offices)

Registrant's Telephone Number, including Area Code: (502) 588-8400
_____________________

Dianna P. Wengler
Vice President
HILLIARD LYONS GROWTH FUND, INC.
Hilliard Lyons Center
Louisville, Kentucky 40202
---------------------------------

With a copy to:
William G. Strench
Brown, Todd & Heyburn PLLC
400 West Market Street
Suite 3200
Louisville, Kentucky 40202
--------------------------

___________________________

It is proposed that this filing will become effective:

___ immediately upon filing pursuant to paragraph (b) of Rule 485
x on April 18, 1998 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485

___ on __________ pursuant to paragraph (a)(1) of Rule 485
___ 75 days after filing pursuant to paragraph (a)(2) of Rule 485
___ on _____________ pursuant to paragraph (a)(2) of Rule 485

If appropriate, check the following box:

___ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment

<PAGE>

HILLIARD LYONS GROWTH FUNDS, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET

PART A
------

Items in Part A
of Form N-1A Prospectus Caption
------------ ------------------

1 Cover Page

2 Summary of Expenses

3 Financial Highlights; The Fund's Performance

4 Cover Page; The Fund and Its Investment Objective and
Policies; General Information

5 Summary of Expenses; Financial Highlights; Management;
Expenses of the Fund; Brokerage; Back Cover Page

6 Sales Charge; Dividends, Distributions and Taxes;
General Information

7 Distribution Arrangements; Purchase of Shares; Net Asset
Value; Back Cover Page

8 Redemption of Shares

9 *

PART B
------

Items in Part B
of Form N-1A Statement of Additional Information Caption
------------ -------------------------------------------
10 Cover Page

11 Table of Contents

12 *

13 Investment Objective and Policies

14 Management

15 General Information

16 Management; Distribution Arrangements; Transfer Agent
and Custodian

17 Portfolio Transactions and Brokerage

18 General Information

19 Net Asset Value; See Prospectus - Purchase of Shares;
See Prospectus - Redemption of Shares

20 Dividends, Distributions and Taxes

21 Distribution Arrangements

22 Calculation of Investment Performance

23 Report of Independent Auditors;
Statement of Assets and Liabilities

PART C
------

Information required to be included in Part C is set
forth under the appropriate Item, so numbered, in Part C
to this Registration Statement.

*Omitted since answer is negative or inapplicable.
<PAGE>

HILLIARD LYONS GROWTH FUND, INC.

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

PROSPECTUS

APRIL 20, 1998

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 20, 1998, 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.

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

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
Sales Charge............................................................... 11
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 offers two classes of shares of a single investment portfolio to
provide investors with different purchase options. These are shares of Class A
Common Stock, $.001 par value per share ("Class A Shares"), and shares of
Class B Common Stock, $.001 par value per share ("Class B Shares"), which are
described in this prospectus. The Class A Shares 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. Class A Shares may be redeemed
without charge at their net asset value. The Class B Shares may be purchased
at the current net asset value, subject to a Rule 12b-1 distribution fee and a
contingent deferred sales charge that declines from 4.75% to 0% on certain
redemptions made within six years of purchase. Class B Shares automatically
convert into Class A Shares (which have lower ongoing expenses) seven years
after purchase.

2
<PAGE>

The primary distinctions among Class A Shares and Class B Shares lie in
their initial and contingent deferred sales charge schedules and in their
ongoing expenses, including asset-based sales charges in the form of Rule 12b-
1 distribution fees. See "Sales Charge," "Purchase of Shares" and "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."

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 holder of Class A Shares or Class B Shares, and the Fund's
actual operating expenses for the year ended December 31, 1997, except as
noted. For further information about the Fund's expenses, see "Expenses of the
Fund" and "Management."

<TABLE>
<S> <C> <C>
STOCKHOLDER TRANSACTION EXPENSES:
<CAPTION>
CLASS A CLASS B
-------- -------------------------
<S> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering
price)................................ 4.75%(1) None
Sales Charge Imposed on Reinvested
Dividends............................. None None
Maximum Deferred Sales Charge (as a
percentage of original purchase price
or redemption proceeds, whichever is None(2) 4.75% in 1st year
lower)................................ 3.75% in 2nd year
2.75% in 3rd and 4th year
1.75% in 5th year
None thereafter(3)
Redemption Fees....................... None(4) None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net
assets)
Management Fee After Fee Waiver....... 0.73%(5) 0.73(5)(6)
Distribution (Rule 12b-1) Fee......... 0.13% 0.88(6)
Other Expenses (audit, legal,
stockholder services, transfer agent
and custodian)........................ 0.44% 0.44(6)
Total Operating Expenses After Fee
Waiver................................ 1.30%(5) 2.05(5)(6)
</TABLE>
- --------
(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) Class B Shares automatically convert to Class A Shares at the end of the
month which precedes the 7th anniversary of the purchase date.

(4) A transaction fee of $5.00 may be charged for redemption proceeds paid by
wire.

3
<PAGE>

(5) For the year ending December 31, 1998, 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 attributable to the Class A
Shares for such fiscal year exceed 1.30% of the average daily net assets
attributable to the Class A Shares and by which the Fund's total annual
operating expenses attributable to the Class B Shares for such fiscal year
exceed 2.05% of the average daily net assets attributable to the Class B
Shares. The Adviser also agreed to limit fees for the year ended December
31, 1997. If the Adviser had not so agreed, the ratio of total operating
expenses to average daily net assets for the year would have been 1.40%
for the Class A Shares and 2.15% for the Class B Shares and the ratio of
the management fee to average daily net assets for both the Class A Shares
and Class B Shares for the year would have been .80%. See "Management."

(6) Represents the operating expenses that would be attributable to the Class
B Shares if they had been outstanding during the year ended December 31,
1997.

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

EXAMPLE. You would pay the following total expenses on a $1,000 investment,
assuming 5% annual return (cumulatively through the end of each time period)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A (Assumes payment of maximum
sales charge of 4.75% of the
offering price)................... $ 63 $ 96 $132 $238
Class B
Assumes redemption at end of period... 61 69 90 226
Assumes no redemption at end of
period............................... 13 42 73 226
</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%.

4
<PAGE>

FINANCIAL HIGHLIGHTS

The following table includes selected data for a Class A Share 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,
1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period.... $22.95 $20.20 $15.98 $15.69 $15.19 $14.29
-------- -------- -------- -------- -------- --------
Net investment income... 0.12 0.11 0.15 0.12 0.13 0.10
Net realized and change
in unrealized gain on
investments............ 9.13 3.92 4.82 0.29 0.50 0.90
-------- -------- -------- -------- -------- --------
Total from investment
operations............. 9.25 4.03 4.97 0.41 0.63 1.00
-------- -------- -------- -------- -------- --------
Less dividends from net
investment income...... ( 0.12) ( 0.11) ( 0.15) ( 0.12) ( 0.13) ( 0.10)
Less dividends from net
realized capital gains. ( 1.79) ( 1.17) ( 0.60) ( 0.00) ( 0.00) ( 0.00)
-------- -------- -------- -------- -------- --------
Total distributions..... ( 1.91) ( 1.28) ( 0.75) ( 0.12) ( 0.13) ( 0.10)
-------- -------- -------- -------- -------- --------
Net asset value:
End of period.......... $30.29 $22.95 $20.20 $15.98 $15.69 $15.19
======== ======== ======== ======== ======== ========
Total Investment
Return(1).............. 40.41% 19.98% 31.10% 2.60% 4.13% 7.09%**

SIGNIFICANT RATIOS AND
SUPPLEMENTAL DATA
Operating expenses to
average net assets..... 1.30%(e) 1.58%(d) 1.75%(c) 1.75%(b) 1.75% 1.71%**(a)
Net investment income to
average net assets..... .49%(e) .52%(d) .82%(c) .68%(b) .75% 1.07%**(a)
Portfolio turnover rate. 22.20% 18.79% 27.50% 20.10% 59.64% 19.63%
Average commission rate
paid per share......... $0.0605 $0.0600 $0.0604 $0.0609 $0.0705 $0.0706
Net assets, end of
period (000s omitted).. $58,416 $35,628 $28,259 $20,476 $23,758 $22,404
</TABLE>
- --------
(a) Net of voluntary expense reimbursement and management fee waiver by the
Adviser. If the Fund had borne all expenses that were assumed by the
Adviser and paid the full management fee, the annualized ratios of
expenses and net investment income to average net assets would have been
2.76% and 0.02%, respectively, for the period January 6, 1992 through
December 31, 1992.
(b) Net of voluntary management fee waiver by the Adviser. If the Fund had
paid the full management fee, the annualized ratios of expenses and net
investment income to average net assets would have been 1.94% and 0.50%,
respectively, for the year ended December 31, 1994.
(c) Net of voluntary management fee waiver by the Adviser. If the Fund had
paid the full management fee, the annualized ratios of expenses and net
investment income to average net assets would have been 1.85% and 0.71%,
respectively, for the year ended December 31, 1995.

(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 0.45%,
respectively, for the year ended December 31, 1996.

(e) 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 1.40% and 0.39%,
respectively, for the year ended December 31, 1997.

(1) Excludes maximum sales charge of 4.75%.

* Commencement of operations

** Annualized

5
<PAGE>

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
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

6
<PAGE>

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.

7
<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>
- --------
(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, 1997 of approximately $693,000,000. As of December 31, 1997, the
Adviser and its affiliates managed individual, corporate, fiduciary and
institutional accounts with assets aggregating approximately $3,629,000,000.

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.

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

8
<PAGE>

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.

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
$48,100 for the year ending December 31, 1997. 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 attributable to each
class) 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 attributable to each class) to financial institutions and
others who perform stockholder servicing and administrative functions for
certain stockholders. The Distributor at its own expense may also provide
promotional incentives to investment brokers of the Distributor and to
authorized dealers. In some instances, such incentives may be made available
only to certain investment brokers or authorized dealers who have sold or are
expected to sell, significant amounts of shares. The Fund has agreed to
indemnify the Distributor against certain liabilities, including liabilities
under the Securities Act of 1933.

9
<PAGE>

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 attributable to the Class A
Shares and 1.00% of the Fund's average daily net assets attributable to the
Class B Shares 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.

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

10
<PAGE>

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.

SALES CHARGE

CHOOSING A CLASS OF SHARES. The Fund currently offers two classes of shares:
Class A Shares and Class B Shares. Each class has its own cost structure.

Class A Shares are sold to investors who have concluded that they would
prefer to pay an initial sales load and have the benefit to lower continuing
fees. Class B Shares are sold to investors choosing to pay no initial load, a
higher distribution fee and a contingent deferred sales charge with respect to
redemptions within five years of purchase and who desire shares to convert
automatically to Class A Shares after seven years.

Investors who expect to maintain their investment for an extended period of
time might choose to purchase Class A Shares because over time the accumulated
continuing distribution fees of Class B Shares may exceed the initial sales
load and lower continuing distribution fees of Class A Shares. This
consideration must be weighed against the fact that the amount invested in the
Fund will be reduced by the initial sales load on Class A Shares deducted at
the time of purchase. Furthermore, the distribution fees on Class B Shares
will be offset to the extent any return is realized on the additional funds
initially invested therein that would have been equal to the amount of the
initial sales load on Class A Shares.

Investors who qualify for reduced initial sales loads might also choose to
purchase Class A Shares because all or a part of the sales load deducted at
the time of purchase would be waived. However, investors should consider the
effect of the 1% contingent deferred sales charge imposed on shares on which
the initial sales load was waived because the amount of Class A Shares
purchased was $1,000,000 or more. In addition, Class B Shares will be
converted automatically to Class A Shares after a period of approximately
seven years, and thereafter investors will be subject to lower ongoing fees.
Shares purchased through reinvestment of dividends and distributions on Class
B Shares also will convert automatically to Class A Shares along with the
underlying shares on which they were earned.

Investors should bear in mind that total asset based sales charges (i.e.,
the higher continuing distribution fee plus the contingent deferred sales
charge) on Class B Shares that are redeemed may exceed the total asset based
sales charges that would be payable on the same amount of Class A Shares,
particularly if the Class B Shares are redeemed shortly after purchase or if
the investor qualifies for a reduced sales load on the Class A Shares.

Investors should understand that the purpose and function of the initial
sales loads (and deferred sales charges, when applicable) with respect to
Class A Shares is the same as those of the deferred sales charges and higher
distribution fees with respect to Class B Shares in that the sales charges and
distribution fees applicable to each class provide for the financing of the
distribution of the shares of the Fund.

11
<PAGE>

The two classes of shares represent interests in the same portfolio of
investments, have the same rights and are generally identical in all respects
except that each class bears its separate distribution expenses and,
potentially, certain other class expenses and has exclusive voting rights with
respect to any matter to which a separate vote of any class is required by the
1940 Act or Maryland law. The net income attributable to each class and
dividends payable on the shares of each will be reduced by the amount of
distribution and other expenses of each class. Class B Shares bear higher
distribution fees, which will cause the Class B Shares to pay lower dividends
than the Class A Shares.

Each class has advantages and disadvantages for different investors, and
investors should choose the class that best suits their circumstances and
their objectives. Dealers and agents may receive different compensation for
selling Class A Shares and Class B Shares.

CLASS A SHARES--INITIAL SALES CHARGE. An initial sales charge may apply, as
described below, when purchasing Class A Shares of the Fund. Sales charges may
be reduced for large purchases as indicated below.

<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE AS MAXIMUM AUTHORIZED
AS PERCENTAGE PERCENTAGE OF DEALER ALLOWANCE
OF OFFERING NET AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE PRICE INVESTED OFFERING PRICE
------------------ ------------- --------------- ------------------
<S> <C> <C> <C>
Less than $50,000............. 4.75% 4.99% 4.25%
$50,000 up to (but less than)
$100,000..................... 4.00% 4.17% 3.50%
$100,000 up to (but less than)
$250,000..................... 3.00% 3.09% 2.50%
$250,000 up to (but less than)
$500,000..................... 2.25% 2.30% 2.00%
$500,000 up to (but less than)
$1 million................... 1.75% 1.78% 1.50%
$1 million or more............ None None None
</TABLE>

No sales charge is payable at the time of purchase on investments of $1
million or more; however, a 1% contingent deferred sales charge is imposed in
the event of redemption within 12 months following any such purchase. See
"Redemption of Shares". The Distributor may pay a commission to its investment
brokers or to authorized dealers who initiate and are responsible for
purchases of $1 million or more as follows: 1% on sales to $3 million plus
0.50% on the excess over $3 million.

COMBINED PURCHASE PRIVILEGE. The following purchases may be combined for
purposes of determining the "Amount of Purchase": (a) individual purchases, if
made at the same time, by a single purchaser, the purchaser's spouse and
children under the age of 25 purchasing shares of 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

12
<PAGE>

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.

SALES CHARGE WAIVERS. The Fund sells shares at net asset value without
imposition of 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 advisors
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.

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

13
<PAGE>

shares held the longest are the first redeemed. 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.

CLASS B SHARES--DEFERRED SALES CHARGE ALTERNATIVE. The Class B Shares can be
purchased at net asset value without an initial sales charge. However, if the
Class B Shares are redeemed within five years after purchase, they are subject
to a contingent deferred sales charge (expressed as a percentage of the lesser
of the current net asset value or original cost) which will vary according to
the number of years from the purchase of Class B Shares until the redemption
of those shares. The amount of the contingent deferred sales charge on Class B
Shares is set forth below.

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEARS SINCE PURCHASE SALES CHARGE
-------------------- -------------------
<S> <C>
Less than 1 year...................................... 4.75%
1 to 2 years.......................................... 3.75%
2 to 4 years.......................................... 2.75%
4 to 5 years.......................................... 1.75%
5 to 7 years.......................................... None
Year 7................................................ Reverts to A Shares
</TABLE>

Class B Shares are subject to higher distribution fees than Class A Shares
for a period of seven years (after which they convert to Class A Shares).
Shares purchased through reinvestment of dividends on Class B Shares also will
convert automatically to Class A Shares along with the underlying shares on
which they were earned. Conversion occurs at the end of the month which
precedes the seventh anniversary of the purchase date.

The higher fees mean a higher expense ratio, so Class B Shares pay
corresponding lower dividends and may have a lower net asset value than Class
A Shares.

The contingent deferred sales charge is waived in the event of (a) a total
or partial redemption made within one year of death or disability (as defined
in (S)72(m)(7) of the Code) of the stockholder; (b) systematic withdrawals up
to 10% of the net asset value of the account at the time the systematic
withdrawal is established; (c) systematic withdrawals from an IRA account; (d)
total or partial distributions from an IRA if the stockholder is at least 59
1/2 years old; (e) a lump sum distribution from an ERISA plan; or (f) a
redemption resulting from tax-free return of an excess contribution to an IRA.

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. When purchasing
Fund shares, investors must

14
<PAGE>

specify whether the purchase is for Class A Shares or Class B Shares. The
minimum initial investment for either class is $1,000 and the minimum for
additional investments for either class is $100. The Distributor may in the
future enter into sales agreements with authorized dealers allowing Fund
shares to be purchased through such authorized dealers.

ADDITIONAL PURCHASES. After an initial investment is made and a
stockholder's account is established, additional purchases may be made either
by telephoning the investment broker and placing an order, or by mailing the
transmittal portion of the latest confirmation statement together with a check
made payable to the Fund directly to the Transfer Agent. If a stockholder does
not have the transmittal portion of the confirmation statement, the
stockholder may simply provide the exact name or names in which the account
was opened and the account number.

GENERAL. Purchase orders received by a Hilliard Lyons investment broker, by
the Distributor, or by the Transfer Agent prior to "closing time" on any
"business day" are executed at the public offering price determined that day.
Purchase orders received by an authorized dealer on any "business day" are
executed at the public offering price determined that day, provided the order
is received by the Distributor in Louisville, Kentucky, or by the Transfer
Agent prior to "closing time" on that day. Authorized dealers are responsible
for transmitting purchase orders to the Distributor or Transfer Agent
promptly. The failure of an authorized dealer to promptly transmit an order
may cause the purchase price to be more or less than the amount an investor
otherwise would have paid. Purchase orders received after "closing time" or on
a day that is not a "business day" are priced as of "closing time" on the next
succeeding "business day". A "business day" is any day on which the New York
Stock Exchange is open for business; "closing time" is the close of trading on
the Exchange, currently 4:00 p.m., Eastern time; or such other day or time as
the Fund's directors may establish in the future. The Fund and the Distributor
reserve the right to reject any purchase order and to suspend the offering of
shares for a period of time.

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.

15
<PAGE>

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.

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

Any stockholder may require the Fund to redeem his or her shares. Class A
shares may be redeemed without charge at their net asset value. Class B shares
may be redeemed at the applicable contingent deferred sales charge. See "Sales
Charge". Stockholders who maintain brokerage accounts at Hilliard Lyons or at
an authorized dealer may redeem shares through Hilliard Lyons or the
authorized dealer; all other stockholders must redeem Fund shares through the
Transfer Agent.

REDEMPTION THROUGH HILLIARD LYONS OR AN AUTHORIZED DEALER. Stockholders who
maintain accounts at Hilliard Lyons or at an authorized dealer may submit
redemption requests to their Hilliard Lyons investment broker or such
authorized dealer in person or by telephone, mail or wire. Redemption requests
directed to a Hilliard Lyons investment broker are effected at the net asset
value next computed after receipt of the request. Redemption requests directed
to an authorized dealer are effected at the net asset value next computed
after receipt of the request by the Distributor in Louisville, Kentucky.
Redemption proceeds are credited to the stockholder's brokerage account for
disbursement according to the stockholder's instructions and will normally be
credited to the Stockholder's brokerage account within three business days.
Authorized dealers are responsible for transmitting redemption requests to the
Distributor promptly. The failure of an authorized dealer to promptly transmit
a redemption request may cause the redemption proceeds to be more or less than
the amount an investor otherwise would have received.

REDEMPTION THROUGH THE TRANSFER AGENT. Stockholders who do not maintain
brokerage accounts at Hilliard Lyons or an authorized dealer must redeem their
shares through the Transfer Agent by mail; other 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

16
<PAGE>

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.

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

17
<PAGE>

exhausted. Furthermore, each withdrawal constitutes a redemption of shares,
and any gain or loss realized must be reported for federal and state income
tax purposes. As it generally would not be advantageous to a stockholder to
make additional investments in the Fund while participating in the Withdrawal
Plan, purchases of shares in amounts less than $5,000 by participants in the
Withdrawal Plan will not ordinarily be permitted. Stockholders should consult
their tax adviser regarding the tax consequences of participating in the
Withdrawal Plan.

REINSTATEMENT PRIVILEGE. A stockholder who redeems shares and who has not
exercised the reinstatement privilege within the previous twelve months may
reinvest the proceeds of such redemption in new shares of the Fund without
sales charge and, if applicable, with credit for any contingent deferred sales
charge by exercise of the reinstatement privilege. Reinvestment will be at the
net asset value next determined after the Distributor receives a letter
requesting reinstatement and payment therefor. The Distributor must receive
the letter requesting reinstatement and payment therefor within 60 days
following the redemption. A reinstatement fee of $25 will be charged by the
Distributor. Stockholders should consult their tax adviser regarding the tax
consequences of exercising the reinstatement privilege.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS. It is the present policy of the Fund to make
distributions annually of its net investment income and its net realized
capital gains, if any, at the end of the year in which earned or at the
beginning of the next year. Dividends and capital gain distributions are
normally reinvested in additional shares of the same class at net asset value
without a sales charge, unless otherwise elected at purchase. The per share
dividends on Class B Shares may be lower than the per share on Class A Shares
principally as a result of the higher distribution fee applicable with respect
to Class B Shares. 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,

18
<PAGE>

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 separately for each class by
dividing the net assets of the Fund attributable to that class (assets,
including securities at market value, minus liabilities) by the number of
shares of that class outstanding. The per share net asset value of the Class B
Shares of the Fund will generally be lower than that of the Class A Shares of
the Fund because of the higher expenses borne by the Class B Shares.
Investments that are traded on an exchange or in the over-the-counter market
are valued based upon market quotations. Short-term obligations with
maturities of 60 days or less are valued at amortized cost. Foreign securities
are valued based on quotations from the primary market in which they are
traded and are translated from the local currency into U.S. dollars using
current exchange rates. Other securities for which market quotations are not
readily available are valued at their fair value, as determined in good faith
by the Adviser under procedures established by, and under the supervision and
responsibility of, the Fund's Board of Directors. The Fund computes its net
assets value as of "closing time" on each "business day".

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 specified class of shares from the
beginning date to the ending date of the measuring period. It reflects changes
in the price of the shares of such class and assumes that any dividends or
distributions paid by the Fund during the period are reinvested in shares of
that class 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. For the Class A
Shares, each type of total return will be calculated assuming the deduction of
the maximum sales charge.

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

19
<PAGE>

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
authorized shares of the Fund are currently divided into two classes
designated Class A Common Stock and Class B Common Stock. 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. Each class of shares represents an
interest in the same assets of the Fund and is identical in all respects
except that (i) each class is subject to different sales charges and
distribution fees which may affect performance, and (ii) each class has
exclusive voting rights on any matter submitted to stockholders that relates
solely to its arrangement and has separate voting rights on any matter
submitted to stockholders in which the interest of one class differ from the
interests of any other class. 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. With the exceptions noted above, shares of the Fund have equal
rights with respect to voting, dividends and distributions upon liquidation.
Shares have no preemptive, subscription or conversion rights and are freely
transferable.

STOCKHOLDER MEETINGS. As a Maryland corporation, the Fund is not required
and does not intend to hold regular annual stockholder meetings. It will hold
an annual meeting if directors are required to be elected under the 1940 Act
and may hold special meetings for the consideration of proposals requiring
stockholder approval such as changing fundamental policies. A meeting will be
called to consider replacing the Fund's directors upon the written request of
the holders of 10% of the Fund's shares. Stockholders who satisfy certain
criteria will be assisted by the Fund in communicating with other stockholders
in seeking the holding of the meeting. The record holders of at least 25% of
the Fund's shares may require the Fund to hold a special meeting of
stockholders for any purpose.

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.

20
<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 WHICH CLASS AND HOW MUCH YOU WOULD LIKE TO INVEST
CLASS OF SHARES (CHECK ONE): CLASS A [ ] CLASS B [ ]
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

21
<PAGE>

4.YOU MAY BE ELIGIBLE TO REDUCE YOUR SALES CHARGE ON THE PURCHASE OF CLASS A
SHARES
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,
Trustee, Joint owner, Other Date
etc. Trustee,
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)

22
<PAGE>

LOGO
- -------------------------------------------------------------------------------

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
400 West Market Street
Louisville, KY 40202

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

LOGO
HILLIARD LYONS
GROWTH FUND

APRIL 20, 1998

J.J.B. HILLIARD, W.L. LYONS,
INC.
HILLIARD LYONS CENTER
LOUISVILLE, KENTUCKY 40202
(502) 588-9145
(800) 444-1854

- -------------------------------------------------------------------------------
<PAGE>

PART B

HILLIARD LYONS GROWTH FUND, INC.

Hilliard Lyons Center
Louisville, Kentucky 40202-2517
Telephone (502) 588-8400

__________________________

STATEMENT OF ADDITIONAL INFORMATION

Dated April 20, 1998

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 20, 1998 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
-----------------
<TABLE>
<CAPTION>

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........................................... 26

Independent Auditors.............................. 26

General Information............................... 26

</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 1998.

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 1998.

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 1998.

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 1998.

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 1998.

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 1998.

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 repurchase 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 increased from 18.8% for the year
ending December 31, 1996 to 22.2% for the year ending December 31, 1997.

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 of
Hilliard Lyons Center the Board of Hilliard Lyons from 1988
Louisville, KY 40202 to 1995

William A. Blodgett, Jr. Director Vice President, Deputy General
Brown-Forman Corporation Counsel of Brown-Forman Corporation
850 Dixie Highway since October 1994; Partner, Law Firm
Louisville, KY 40210 of Woodward, Hobson & Fulton prior
thereto

John C. Owens Director Private Investor
116 Chinoe Road
Lexington, KY 40502

Dillman A. Rash(2) Director Investment Consultant
Hilliard Lyons Center
Louisville, KY 40202
</TABLE>
12
<PAGE>

<TABLE>

<S> <C> <C>
Donald F. Kohler(1)(2) Chairman of the Board Investment Consultant; Executive Vice
Hilliard Lyons Center President of Hilliard Lyons from 1986
Louisville, KY 40202 to 1996 and Director of Hilliard
Lyons from 1981 to 1996

Samuel C. Harvey President Executive Vice President and Director
Hilliard Lyons Center of Hilliard Lyons since January 1993;
Louisville, KY 40202 Senior Vice President prior thereto

Joseph C. Curry, Jr.(2) Vice President, Senior Vice President of Hilliard
Hilliard Lyons Center Secretary and Treasurer Lyons since July 1994 and Vice
Louisville, KY 40202 President prior thereto

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
Louisville, KY 40202

</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 $22,000 from the Fund
during its fiscal year ended December 31, 1997. The following table sets forth
information concerning compensation received by directors of the Fund during the
year ending December 31, 1997. At February 28, 1998, the officers and directors
of the Fund as a group owned beneficially 71,085 shares of the Fund (3.1% of the
shares outstanding).

Pension or
Retirement Total
Aggregate Benefits Accrued Estimated Annual Compensation from
Compensation as part of Fund Benefits upon Fund Paid to
From Fund Expenses Retirement Directors
Name of Person, ------------ ---------------- ---------------- -----------------
Position
- --------

<S> <C> <C> <C> <C>
Donald F. Kohler,
Director $ 0 0 0 $ 0
Gilbert L. Pamplin, $ 0 0 0 $ 0
Director
William A. Blodgett, Jr., $8,000 0 0 $8,000
Director
John C. Owens, $8,000 0 0 $8,000
Director
Dillman A. Rash, Director $6,000 0 0 $6,000
</TABLE>

At February 28, 1998, J.J.B. Hilliard, W.L. Lyons, Inc. Employees Profit
Sharing Plan Fund D owned beneficially and of record 25.2% of the outstanding
shares of the Fund.

Investment Adviser
- ------------------

As stated in the Prospectus, Hilliard Lyons Investment Advisors (the
"Adviser"), a division 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 $693,000,000. As of December 31, 1997, the Adviser and
its affiliates managed individual, corporate, fiduciary and institutional
accounts with assets aggregating approximately $3,629,000,000.

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, 1998, 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 attributable to Class A Shares for such year exceed 1.30% of average
net assets attributable to the Class A Shares and by which the Fund's total
annual operating expenses attributable to the Class B Shares for such year
exceed 2.05% of the average daily net assets attributable to the Class B Shares.
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, 1997, the advisory fees totaled $365,543, of which $40,862
was waived. 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.

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, 1999
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
Class A Shares or Class B 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
attributable to each class of shares) 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, 1997 and 1996, the aggregate amounts
of the Fund's sales charges were $250,204 and $101,176, 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
16
<PAGE>

Fund. In that case, its stockholder clients, if any, would be permitted to
remain stockholders of the Fund, and alternative means for continuing the
servicing of such stockholders would be sought. It is not expected that
stockholders would suffer any adverse financial consequences as a result of any
of these occurrences. In addition, state securities laws may differ from federal
law and may require banks and financial institutions to register as dealers.

After the Prospectus, Statement of Additional Information and annual and
interim reports of the Fund have been prepared and set in type, Hilliard Lyons
pays for the printing and distribution of copies thereof used in connection with
the offering of shares of the Fund to prospective investors. Hilliard Lyons also
pays for the cost of preparing, printing and distributing any other literature
used by it or furnished by it for use by authorized dealers in connection with
the offering of shares of the Fund for sale to the public and any expenses of
advertising.

Distribution Plan

The Fund has adopted a plan of distribution (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. Under the Plan, the Fund reimburses the Distributor
quarterly at the annualized rate of up to 0.25% of the Fund's average daily net
assets attributable to Class A Shares for distribution expenses actually
incurred on Class A Shares. For Class B Shares, the Fund reimburses the
Distributor quarterly at the annualized rate of up to 1.00% of the Fund's
average daily net assets attributable to Class B Shares 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 reimbursements
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% and 1.00% of the average daily net assets of the
Fund attributable to Class A Shares and Class B Shares, respectively. 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).

17
<PAGE>

Under the Plan, the expenses for which the Distributor may be reimbursed
include, but are not limited to: (i) payments to investment brokers of the
Distributor and to authorized dealers for distribution of shares of the Fund,
for promotion of the maintenance of holdings by established stockholders and for
stockholder servicing; (ii) payments to financial institutions (including banks)
and others ("Service Agents") for stockholder servicing and administrative
services with respect to shares of the Fund owned by stockholders for whom the
Service Agent is the holder of record or for whom the Service Agent performs
administrative or servicing functions; (iii) payments to the Distributor for
organizing and conducting sales seminars, printing Prospectuses, Statements of
Additional Information and interim and annual reports for other than existing
stockholders, and preparation and distribution of advertising material and sales
literature; (iv) an allocation of distribution-related overhead expenses of the
Distributor; and (v) payments of commissions to investment brokers of the
Distributor and to authorized dealers on sales of $1 million or more with no
initial sales charge.

The following amounts were incurred by the Fund under the Plan for the year
ending December 31, 1997:

(a) printing of prospectus and financial reports for delivery to other
than current stockholders: $5,468; and

(b) trail fees to Hilliard Lyons brokers: $46,195.

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.

18
<PAGE>

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.

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 investment 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
19
<PAGE>

to the same person(s) the amount of the aggregate compensation the member
received in effecting such transactions. Further, members will be required to
comply with any rules the SEC may prescribe with respect to the above two
express requirements. The SEC has not indicated any such plans to date. The
Adviser previously obtained authorization from the Fund pursuant to Rule 11a2-
2(T) and has disclosed to the Fund the amount of the aggregate compensation the
Adviser received in effecting all such transactions.

The Fund paid total brokerage commissions during the year ending December
31, 1997 of $17,778. 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, 1996 of $13,278, none of which was paid to 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.

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

20
<PAGE>

Distributor under the Distribution Plan for expenses incurred in connection with
the offering and sale of shares of the Fund, (c) the fees and expenses of the
Fund's directors, officers and employees who are not affiliated with the
Adviser, (d) the fees and certain expenses of the Fund's custodian and transfer
agent, (e) the fees and expenses of the Fund's legal counsel and independent
auditors, (f) brokerage and commission expenses, (g) all federal, state and
local taxes and corporate fees payable by the Fund to governmental agencies,
including any issue or transfer taxes chargeable to the Fund in connection with
its securities transactions, and any foreign taxes, (h) the dues, fees and other
charges of any trade association of which the Fund is a member, (i) the cost of
fidelity and liability insurance, (j) reimbursement of the organization expenses
of the Fund and the fees and expenses involved in registering and maintaining
registration of the Fund and of its shares with the Securities and Exchange
Commission and registering the Fund as a broker or dealer and qualifying its
shares under state securities laws, including the preparation and printing of
the Fund's Registration Statements, Prospectuses and Statements of Additional
Information for such purposes, (k) costs incurred in having the Fund's net asset
value computed at the times and in the manner specified in the Fund's prospectus
and/or statement of additional information, (l) allocable communications
expenses with respect to investor services and all expenses of stockholders' and
directors' meetings and preparing, printing and mailing Prospectuses, Statements
of Additional Information, reports and proxy materials to stockholders, and (m)
such non-recurring or extraordinary expenses as may arise outside the ordinary
course of the Fund's business, including litigation affecting the Fund and the
legal obligation the Fund may have to indemnify its officers and directors and,
in certain situations, the Distributor, with respect thereto.

DIVIDENDS, DISTRIBUTIONS AND TAXES
----------------------------------

Each dividend and capital gain distribution, if any, declared by the Fund
on its outstanding shares will be paid on the payment date fixed by the Board of
Directors in cash or in additional shares of the Fund having an aggregate net
asset value as of the record date of such dividend or distribution equal to the
cash amount of such dividend or distribution. Dividends and capital gain
distributions will normally be reinvested in additional shares of the same class
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

21
<PAGE>

in the best interests of the stockholders, the Fund's Board of Directors will,
to the extent permitted by the SEC, declare and pay distributions of its net
investment income and net realized capital gains more frequently than stated
above. To avoid the tax, the Fund must distribute during each calendar year, at
least the sum of (1) 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (2) 98% of its capital gains in
excess of its capital losses for the twelve-month period ending on October 31 of
the calendar year, and (3) all ordinary income and net capital gains for
previous years that were not previously distributed. A distribution will be
treated as paid during the calendar year if it is actually paid during the
calendar year or declared by the Fund in October, November or December of the
year, payable to stockholders of record as of a specified date in such a month
and actually paid by the Fund during January of the following year. Any such
distributions paid during January of the following year will be deemed to be
paid and received on December 31 of the year the distributions are declared,
rather than when the distributions are received.

If the Fund invests in foreign securities, it will be subject to
withholding taxes of the foreign country of the issuer on dividends which vary
depending on the particular jurisdiction. The Fund may at its election deduct
such amounts in computing taxable income or receive a credit against federal
income taxes owed for the taxable year.

The Fund intends to qualify for tax treatment as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code").
Qualification as a regulated investment company relieves the Fund of federal
income tax on that part of its net ordinary income and net realized capital
gains which it pays out to its stockholders. To qualify, the Fund must meet
certain relatively complex tests relating to the source of its income and the
diversification of its assets, including the requirement that less than 30% of
its gross income (generally exclusive of losses) may be derived from the sale or
other disposition of securities held for less than three months, and must
distribute at least 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.

22
<PAGE>

The excess of net long-term capital gains over the net short-term capital
losses realized and distributed by the Fund to its stockholders as capital gain
distributions are taxable to the stockholders as long-term capital gains,
irrespective of the length of time a stockholder may have held the shares. Such
long-term capital gain distributions are not eligible for the dividends-received
deduction referred to above. Any dividend or distribution received by a
stockholder on shares of the Fund shortly after the purchase of such shares will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, such dividend or distribution,
although in effect a return of capital, is subject to applicable income taxation
as described above regardless of the length of time the shares may have been
held. If a stockholder held shares less than six months and during that period
received a distribution taxable to such stockholder as long-term capital gain,
any loss realized on the sale of such shares during such six-month period would
be a long-term loss to the extent of such distribution. The tax treatment of
distributions from the Fund is the same whether the distributions are received
in additional shares or in cash. Stockholders receiving distributions in the
form of additional shares will have a cost basis for federal income tax purposes
in each share received equal to the net asset value on the reinvestment date.

The Fund generally is required to withhold federal income tax at a rate of
31% ("backup withholding") from dividends paid to stockholders if (a) the payee
fails to furnish the Fund with and to certify the payee's correct taxpayer
identification number or social security number, (b) the Internal Revenue
Service (the "IRS") notifies the Fund that the payee has failed to report
properly certain interest and dividend income to the IRS and to respond to
notices to that effect, or (c) the payee fails to certify that backup
withholding is not required.

The Fund may be subject to state or local taxes in the jurisdiction in
which the Fund may be deemed to be doing business. Dividends and distributions
declared by the Fund may also be subject to state and local taxes. Prior to
investing in shares of the Fund, prospective stockholders should consult their
tax adviser concerning the federal, state and local tax consequences of such an
investment.

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.

23
<PAGE>

As stated in the Prospectus, the net asset value per share of each of the
Fund's classes of shares is determined on each "business day", currently any day
the New York Stock Exchange is open for business. The New York Stock Exchange
is presently scheduled to be closed on New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively.

As stated in the Prospectus, because of the differences in distribution
fees and class specific expenses, the per share net asset value of each class
may differ. For Class A Shares, the Fund's public offering price is the next
determined net asset value per Class A Share plus a sales charge paid at the
time of purchase. Based on the net asset value per share at December 31, 1997
of $30.29 per share, the maximum offering price per share was $31.80 per share.
The offering price is reduced on sales of $50,000 or more and in certain other
circumstances. For Class B Shares, the Fund's public offering price is the next
determined net asset value per Class B Share subject to a contingent deferred
sales charge for any redemptions made within five years of purchase. The
contingent deferred sales charge may be waived for certain redemptions.

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.

24
<PAGE>

Total return figures assume that the maximum 4.75% sales charge or maximum
applicable contingent deferred sales charge, as the case may be, has been
deducted from the investment at the time of purchase or redemption, as
applicable.

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.

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

Fiscal Periods Ended Hilliard Lyons
December 31, 1997 Growth Fund
- -------------------- -----------------------
<S> <C>
1 Year 33.77%

Since Inception 15.75%
</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
from 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.

25
<PAGE>

COUNSEL
-------

The legality of the shares offered hereby have been passed upon by Brown,
Todd & Heyburn PLLC, 400 West Market Street, 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 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 characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba: Bonds which are rated Ba are judged to have speculative elements,
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.

Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed, in which case the rating is not
published in Moody's Investors Services, Inc.'s publications.

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.

29
<PAGE>

HILLIARD LYONS GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997

COMMON STOCKS -- 79.9%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Company Cost Value
------ ------- ---- ------
CAPITAL GOODS -- 11.3%
----------------------------------------------------------------------
<C> <S> <C> <C>
66,000 Dover Corp. .................................. $ 928,470 $ 2,384,250
21,000 General Electric Co. ......................... 415,030 1,540,875
16,800 Hubbell Inc. CL B ............................ 408,960 828,450
40,500 Nordson Corp. ................................ 2,150,813 1,857,938
---------- -----------
3,903,273 6,611,513
CONSUMER DURABLE -- 5.7%
----------------------------------------------------------------------
49,500 Donaldson Inc. ............................... 1,290,682 2,230,594
40,000 Harley Davidson Inc. ......................... 816,700 1,095,000
---------- -----------
2,107,382 3,325,594
CONSUMER NON-DURABLE -- 6.2%
----------------------------------------------------------------------
45,000* Bush Boake Allen Inc. ........................ 1,204,175 1,178,437
31,000 Nike, Inc. ................................... 1,473,610 1,216,750
33,000 PepsiCo Inc. ................................. 542,948 1,202,438
---------- -----------
3,220,733 3,597,625
FINANCIAL -- 30.7%
----------------------------------------------------------------------
27,000 American International Group Inc. ............ 869,511 2,936,250
23* Berkshire Hathaway Inc. ...................... 208,980 1,058,000
60,000 Cincinnati Financial Corp. ................... 3,394,566 8,445,000
48,000 Federal Home Loan Mortgage Corp. ............. 554,653 2,013,000
12,000 Fifth Third Bancorp .......................... 272,000 981,000
50,875 Synovus Financial Corp. ...................... 430,155 1,666,156
10,000 Wachovia Corp. ............................... 364,350 811,250
---------- -----------
6,094,215 17,910,656
</TABLE>

See notes to financial statements.

<PAGE>

HILLIARD LYONS GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997

<TABLE>
<CAPTION>
Market
Shares Company Cost Value
------ ------- ---- ------
HEALTH CARE -- 8.4%
----------------------------------------------------------------------

<C> <S> <C> <C>
38,500 Allergan Inc. ................................. 926,295 1,292,156
35,000 Johnson & Johnson.............................. 721,314 2,305,625
39,550 Life Technologies, Inc. ....................... 1,114,788 1,315,037
----------- ----------
2,762,397 4,912,818
RETAIL & SERVICES -- 16.3%
----------------------------------------------------------------------

43,000 Brady WH Co. CL A.............................. 880,062 1,333,000
24,000 Gannett Inc. .................................. 654,720 1,483,500
65,000 G & K Services Inc. CL A....................... 1,984,095 2,730,000
69,000 Walgreen Co. .................................. 602,837 2,164,875
47,000 Wallace Computer Services, Inc. ............... 1,556,722 1,827,125
----------- ----------
5,678,436 9,538,500
UTILITY -- 1.3%
----------------------------------------------------------------------

15,000 Century Telephone Enterprises ................. 473,400 747,188
----------- ----------
473,400 747,188
TOTAL COMMON STOCKS............................ $24,239,836 46,643,894
</TABLE>

U.S. GOVERNMENT AGENCY OBLIGATIONS -- 20.0%
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Principal Purchase Maturity Market
Amount Description Yield Date Value
----------- ----------- -------- -------- -----------
<C> <S> <C> <C> <C>
$11,663,461 Federal Home Loan Bank ........... 4.817% 01/02/98 11,663,461
-----------
TOTAL U. S. GOVERNMENT AGENCY
OBLIGATIONS (COST -- $11,663,461). 11,663,461
-----------
TOTAL INVESTMENTS (COST --
$24,239,836) (99.8%)............. $58,307,355
===========
</TABLE>

The percentage shown for each investment category is the total value of that
category as a percentage of the total net assets of the Fund.

*Non-income producing security.

See notes to financial statements.

<PAGE>

HILLIARD LYONS GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Common stocks (cost $24,239,836)................................. $46,643,894
U.S. Government Agency Obligations at value (amortized cost
$11,663,461).................................................... 11,663,461
------------
Total investments............................................... 58,307,355
Cash.............................................................. 2,641
Receivables:
Dividends........................................................ 75,621
Shares sold...................................................... 272,335
Prepaid expenses.................................................. 1,617
------------
Total Assets.................................................... $58,659,569
============
LIABILITIES:
Payables:
Dividends payable................................................ $ 42,022
Due to adviser--Note B........................................... 122,674
Shares redeemed.................................................. 3,673
Accrued expenses................................................. 75,142
------------
Total Liabilities............................................... 243,511
------------
NET ASSETS:
Common stock ($.001 par value; 150,000,000 shares authorized and
1,928,647 shares issued and outstanding)......................... 1,929
Paid-in surplus................................................... 34,536,145
Net unrealized appreciation on investments........................ 22,404,058
Accumulated undistributed net realized gain on investments........ 1,473,146
Undistributed net investment income -- Note A..................... 780
------------
Total Capital (Net Assets) (equivalent to $30.29 per share)..... 58,416,058
------------
Total Liabilities and Capital................................... $58,659,569
============
</TABLE>

See notes to financial statements.

<PAGE>

HILLIARD LYONS GROWTH FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends....................................................... $ 498,735
Interest........................................................ 298,357
-----------
Total investment income....................................... 797,092
EXPENSES:
Management fees -- Note B....................................... 365,543
12b-1 expenses -- Note B........................................ 57,719
Custodian fees.................................................. 49,275
Audit fees...................................................... 36,495
Transfer Agent fees............................................. 27,375
Directors' fees................................................. 25,550
Insurance expense............................................... 17,589
Legal fees...................................................... 17,030
Shareholder reports............................................. 14,580
Filing fees..................................................... 7,900
Trade Association............................................... 1,926
Organizational expenses -- Note A............................... 384
-----------
621,366
Waiver of management fee by Adviser -- Note B................... ( 40,862)
-----------
Total expenses................................................ 580,504
-----------
Net investment income....................................... 216,588
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments -- Note A...................... 4,695,525
Change in unrealized appreciation on investments................ 10,764,036
-----------
Net gain on investments....................................... 15,459,561
-----------
Net increase in net assets resulting from operations........ $15,676,149
===========
</TABLE>

See notes to financial statements.

<PAGE>

HILLIARD LYONS GROWTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
For the year ended
December 31,
1997 1996
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income............................... $ 216,588 $ 164,312
Net realized gain on investments.................... 4,695,525 1,724,517
Net change in unrealized appreciation on
investments........................................ 10,764,036 3,972,253
----------- -----------
Net increase in net assets from operations........ 15,676,149 5,861,082

DISTRIBUTIONS TO SHAREHOLDERS FROM:

Net investment income............................... (214,232) (164,559)
Net realized gain from investment transactions...... (3,222,379) (1,724,524)
----------- -----------
Total distributions............................... (3,436,611) (1,889,083)

FROM CAPITAL SHARE TRANSACTIONS:

Proceeds from 113,607 and 81,426 shares issued in
reinvestment of dividends, respectively............ 3,394,590 1,856,523
Proceeds from 357,550 and 186,661 shares sold,
respectively....................................... 9,612,901 4,059,750
Cost of 94,849 and 115,031 shares repurchased,
respectively....................................... (2,458,498) (2,519,966)
----------- -----------
Net increase in net assets from capital share
transactions..................................... 10,548,993 3,396,307
----------- -----------
Total increase in net assets..................... 22,788,531 7,368,306

NET ASSETS:
Beginning of period................................. 35,627,527 28,259,221
----------- -----------
End of period (including undistributed net
investment income of $780 in 1997 and distributions
in excess of net investment income of $1,576 in
1996).............................................. $58,416,058 $35,627,527
=========== ===========
</TABLE>

See notes to financial statements.

<PAGE>

HILLIARD LYONS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE A -- ACCOUNTING POLICIES

Hilliard Lyons Growth Fund, Inc. (the "Fund") is a non-diversified open-end
management investment company registered under the Investment Company Act of
1940, as amended. The Fund was incorporated under the laws of the state of
Maryland and commenced operations on January 6, 1992. The following is a
summary of significant accounting policies followed by the Fund in preparation
of its financial statements.

SECURITY VALUATION: Securities traded on a national securities exchange or
traded over-the-counter and quoted on the NASDAQ System are valued at last
sales prices. Securities so traded for which there were no sales and other
securities are valued at the mean of the most recent bid-asked quotations
except that bonds not traded on a securities exchange nor quoted on the NASDAQ
System will be valued at prices provided by a recognized pricing service
unless the Adviser believes that such price does not represent a fair value.
Each money market instrument having a maturity of 60 days or less from the
valuation date is valued on an amortized cost basis. Other securities and
assets will be valued at fair value, as determined in good faith by the
Adviser under procedures established by, and under the supervision and
responsibility of, the Fund's Board of Directors.

Normally, repurchase agreements are not subject to trading. U.S. Government
obligations pledged as collateral for repurchase agreements are held by the
Fund's custodian bank until maturity of the repurchase agreement. Provisions
of the agreement provide that the market value of the collateral is sufficient
in the event of default; however, in the event of default or bankruptcy by the
other party to the agreement, realization and/or retention of the collateral
may be subject to legal proceedings.

FEDERAL INCOME TAXES: It is the policy of the Fund to qualify under the
Internal Revenue Code as a regulated investment company and to distribute all
of its taxable income to shareholders, thereby relieving the Fund of federal
income tax liability. The Fund intends to utilize provisions of Federal income
tax laws which allow a realized capital loss to be carried forward for eight
years following the year of loss and offset such losses against any future
realized gains. At December 31, 1997, the Fund did not have a tax-basis
capital loss carryforward. In addition, from November 1, 1997 through December
31, 1997, the Fund did not incur any net realized capital losses. If the Fund
had incurred net capital losses during this period, as permitted by tax
regulations, the Fund would elect to defer these losses and treat them as
arising in the fiscal year ended December 31, 1998.

DIVIDEND POLICY: It is the policy of the Fund to make distributions annually
of its net investment income and its net realized capital gains, if any, at
the end of the year in which earned or at the beginning of the next year.
Dividends and capital gain distributions will normally be reinvested in
additional shares at net asset value without a sales charge, unless otherwise
elected at purchase.

USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.

OTHER: The accounts of the Fund are kept on the accrual basis of accounting.
Security transactions are recorded on the trade date. Realized gains or losses
from sales of securities are determined on the specific identified cost basis.
Dividend income is recognized on the ex-dividend date.

<PAGE>

NOTE B -- INVESTMENT ADVISORY AGREEMENT

The investment adviser, Hilliard Lyons Investment Advisors (the "Adviser") is
a division of J. J. B. Hilliard, W. L. Lyons, Inc. which owns 41,694 shares of
the Fund. Under the Investment Advisory Agreement, the Adviser receives a fee,
accrued daily and paid quarterly, at an annual rate of .80% of the Fund's
average daily net assets. The Adviser has voluntarily agreed to reduce the fee
payable to it under the Advisory Agreement and, if necessary, reimburse the
Fund on a quarterly basis, by the amount by which the Fund's total annualized
operating expenses (exclusive of taxes, interest, brokerage commissions and
extraordinary expenses but including the Adviser's compensation) for the
fiscal year ending December 31, 1997 exceed 1.30% of average daily net assets.
For the year ended December 31, 1997, there was no reimbursement necessary
from the Adviser and the waiver of the management fee amounted to $40,862.

The Fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "Plan"). Under the Plan, the
Fund reimburses the Distributor quarterly at an annualized rate of up to .25%
of the Fund's average daily net assets for distribution expenses actually
incurred provided the expenses for which reimbursement is made are primarily
intended to result in the sale of Fund shares and are approved by the Fund's
Board of Directors. Expenses for which the Distributor may be reimbursed under
the Plan include, but are not limited to, payments to investment brokers of
the Distributor and to authorized dealers for distribution of shares of the
Fund and for promotion of the maintenance of holdings by established
stockholders and stockholder servicing.

J. J. B. Hilliard, W. L. Lyons, Inc., the Distributor, received sales charges
of approximately $250,204. The Hilliard Lyons Profit Sharing Plan, as directed
by each participant, owns 548,325 shares of the Fund as of December 31, 1997.

No compensation is paid by the Fund to officers and directors of the Fund who
are affiliated with the Adviser or Hilliard Lyons. The Fund pays each
unaffiliated director an annual retainer of $5,000 and a fee of $500 for each
Board or Committee meeting attended and certain expenses the directors incur
in attending meetings.

NOTE C -- PORTFOLIO TRANSACTIONS

For the year ended December 31, 1997, purchases and proceeds from sale of
investment securities (excluding short-term securities) were $8,652,260 and
$9,632,118, respectively.

The cost of investments for Federal income tax purposes and financial
reporting is the same. At December 31, 1997, the gross unrealized appreciation
and depreciation on investments was $22,979,530 and $575,472, respectively,
resulting in net unrealized appreciation of $22,404,058.

<PAGE>

FINANCIAL HIGHLIGHTS

The following table includes selected data for a share of capital stock
outstanding throughout each period and other performance information derived
from the financial statements. It should be read in conjunction with the
financial statements and notes thereto.
<TABLE>
<CAPTION>
For the year ended December 31,
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period.... $22.95 $20.20 $15.98 $15.69 $15.19
--------- --------- --------- --------- ---------
Net investment income... 0.12 0.11 0.15 0.12 0.13
Net realized and
unrealized gain on
investments............ 9.13 3.92 4.82 0.29 0.50
--------- --------- --------- --------- ---------
Total from investment
operations............. 9.25 4.03 4.97 0.41 0.63
--------- --------- --------- --------- ---------
Less dividends from net
investment income...... ( 0.12) ( 0.11) ( 0.15) ( 0.12) ( 0.13)
Less dividends from net
realized gain on
investments............ ( 1.79) ( 1.17) ( 0.60) ( 0.00) ( 0.00)
--------- --------- --------- --------- ---------
Total distributions..... ( 1.91) ( 1.28) ( 0.75) ( 0.12) ( 0.13)
--------- --------- --------- --------- ---------
Net asset value:
End of period.......... $30.29 $22.95 $20.20 $15.98 $15.69
========= ========= ========= ========= =========
Total Investment
Return(1).............. 40.41% 19.98% 31.10% 2.60% 4.13%
SIGNIFICANT RATIOS AND
SUPPLEMENTAL DATA
Ratio of operating
expenses to average net
assets................. 1.30%(d) 1.58%(c) 1.75%(b) 1.75%(a) 1.75%
Ratio of net investment
income to average net
assets................. .49%(d) .52%(c) .82%(b) .68%(a) .75%
Portfolio turnover rate. 22.20% 18.79% 27.50% 20.10% 59.64%
Average commission rate
paid per share......... $ 0.0605 $ 0.0600 $ 0.0604 $ 0.0609 $ 0.0705
Net assets, end of
period (000s omitted).. $ 58,416 $ 35,628 $ 28,259 $ 20,476 $ 23,758
</TABLE>

(a) 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.
(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 1.85% and 0.71%,
respectively, for the year ended December 31, 1995.
(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 1.64% and 0.45%,
respectively, for the year ended December 31, 1996.
(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 1.40% and 0.39%,
respectively, for the year ended December 31, 1997.
(1) Excludes maximum sales charge of 4.75%.

<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Directors and Shareholders
Hilliard Lyons Growth Fund, Inc.

We have audited the accompanying statement of assets and liabilities of
Hilliard Lyons Growth Fund, Inc., including the schedule of investments, as of
December 31, 1997, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in
the period then ended, and financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Hilliard Lyons Growth Fund, Inc. at December 31, 1997, the results of its
operations for the year ended, the changes in its net assets for each of the
two years in the period then ended, and financial highlights for each of the
five years in the period then ended, in conformity with generally accepted
accounting principles.

LOGO

January 16, 1998

<PAGE>

PART C

OTHER INFORMATION
-----------------

ITEM 24. Financial Statements and Exhibits
---------------------------------

a) Financial Statements included in Part B:*

Schedule of Investments

Statement of Assets and Liabilities

Statement of Operations

Statements of Changes in Net Assets

b) Exhibits:

(1) (a) Articles of Incorporation.*
(b) Articles Supplementary

(2) Bylaws.*

(3) Not applicable.

(4) Not applicable.

(5) (a) Investment Advisory Agreement between Registrant and
Hilliard Lyons Investment Advisors, a division of J.J.B.
Hilliard, W.L. Lyons, Inc.*

(b) Amendment No. 1 to Investment Advisory Agreement.*

(6) (a) Distribution Agreement between Registrant and J.J.B.
Hilliard, W.L. Lyons, Inc.*

(b) Amendment No. 1 to Distribution Agreement.*

(7) Not applicable.

- --------------------
*Previously filed.

<PAGE>

(8) Form of Custodian Agreement between Registrant and State Street
Bank and Trust Company.*

(9) Form of Transfer Agency and Service Agreement between Registrant
and State Street Bank and Trust Company.*

(10) Opinion and consent of Brown, Todd & Heyburn PLLC, counsel to
the Fund.*

(11) Consent of Ernst & Young LLP, Independent Auditors.

(12) Not applicable.

(13) Subscription Agreement with initial stockholder.*

(14) Not applicable.

(15) Amended and Restated Distribution Plan pursuant to Rule 12b-1.

(16) Schedule of Computation of Registrant's performance data.

(17) Not applicable.

(18) Rule 18f-3 Multiple Class Plan.

(27) Financial Data Schedule.

- --------------------
*Previously filed.

ITEM 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------

None.

ITEM 26. Number of Holders of Securities
-------------------------------

As of February 28, 1998, the number of record holders of the Registrant's
shares of common stock was approximately 2,747.

ITEM 27. Indemnification
---------------

Reference is made to Article IX of Registrant's Articles of Incorporation
and Article V of Registrant's Bylaws which are filed as exhibits to this
Registration Statement.

<PAGE>

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a director, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

Pursuant to the Distribution Agreement, as amended, between the Fund and
J.J.B. Hilliard, W.L. Lyons, Inc. (the "Distributor"), the Fund is required to
indemnify and hold harmless the Distributor and each person, if any, who
controls the Distributor against any loss, liability, claim, damage or expense
(including the reasonable cost of investigating or defending any alleged loss,
liability, claim, damage or expense and reasonable counsel fees incurred in
connection therewith), arising by reason of any person acquiring any shares of
the Fund, which may be based upon the Securities Act of 1933, or on any other
statute or at common law, on the ground that the Fund's Registration Statement
or related Prospectus and Statement of Additional Information, as from time to
time amended and supplemented, or an annual or interim report to stockholders of
the Fund, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon, and in conformity with, information furnished to the Fund in
connection therewith by or on behalf of the Distributor.

ITEM 28. Business and Other Connections of Investment Adviser
----------------------------------------------------

J.J.B. Hilliard, W.L. Lyons, Inc., through its division, Hilliard Lyons
Investment Advisors, is the investment adviser of the Registrant. For
information concerning the business, profession, vocation or employment of a
substantial nature of J.J.B. Hilliard, W.L. Lyons, Inc., reference is made to
Form ADV filed by it under the Investment Advisers Act of 1940.

Set forth below is a list as of March 31, 1998 of all directors and of all
officers (at the Executive Vice President level and above) of J.J.B. Hilliard,
W.L. Lyons, Inc. and the name and business address of the company (if any),
other than J.J.B. Hilliard, W.L. Lyons, Inc. and its affiliates, with which each
such individual has been connected since January 1, 1997, as well as the
capacity in which such individual was connected:

3
<PAGE>

<TABLE>
<CAPTION>
Name and Title of Name and Address of
Officer or Director Company with which
of J.J.B. Hilliard, Officer or Director
W.L. Lyons, Inc. Is Connected Capacity
- ---------------- ------------------- --------
<S> <C> <C>
James M. Rogers none
Executive Vice
President and director

Robert H. Duling none
Vice President, Financial
Consultant and director

James R. Allen
Executive Vice
President and director none

Robert G. Hollander none
Senior Vice
President, Financial
Consultant and director

James W. Stuckert Royal Gold, Inc. director
Chairman of the Board 1600 Wynkoop Street
and director Suite 1000
Denver, CO 80202
</TABLE>
4
<PAGE>

<TABLE>
<CAPTION>
<S> <C> <C>
DataBeam Corporation director
3191 Nicholsville Road
Lexington, KY 50403

Lawson United Corporation director
113 West Main
Glasgow, KY 42141

Thomas Transportation Group, Inc. director
3600 Chamberlain Lane, Suite 610
Louisville, KY 40241

Brian M. Boor none
Senior Vice President,
Financial Consultant
and director

Samuel C. Harvey none
Executive Vice President
and director

Peter Mahurin none
Senior Vice President,
Financial Consultant
and director

F. James Walker none
Senior Vice President
and director
</TABLE>

5
<PAGE>

In addition to the foregoing connections, all of the directors of J.J.B.
Hilliard, W.L. Lyons, Inc. serve as directors of Hilliard-Lyons, Inc., the
parent of J.J.B. Hilliard, W.L. Lyons, Inc., and some of the directors and
officers of J.J.B. Hilliard, W.L. Lyons, Inc. serve as officers of Hilliard-
Lyons, Inc. and as directors or officers, or both, of other subsidiaries of
Hilliard-Lyons, Inc., each of which subsidiaries, other than Hilliard Lyons
Trust Company, is organized for the purpose of carrying out the investment
banking activities of J.J.B. Hilliard, W.L. Lyons, Inc. or activities in support
thereof.

ITEM 29. Principal Underwriters

(a) J.J.B. Hilliard, W.L. Lyons, Inc. is Registrant's principal
underwriter. J.J.B. Hilliard, W.L. Lyons, Inc. currently serves as
investment adviser and principal underwriter of Hilliard-Lyons
Government Fund, Inc., an open-end money market fund.

(b) Set forth below is certain information pertaining to the directors and
officers (at the Executive Vice President level and above) of J.J.B.
Hilliard, W.L. Lyons, Inc., the Registrant's principal underwriter:
<TABLE>
<CAPTION>
Positions
Name and Principal Positions and Offices and Offices
Business Address with Underwriter with Registrant
- ------------------ --------------------------- ---------------
<S> <C> <C>
James M. Rogers Executive Vice President, none
Hilliard Lyons Center Manager, Chief Operating Officer
Louisville, KY 40202 and director

James R. Allen Executive Vice none
Hilliard Lyons Center President, Manager,
Louisville, KY 40202 Branch and Marketing
Administration and director

Robert H. Duling Vice President, none
Hilliard Lyons Center Financial Consultant
Louisville, KY 40202 and director
</TABLE>
6

<PAGE>

<TABLE>
<CAPTION>
<S> <C> <C>
Ronald G. Hollander Senior Vice none
329 Main Street President, Financial
Evansville, Indiana 47708 Consultant and director

Peter Mahurin Senior Vice President none
446 East Main Street President, Financial
P. O. Box 1837 Consultant, and director
Bowling Green, KY 42101

James W. Stuckert Chairman of the Board, none
Hilliard Lyons Center President and director
Louisville, KY 40202

Samuel C. Harvey Executive Vice President President
Hilliard Lyons Center and director
Louisville, KY 40202

Brian M. Boor Senior Vice President, none
9300 Shelbyville Road Financial Consultant
Suite 150 and director
Louisville, KY 40222

F. James Walker Senior Vice President, none
Hilliard Lyons Center Manager, Financial Services
Louisville, KY 40202 Group and director
</TABLE>

ITEM 30. Location of Accounts and Records

All such accounts, books and other documents are maintained at the office
of State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02105 and Hilliard Lyons Growth Fund, Inc., Hilliard Lyons Center,
Louisville, Kentucky 40202.

7
<PAGE>

ITEM 31. Management Services

Not applicable.

ITEM 32. Undertakings
------------

(a) Not applicable.

(b) Not applicable.

(c) Registrant hereby undertakes to furnish to each person to whom a
prospectus is delivered with a copy of Registrant's latest annual
report to shareholders, upon request and without change.

8
<PAGE>

SIGNATURES
----------

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment No. 9 to the Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Louisville
and Commonwealth of Kentucky, on the 14th day of April, 1998.

HILLIARD LYONS GROWTH FUND, INC.

By: /s/ Donald F. Kohler
--------------------------------
Donald F. Kohler,
Chairman of the Board

Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 9 to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>

Signature Title Date
--------- ----- ----
<S> <C> <C>

/s/ DONALD F. KOHLER Chairman of the Board of April 14, 1998
- ----------------------------- Directors (Principal
Donald F. Kohler Executive Officer)

*/s/ SAMUEL C. HARVEY President April 14, 1998
- -----------------------------
Samuel C. Harvey

*/s/ JOSEPH C. CURRY, JR. Vice President and Treasurer April 14, 1998
- ----------------------------- (Principal Financial Officer
Joseph C. Curry, Jr. and Principal Accounting Officer)

*/s/ WILLIAM A. BLODGETT, JR. Director April 14, 1998
- -----------------------------
William A. Blodgett, Jr.

*/s/ JOHN C. OWENS Director April 14, 1998
- -----------------------------
John C. Owens

*/s/ GILBERT L. PAMPLIN Director April 14, 1998
- -----------------------------
Gilbert L. Pamplin

*/s/ DILLMAN A. RASH Director April 14, 1998
- -----------------------------
Dillman A. Rash

*By: /s/ DONALD F. KOHLER
------------------------
Donald F. Kohler
Attorney-in-Fact pursuant to
Power of Attorney previously
filed with the Commission
</TABLE>
<PAGE>

EXHIBIT INDEX
-------------

Exhibits:
--------

(1) (a) Articles of Incorporation.*
(b) Articles Supplementary

(2) Bylaws.*

(3) Not applicable.

(4) Not applicable.

(5) (a) Investment Advisory Agreement between Registrant and Hilliard
Lyons Investment Advisors, a division of J.J.B. Hilliard, W.L.
Lyons, Inc.*

(b) Amendment No. 1 to Investment Advisory Agreement.*

(6) (a) Distribution Agreement between Registrant and J.J.B. Hilliard,
W.L. Lyons, Inc.*

(b) Amendment No. 1 to Distribution Agreement.*

(7) Not applicable.

(8) Form of Custodian Agreement between Registrant and State Street Bank
and Trust Company.*

(9) Form of Transfer Agency and Service Agreement between Registrant and
State Street Bank and Trust Company.*

(10) Opinion and consent of Brown, Todd & Heyburn PLLC, counsel to the
Fund.*

(11) Consent of Ernst & Young LLP, Independent Auditors.

(12) Not applicable.

(13) Subscription Agreement with initial stockholder.*

(14) Not applicable.

(15) Amended and Restated Distribution Plan pursuant to Rule 12b-1.

(16) Schedule of Computation of Registrant's performance data.*

(17) Not applicable.

(18) Rule 18f-3 Multiple Class Plan.

(27) Financial Data Schedule.

____________________

*Previously filed.

<PAGE>

ARTICLES SUPPLEMENTARY

HILLIARD LYONS GROWTH FUND, INC.

WRITTEN INSTRUMENT ESTABLISHING
AND DESIGNATING SEPARATE CLASSES OF SHARES

April 13, 1998

The undersigned is the Vice President of Hilliard Lyons Growth Fund, Inc.
(the "Corporation"), a Maryland corporation governed by Articles of
Incorporation dated September 5, 1991 (the "Articles"). The following sets
forth resolutions duly adopted by the Board of Directors of this Corporation,
which resolutions are authorized pursuant to Section 2-208 of the Maryland
General Corporation Law and Section 5 of Article V of the Articles in order to
establish and designate separate classes of shares of the Corporation.

The Board of Directors is authorized, in it discretion and without
shareholder approval, to divide the shares of the Corporation into separate
classes of shares;

The Board of Directors hereby deems it desirable and in the best interests
of the Corporation to divide and reclassify the shares of Common Stock of the
Corporation evenly into shares of Class A Common Stock ("Class A Shares") and
Class B Common Stock ("Class B Shares") and to provide investors with a
conversion feature from Class B Shares to the Class A Shares, which conversion
feature would thereby eliminate any distribution fee then in effect under any
plan adopted pursuant to Rule 12b-1 of the Investment Company Act of 1940 ("1940
Act") for such Class B Shares; and

The Board of Directors of this Corporation hereby establishes and
designates separate classes of shares in accordance with the following
provisions:

1. Subject to the conditions hereinafter set forth, the shares of the
Corporation shall be divided into two classes to be known respectively as the
"Class A Common Stock" and the "Class B Common Stock," which classes shall have
such preference and special or relative rights and privileges as may be
determined from time to time by this Board of Directors subject always to the
Articles and the 1940 Act and the rules and regulations thereunder.

2. Subject to the terms of the Articles, the Class A Shares and Class B
Shares will have the same rights and privileges except that:

(A) The Class A Shares

(1) shall be sold subject to an initial sales charge as described
in the prospectus for the Corporation as from time to time in effect
or shall be issued to shareholders in connection with the conversion
feature as hereinafter described;
<PAGE>

(2) shall have a management fee;

(3) shall be subject to the plan of distribution adopted under
Rule 12b-1 of the 1940 Act (the "Rule 12b-1 Plan") and any fees
payable from time to time under such plan shall be allocated and
charged to the Class A Shares in accordance with the plan; and

(4) shall have such dividend reinvestment, exchange and
redemption rights and privileges as may be described in the prospectus for
the Corporation as from time to time in effect; and

(B) the Class B Shares

(1) shall be sold without an initial sales charge but subject to
a contingent deferred sales charge imposed upon the redemption of the Class
B shares as described in the prospectus for the Corporation as from time to
time in effect;

(2) shall have a management fee;

(3) shall be subject to the Rule 12b-1 Plan and any fees payable
from time to time under such plan shall be allocated and charged to the
Class B Shares in accordance with the plan;

(4) shall convert to Class A Shares within a specified number of
years as hereinafter described; and

(5) shall have such purchase, dividend reinvestment, exchange and
redemption rights and privileges associated therewith as may be described
in the prospectus for the Corporation as from time to time in effect.

3. Any shares of the Corporation that are issued and outstanding at the
time when shares of the Corporation are effectively divided into separate
classes of shares as set forth above shall be classified as Class A Shares.

4. Class A Shares of the Corporation shall be issued to holders of Class
B Shares of the Corporation pursuant to the following described conversion
feature:

(A) Class B Shares will convert to Class A Shares at the end of the
month which precedes the seventh anniversary of the purchase date of such
Class B Shares;

(B) Class B Shares issued upon reinvestment of income and capital gain
dividends and other distributions will convert to Class A Shares on a pro
rata basis with other Class B Shares; and

-2-
<PAGE>

(C) Conversion to Class A Shares shall be based upon the relative net
asset values of the Class A Shares and the Class B Shares at the time of
conversion.

IN WITNESS WHEREOF, the undersigned Dianna P. Wengler, Vice President of
the Company, has executed this instrument and Joseph C. Curry, Secretary of the
Company, has affixed its corporate seal hereto and attested said seal on this
13th day of April, 1998.

HILLIARD LYONS GROWTH FUND, INC.

ATTEST: By /s/ DIANNA P. WENGLER
-----------------------------------------
Dianna P. Wengler, Vice President

/s/ JOSEPH C. CURRY
- ----------------------------
Joseph C. Curry, Secretary

-3-
<PAGE>

CORPORATE ACKNOWLEDGMENT

COMMONWEALTH OF KENTUCKY )
) SS:
COUNTY OF JEFFERSON )

On this 13th day of April, 1998, before me, Rebecca D. Gaddie, the
undersigned, personally appeared DIANNA P. WENGLER and JOSEPH C. CURRY, known
personally to me to be Vice President and Secretary, respectively, of HILLIARD
LYONS GROWTH FUND, INC., and that they, as such officers, being authorized so to
do, executed the foregoing instrument for the purposes therein contained, by
signing the name of the corporation by them as such officers.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal.

/s/ REBECCA D. GADDIE
--------------------------------------
Notary Public
[NOTARY SEAL]
My Commission expires: 7-9-2000
----------------

-4-

<PAGE>

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Independent Auditors" in the Statement of
Additional Information and to the incorporation by reference, in Post-Effective
Amendment Number 9 to the Registration Statement (Form N-1A No. 33-43177) and
related Prospectus of Hilliard Lyons Growth Fund, Inc., of those references and
of our report dated January 16, 1997 on the Hilliard Lyons Growth Fund, Inc.

/S/ ERNST & YOUNG LLP
ERNST & YOUNG LLP

Louisville Kentucky
April 15, 1998

<PAGE>

AMENDED AND RESTATED DISTRIBUTION PLAN
--------------------------------------

THIS AMENDED AND RESTATED DISTRIBUTION PLAN (the "Plan") is adopted in
accordance with Rule 12b-1 under the Investment Company Act of 1940 (the "1940
Act"), by Hilliard Lyons Growth Fund, Inc., a corporation organized under the
laws of the State of Maryland (the "Fund"), subject to the following terms and
conditions:

Section 1. Reimbursement. The Fund shall reimburse J.J.B. Hilliard, W.L.
Lyons, Inc. (the "Distributor") at the annual rate of up to 0.25% of the average
daily net assets of the Fund for certain expenses actually incurred by the
Distributor in connection with the offering and sale of the Fund's shares. The
amount of the reimbursement shall be computed on an interim basis for each
quarter within 30 days of the end of such quarter and shall be paid promptly
after such computation. The aggregate amount of such quarterly reimbursements
for each year shall be subject to adjustment within 60 days after the end of
such year so that the Distributor is reimbursed for distribution expenses
incurred by it during such 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.

Section 2. Expenses Covered by the Plan. (a) The compensation provided for
under Section 1 of this Plan may be used to reimburse the Distributor for
expenses incurred in connection with any activity primarily intended to result
in the sale of the Fund's shares, including, but not limited to: (i) payments to
investment brokers of the Distributor and to securities dealers that have
entered into sales agreements with the Distributor ("Authorized Dealers") for
distributing shares of the Fund, promoting the maintenance of holdings by
established stockholders and servicing of stockholder accounts; (ii) payments to
financial institutions (including banks) and others ("Service Agents") for
stockholder servicing and administrative services with respect to shares of the
Fund owned by stockholders for whom the Service Agent is the holder of record or
for whom the Service Agent performs administrative or servicing functions; (iii)
payments to the Distributor for organizing and conducting sales seminars,
printing prospectuses, statements of additional information and interim and
annual reports for other than existing stockholders, and preparation and
distribution of advertising material and sales literature; (iv) an allocation
of distribution related overhead expenses of the Distributor; and (v) payments
of commissions to investment brokers of the Distributor and to Authorized
Dealers on $1 million and over sales of shares of Class A Common Stock of the
Fund with no initial sales charge.

(b) Hilliard Lyons Investment Advisors, as investment adviser to the
Fund (the "Adviser"), may use its investment advisory fee for purposes that may
be deemed to be directly or indirectly related to the distribution of Fund
shares. To the extent that such uses might be considered to constitute the
direct or indirect financing of activities primarily intended to result in the
sale of Fund shares, such uses are expressly authorized under the Plan.

Section 3. Distribution Fee. In addition to the reimbursement of expenses
pursuant to Section 1, the Fund shall pay the Distributor a distribution fee
under the Plan at the annual rate of
<PAGE>

0.75% of the average daily net assets of the Fund attributable to the shares of
Class B Common Stock of the Fund.

Section 4. Continuance of the Plan. The Plan will continue in effect so
long as its continuance is specifically approved at least annually of both (i)
the full Board of Directors of the Fund and (ii) those directors who are not
interested persons of the Fund (within the meaning of the 1940 Act) and who have
no direct or indirect financial interest in the operation of the Plan or in any
agreements related to it (the "Qualified Directors"), cast in person at a
meeting called for the purpose of voting on the Plan or the related agreements.

Section 5. Termination. The Plan may be terminated at any time by a
majority vote of the Qualified Directors or by vote of a majority of the
outstanding voting securities of the Fund. The Plan will terminate automatically
upon the termination of the Distribution Agreement between the Fund and the
Distributor.

Section 6. Amendments. The Plan may not be amended so as to increase
materially the maximum amount of the fee described in Section 1 above, unless
the amendment is approved by a vote of a majority of the outstanding voting
securities of the Fund. No material amendment to the Plan may be made unless
approved by the Fund's Board of Directors in the manner described in Section 3
above.

Section 7. Selection of Certain Directors. While the Plan is in effect, the
selection and nomination of the Fund's directors who are not interested persons
of the Fund will be committed to the discretion of the directors then in office
who are not interested persons of the Fund.

Section 8. Written Reports. In each year during which the Plan remains in
effect, an officer of the Fund authorized to direct the disposition of monies
paid or payable by the Fund pursuant to the Plan or any related agreement will
prepare and furnish to the Fund's Board of Directors, at least quarterly, and
the Board will review, at least quarterly, written reports complying with the
requirements of Rule 12b-1, which set out the amounts expended under the Plan
and the purposes for which those expenditures were made.

Section 9. Preservation of Materials. The Fund will preserve copies of the
Plan, any agreement relating to the Plan and any report made pursuant to Section
8 above, for a period of not less than six years (the first two years in an
easily accessible place) from the date of the Plan, agreement or report.

Section 10. Meanings of Certain Terms. As used in the Plan, the terms
"interested person" and "majority of the outstanding voting securities" will be
deemed to have the same meaning that those terms have under the 1940 Act and the
rules and regulations under the 1940 Act, subject to any exemption that may be
granted to the Fund under the 1940 Act by the Securities and Exchange
Commission.

2
<PAGE>

Section 11. Limitation of Liability. The execution of the Plan by the
undersigned officer of the Fund has been duly authorized by both the Fund's
Board of Directors, in accordance with its authority under the Fund's Articles
of Incorporation and Bylaws, and the sole shareholder of the shares of the Fund;
and, in undertaking those actions, the officer, the Board of Directors and the
sole shareholder have each acted on behalf of the Fund.

IN WITNESS WHEREOF, the Fund has executed the Plan as of April 14, 1998.

HILLIARD LYONS GROWTH FUND, INC.

By: /s/ DIANNA P. WENGLER
---------------------------------
Dianna P. Wengler, Vice President

<PAGE>

EXHIBIT 16

Schedule of Computation of Registrants performance data

1 year Total Return:

(13,377-10,000)/10,000=33.77%

Annualized Total Return from inception:

(24,046 'pp'1/6-1)=15.75%

<PAGE>

RULE 18f-3(d) MULTIPLE CLASS PLAN
HILLIARD LYONS GROWTH FUND, INC.

Introduction

This plan (the "Plan") is adopted pursuant to Rule 18f-3(d) of the
Investment Company Act of 1940, as amended (the "1940 Act"). Shares of the
Hilliard Lyons Growth Fund are distributed pursuant to a system (the "Multiple
Class System") in which each class of shares (a "Class") of the Fund represents
a pro rata interest in the same portfolio of investments of the Fund and differs
only to the extent outlined below.

I. Distribution Arrangements and Service Fees

One or more Classes of shares of the Fund are offered for purchase by
investors with the following sales load structure. In addition, pursuant to Rule
12b-1 under the 1940 Act (the "Rule"), the Fund has adopted a plan (the
"Distribution Plan") under which shares of the Classes are subject to the
services and distribution fees described below.

1. Class A Shares

Class A shares are offered with a front-end sales load and under the
Distribution Plan are subject to a service fee of up to 0.25% of average daily
net assets. In addition, the Fund is permitted to assess a contingent deferred
sales charge ("CDSC") on certain redemptions of Class A shares sold pursuant to
a complete waiver of front-end sales loads applicable to large purchases, if the
shares are redeemed within one year of the date of purchase. This waiver applies
to sales of Class A shares where the amount of purchase is equal to or exceeds
$1,000,000 although this amount may be changed in the future.

2. Class B Shares

Class B shares are offered without a front-end sales load, but are
subject to a five-year declining CDSC and under the Distribution Plan are
subject to a service fee at an annual rate of up to 0.25% of average daily net
assets and a distribution fee at an annual rate of up to 0.75% of average daily
net assets.

3. Additional Classes of Shares

The Board of Directors of the Fund has the authority to create
additional classes, or change existing Classes, from time to time, in accordance
with Rule 18f-3 of the 1940 Act.
<PAGE>

II. Expense Allocations

Under the Multiple Class System, all expenses incurred by the Fund are
allocated among the various Classes of shares based on the net assets of the
Fund attributable to each Class, except that each Class's net assets value and
expenses reflect the expenses associated with that Class under the Fund's
Distribution Plan, including any costs associated with obtaining shareholder
approval of the Distribution Plan (or an amendment thereto) and any expenses
specific to that Class. Such expenses are limited to the following:

(i) transfer agency fees as identified by the transfer agent as being
attributable to a specific Class;

(ii) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and proxies to current
shareholders;

(iii) Blue Sky registration fees incurred by a Class of shares;

(iv) Securities and Exchange Commission registration fees incurred by a
Class of shares;

(v) the expense of administrative personnel and services as required to
support the shareholders of a specific Class;

(vi) litigation or other legal expenses relating solely to one Class of
shares; and

(vii) fees of members of the governing boards of the funds incurred as a
result of issues relating to one Class of shares.

Pursuant to the Multiple Class System, expenses of the Fund allocated to a
particular Class of shares of the Fund are borne on a pro rata basis by each
outstanding share of that Class.

III. Conversion Rights of Class B Shares

All Class B shares of the Fund will automatically convert to Class A shares
after a holding period of seven years. Upon the expiration of the holding
period, Class B shares (except those purchases through the reinvestment of
dividends and other distributions paid in respect of Class B shares) will
automatically convert to Class A shares of the Fund at the relative net asset
value of the Class, and will, as a result, thereafter be subject to the lower
fee under the Distribution Plan. For purposes of calculating the holding period
required for conversion, newly created Class B shares issued after the date of
implementation of the Multiple Class System are deemed to have been issued on
(i) the date on which the issuance of the Class B shares occurred or (ii) for
Class B shares obtained through an exchange, or a series of exchanges, the date
on which the issuance of the original Class B shares occurred.

Shares purchased through the reinvestment of dividends and other
distributions paid in respect of Class B shares are also Class B shares.
However, for purposes of conversion to Class A, all Class B shares in a
shareholder's Fund account that were purchased through the reinvestment of

-2-
<PAGE>

dividends and other distributions paid in respect of Class B shares (and that
have not converted to Class A shares as provided in the following sentence) are
considered to be held in a separate sub-account. Each time any Class B shares in
the shareholder's Fund account (other than those in the sub-account referred to
in the preceding sentence) convert to Class A, a pro rata portion of the Class B
shares then in the sub-account also converts to Class A. The portion is
determined by the ratio that the shareholder's Class B shares converting to
Class A bears to the shareholder's total Class B shares not acquired through
dividends and distributions.

The conversion of Class B shares to Class A shares is subject to the
continuing availability of a ruling of the Internal Revenue Service that payment
of different dividends on Class A and Class B shares does not result in the
Fund's dividends or distributions constituting "preferential dividends" under
the Internal Revenue Code of 1986, as amended (the "Code"). In the event that
conversion of Class B shares does not occur, Class B shares would continue to be
subject to the distribution fee and any incrementally higher transfer agency
costs attending the Class B shares for an indefinite period.

IN WITNESS WHEREOF, the Fund has executed the Plan as of February 19,
1998.

HILLIARD LYONS GROWTH FUND, INC.

By: /s/ DIANNA P. WENGLER
----------------------------
Dianna P. Wengler,
Vice President

-3-

<PAGE>

<ARTICLE> 6
<CIK> 0000879858
<NAME> HILLARD LYONS GROWTH FUND, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 35,903,297
<INVESTMENTS-AT-VALUE> 58,307,355
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<DISTRIBUTIONS-OF-INCOME> 214,232
<DISTRIBUTIONS-OF-GAINS> 3,222,379
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<SHARES-REINVESTED> 3,394,590
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</TABLE>