HILLIARD LYONS GROWTH FUND INC, 497, 1999-05-05

HILLIARD LYONS GROWTH FUND INC
497, 1999-05-05

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[HILLIARD LYONS LOGO]
HILLIARD LYONS GROWTH FUND, INC.

Hilliard Lyons Growth Fund, Inc. is a mutual fund that has a primary
investment objective of providing long-term growth of capital. Current income
is a secondary consideration that is sought only when consistent with the
primary investment objective. The Fund's management seeks to achieve the
investment objectives by investing primarily in common stock of companies
believed to have potential for capital appreciation.

Shares of the Fund have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulators, and neither the SEC nor
any state regulator has ruled on the accuracy or adequacy of this prospectus.
It is a criminal offense to state otherwise.

This Prospectus is dated May 1, 1999.

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Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Risk/Return Summary........................................................ 3

Fees and Expenses of the Fund.............................................. 5

Investment Objectives and Policies......................................... 7

Investment Advisory Services............................................... 8

Purchase of Shares......................................................... 9

Redemption of Shares....................................................... 14

Distributions from the Fund................................................ 16

Federal Income Tax......................................................... 17

Financial Highlights....................................................... 19
</TABLE>

No dealer, sales person or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied
upon as having been authorized by the Fund, the Fund's Investment Adviser or
the Fund's distributor. This Prospectus does not constitute an offer by the
Fund or by the Fund's distributor to sell or a solicitation of an offer to buy
any of the securities offered hereby in any jurisdiction to any person to whom
it is unlawful for the Fund to make such an offer in such jurisdiction.

2
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RISK/RETURN SUMMARY

Investment Objectives. The Fund is an open-end, non-diversified management
investment company, that has a primary investment objective of long-term
growth of capital. Current income, which will be derived from dividends and
interest on portfolio securities, is a secondary consideration. There can be
no assurance that the Fund will achieve its investment objectives.

Investment Strategies. The Fund seeks to meet its investment objective by
investing in securities that are considered by the Fund's Investment Adviser
(the "Adviser") to have long-term capital appreciation possibilities. 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. The
Fund also seeks to meet its investment objective through a growth investment
approach which involves buying stocks with above-average growth rates.

Types of Securities. Under normal market conditions, at least 65% of the
Fund's total assets will be invested in common stock of companies having a
market capitalization in excess of $500,000,000. The Fund may invest up to 30%
of its total assets in smaller companies that fit its investment criteria.

Principal Investment Risks

Because of the following risks, you could lose money on your investment in
the Fund over a short or long term:

As a non-diversified fund, a greater percentage of the Fund's portfolio may
be invested in one company's securities than the portfolio of a diversified
fund. Because of this, the Fund may experience greater volatility in
investment performance.

The main risk of any investment in stocks is that values fluctuate in price.
The value of your investment can go up or down depending upon market
conditions, which means you could lose money.

Because different kinds of stocks go in and out of favor depending on market
conditions, this Fund's performance may be better or worse than other funds
with different investment styles. For example, in some markets a fund holding
small cap growth stocks may outperform this Fund.

While the Fund manager chooses stocks he believes to be undervalued, there
is no guarantee that prices won't move even lower.

Because small companies 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. In
addition, small company 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.

An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.

3
<PAGE>

Annual Performance

One way to measure the risks of investing in the Fund is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Fund's Class A Shares over the past six calendar years prior to
the date of this prospectus, as well as its best and worst quarter during that
period. Sales loads are not reflected in this chart. If these sales loads had
been included, the return shown below would have been lower. Remember that the
past performance of the Fund is not indicative of its future performance.

[BAR GRAPH APPEARS HERE]

The annual return of the Fund's Class B Shares would be substantially
similar to that shown for the Class A Shares because both classes of the
Fund's shares are invested in the same portfolio securities, however, the
actual annual return of the Class B Shares would be lower than the annual
return shown for the Fund's Class A Shares because of the differences in the
expense borne by each class of shares.

During the six year period shown in the bar chart, the highest quarterly
return was 19.20% (for the quarter ended December 31, 1998) and the lowest
quarterly return was -8.36% (for the quarter ended September 30, 1998).

4
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Comparative Performance

This table shows how the Fund's performance compares with a broad-based
market indice that the Fund's management believes is an applicable benchmark
for the Fund: The S&P 500 average annual returns, and the Fund's average
annual returns assuming payment of the maximum sales charges, are shown for 1-
and 5-year periods ended December 31, 1998 (the most recently completed
calendar year prior to the date of this prospectus) and since inception
(Janaury 6, 1992). Remember that the past performance of the Fund is not
indicative of its future performance.

<TABLE>
<CAPTION>
Average Annual Total
Returns for the
Periods Ended December 31, Since Inception
1998 Past One Year Past Five Years (January 6, 1992)
-------------------------- ------------- --------------- -----------------
<S> <C> <C> <C>
Class A Shares 8.18% 19.66% 15.43%
S&P 500 28.58% 24.03% 20.17%
</TABLE>

FEES AND EXPENSES OF THE FUND

This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.

<TABLE>
<S> <C> <C>
Stockholder Fees (Fees paid directly from your
Investment)
<CAPTION>
Class A Class B
-------- -----------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price)....................... 4.75%(1) None
Maximum Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, None(2)
whichever is lower)................................. 4.75%(3)
Sales Charge Imposed on Reinvested Dividends........ None None
Redemption Fees..................................... None(4) None
Exchange Fee........................................ None None
Maximum Account Fee................................. None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fee...................................... 0.80% 0.80%(6)
Distribution (Rule 12b-1) Fee....................... 0.18% 0.61%(6)
Other Expenses (including audit, legal, stockholder
services, transfer agent and custodian)............. 0.29%(5) 1.68%(5)(6)
Total Annual Fund Operating Expenses................ 1.27%(5) 3.09%(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) The maximum sales charges declines to 3.75% in second year, 2.75% in the
third and fourth years, 1.75% in the fifth year and is eliminated
thereafter. 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.

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(5) For the year ending December 31, 1999, 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, 1998. The ratio of total operating expenses to average daily net
assets for the year after the fee waiver was 1.25% for the Class A Shares
and 2.05% for the Class B Shares and the ratio of the management fee to
average daily net assets after the fee waiver, for both the Class A Shares
and Class B Shares for the year was .73%. See "INVESTMENT ADVISORY
SERVICES."

(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,
1998.

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

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)................... $60.00 $86.00 $115.00 $201.00
Class B
Assumes redemption at end of period... 79.00 125.00 188.00 None
Assumes no redemption at end of
period............................... 31.00 97.00 170.00 None
</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. Such costs and expenses do not reflect any waiver of
advisory fees. 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%.

6
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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.

Principal Investment Strategies. It is anticipated that most of the time a
major portion of the Fund's portfolio will be invested in common stocks.
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's growth investment approach involves buying stocks with above-
average growth rates. Typically, growth stocks are the stocks of faster
growing companies in more rapidly growing sectors of the economy. Generally,
growth stock valuation levels will be higher than value stocks and the market
averages.

The Fund may, from time to time, take temporary defensive positions that are
inconsistent with the Fund's principal investment strategies in attempting to
respond to adverse market economic, political, or other conditions. The Fund
may not achieve its investment objective when taking such a temporary
defensive position.

PRINCIPAL INVESTMENT RISKS

There is 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. 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.

The main risk of any investment in stocks is that values fluctuate in price.
The value of your investment can go up or down depending upon market
conditions, which means you could lose money.

7
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The Fund's investment in smaller companies involves higher market risks.
Smaller companies 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.

Year 2000 Risks. Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Fund's investment Adviser and
other service providers do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000 Problem." The Fund's investment Adviser is taking steps that it
believes are reasonably designed to address the Year 2000 problem with respect
to computer systems that uses and to obtain reasonable assurances that
comparable steps are being taken by the Fund's other major services providers.
At this time, there can be no assurances that these steps will be sufficient
to avoid any adverse impact to the Fund. In addition, the Year 2000 problem
may adversely affect the markets and the issuers of securities in which the
Fund may invest which, in turn, may adversely affect the net asset value of
the Fund. Improperly functioning trading systems may result in settlement
problems and liquidity issues. In addition, corporate and governmental data
processing errors may result in production problems for individual companies
or issuers and overall economic uncertainty. Earnings of individual issuers
will be affected by remediation costs, which may be substantial and may be
reported inconsistently in U.S. and foreign financial statements. Accordingly,
the Fund's investments may be adversely affected. The statements above are
subject to the Year 2000 Information and Readiness Disclosure Act which act
may limit the legal rights regarding the use of such statements in the case of
a dispute.

INVESTMENT ADVISORY SERVICES

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 PNC Bank Corp. ("PNC"). PNC, a
multi-bank holding company headquartered in Pittsburgh, Pennsylvania, is one
of the largest financial services organizations in the United States. PNC's
address is One PNC Plaza, 249 Fifth Avenue, Pittsburgh, Pennsylvania 15222-
2707. 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, 1998 of approximately $1,046,000,000. As of December 31, 1998,
the Adviser and its affiliates managed individual, corporate, fiduciary and
institutional accounts with assets aggregating approximately $4,611,000,000.

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.

The Adviser bears all expenses of its employees and overhead incurred by it
in connection with its duties under the Advisory Agreement. It also pays the
compensation of all officers and directors of the Fund who are affiliates of
the Adviser or Hilliard Lyons. In addition, the Adviser has certain
administrative obligations to the Fund which include providing (i) office
facilities and related office equipment and services, (ii) supervision of

8
<PAGE>

all aspects of the Fund's non-investment operations to the extent not provided
by others pursuant to the Fund's custodian and transfer agent agreements, and
(iii) personnel to perform such executive, administrative and clerical
services as are reasonably necessary for the effective administration of the
Fund.

As compensation for its services and related expenses, the Fund has agreed
to pay the Adviser a fee, accrued daily and payable quarterly, equal to 0.80%
per annum of the Fund's average daily net assets attributable to each class.
This fee is higher than the management 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 Fund on a quarterly basis, by the amount by which the Fund's
total annual operating expenses, on an annualized basis, exceeded 1.30% for
Class A Shares and 2.05% for Class B Shares. For the year ending December 31,
1998, the reimbursement from the Adviser was $13,401 for Class B Shares and
the waiver of the management fee amounted to a total of $40,862 for both
classes of shares. With the management fee waiver and the expense
reimbursement, total operating expenses for the year ending December 31, 1998
amounted to 1.25% of average daily net assets for Class A Shares, and 2.05% of
average daily net assets for Class B Shares. Had there been no management fee
waiver or expense reimbursement, total operating expenses would have been
1.27% of average daily net assets for Class A Shares, and 3.09% of average
daily net assets for Class B Shares.

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.

Personal Investment Policies. The Fund and the Adviser have adopted Code of
Ethics designated to recognize a fiduciary relationship between the Fund and
the Adviser and its employees. The Code of Ethics permit directors, trustees,
officers and employees to buy and sell securities for their personal accounts
subject to certain restrictions. Persons with access to certain sensitive
information are subject to pre-clearance and other procedures designed to
prevent conflicts of interest.

Portfolio Management. 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.

PURCHASE OF SHARES

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.

9
<PAGE>

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. The Fund will not accept any order of
$250,000 or more for Class B shares on behalf of a single investor (not
including dealer "street name" or omnibus accounts) because generally it will
be more advantageous for that investor to purchase Class A shares instead. 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.

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.

10
<PAGE>

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>

The offering price for the Fund's shares includes a front-end sales load. 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. 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 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

11
<PAGE>

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 (vii) employer-sponsored retirement plans with assets
of at least $100,000 or 25 or more eligible participants, and (viii) accounts
established under a fee-based program sponsored and maintained by a registered
broker dealer or other financial intermediary and approved by the Distributor.

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 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.

12
<PAGE>

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.

Distribution Arrangements. The Fund has adopted a plan under Rule 12b-1 that
allows the Fund to pay distribution fees for the sale and distribution of its
shares. Because these fees are paid out of the Fund's assets on an on-going
basis, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.

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 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

13
<PAGE>

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.

Pricing of Fund's Shares. 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".

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.

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
"Purchase of Shares". 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.

14
<PAGE>

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. 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 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.

15
<PAGE>

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 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.

DISTRIBUTIONS FROM THE FUND

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.

16
<PAGE>

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.

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.

FEDERAL INCOME TAX

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).

17
<PAGE>

Dividends paid by the Fund from investment income and distributions of
short-term capital gains are taxable to stockholders as ordinary income for
federal income tax purposes, whether received in cash or reinvested in
additional shares. Distributions of long-term capital gains are taxable to
stockholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, regardless of the length of time the stockholder has held
shares of the Fund. Each stockholder receives an annual statement as to the
tax status and dollar amounts of dividends and distributions, if any, for the
prior calendar year. The Fund may be subject to state or local taxes in
jurisdictions in which the Fund may be deemed to be doing business. Dividends
and distributions declared by the Fund may also be subject to state and local
taxes.

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

Redemption of Fund shares or exercising a withdrawal through the Fund's
withdrawal plan may have tax consequences. Investors must report any gain or
loss realized for federal and state income purposes. Investors should consult
their tax adviser regarding the tax consequences of redeeming or participating
in the withdrawal plan.

18
<PAGE>

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single class of the Fund's shares. The total returns
in the table represent the rate that an investor would have earned on an
investment in the Fund. This information has been audited by Ernst & Young
LLP, whose report, along with the Fund's financial statements, are included in
the Statement of Additional Information, which is available upon request.

<TABLE>
<CAPTION>
Class B
Period from
Class A April 20,
For the year ended December 31, 1998* to
------------------------------------------------------------ December 31,
1998 1997 1996 1995 1994 1998
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period.... $30.29 $22.95 $20.20 $15.98 $15.69 $32.63
-------- -------- -------- -------- -------- --------
Net investment income... 0.20 0.12 0.11 0.15 0.12 ( 0.02)
Net realized and change
in unrealized gain on
investments............ 3.89 9.13 3.92 4.82 0.29 1.57
-------- -------- -------- -------- -------- --------
Total from investment
operations............. 4.09 9.25 4.03 4.97 0.41 1.55
-------- -------- -------- -------- -------- --------
Less dividends from net
investment income...... ( 0.18) ( 0.12) ( 0.11) ( 0.15) ( 0.12) ( 0.00)
Less dividends from net
realized capital gains. ( 0.71) ( 1.79) ( 1.17) ( 0.60) ( 0.00) ( 0.71)
In excess of net
investment income...... ( 0.14)
-------- -------- -------- -------- -------- --------
Total distributions..... ( 0.89) ( 1.91) ( 1.28) ( 0.75) ( 0.12) ( 0.85)
-------- -------- -------- -------- -------- --------
Net asset value:
End of period.......... $33.49 $30.29 $22.95 $20.20 $15.98 $33.33
======== ======== ======== ======== ======== ========
Total Investment
Return(1).............. 13.58% 40.41% 19.98% 31.10% 2.60% 4.82%***

SIGNIFICANT RATIOS AND
SUPPLEMENTAL DATA
Operating expenses to
average net assets..... 1.25%(e) 1.30%(d) 1.58%(c) 1.75%(b) 1.75%(a) 2.05%(e)**
Net investment income to
average net assets..... .64%(e) .49%(d) .52%(c) .82%(b) .68%(a) (.23)%(e)**
Portfolio turnover
rate(f)................ 18.15% 22.20% 18.79% 27.50% 20.10% 18.15%
Net assets, end of
period (000s omitted).. $88,498 $58,416 $35,628 $28,259 $20,476 $9,604
</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.
(e) Net of voluntary expense reimbursement and management fee waiver by the
Adviser for B shares investors and net of voluntary management fee waiver
by A share investors. If the Fund had borne all expenses that were assumed
by the Adviser and had paid the full management fee, the annualized ratios
of expenses and net investment income to average net assets would have
been 1.27% and .62% for A shares and 3.09% and (1.27%) for B shares,
respectively, for the year ended December 31, 1998.
(f) Portfolio turnover rate is calculated on the basis of the portfolios as a
whole without distinguishing between the classes of shares issued.

(1) Excludes maximum sales charge of 4.75%.

* Commencement of operations

** Annualized

*** Not annulized

19
<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
<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, etc. Joint owner, Trustee, Other Date
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)

21
<PAGE>

FOR MORE INFORMATION

Call your broker or (800) 444-1854 from 8:30 a.m. to 5:00 p.m. central time,
Monday through Friday.

Hilliard Lyons Growth Fund, Inc.
Hilliard Lyons Center
Louisville, KY 40202

Investment Advisor

Hilliard-Lyons Investment Advisors
Hilliard Lyons Center
Louisville, KY 40202-2517

Distributor

Provident Distributors, Inc.
Four Falls Corporate Center
6th Floor
West Conshohocken, Pennsylvania 19428

Custodian and Transfer Agent

State Street Bank & Trust Company
225 West Franklin Street
P.O. Box 1912
Boston, Massachusetts 02266

Legal Counsel

Brown, Todd & Heyburn, PLLC
400 West Market Street
Louisville, Kentucky 40202

Independent Auditors

Ernst & Young, LLP
400 West Market Street
Louisville, Kentucky 40202
<PAGE>

[HILLIARD LYONS LOGO]
HILLIARD LYONS
GROWTH FUND
Prospectus

May 1, 1999

A Statement of Additional Information, which contains more details about the
Fund, is incorporated by reference in its entirety into this Prospectus.

Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to stockholders. In the Fund's annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its last fiscal
year.

You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling (800) 444-1854 from 8:30 a.m.
to 5:00 p.m., central time, Monday through Friday.

Information about the Fund, including its reports and statement of additional
information, has been filed with the Securities and Exchange Commission (SEC).
It can be reviewed and copied at the SEC Public Reference Room in Washington,
DC or online at the SEC's website (http://www.sec.gov). For more information,
please call the SEC at (800) SEC-0330. You can also request these materials by
writing the Public Reference Section of the SEC, Washington, DC 20549-6009,
and paying a duplication fee.

Hilliard Lyons Growth Fund

Investment Company Act File #811-6423
<PAGE>

PART B

HILLIARD LYONS GROWTH FUND, INC.

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

__________________________

STATEMENT OF ADDITIONAL INFORMATION

Dated May 1, 1999

Hilliard Lyons Growth Fund, Inc. 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
May 1, 1999 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>

General Information................................. 3

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

Other Information................................... 26

Appendix A.......................................... A-1

Financial Statement................................. F-1
</TABLE>

2
<PAGE>

GENERAL INFORMATION
-------------------

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.

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

<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

<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 1999.

<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 1999.

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.

<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 1999.

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 1999.

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

<PAGE>

underlying securities, including the risk of a possible decline in the value of
the underlying securities during the period in which the Fund seeks to assert
its rights to them, the risk of incurring expenses associated with asserting
those rights and the risk of losing all or a part of the income from the
agreement. In addition, if bankruptcy proceedings are commenced with respect to
the seller of the security, realization upon the collateral by the Fund may be
delayed or limited.

The Fund only enters into repurchase agreements involving U.S. government
obligations, or obligations of its agencies or instrumentalities, usually for a
period of seven days or less. The term of each of the Fund's repurchase
agreements is always less than one year and the Fund does not enter into
repurchase agreements of a duration of more than seven days if, taken together
with all other illiquid securities in the Fund's portfolio, more than 5% of its
net assets would be so invested.

Portfolio Turnover
- ------------------

The Fund does not seek to realize profits by participating in short-term
market movements and intends to purchase securities for long-term capital
appreciation. While the rate of portfolio turnover is not a limiting factor when
the Adviser deems changes appropriate, it is anticipated, given the Fund's
investment objective, that its annual portfolio turnover should not exceed 75%.
Portfolio turnover is calculated by dividing the lesser of the Fund's purchases
or sales of portfolio securities during the period in question by the monthly
average of the value of the Fund's portfolio securities during that period.
Excluded from consideration in the calculation are all securities with
maturities of one year or less when purchased by the Fund.

The portfolio turnover rate of the Fund decreased from 22.2% for the year
ending December 31, 1997 to 18.2% for the year ending December 31, 1998.

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.

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.

The Fund's Performance
- ----------------------

The Fund may periodically advertise its "average annual total return" over
various periods of time. This figure shows the average 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 invested 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 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 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 inside back cover of
this prospectus.

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>
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 formerly Managing
116 Chinoe Road Partner of Owens & Company, Certified
Lexington, KY 40502 Public Accountants, Lexington, KY.

Stewart E. Conner Director Managing Partner, Law Firm of
Wyatt Tarrant & Combs Wyatt Tarrant & Combs,
2800 Citizens Plaza Louisville, KY.
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) Secretary and Treasurer Senior Vice President of Hilliard
Hilliard Lyons Center 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 Assistant Secretary 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 $750 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 $28,731 from the Fund
during its fiscal year ended December 31, 1998. The following table sets forth
information concerning compensation received by directors of the Fund during the
year ending December 31, 1998. At March 8, 1999, the officers and directors
of the Fund as a group owned beneficially 49,793 shares of the Fund (1.6% of the
shares outstanding).

<TABLE>
<CAPTION>
Pension or
Retirement Total
Aggregate Benefits Accrued Estimated Annual Compensation from
Name of Person, Compensation as part of Fund Benefits upon Fund Paid to
Position From Fund Expenses Retirement Directors
- -------- ------------ ---------------- ---------------- -----------------
<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., $10,000 0 0 $10,000
Director
John C. Owens, $10,000 0 0 $10,000
Director
Dillman A. Rash, Director $ 3,424 0 0 $ 3,424
Stewart F. Conner $ 5,307 0 0 $ 5,307
Director
</TABLE>

At March 8, 1999, J.J.B. Hilliard, W.L. Lyons, Inc. Employees Profit
Sharing Plan Fund D owned beneficially and of record 16.7% 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 "INVESTMENT
ADVISORY SERVICES" 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, 1998 of approximately $1,046,000,000. As of December 31, 1998, the Adviser
and its affiliates managed individual, corporate, fiduciary and institutional
accounts with assets aggregating approximately $4,611,000,000.

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, 1998, the advisory fees totaled $657,866, of which $46,803
was waived. 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.

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, 2000
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
- -----------

The Fund entered into a Distribution Agreement dated as of December 1, 1998
(the "Distribution Agreement") with Provident Distributors, Inc. (the
"Distributor"). The terms of the Distribution Agreement were approved on
November 23, 1998, by vote of the Board of Directors of the Fund, including a
majority of the directors of the Fund who are not "interested persons" (as such
term is defined in the Investment Company Act of 1940) of any party thereto,
cast in person at a meeting called for the purpose of voting on such approval.
Pursuant to the terms of the Distribution Agreement, the Distributor serves as
the principal underwriter and distributor of the Fund's shares. Pursuant to an
agreement with the Distributor, Hilliard-Lyons has agreed to pay the Distributor
a fee of $1,000 per month for services it renders to the Fund. There is no fee
payable by the Fund pursuant to the Distribution Agreement. The agreement also
provides that Hilliard-Lyons bears the cost of all sales and promotional
expenses, including the expenses of printing all sales literature and
prospectuses, other than those utilized for regulatory purposes and those
furnished from time to time to existing shareholders of the Fund. The
continuance of the Distribution Agreement must be approved by a majority of the
Fund's Board of Directors including a majority of the directors, who are not
"interested persons". The Agreement will terminate automatically if assigned by
either party thereto and is terminable upon 60 days written notice by the Fund
and/or the Distributor. During the fiscal years ended December 31, 1998 and
1997, the aggregate amounts of the Fund's sales charges were $1,534,213 and
$250,204, 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).

<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, 1998:

(a) printing of prospectus and financial reports for delivery to other
than current stockholders: $20,740; and

(b) trail fees to Hilliard Lyons brokers: $61,690.

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.

<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

<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, 1998 of $56,482. 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, 1997 of $17,778, none of which was paid to 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.

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

<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

<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.

<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, 1998 of
$33.49 per share, the maximum offering price per share was $35.16 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
-----------------

<TABLE>
<CAPTION>
Fiscal Periods Ended Hilliard Lyons
December 31, 1998 Growth Fund
- -------------------- -----------------------
<S> <C>
1 Year 8.18%

Since Inception 15.43%
</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.

OTHER 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.

A-1
<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.

A-2
<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.

A-3
<PAGE>

HILLIARD LYONS GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS
December 31, 1998

COMMON STOCKS -- 84.4%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Company Cost Value
------- ------- ---- ------
BASIC INDUSTRY -- 3.8%
---------------------------------------------------------------------
<C> <S> <C> <C>
126,000 Sigma-Aldrich Corp. ........................ $ 4,467,812 $ 3,701,250
----------- -----------
4,467,812 3,701,250
CAPITAL GOODS -- 14.4%
---------------------------------------------------------------------
162,000 Dover Corp. ................................ 3,907,898 5,933,250
21,000 General Electric Co. ....................... 415,030 2,143,313
48,000 Nordson Corp. .............................. 2,401,250 2,466,000
112,000 Raychem Corp. .............................. 4,246,054 3,619,000
----------- -----------
10,970,232 14,161,563
CONSUMER DURABLE -- 7.7%
---------------------------------------------------------------------
123,000 Donaldson Inc. ............................. 1,723,497 2,552,250
106,000 Harley Davidson Inc. ....................... 2,716,816 5,021,750
----------- -----------
4,440,313 7,574,000
CONSUMER NON-DURABLE -- 11.3%
---------------------------------------------------------------------
81,900* Bush Boake Allen Inc. ...................... 2,294,883 2,886,975
40,000 Gillette Co. ............................... 1,434,120 1,932,500
42,000 Estee Lauder Cos., Inc. LLA................. 2,142,569 3,591,000
117,000 Mattel Inc. ................................ 3,567,645 2,669,063
----------- -----------
9,439,217 11,079,538
FINANCIAL -- 26.8%
---------------------------------------------------------------------
57,500 American International Group Inc. .......... 2,261,730 5,555,938
28* Berkshire Hathaway Inc. .................... 502,880 1,960,000
221,000 Cincinnati Financial Corp. ................. 4,930,565 8,094,125
72,500 Federal Home Loan Mortgage Corp. ........... 1,603,279 4,671,719
18,000 Fifth Third Bancorp ........................ 272,000 1,283,625
52,312 Synovus Financial Corp. .................... 294,615 1,275,105
39,000 Wachovia Corp. ............................. 2,681,046 3,410,062
----------- -----------
12,546,115 26,250,574
HEALTH CARE -- 6.3%
---------------------------------------------------------------------
38,500 Allergan Inc. .............................. 926,295 2,492,875
44,000 Johnson & Johnson........................... 1,360,355 3,690,500
----------- -----------
2,286,650 6,183,375
</TABLE>

See notes to financial statements.

F-1
<PAGE>

HILLIARD LYONS GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS
December 31, 1998

<TABLE>
<CAPTION>
Market
Shares Company Cost Value
------- ------- ---- ------
RETAIL & SERVICES -- 14.1%
---------------------------------------------------------------------

<C> <S> <C> <C>
125,000 Brady WH Co. CL A............................ $ 2,877,125 $ 3,367,187
59,000 Gannett Inc. ................................ 2,760,857 3,805,500
75,000 G & K Services Inc. CL A..................... 2,381,595 3,993,750
45,000 Walgreen Co. ................................ 381,267 2,635,312
----------- -----------
8,400,844 13,801,749
----------- -----------
Total Common Stocks.......................... $52,551,183 $82,752,049
</TABLE>

U.S. GOVERNMENT AGENCY OBLIGATIONS -- 15.1%
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Principal Purchase Maturity Market
Amount Description Yield Date Value
----------- ----------- -------- -------- -----------
<C> <S> <C> <C> <C>
$14,840,000 Federal Home Loan Bank ........... 4.362% 01/04/99 $14,834,682
-----------
Total U. S. Government Agency
Obligations (Cost --$14,834,682).. 14,834,682
-----------
TOTAL INVESTMENTS (Cost --
$67,385,865) (99.5%)............. $97,586,731
===========
</TABLE>

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

*Non-income producing security.

See notes to financial statements.

F-2
<PAGE>

HILLIARD LYONS GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Common stocks (cost $52,551,183)................................. $82,752,049
U.S. Government Agency Obligations at value (amortized cost
$14,834,682).................................................... 14,834,682
-----------
Total investments............................................... 97,586,731
Cash.............................................................. 1,764
Receivables:
Investments sold................................................. 209,493
Dividends........................................................ 97,326
Capital shares sold.............................................. 550,864
Prepaid expenses.................................................. 2,776
-----------
Total Assets.................................................... $98,448,954
===========
LIABILITIES:
Dividends payable................................................ $ 61,303
Due to adviser -- Note C......................................... 159,921
Capital shares redeemed.......................................... 40,372
Accrued expenses................................................. 85,626
-----------
Total Liabilities............................................... 347,222
-----------
NET ASSETS:
Common stock ($.001 par value; 150,000,000 shares authorized and
2,931,002 shares issued and outstanding)......................... 2,931
Paid-in surplus................................................... 66,369,267
Accumulated undistributed net realized gain on investments........ 1,530,381
Net unrealized appreciation on investments........................ 30,200,866
Distributions in excess of net investment income -- Note B........ (1,713)
-----------
Total Capital (Net Assets)...................................... $98,101,732
===========
Net assets
Investor A shares............................................... $88,497,465
Investor B shares............................................... 9,604,267
-----------
$98,101,732
===========
Shares of capital stock
Investor A shares............................................... 2,642,823
Investor B shares............................................... 288,179
-----------
2,931,002
Net asset value
Investor A shares -- redemption price per share................. $ 33.49
===========
Investor B shares -- offering price per share*.................. $ 33.33
===========
Maximum sales charge (Investor A)................................. 4.75%
Maximum offering price per share (100%/(100%-maximum sales charge
of net asset value adjusted to nearest cent) (Investor A)........ $ 35.16
===========
</TABLE>

*Redemption price of Investor B shares varies based on length of time shares
are held.

See notes to financial statements.

F-3
<PAGE>

HILLIARD LYONS GROWTH FUND, INC.
STATEMENT OF OPERATIONS
For the year ended December 31, 1998

<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends........................................................ $ 729,744
Interest......................................................... 809,594
-----------
Total investment income........................................ 1,539,338
EXPENSES:
Management fees -- Note C........................................ 657,866
12b-1 expenses (Investor A) -- Note C............................ 139,578
12b-1 expenses (Investor B) -- Note C............................ 36,998
Custodian fees................................................... 52,865
Audit fees....................................................... 38,190
Transfer agent fees (Investor A)................................. 52,645
Transfer agent fees (Investor B)................................. 38,250
Directors' fees.................................................. 24,185
Insurance expense................................................ 17,705
Legal fees....................................................... 24,665
Shareholder reports.............................................. 13,575
Filing fees...................................................... 15,820
Trade association................................................ 2,492
-----------
1,114,834
-----------
Waiver of management fees by Adviser -- Note C..................... (46,803)
Reimbursement of expenses by Adviser Class B Shares -- Note C...... (13,401)
-----------
Total expenses................................................. 1,054,630
-----------
Net investment income........................................ 484,708
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments -- Note B....................... 2,054,232
Change in unrealized appreciation on investments................. 7,796,808
-----------
Net gain on investments........................................ 9,851,040
-----------
Net increase in net assets resulting from operations......... $10,335,748
===========
</TABLE>

See notes to financial statements.

F-4
<PAGE>

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

<TABLE>
<CAPTION>
For the year ended
December 31,
1998 1997
------------ -----------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income.............................. $ 484,708 $ 216,588
Net realized gain on investments................... 2,054,232 4,695,525
Net change in unrealized appreciation on
investments....................................... 7,796,808 10,764,036
------------ -----------
Net increase in net assets from operations....... 10,335,748 15,676,149

DISTRIBUTIONS TO INVESTOR A SHAREHOLDERS FROM:

Net investment income.............................. (449,910) (214,232)
Net realized gain on investments................... (1,803,844) (3,222,379)
------------ -----------
Total distributions.............................. (2,253,754) (3,436,611)
DISTRIBUTIONS TO INVESTOR B SHAREHOLDERS FROM*:
In excess of net investment income................. (37,291) N/A
Net realized gain on investments................... (193,153) N/A
------------ -----------
Total distributions.............................. (230,444) N/A

FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from 74,534 and 113,607 shares issued in
reinvestment of dividends, respectively........... 2,422,891 3,394,590
Proceeds from 1,360,496 and 357,550 shares sold,
respectively...................................... 42,878,738 9,612,901
Cost of 432,675 and 94,849 shares repurchased,
respectively ..................................... (13,467,505) (2,458,498)
------------ -----------
Net increase in net assets from capital share
transactions.................................... 31,834,124 10,548,993
------------ -----------
Total increase in net assets.................... 39,685,674 22,788,531

NET ASSETS:
Beginning of period................................ 58,416,058 35,627,527
------------ -----------
End of period (includes distribution in excess of
net investment income of $1,713 and undistributed
net investment income of $780, respectively)...... $ 98,101,732 $58,416,058
============ ===========
</TABLE>

*For the period April 20, 1998 (commencement of Class B shares) through
December 31, 1998

See notes to financial statements.

F-5
<PAGE>

HILLIARD LYONS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE A -- ORGANIZATION

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.

The Fund issues two classes of shares. Investor A shares and Investor B
shares. The Investor A shares are subject to an initial sales charge imposed
at the time of purchase, in accordance with the Fund's prospectus. Redemptions
of Investor B shares made within 5 years of purchase are subject to a
contingent deferred sales charge in accordance with the Fund's prospectus.
Each Investor Class A and Class B share of the Fund represents identical
interests in the investment portfolio of such Fund and has the same rights,
except that (i) Class B shares bear the expense of higher distribution fees,
which is expected to cause Class B shares to have a higher expense ratio and
to pay lower dividends than Class A shares (ii) certain other class specific
expenses will be borne solely by the class to which such expenses are
attributable, and (iii) each class has exclusive voting rights with respect to
its own distribution arrangements.

NOTE B -- ACCOUNTING POLICIES

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.

SHARE VALUATION: The net asset value per share of each class of shares of the
Fund is calculated daily by dividing the total value of the Fund's assets
attributable to that class less liabilities attributable to that class, by the
number of shares of that class outstanding. The maximum offering price per
share of Class A shares is equal to the net asset value per share plus a sales
load equal to 4.99% of the net asset value (or 4.75% of the offering price).
The offering price of Class B shares is equal to the net asset value per
share.

The redemption price per share of the Fund, including each class of shares, is
equal to the net asset value per share. However, Class B shares are subject to
a contingent deferred sales charge in accordance with the Fund's prospectus if
redeemed within five years from the date of purchase.

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.

F-6
<PAGE>

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 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.

ALLOCATIONS BETWEEN CLASSES: Investment income earned, realized capital gains
and losses and unrealized appreciation and depreciation for the Fund are
allocated daily to each Class of shares based upon its proportionate share of
total net assets of the Fund. Class specific expenses are charged daily to the
Class incurring the expense. Common expenses which are not attributable to a
specific class are allocated daily to each Class of shares based upon its
proportionate share of total net assets of the Fund.

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

NOTE C -- INVESTMENT ADVISORY AGREEMENT

The investment adviser, Hilliard Lyons Investment Advisors (the "Adviser") is
a division of J. J. B. Hilliard, W. L. Lyons, Inc., a wholly-owned subsidiary of
PNC Bank Corp., which owns 42,830 Class A shares and 32 Class B 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, 1998 exceed 1.30% of average daily net assets for Class
A share investors and 2.05% for Class B share investors. For the year ended
December 31, 1998, the reimbursement from the Adviser amounted to $13,401 (for
Class B share investors) and the waiver of the management fee amounted to
$46,803.

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 Provident Distributors, Inc. (the "Distributor") quarterly at an
annualized rate of up to .25% for Class A share investors and 1.00% for Class B
share investors 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 former distributor, received sales charges of approximately $1,534,213
during the year ended December 31, 1998. The Hilliard Lyons Profit Sharing Plan,
as directed by each participant, owns 480,654 shares of the Fund as of December
31, 1998.

No compensation is paid by the Fund to officers and directors of the Fund who
are affiliated with the Adviser or Hilliard-Lyons, Inc. The Fund pays each
unaffiliated director an annual retainer of $5,000 and a fee of $750 for each
Board or Committee meeting attended and certain expenses the directors incur
in attending meetings.

F-7
<PAGE>

On August 20, 1998, PNC Bank Corp. entered into an Agreement and Plan of
Merger with Hilliard-Lyons, Inc. (the "Merger") pursuant to which the Adviser
has become a subsidary of PNC Bank Corp. The Merger became effective on
December 1, 1998. This Merger consititutes an assignment of the Investment
Advisory Agreement (the "Agreement") as defined in the Investment Company Act
of 1940. Shareholders approved a new Agreement and elected Directors at a
Special Shareholders Meeting held November 19, 1998. The following are the
results of the voting at the Meeting:

<TABLE>
<CAPTION>
New Investment Advisory Agreement
---------------------------------
<S> <C>
For............................................................. 1,368,204
Against......................................................... 30,717
Abstain......................................................... 19,925
</TABLE>

<TABLE>
<CAPTION>
Election of Directors For Against Abstain
--------------------- --------- ------- -------
<S> <C> <C> <C>
Donald F. Kohler................................ 1,408,632 0 10,214
William A. Blodgett Jr.......................... 1,408,692 0 10,154
Stewart E. Conner............................... 1,406,778 0 12,068
Gilbert L. Pamplin.............................. 1,409,065 0 9,781
John C. Owens................................... 1,405,765 0 13,081
</TABLE>

NOTE D -- PORTFOLIO TRANSACTIONS

For the year ended December 31, 1998, purchases and proceeds from sale of
investment securities (excluding short-term securities) were $38,274,106 and
$12,016,991, respectively.

The cost of investments for Federal income tax purposes and financial
reporting is the same. At December 31, 1998, the gross unrealized appreciation
and depreciation on investments was $32,493,064 and $2,292,198, respectively,
resulting in net unrealized appreciation of $30,200,866.

F-8
<PAGE>

NOTE E--CAPITAL TRANSACTIONS

<TABLE>
<CAPTION>
For the year For the year
ended ended
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares issued....................... $ 33,687,452 $ 9,612,901
Dividends reinvested.............................. 2,196,708 3,394,590
Shares redeemed................................... (13,188,919) (2,458,498)
------------ -----------
Change in net assets from Investor A share
transactions..................................... $ 22,695,241 $10,548,993
============ ===========
*Investor B shares:
Proceeds from shares issued $ 9,191,286 --
Dividends reinvested.............................. 226,183 --
Shares redeemed................................... (278,586) --
------------ -----------
Change in net assets from Investor B share
transactions..................................... $ 9,138,883 --
============ ===========
SHARE TRANSACTIONS:
Investor A shares:
Issued............................................ 1,070,524 357,550
Reinvested........................................ 67,549 113,607
Redeemed.......................................... (423,897) (94,849)
------------ -----------
Change in Investor A shares....................... 714,176 376,308
============ ===========
*Investor B shares:
Issued............................................ 289,972 --
Reinvested........................................ 6,985 --
Redeemed.......................................... (8,778) --
------------ -----------
Change in Investor B shares......................... 288,179 --
============ ===========
</TABLE>

*For the period April 20, 1998 (commencement of Class B shares) through
December 31, 1998

F-9
<PAGE>

FINANCIAL HIGHLIGHTS

The following table includes selected data for a share of capital stock
outstanding throughout each period and other performance information derived
from the financial statements. It should be read in conjunction with the
financial statements and notes thereto.

<TABLE>
<CAPTION>
Investor B Investor A
--------------- -------------------------------------------------------------------
Period from
April 20, 1998* For the Year Ended December 31,
To December 31, -------------------------------------------------------------------
1998 1998 1997 1996 1995 1994 1993
--------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period..... $32.63 $ 30.29 $ 22.95 $ 20.20 $ 15.98 $ 15.69 $ 15.19
------ ------- ------- ------- ------- ------- -------
Net investment income.... (0.02) 0.20 0.12 0.11 0.15 0.12 0.13
Net realized and
unrealized gain on
investments............. 1.57 3.89 9.13 3.92 4.82 0.29 0.50
------ ------- ------- ------- ------- ------- -------
Total from investment
operations.............. 1.55 4.09 9.25 4.03 4.97 0.41 0.63
------ ------- ------- ------- ------- ------- -------
Less dividends from:
Net investment income... (0.00) (0.18) (0.12) (0.11) (0.15) (0.12) (0.13)
Realized gains.......... (0.71) (0.71) (1.79) (1.17) (0.60) (0.00) (0.00)
In excess of net
investment income...... (0.14) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
Total distributions...... (0.85) (0.89) (1.91) (1.28) (0.75) (0.12) (0.13)
------ ------- ------- ------- ------- ------- -------
Net asset value:
End of period........... $33.33 $ 33.49 $ 30.29 $ 22.95 $ 20.20 $ 15.98 $ 15.69
====== ======= ======= ======= ======= ======= =======
Total Investment Return
(Excludes sales charge). 4.82%*** 13.58% 40.41% 19.98% 31.10% 2.60% 4.13%

SIGNIFICANT RATIOS AND
SUPPLEMENTAL DATA
Ratio of operating
expenses to average net
assets.................. 2.05%(e)** 1.25%(e) 1.30%(d) 1.58%(c) 1.75%(b) 1.75%(a) 1.75%
Ratio of net investment
income to average net
assets.................. (.23%)(e)** .64%(e) .49%(d) .52%(c) .82%(b) .68%(a) .75%
Portfolio turnover rate
(f)..................... 18.15% 18.15% 22.20% 18.79% 27.50% 20.10% 59.64%
Net assets, end of period
(000s omitted).......... $9,604 $88,498 $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.

F-10
<PAGE>

(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.
(e) Net of voluntary expense reimbursement and management fee waiver by the
Adviser for B shares investors and net of voluntary management fee waiver
by A share investors. If the Fund had borne all expenses that were assumed
by the Adviser and had paid the full management fee, the annualized ratios
of expenses and net investment income to average net assets would have
been 1.27% and .62% for A shares and 3.09% and (1.27%) for B shares,
respectively.
(f) Portfolio turnover rate is calculated on the basis of the portfolios as a
whole without distinguishing between the classes of shares issued.
*Commencement of B shares
**Annualized
***Not annualized

F-11
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To The Board of Directors and Shareholders
Hilliard Lyons Growth Fund, Inc.

In planning and performing our audit of the financial statements of the
Hilliard Lyons Growth Fund, Inc. (the Fund) for the year ended December 31,
1998, we considered its internal control, including control activities for
safeguarding securities, in order to determine our auditing procedures for the
purpose of expressing our opinion on the financial statements and to comply
with the requirements of Form N-SAR, and not to provide assurance on the
internal control.

The management of the Fund is responsible for establishing and maintaining
internal control. In fulfilling this responsibility, estimates and judgments
by management are required to assess the expected benefits and related costs
of controls. Generally, controls that are relevant to an audit pertain to the
entity's objective of preparing financial statements for external purposes
that are fairly presented in conformity with generally accepted accounting
principles. Those controls include the safeguarding of assets against
unauthorized acquisition, use or disposition.

Because of inherent limitations in internal control, errors or fraud may
occur and not be detected. Also, projection of any evaluation of internal
control to future periods is subject to the risk that it may become inadequate
because of changes in conditions or that the effectiveness of the design and
operation may deteriorate.

Our consideration of internal control would not necessarily disclose all
matters in internal control that might be material weaknesses under standards
established by the American Institute of Certified Public Accountants. A
material weakness is a condition in which the design or operation of one or
more of specific internal control components does not reduce to a relatively
low level the risk that errors or fraud in amounts that would be material in
relation to the financial statements being audited may occur and not be
detected within a timely period by employees in the normal course of
performing their assigned functions. However, we noted no matters involving
internal control and its operation, including controls for safeguarding
securities, that we consider to be material weaknesses as defined above at
December 31, 1998.

This report is intended solely for the information and use of the board of
directors and management of the Fund and the Securities and Exchange
Commission and is not intended to be and should not be used by anyone other
than these specified parties.

Louisville, Kentucky
January 20, 1999

F-12