<PAGE>
As filed with the Securities and
Exchange Commission on April 31, 1999
Registration No. 33-43177; 811-6423
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ___
Pre-Effective Amendment No. ___ ___
Post-Effective Amendment No. 10 x
--- ---
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 ___
Amendment No. 12 x
--- ---
(Check appropriate box or boxes)
HILLIARD LYONS GROWTH FUND, INC.
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(Exact Name of Registrant as Specified in Charter)
Hilliard Lyons Center
Louisville, Kentucky 40202
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(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (502) 588-8400
_____________________
Joseph C. Curry, Jr.
Vice President
HILLIARD LYONS GROWTH FUND, INC.
Hilliard Lyons Center
Louisville, Kentucky 40202
---------------------------------
With a copy to:
William G. Strench
Brown, Todd & Heyburn PLLC
400 West Market Street
32/nd/ Floor
Louisville, Kentucky 40202
--------------------------
___________________________
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
___ on April 18, 1998 pursuant to paragraph (b) of Rule 485
_x_ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on __________ pursuant to paragraph (a)(1) of Rule 485
___ 75 days after filing pursuant to paragraph (a)(2) of Rule 485
___ on _____________ pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
___ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
<PAGE>
HILLIARD LYONS GROWTH FUNDS, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
PART A
------
Items in Part A
of Form N-1A Prospectus Caption
------------ ------------------
1 Front and Back Cover Pages
2 Risk/Return Summary: Investments, Risks, and Performance
3 Risk/Return Summary: Fee Table
4 Investments Objectives, Feasible Investment Strategies,
and Related Risks
5 Management's Discussion of Fund Performance*
6 Management, Organization and Capital Structure
7 Shareholder Information
8 Distribution Arrangements
9 Financial Highlights Information
PART B
------
Items in Part B
of Form N-1A Statement of Additional Information Caption
------------ -------------------------------------------
10 Cover Page and Table of Contents
11 Fund History
12 Description of the Fund and Its Investments and Risks
13 Management of the Fund
14 Control Persons and Multiple Holders of Securities
15 Investment Advisors/Other Services
16 Brokerage Allocation and Other Practices
17 Capital Stock and Other Securities
18 Purchase, Redemption and Pricing of Shares
19 Taxation of the Fund
20 Underwriters*
21 Calculation of Performance Data
22 Financial Statements
PART C
------
Information required to be included in Part C is set
forth under the appropriate Item, so numbered, in Part C
to this Registration Statement.
*Omitted since answer is negative or inapplicable.
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
Hilliard Lyons 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 superior 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.
<PAGE>
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............................................... 9
Expenses of the Fund....................................................... 10
Brokerage.................................................................. 10
Purchase of Shares......................................................... 11
Redemption of Shares....................................................... 15
Distribution from the Fund................................................. 17
Federal Income Tax......................................................... 18
Distribution Arrangements.................................................. 19
Financial Highlights....................................................... 21
</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 Advisor 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
<PAGE>
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. 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. 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 advisor to have long-term
capital appreciation possibilities.
Types of Securities. Under normal market conditions, at least 65% of the
Fund's total assets will be invested in securities 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. The
Fund does not, however, invest more than 5% of its total assets in companies,
including predecessors, which have operated less than three years. For cash
management purposes, to meet Fund expenses and to permit the Fund to take
advantage of investment opportunities, the Fund may, at any time, hold a
portion of its assets (not to exceed 35% under normal circumstances) in cash
in short-term investments, primarily obligations of the U.S. Government, its
agencies or instrumentalities, or repurchase agreements collateralized by such
obligations. The Fund may invest in investment grade convertible securities
having a rating of or equivalent to Standard and Poor's BBB or higher, or if
unrated, judged by the advisor to be of comparable quality. The Fund's
management will not invest more than 5% of its total assets in securities
rated less than A by Standard and Poor's. It is expected that no more than 10%
of total assets will be invested in securities of foreign corporation.
Investment Risks
Because of the following risks, you could lose money on your investment in
the Fund over a short or long term:
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.
The Fund's use of derivatives may reduce returns and/or increase volatility.
Volatility is defined as the characteristic of a security or a market to
fluctuate significantly in price within a short time period.
Securities loans involve the risk of a delay in receiving additional
collateral if the value of the securities goes up while they are on loan.
There is also the risk of delay in recovering the loaned securities and of
losing rights to the collateral if a borrower goes bankrupt.
3
<PAGE>
The Fund may sometimes engage in short term trading which could produce
greater brokerage costs and taxable distributions to shareholders.
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.
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 seven 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.
The annual return of the Fund's Class B Shares would be substantially
similar to that shown for the Class A Shares because 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 and the expense born by each
class of shares.
During the seven 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
<PAGE>
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 and P 500 Average annual returns, assuming payment of the
maximum sales charges, are shown for 1-, 5-, and 7-year periods ended December
31, 1998 (the most recently completed calendar year prior to the date of this
prospectus). Remember that the past performance of the Fund is not indicative
of its future performance.
<TABLE>
<CAPTION>
Average Annual Total
Returns for the Past Seven Years
Periods Ended December 31, or Since
1998 Past One Year Past Five Years Inception
-------------------------- ------------- --------------- ----------------
<S> <C> <C> <C>
Hilliard Lyons Growth Fund,
Inc.
Class A Shares 8.18% 19.66% 15.43%
Class B Shares 4.82% N/A N/A
S and P's 500 28.58% 24.03% 20.66%
</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
Sales Charge Imposed on Reinvested
Dividends............................. None None
Maximum Deferred Sales Charge (as a
percentage of original purchase price
or redemption proceeds, whichever is None(2) 4.75% in 1st year
lower)................................ 3.75% in 2nd year
2.75% in 3rd and 4th year
1.75% in 5th year
None thereafter(3)
Redemption Fees....................... None(4) None
Exchange Fee.......................... None None
Maximum Account Fee................... None None
Annual Fund Operating Expenses:
(as a percentage of average net
assets)
Management Fee After Fee Waiver....... 0.73%(5) 0.73%(5)(6)
Distribution (Rule 12b-1) Fee......... 0.18% 0.61%(6)
Other Expenses (audit, legal,
stockholder services, transfer agent
and custodian)........................ 0.34% 0.71%(6)
Total Operating Expenses After Fee
Waiver................................ 1.25%(5) 2.05%(5)(6)
</TABLE>
- --------
(1) Sales charges are reduced for purchases of $50,000 or more. No sales
charge is imposed on purchases by certain classes of investors. See
"Purchase of Shares."
(2) Purchases of $1 million or more are not subject to an initial sales
charge; however, a contingent deferred sales charge of 1% is imposed in
the event of certain redemption transactions within 12 months following
such purchases. See "Redemption of Shares."
5
<PAGE>
(3) Class B Shares automatically convert to Class A Shares at the end of the
month which precedes the 7th anniversary of the purchase date.
(4) A transaction fee of $5.00 may be charged for redemption proceeds paid by
wire.
(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. If the Adviser had not so agreed, the ratio of total operating
expenses to average daily net assets for the year would have been 1.27%
for the Class A Shares and 3.09% for the Class B Shares and the ratio of
the management fee to average daily net assets for both the Class A Shares
and Class B Shares for the year would have been .80%. See "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 $ 86 $114 $199
Class B
Assumes redemption at end of period... 68 93 131 259
Assumes no redemption at end of
period............................... 21 65 114 259
</TABLE>
This table is provided to assist an investor in understanding the various
costs and expenses that an investor will bear, directly or indirectly, as a
stockholder of the Fund. It should not be considered a representation of past
or future expenses, as actual expenses fluctuate and may be greater or less
than these shown. While the example assumes a 5% annual return, the Fund's
actual performance will vary and may result in an actual return greater or
less than 5%.
6
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund is an open-end, non-diversified management investment company
organized as a corporation under the laws of the State of Maryland on
September 5, 1991. The Fund's investment objective is long-term growth of
capital. Current income, which will be derived from dividends and interest on
portfolio securities, is a secondary consideration. The investment objective
is fundamental and may not be changed without a vote of a majority of the
Fund's outstanding shares. There is, however, no assurance that the Fund will
achieve its investment objective. As a "non-diversified" investment company,
the Fund is not subject to the provisions of the Investment Company Act of
1940, as amended (the "1940 Act"), that otherwise would limit the proportion
of its assets that may be invested in the securities of a single issuer. The
Fund must, however, comply with the diversification requirements imposed by
the Internal Revenue Code of 1986, as amended (the "Code"). As a non-
diversified fund, the Fund's portfolio may be more concentrated than the
portfolio of a diversified fund. Because of this the Fund may experience
greater volatility in investment performance. For further information on the
Code's diversification requirements, see "FEDERAL INCOME TAX."
Investment Policies. The Fund seeks to meet its investment objective by
investing in securities that are considered by the Adviser to have long-term
capital appreciation possibilities. It is expected that under normal
circumstances at least 65% of the Fund's total assets will be invested in such
securities. Emphasis is placed on common stocks the Adviser believes are
priced low in relation to the underlying value of the enterprise or to its
anticipated growth rate. Investment analysis focuses on fundamental factors
such as balance sheet strength and earnings generation ability. Quality and
integrity of management, competitive advantage in the marketplace and
consistently high returns on invested capital are particularly stressed. A
guiding principle is the consideration of common stocks as units of ownership
of a business, and the purchase of them when the price appears low in relation
to the underlying value of the enterprise or to its anticipated growth rate.
The Fund primarily invests in securities of companies having a market
capitalization in excess of $500 million but may invest up to 30% of its total
assets in smaller companies that fit its investment criteria. The Fund does
not, however, invest more than 5% of its total assets in companies, including
predecessors, which have operated less than three years. Smaller companies may
offer greater potential for capital appreciation than larger companies due to
new products or technologies, new distribution methods or similar
characteristics that may result in sales and earnings growth rates in excess
of those of larger companies. In addition, because they are less actively
followed by stock analysts and less information is available on which to base
stock price evaluations, the market may overlook favorable trends in
particular smaller companies, and then adjust its valuation more quickly once
investor interest is gained. On the other hand, higher market risks are often
associated with smaller companies. They may have limited product lines,
markets, market share and financial resources, or they may be dependent on a
small or inexperienced management team. In addition, their stocks may trade
less frequently and in more limited volume and be subject to greater and more
abrupt price swings than stocks of larger companies.
For cash management purposes, to meet Fund expenses and to permit the Fund
to take advantage of investment opportunities, the Fund may, at any time, hold
a portion of its assets (not to exceed 35% under normal circumstances) in cash
and short-term investments, primarily obligations of the U.S. government, its
agencies or instrumentalities, or repurchase agreements collateralized by such
obligations. In addition, when the Adviser believes that market conditions
warrant it, the Fund has adopted a policy whereby it may take a temporary
defensive posture and may hold part or all of its assets in cash or fixed
income securities that will generally have less than a year maturity and will
be limited to: (1) obligations of the U.S. government, its agencies and
7
<PAGE>
instrumentalities; (2) high quality commercial paper; and (3) corporate notes,
bonds and debentures rated at least AA by Standard & Poor's Corporation or Aa
by Moody's Investors Service.
The Fund enters into repurchase agreements with primary government
securities dealers recognized by the Federal Reserve Bank of New York and
member banks of the Federal Reserve System which furnish collateral at least
equal in value or market price to the amount of their repurchase obligation.
Under the terms of a typical repurchase agreement, the Fund acquires an
underlying debt obligation for a relatively short period subject to an
obligation of the seller to repurchase the obligation at an agreed-upon price
and time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities is monitored on an ongoing basis by the Adviser to ensure that the
value is at least equal at all times to the total amount of the repurchase
obligation, including interest. The Fund bears a risk of loss in the event
that the other party to a repurchase agreement defaults on its obligations and
the Fund is delayed or prevented from exercising its rights to dispose of the
underlying securities, including the risk of a possible decline in the value
of the underlying securities during the period in which the Fund seeks to
assert its rights to them, the risk of incurring expenses associated with
asserting those rights and the risk of losing all or a part of the income from
the agreement.
Portfolio Turnover. The Fund does not seek to realize profits by
participating in short-term market movements and purchases securities
primarily for long-term capital appreciation. Annual portfolio turnover is not
expected to exceed 75%. Portfolio turnover is calculated by dividing the
lesser of the Fund's purchases or sales of portfolio securities during the
period by the monthly average of the value of the Fund's portfolio securities
during that period. Excluded from the calculation are all securities with
maturities of one year or less when purchased by the Fund.
Other Restrictions. The Fund is subject to certain investment restrictions
which have been adopted as fundamental policies and cannot be changed without
the approval of a majority of the Fund's outstanding shares. The Fund may not
invest more than 25% of its total assets in any one industry. The Fund may
borrow money from banks only for temporary or emergency purposes in an
aggregate amount not exceeding 10% of the value of its total assets and the
Fund may not purchase securities while such borrowings exceed 5% of the value
of the Fund's assets. The Fund will not invest in restricted securities if the
then aggregate value of all restricted securities and all other illiquid
investments (including repurchase agreements maturing in more than seven days
and securities not readily marketable) would exceed 10% of the Fund's net
assets at the time of such investment. See the Statement of Additional
Information for a more detailed description of the Fund's investment policies
and restrictions.
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
8
<PAGE>
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 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
9
<PAGE>
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.
EXPENSES OF THE FUND
The Fund bears its own expenses, which generally include all costs not
specifically borne by the Adviser and Distributor. Included among the Fund's
expenses are: investment advisory fees and reimbursements payable to the
Distributor under the Plan; fees for necessary professional and brokerage
services; costs incurred in having the Fund's net asset value calculated; the
fees and expenses, if any, of directors, officers and employees of the Fund
who are not affiliated with the Adviser; fees and certain expenses of the
Fund's custodian and transfer agent; taxes; brokerage fees and commissions;
reimbursement of the organization expenses of the Fund and fees and expenses
of registering and qualifying the Fund and its shares for distribution under
federal and state securities laws, including expenses of preparing and
printing the Fund's Registration Statement, Prospectuses and Statements of
Additional Information for such purposes; insurance expense; trade association
dues; and the expense of reports to stockholders, stockholders' meetings and
proxy solicitations. The Fund is also liable for nonrecurring expenses as may
arise, including litigation to which the Fund may be a party. The Fund may
have an obligation to indemnify its directors and officers, and, in certain
situations, the Distributor, with respect to such litigation.
BROKERAGE
Execution of the Fund's portfolio transactions is arranged by the Adviser.
The Adviser is authorized by the Fund's Board of Directors to employ
securities brokers which, in its best judgment, will implement the policy of
the Fund to seek "best execution" of its portfolio transactions at a
reasonable cost. "Best execution" means prompt, efficient and reliable
execution at the most favorable price obtainable. In making this
determination, the Adviser takes into account, among other factors, the
overall net economic result to the Fund including both execution price and any
commissions and other costs paid, the efficiency with which the specific
transaction is effected, the ability to effect the transaction where a large
block is involved, the known practices of brokers and their availability to
execute possibly difficult transactions in the future and the financial
strength and stability of the broker.
10
<PAGE>
Subject to the policy of the Fund to seek "best execution" of its portfolio
transactions, the Adviser may pay commissions to brokers, other than the
Adviser, which are higher than might be charged by another qualified broker to
obtain brokerage and/or research services considered by the Adviser to be
useful or desirable for its investment management of the Fund and its other
advisory accounts.
PURCHASE OF SHARES
Choosing a Class of Shares. The Fund currently offers two classes of shares:
Class A Shares and Class B Shares. Each class has its own cost structure.
Class A Shares are sold to investors who have concluded that they would
prefer to pay an initial sales load and have the benefit to lower continuing
fees. Class B Shares are sold to investors choosing to pay no initial load, a
higher distribution fee and a contingent deferred sales charge with respect to
redemptions within five years of purchase and who desire shares to convert
automatically to Class A Shares after seven years.
Investors who expect to maintain their investment for an extended period of
time might choose to purchase Class A Shares because over time the accumulated
continuing distribution fees of Class B Shares may exceed the initial sales
load and lower continuing distribution fees of Class A Shares. This
consideration must be weighed against the fact that the amount invested in the
Fund will be reduced by the initial sales load on Class A Shares deducted at
the time of purchase. Furthermore, the distribution fees on Class B Shares
will be offset to the extent any return is realized on the additional funds
initially invested therein that would have been equal to the amount of the
initial sales load on Class A Shares.
Investors who qualify for reduced initial sales loads might also choose to
purchase Class A Shares because all or a part of the sales load deducted at
the time of purchase would be waived. 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
11
<PAGE>
expenses of each class. Class B Shares bear higher distribution fees, which
will cause the Class B Shares to pay lower dividends than the Class A Shares.
Each class has advantages and disadvantages for different investors, and
investors should choose the class that best suits their circumstances and
their objectives. Dealers and agents may receive different compensation for
selling Class A Shares and Class B Shares.
Class A Shares--Initial Sales Charge. An initial sales charge may apply, as
described below, when purchasing Class A Shares of the Fund. Sales charges may
be reduced for large purchases as indicated below.
<TABLE>
<CAPTION>
Sales Charge Sales Charge as Maximum Authorized
as Percentage Percentage of Dealer Allowance
of Offering Net Amount as Percentage of
Amount of Purchase Price Invested Offering Price
------------------ ------------- --------------- ------------------
<S> <C> <C> <C>
Less than $50,000............. 4.75% 4.99% 4.25%
$50,000 up to (but less than)
$100,000..................... 4.00% 4.17% 3.50%
$100,000 up to (but less than)
$250,000..................... 3.00% 3.09% 2.50%
$250,000 up to (but less than)
$500,000..................... 2.25% 2.30% 2.00%
$500,000 up to (but less than)
$1 million................... 1.75% 1.78% 1.50%
$1 million or more............ None None None
</TABLE>
No sales charge is payable at the time of purchase on investments of $1
million or more; however, a 1% contingent deferred sales charge is imposed in
the event of redemption within 12 months following any such purchase. See
"Redemption of Shares". The Distributor may pay a commission to its investment
brokers or to authorized dealers who initiate and are responsible for
purchases of $1 million or more as follows: 1% on sales to $3 million plus
0.50% on the excess over $3 million.
Combined Purchase Privilege. The following purchases may be combined for
purposes of determining the "Amount of Purchase": (a) individual purchases, if
made at the same time, by a single purchaser, the purchaser's spouse and
children under the age of 25 purchasing shares of their own account, including
shares purchased by an employee benefit plan(s) exclusively for the benefit of
such individual(s) (such as an IRA, individual-type 403(b) plan or single-
participant Keogh-type plan) or by a Company, as defined in Section 2(a)(8) of
the 1940 Act, solely controlled, as defined in the 1940 Act, by such
individual(s), or (b) individual purchases by trustees or other fiduciaries
purchasing shares (i) for a single trust estate or a single fiduciary account,
including an employee benefit plan, or (ii) concurrently by two or more
employee benefit plans of a single employer or of employers affiliated with
each other in accordance with Section 2(a)(3)(c) of the 1940 Act (excluding in
either case an employee benefit plan described in "(a)" above), provided such
trustees or other fiduciaries purchase shares in a single payment. Purchases
made for nominee or street name accounts may not be combined with purchases
made for such other accounts.
Cumulative Quantity Discount. A stockholder may combine the value of shares
held in the Fund, along with the dollar amount of shares being purchased, to
qualify for a cumulative quantity discount. The value of shares held is the
higher of their cost or current net asset value. For example, if a stockholder
holds shares having a value of $75,000 and purchases $25,000 of additional
shares, the sales charge applicable to the additional 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.
12
<PAGE>
Letter of Intent. If a stockholder anticipates purchasing at least $50,000
of shares within a 13-month period, the shares may be purchased at a reduced
sales charge by completing the Letter of Intent (the "Letter") section of the
Account Application and furnishing it to the Distributor or Transfer Agent.
The reduced sales charge may also be obtained on shares purchased within the
90 days prior to the date of the Account Application. Shares purchased under a
Letter are eligible for the same reduced sales charge that would have been
available had all the shares been purchased at the same time. There is no
obligation to purchase the full amount of shares indicated in the Letter.
Should the stockholder invest more or less than indicated in the Letter during
the 13-month period, the sales charge will be recalculated based on the actual
amount purchased. The Transfer Agent holds in escrow shares purchased with the
first 5% of the total intended amount of purchase which can be redeemed to
make up any deficiency in the sales charge.
Sales Charge Waivers. The Fund sells shares at net asset value without
imposition of sales charge to the following persons; (i) current and retired
(as determined by Hilliard Lyons) employees of Hilliard Lyons and its
affiliates, their spouses and children under the age of 25 and employee
benefit plans for such employees, provided orders for such purchases are
placed by the employee; (ii) any other investment company in connection with
the combination of such company with the Fund by merger, acquisition of assets
or otherwise; (iii) employees and directors of the Fund and registered
representatives of authorized dealers; (iv) existing advisory fee clients of
Hilliard Lyons Investment Management Group or Hilliard Lyons Trust Company on
purchases effected by transferring all or a portion of their investment
management or trust account to the Fund provided that such account had been
maintained for a period of six months prior to the date of purchase of fund
shares; (v) investors purchasing shares through a Hilliard Lyons investment
broker to the extent that the purchase of such shares is funded by the
proceeds from the sale of shares of any mutual fund (for which the investor
paid a front-end sales charge) other than a money market fund (a) purchased
within three years of the date of the purchase of Fund shares and held for at
least six months or (b) purchased at any time and for which Hilliard Lyons was
not a selling dealer, provided that in either case the order for Fund shares
must be received within 30 days after the sale of the other fund; (vi) trust
companies, bank trust departments and registered investment advisors
purchasing for accounts over which they exercise investment authority and
which are held in a fiduciary, agency, advisory, custodial or similar
capacity, provided that the amount collectively invested or to be invested in
the Fund by such entity or adviser during the subsequent 13-month period
totals at least $100,000 (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)
13
<PAGE>
the death or disability (as defined in (S)72(m)(7) of the Code) of the
stockholder, (b) a lump sum distribution from a benefit plan qualified under
the Employee Retirement Income Security Act of 1974 ("ERISA"), or (c)
systematic withdrawals from ERISA plans if the stockholder is at least 59 1/2
years old. The Fund applies the waiver for death or disability to shares held
at the time of death or the initial determination of disability of either an
individual stockholder or one who owns the shares of a joint tenant with the
right of survivorship or as a tenant in common.
Class B Shares--Deferred Sales Charge Alternative. The Class B Shares can be
purchased at net asset value without an initial sales charge. However, if the
Class B Shares are redeemed within five years after purchase, they are subject
to a contingent deferred sales charge (expressed as a percentage of the lesser
of the current net asset value or original cost) which will vary according to
the number of years from the purchase of Class B Shares until the redemption
of those shares. The amount of the contingent deferred sales charge on Class B
Shares is set forth below.
<TABLE>
<CAPTION>
Contingent Deferred
Years Since Purchase Sales Charge
-------------------- -------------------
<S> <C>
Less than 1 year...................................... 4.75%
1 to 2 years.......................................... 3.75%
2 to 4 years.......................................... 2.75%
4 to 5 years.......................................... 1.75%
5 to 7 years.......................................... None
Year 7................................................ Reverts to A Shares
</TABLE>
Class B Shares are subject to higher distribution fees than Class A Shares
for a period of seven years (after which they convert to Class A Shares).
Shares purchased through reinvestment of dividends on Class B Shares also will
convert automatically to Class A Shares along with the underlying shares on
which they were earned. Conversion occurs at the end of the month which
precedes the seventh anniversary of the purchase date.
The higher fees mean a higher expense ratio, so Class B Shares pay
corresponding lower dividends and may have a lower net asset value than Class
A Shares.
The contingent deferred sales charge is waived in the event of (a) a total
or partial redemption made within one year of death or disability (as defined
in (S)72(m)(7) of the Code) of the stockholder; (b) systematic withdrawals up
to 10% of the net asset value of the account at the time the systematic
withdrawal is established; (c) systematic withdrawals from an IRA account; (d)
total or partial distributions from an IRA if the stockholder is at least 59
1/2 years old; (e) a lump sum distribution from an ERISA plan; or (f) a
redemption resulting from tax-free return of an excess contribution to an IRA.
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.
14
<PAGE>
Additional Purchases. After an initial investment is made and a
stockholder's account is established, additional purchases may be made either
by telephoning the investment broker and placing an order, or by mailing the
transmittal portion of the latest confirmation statement together with a check
made payable to the Fund directly to the Transfer Agent. If a stockholder does
not have the transmittal portion of the confirmation statement, the
stockholder may simply provide the exact name or names in which the account
was opened and the account number.
General. Purchase orders received by a Hilliard Lyons investment broker, by
the Distributor, or by the Transfer Agent prior to "closing time" on any
"business day" are executed at the public offering price determined that day.
Purchase orders received by an authorized dealer on any "business day" are
executed at the public offering price determined that day, provided the order
is received by the Distributor in Louisville, Kentucky, or by the Transfer
Agent prior to "closing time" on that day. Authorized dealers are responsible
for transmitting purchase orders to the Distributor or Transfer Agent
promptly. The failure of an authorized dealer to promptly transmit an order
may cause the purchase price to be more or less than the amount an investor
otherwise would have paid. Purchase orders received after "closing time" or on
a day that is not a "business day" are priced as of "closing time" on the next
succeeding "business day". A "business day" is any day on which the New York
Stock Exchange is open for business; "closing time" is the close of trading on
the Exchange, currently 4:00 p.m., Eastern time; or such other day or time as
the Fund's directors may establish in the future. The Fund and the Distributor
reserve the right to reject any purchase order and to suspend the offering of
shares for a period of time.
Payment for Fund shares purchased through a Hilliard Lyons investment broker
or an authorized dealer is normally due on the third business day after an
order is placed with the Distributor. Investors may pay for purchases with
checks drawn on domestic offices of U.S. banks or with funds in brokerage
accounts maintained with Hilliard Lyons or the authorized dealer. When payment
is made to a brokerage firm by an investor before a settlement date, unless
otherwise directed by the investor, the monies may be held as a free credit
balance in the investor's brokerage account and the brokerage firm may benefit
from the temporary use of these monies. Purchase orders placed directly with
the Transfer Agent by mail must be accompanied by payment.
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.
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
15
<PAGE>
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.
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.
16
<PAGE>
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.
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
17
<PAGE>
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).
Dividends paid by the Fund from investment income and distributions of
short-term capital gains are taxable to stockholders as ordinary income for
federal income tax purposes, whether received in cash or reinvested in
additional shares. Distributions of long-term capital gains are taxable to
stockholders as long-term capital gains,
18
<PAGE>
whether paid in cash or reinvested in additional shares, regardless of the
length of time the stockholder has held shares of the Fund. Each stockholder
receives an annual statement as to the tax status and dollar amounts of
dividends and distributions, if any, for the prior calendar year. The Fund may
be subject to state or local taxes in jurisdictions in which the Fund may be
deemed to be doing business. Dividends and distributions declared by the Fund
may also be subject to state and local taxes.
The Fund generally is required to withhold federal income tax at a rate of
31% ("backup withholding") from dividends paid to stockholders if (i) the
payee fails to furnish the Fund with and to certify the payee's correct
taxpayer identification number or social security number, (ii) the Internal
Revenue Service (the "IRS") notifies the Fund that the payee has failed to
report properly certain interest and dividend income to the IRS and to respond
to notices to that effect, or (iii) the payee fails to certify that backup
withholding is not required.
DISTRIBUTION ARRANGEMENTS
Distributor. Provident Distributors, Inc. (the "Distributor"), Four Falls
Corporate Center, 6th Floor, West Conshohocken, Pennsylvania 19428, acts as
the principle distributor of the Fund's shares pursuant to a Distribution
Agreement. Pursuant to an agreement with the Fund, Hilliard Lyons has agreed
to pay the Distributor a fee of $1000 per month. Hilliard Lyons, a wholly-
owned subsidiary of PNC, has entered into a Broker-Dealer Agreement to sell
shares of the Fund. For such services, Hilliard Lyons receives the 12b-1 fee
and sales charge otherwise payable to the Distributor with respect to the
shares the Distributor sells through Hilliard Lyons. You may invest or redeem
in the Fund through Hilliard Lyons. The Fund paid trust fees to Hilliard
Lyons, the former distributor, in the amount of $61,690 for the year ending
December 31, 1998. The Distributor conducts a continuous public offering of
shares of the Fund on a "best efforts" basis. It may enter into sales
agreements with certain securities dealers and financial advisers ("authorized
dealers") to permit them to solicit subscriptions for shares of the Fund and,
if so, may pay them a continuing fee (not in excess of 0.25% annually of the
Fund's average daily net assets attributable to each class) for distributing
the Fund's shares, promoting the maintenance of holdings by established
stockholders and servicing stockholder accounts. The Distributor may also pay
its own investment brokers a similar fee for performing the same services. It
may also enter into servicing agreements providing for payments (not in excess
of 0.25% annually of the Fund's average daily net assets attributable to each
class) to financial institutions and others who perform stockholder servicing
and administrative functions for certain stockholders. The Distributor at its
own expense may also provide promotional incentives to investment brokers of
the Distributor and to authorized dealers. In some instances, such incentives
may be made available only to certain investment brokers or authorized dealers
who have sold or are expected to sell, significant amounts of shares. The Fund
has agreed to indemnify the Distributor against certain liabilities, including
liabilities under the Securities Act of 1933.
Distribution Plan. In accordance with a distribution plan (the "Plan")
adopted by the Fund's Board of Directors pursuant to Rule 12b-1 under the 1940
Act, the Fund reimburses the Distributor quarterly at an annualized rate of up
to 0.25% of the Fund's average daily net assets attributable to the Class A
Shares and 1.00% of the Fund's average daily net assets attributable to the
Class B Shares for distribution expenses actually incurred. Rule 12b-1
regulates the manner in which a mutual fund may assume the costs of
distributing and promoting the sale of its shares. In unanimously approving
the Plan, the Fund's Board of Directors determined that there is a reasonable
likelihood that the Plan will benefit the Fund and its stockholders. The
Distributor may be reimbursed for expenses incurred in connection with any
activity primarily intended to result in the sale of the Fund's shares,
including: payments to its investment brokers and to authorized dealers for
distributing Fund
19
<PAGE>
shares, promoting the maintenance of holdings by established stockholders and
servicing stockholder accounts; payments of commissions to investment brokers
of the Distributor and to authorized dealers who are responsible for purchases
of $1 million or more with no initial sales charge; payments to financial
institutions and others who have entered into servicing agreements with the
Distributor; and payments for printing and distributing Prospectuses,
Statements of Additional Information and annual and interim reports for other
than existing stockholders. The Distributor may also be reimbursed for an
allocable portion of its overhead related to distribution of the Fund's
shares. If the amount reimbursed is insufficient to pay the expenses of
distribution, the Distributor bears the additional expenses. Any amount of
excess distribution expenses incurred by the Distributor in any quarter for
which the Distributor is not reimbursed can be carried forward from one
quarter to the next but no expenses may be carried over from year to year.
Under its terms, the Plan remains in effect so long as it is approved at
least annually by vote of the Fund's Board of Directors, including a majority
of the directors who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Plan. The
Distributor is obligated to provide the directors quarterly reports of amounts
expended under the Plan and the purpose for which the expenditures were made.
20
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for Class A and Class B Shares,
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, which may be obtained from the Fund
upon request without charge. The information has been audited by Ernst & Young
LLP, the Fund's independent auditors, whose report thereon appears in the
Statement of Additional Information. Further information about the performance
of the Fund is contained in the Fund's Annual Report to Stockholders which may
be obtained directly from the Fund without charge.
<TABLE>
<CAPTION>
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
21
<PAGE>
Net Asset Value The net asset value per share is computed separately for
each class by dividing the net assets of the Fund attributable to that class
(assets, including securities at market value, minus liabilities) by the
number of shares of that class outstanding. The per share net asset value of
the Class B Shares of the Fund will generally be lower than that of the Class
A Shares of the Fund because of the higher expenses borne by the Class B
Shares. Investments that are traded on an exchange or in the over-the-counter
market are valued based upon market quotations. Short-term obligations with
maturities of 60 days or less are valued at amortized cost. Foreign securities
are valued based on quotations from the primary market in which they are
traded and are translated from the local currency into U.S. dollars using
current exchange rates. Other securities for which market quotations are not
readily available are valued at their fair value, as determined in good faith
by the Adviser under procedures established by, and under the supervision and
responsibility of, the Fund's Board of Directors. The Fund computes its net
assets value as of "closing time" on each "business day".
The Fund's Performance The Fund may periodically advertise its "average
annual total return" over various periods of time. This figure shows the
average annual percentage change in value of an investment in the specified
class of shares from the beginning date to the ending date of the measuring
period. It reflects changes in the price of the shares of such class and
assumes that any dividends or distributions paid by the Fund during the period
are reinvested in shares of that class at net asset value on the reinvestment
dates during the period and does not reflect the payment of a sales charge.
Figures will be given for recent one, five and ten-year periods (if
applicable), and may be given for other periods as well (such as from
commencement of the Fund's operations, or on a year-by-year basis). When
considering "average" total return figures for periods longer than one year,
investors should note that the Fund's annual total return for any one year in
the period might have been greater or less than the average for the entire
period. The Fund may also use "aggregate" total return figures for various
periods, representing the cumulative change in value of an investment in the
Fund for the specific period. For the Class A Shares, each type of total
return will be calculated assuming the deduction of the maximum sales charge.
The Fund's investment results vary from time to time depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Fund, so that any investment results reported by the Fund should not be
considered representative of how an investment in the Fund may perform in any
future period. These factors and possible differences in calculation methods
should be considered when comparing the Fund's investment results with those
published for other mutual funds, other investment vehicles and unmanaged
indices 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.
22
<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
23
<PAGE>
4.YOU MAY BE ELIGIBLE TO REDUCE YOUR SALES CHARGE ON THE PURCHASE OF CLASS A
SHARES
Letter of Intent--Please complete this section if opening a Letter of Intent
Although I am not obligated to do so, I intend to purchase shares of
Hilliard Lyons Growth Fund, Inc. over the 13-month period following the
effective date of this application in amounts (not less than 5% of the total
intended amount for the initial purchase) which will equal or exceed:
[_] $50,000[_] $100,000[_] $250,000[_] $500,000[_] $1,000,000
I remit herewith payment for $ of such Shares. Each purchase will be made
at the then reduced Offering Price applicable to the amount checked above,
as described in the Prospectus. By completing this section of the
application and signing it below, I agree to the terms and conditions of the
Letter of Intent as described in the Prospectus and I irrevocably constitute
and appoint State Street Bank and Trust Company my attorney, with full power
of substitution, to surrender for redemption any or all shares of the Fund
held in escrow to make up any deficiency in the sales charge if my total
purchases over the 13-month period are less than the total intended amount.
Cumulative Quantity Discount
See "Purchase of Shares" in Prospectus
Cumulative quantity discounts are applicable if a stockholder's current
holdings of existing shares total the requisite amount for receiving a
discount as described in the Prospectus. Below are listed all the accounts
(account name and number) which should be aggregated for a cumulative
quantity discount.
Name ___________________ Name ___________________ Name ___________________
Acct. No. ______________ Acct. No. ______________ Acct. No. ______________
Combined Purchase Privilege
List the names of the individuals, plans or trustees who are also opening
Fund accounts at this time with whom you are entitled to combine your
purchase as provided in the Prospectus under "Purchase of Shares".
Name _______________________________
Name _______________________________
5.YOU MAY WISH TO AVAIL YOURSELF OF OTHER STOCKHOLDER OPTIONS
Systematic Withdrawal Plan
This service is available only for accounts with a minimum net asset value
of $10,000 or more. You may receive payments of $100 or more.
[_] I wish to activate the automatic cash withdrawal service.
I would like a check for $ mailed on the following basis:
[_] monthly[_] quarterly
Withdrawals will be taken on the last business day of the month or calendar
quarter.
Automatic Investment Plan
You may make regular monthly or quarterly investments of $100 or more in
your Fund account with automatic transfers from your bank account subject to
your bank's approval.
Please contact your Investment Broker or call (800) 444-1854, extension 145,
to receive a Plan Authorization Form.
6.PLEASE SIGN YOUR NAME AND CERTIFY YOUR TAXPAYER IDENTIFICATION NUMBER
I (we) have full right, power, and legal capacity and am (are) of legal age
in my (our) state of residence to purchase shares of the Fund. I (we) affirm
that I (we) have received and read the current Prospectus of the Fund and
agree to its terms.
I (we) certify, under penalty of perjury, that (1) I (we) am (are) not
subject to backup withholding for underreporting interest or dividends
(strike out this clause (1) if the Internal Revenue Service has notified you
that you are subject to backup withholding) and (2) that my (our) correct
Social Security (taxpayer identification) number is as indicated on this
application. Sign below exactly as the account is to be registered
(corporations, etc., indicate titles):
Authorized Signature(s)
------------- ------------- ------------- -------------
Owner,
Trustee, Joint owner, Other Date
etc. Trustee,
etc.
7.FOR USE BY AUTHORIZED DEALERS ONLY
Firm ________________________________
Home Office Address _________________
City, State, Zip ____________________ Branch Office Address _______________
_____________________________________ City, State, Zip ____________________
Rep's Name __________________________ _____________________________________
Rep's Number ________________________ Telephone ___________________________
(if known)
24
<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.
You will find additional information about the Fund in its annual report,
which explains the market conditions and investment strategies affecting the
Fund's recent performance.
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
4
<PAGE>
interest when due in the event of a downturn in the economy or unanticipated
corporate developments. The market prices of such securities may become
increasingly volatile in periods of economic uncertainty. Moreover, adverse
publicity or the perceptions of investors over which the Adviser has no control,
whether or not based on fundamental analysis, may decrease the market price and
liquidity of such investments. Although the Adviser may attempt to avoid
exposing the Fund to such risks, there is no assurance that it will be
successful or that a liquid secondary market will be available for the
disposition of such securities.
Since its inception, the Fund has not invested in convertible securities
and the Fund does not currently intend to invest in such securities during 1998.
Foreign Investments
- -------------------
It is expected that no more than 10% of total assets will be invested in
securities of foreign corporations. However, the Fund has the right to invest up
to 15% of its total assets at the time of purchase and after giving effect
thereto in common stocks and convertible securities of foreign corporations. The
Fund may invest in issuers in Canada, Western Europe and the Pacific Basin. No
more than 25% of the Fund's total foreign investments will be invested in
securities of issuers in developing countries as a whole. The Fund may purchase
foreign securities that are listed on a principal foreign securities exchange or
are traded in an over-the-counter market or may invest in securities of foreign
issuers in the form of sponsored American Depositary Receipts. Generally, these
are receipts issued by a bank or trust company that evidence ownership of
underlying securities issued by a foreign corporation and that are designed for
use in the domestic securities market. In addition, subject to the restrictions
described below under "Investment Restrictions", the Fund may invest in the
common stocks of closed-end investment companies that (i) invest primarily in
foreign equity securities and (ii) are traded in United States or foreign
markets. Securities of such closed-end investment companies will be treated as
foreign securities for purposes of the 15% limitation described above.
Investments in foreign securities offer potential benefits not available
from investments solely in securities of domestic issuers. Such benefits include
the opportunity to invest in foreign issuers that appear to offer greater
potential for long-term capital appreciation than investments in domestic
securities, and to reduce fluctuations in portfolio value by taking advantage of
foreign stock markets that may not move in a manner parallel to U.S. markets.
Investment in foreign securities may involve risks which differ from
investments in securities of U.S. issuers, including political and economic
instability in certain countries, the imposition of exchange controls or other
government restrictions, difficulties in enforcing judgments, higher brokerage
commissions and transaction costs, the lack of public information about issuers,
and differing accounting and financial reporting standards. Since investment in
foreign securities involves foreign currencies, the value of the Fund's assets
as measured in United States dollars may be affected by changes in currency
rates and in exchange control regulations, including currency blockage. The Fund
will not enter into forward commitments for the purchase or sale of foreign
currencies in connection with the settlement of foreign
5
<PAGE>
securities transactions or to hedge the underlying currency exposure related to
foreign investments.
There may be limited publicly available information with respect to foreign
issuers and foreign issuers are not generally subject to uniform accounting,
auditing and financial standards and requirements comparable to those applicable
to United States companies. There may also be less government supervision and
regulation of foreign securities exchanges, brokers and listed companies than
exists in the United States. Foreign securities markets may have substantially
less volume than domestic securities exchanges and securities of some foreign
companies are less liquid and more volatile than securities of comparable
domestic companies. Brokerage commissions and other transaction costs on foreign
securities exchanges are generally higher than in the United States. Dividends
paid by foreign issuers may be subject to withholding and other foreign taxes
which may decrease the net return on such investments as compared to dividends
and interest paid to the Fund by domestic companies.
Since its inception, the Fund has not invested in securities of foreign
corporations and the Fund does not currently intend to invest in such securities
during 1998.
When-Issued and Delayed Delivery Securities
- -------------------------------------------
The Fund may purchase securities on a when-issued or delayed delivery
basis. Delivery of and payment for these securities may occur a month or more
after the date of the transaction. The purchase price and the interest rate
payable, if any, are fixed on the purchase commitment date or at the time the
settlement date is fixed. The securities so purchased are subject to market
fluctuation and no income accrues to the Fund until settlement takes place. At
the time the Fund makes the commitment to purchase securities on a when-issued
or delayed delivery basis, it must record the transaction and reflect the value
of such securities each day in determining its net asset value. At the time it
is received, a when-issued security may be valued at less than its purchase
price. The Fund must make commitments for such when-issued transactions only
when it intends to acquire the securities. To facilitate such purchases, the
Fund must maintain with the custodian a segregated account of liquid assets in
the name of the Fund, consisting of cash, United States government securities or
other appropriate high grade debt obligations in an amount at least equal to
such commitments. On delivery dates for such transactions, the Fund must meet
its obligations from maturities or sales of the securities held in the
segregated account or from cash on hand. It is the intention of the Fund not to
enter into when-issued commitments exceeding in the aggregate 15% of the market
value of the Fund's total assets less liabilities other than the obligations
created by when-issued commitments.
Since its inception, the Fund has not invested in securities on a when-
issued or delayed basis and the Fund does not currently intend to invest in such
securities during 1999.
6
<PAGE>
Corporate Reorganizations
- -------------------------
The Fund may invest up to 10% of its total assets in securities for which a
tender or exchange offer has been made or announced and in securities of
companies for which a merger, consolidation, liquidation or reorganization
proposal has been announced if, in the judgment of the Adviser, there is a
reasonable prospect of capital appreciation significantly greater than the
brokerage and other transaction expenses involved.
In general, securities which are the subject of such an offer or proposal
sell at a premium to their historic market price immediately prior to the
announcement of the offer or may also sell at a discount to what the stated or
appraised value of the security would be if the contemplated transaction were
approved or consummated. Such investments may be advantageous when the discount
significantly overstates the risk of the contingencies involved or fails
adequately to recognize the possibility that the offer or proposal may be
replaced or superseded by an offer or proposal of greater value. The evaluation
of such contingencies requires unusually broad knowledge and experience on the
part of the Adviser which must appraise not only the value of the issuer and its
component businesses as well as the assets or securities to be received as a
result of the contemplated transaction but also the financial resources and
business motivation of the offeror and the market dynamics and business climate
when the offer or proposal is in process. In making these investments, the Fund
may not violate any of its investment restrictions (see "Investment
Restrictions") including the requirement that (a) as to 50% of its total assets,
it will not invest more than 5% of its total assets in the securities of any one
issuer other than obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities and (b) it will not invest more than 25% of its
total assets in any one industry. Since such investments are ordinarily short-
term in nature, they will tend to increase the turnover ratio of the Fund
thereby increasing its brokerage and other transaction expenses. If the Adviser
selects investments of the type described, in its view, they will have a
reasonable prospect of capital appreciation which is significant in relation to
both risk involved and the potential of available alternate investments.
Since its inception, the Fund has not invested in securities for which a
tender or exchange offer has been made or announced and in securities of
companies for which a merger, consolidation, liquidation or reorganization
proposal has been announced and the Fund does not currently intend to invest in
such securities during 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.
7
<PAGE>
The purchase price and subsequent valuation of restricted securities
normally reflect the discount from the price at which such securities trade when
they are not restricted, since the restriction makes them less liquid. The
amount of the discount from the prevailing market price will vary, depending
upon the type of security, the character of the issuer, the provisions for
registration, if any, and prevailing supply and demand.
The Fund may not invest in any restricted securities which will cause the
then aggregate value of all of such restricted securities and all other illiquid
investments (including repurchase agreements maturing in more than seven days
and securities not readily marketable) to exceed 5% of the Fund's net assets at
the time of such investment and after giving effect thereto. Restricted
securities are valued at their fair value in such manner as the Board of
Directors in good faith deems appropriate.
Since its inception, the Fund has not invested in restricted securities and
the Fund does not currently intend to invest in such securities during 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
8
<PAGE>
underlying securities, including the risk of a possible decline in the value of
the underlying securities during the period in which the Fund seeks to assert
its rights to them, the risk of incurring expenses associated with asserting
those rights and the risk of losing all or a part of the income from the
agreement. In addition, if bankruptcy proceedings are commenced with respect to
the seller of the security, realization upon the collateral by the Fund may be
delayed or limited.
The Fund only enters into repurchase agreements involving U.S. government
obligations, or obligations of its agencies or instrumentalities, usually for a
period of seven days or less. The term of each of the Fund's repurchase
agreements is always less than one year and the Fund does not enter into
repurchase agreements of a duration of more than seven days if, taken together
with all other illiquid securities in the Fund's portfolio, more than 5% of its
net assets would be so invested.
Portfolio Turnover
- ------------------
The Fund does not seek to realize profits by participating in short-term
market movements and intends to purchase securities for long-term capital
appreciation. While the rate of portfolio turnover is not a limiting factor when
the Adviser deems changes appropriate, it is anticipated, given the Fund's
investment objective, that its annual portfolio turnover should not exceed 75%.
Portfolio turnover is calculated by dividing the lesser of the Fund's purchases
or sales of portfolio securities during the period in question by the monthly
average of the value of the Fund's portfolio securities during that period.
Excluded from consideration in the calculation are all securities with
maturities of one year or less when purchased by the Fund.
The portfolio turnover rate of the Fund decreased from 22.2% for the year
ending December 31, 1997 to 18.2% for the year ending December 31, 1998.
Fundamental Policies
- --------------------
The Fund has adopted the following fundamental policies for the protection
of stockholders that may not be changed without the approval of a majority of
the Fund's outstanding shares, defined in the Investment Company Act of 1940
(the "1940 Act") as the lesser of (i) 67% of the Fund's shares present at a
meeting if the holders of more than 50% of the outstanding shares are present in
person or by proxy, or (ii) more than 50% of the Fund's outstanding shares.
Under these policies, the Fund may not:
(1) Invest more than 25% of the value of its total assets in the securities
of one or more issuers conducting their principal business activities in the
same industry. This limitation does not apply to investments or obligations of
the U.S. Government or any of its agencies or instrumentalities.
(2) Borrow money, except that the Fund may borrow from banks for temporary
or emergency (not leveraging) purposes, including the meeting of redemption
requests that might
9
<PAGE>
otherwise require the untimely disposition of securities, in an amount not to
exceed 10% of the value of the Fund's total assets (including the amount
borrowed) valued at market less liabilities (not including the amount borrowed)
at the time the borrowing is made. Whenever the Fund's borrowings exceed 5% of
the value of its total assets, the Fund will not make any additional
investments.
(3) Purchase securities on margin, but it may obtain such short-term
credits from banks as may be necessary for the clearance of purchases and sales
of securities.
(4) Pledge, hypothecate, mortgage, or otherwise encumber its assets except
to the extent necessary to secure borrowings permitted by restriction (2) above
and in connection with the deposit of assets when purchasing securities on a
when-issued or forward commitment basis.
(5) Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the 1933 Act, in disposing of a portfolio
security.
(6) Make short sales of securities, except "short sales against-the-box".
(7) Make loans, except through (i) repurchase agreements and (ii) in
connection with purchasing debt securities, consistent with applicable
regulatory requirements and as set forth in the Prospectus.
(8) Purchase the shares of any open-end investment company other than as
part of a merger, consolidation or acquisition of assets. The Fund may not
purchase shares of any closed-end investment company in an amount exceeding 3%
of such company's total outstanding voting stock or 5% of the Fund's total
assets or, together with all other closed-end investment company shares held by
the Fund, 10% of the Fund's total assets. In addition, the Fund may not purchase
shares of a closed-end investment company if immediately after such purchase the
Fund and all other investment companies having the same investment adviser own
more than 10% of the total outstanding voting securities of such closed-end
company. Shares of closed-end investment companies may be purchased only in the
open market in transactions involving customary brokers' commissions.
(9) Invest more than 10% of its average net assets at time of purchase in
illiquid investments, including (a) repurchase agreements having a duration of
more than seven days, (b) securities lacking a readily available market, and (c)
restricted securities. For purposes of this investment restriction, securities
lacking readily available markets include securities of foreign issuers not
listed on a recognized foreign or United States stock exchange. "Restricted
securities" means securities acquired under circumstances in which the Fund
might not be free to sell such securities without their registration under the
1933 Act or the availability of an appropriate exemption from registration.
(10) Purchase or sell real property (including limited partnership
interests, but excluding readily marketable interests in real estate investment
trusts or readily marketable
10
<PAGE>
securities of companies which invest in real estate). Nothing in this
restriction shall prohibit the Fund from owning real estate used principally for
its own office space.
(11) Invest in oil, gas or other mineral exploration or development
programs or leases, except that the Fund may invest in the securities of
companies that invest in or sponsor these programs.
(12) Purchase or sell commodities or commodity futures contracts.
(13) Write or sell puts, calls, straddles, spreads or combinations thereof.
(14) Purchase any security if, as a result, the Fund would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three years.
(15) Purchase warrants if, thereafter, more than 5% of the value of the
Fund's net assets would consist of warrants or more than 2% of the value of the
Fund's net assets would consist of warrants which are not listed on the New York
or American Stock Exchange, but warrants attached to other securities acquired
in units by the Fund are not subject to this restriction.
(16) Invest in companies for the purpose of exercising control, except
transactions involving investment companies for the purpose of effecting mergers
or other corporate reorganizations between the Fund and such other investment
companies.
(17) Issue any senior securities.
In addition to the investment restrictions mentioned above, the directors
of the Fund have voluntarily adopted the following policies and restrictions
which are observed in the conduct of its affairs. These represent intentions of
the directors based upon current circumstances. They differ from fundamental
investment policies in that they may be changed or amended by action of the
directors without prior notice to or approval of stockholders. Accordingly, the
Fund may not:
(1) Purchase or retain the securities of any issuer if, to the knowledge of
the Fund, the officers or directors of the Fund or its investment adviser
individually owning beneficially more than one-half of one percent of the
securities of such issuer, together own beneficially more than 5% of such
securities; and
(2) Purchase the securities of any issuer if, immediately after such
purchase, the Fund would own more than 10% of the outstanding voting securities
of such issuer.
11
<PAGE>
If any percentage limitation is adhered to at the time of an investment, a
later increase or decrease in the percentage resulting from a change in the
value of portfolio securities or in the amount of the Fund's assets will not
constitute a violation of such restriction.
MANAGEMENT
----------
Directors and Officers
- ----------------------
The following table sets forth information concerning the directors and
officers of the Fund, including their addresses and principal business
experience for the past five years.
<TABLE>
<CAPTION>
Principal
---------
Position with Occupation During
------------- -----------------
Name and Address the Fund Last Five Years
- ---------------- -------- ---------------
<S> <C> <C>
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).
17
<PAGE>
Under the Plan, the expenses for which the Distributor may be reimbursed
include, but are not limited to: (i) payments to investment brokers of the
Distributor and to authorized dealers for distribution of shares of the Fund,
for promotion of the maintenance of holdings by established stockholders and for
stockholder servicing; (ii) payments to financial institutions (including banks)
and others ("Service Agents") for stockholder servicing and administrative
services with respect to shares of the Fund owned by stockholders for whom the
Service Agent is the holder of record or for whom the Service Agent performs
administrative or servicing functions; (iii) payments to the Distributor for
organizing and conducting sales seminars, printing Prospectuses, Statements of
Additional Information and interim and annual reports for other than existing
stockholders, and preparation and distribution of advertising material and sales
literature; (iv) an allocation of distribution-related overhead expenses of the
Distributor; and (v) payments of commissions to investment brokers of the
Distributor and to authorized dealers on sales of $1 million or more with no
initial sales charge.
The following amounts were incurred by the Fund under the Plan for the year
ending December 31, 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.
18
<PAGE>
In addition, if and to the extent that the advisory fee paid by the Fund to
the Adviser pursuant to the Advisory Agreement is considered as indirectly
financing any activity on the part of the Adviser, which is primarily intended
to result in the sale of Fund shares, such payments (which do not involve any
additional payments by the Fund under the Plan) are authorized under the Plan.
PORTFOLIO TRANSACTIONS AND BROKERAGE
------------------------------------
In addition to making the investment decisions of the Fund, the Adviser
implements such decisions by arranging the execution of the purchase or sale of
portfolio securities with the objective of obtaining prompt, efficient and
reliable executions of such transactions at the most favorable price obtainable
("best execution"). Transactions in securities other than those for which a
securities exchange is the principal market are generally made with principals
or market makers at a negotiated "net" price which usually includes a profit to
the dealer or distributor. Brokerage commissions are paid primarily for
effecting transactions in securities traded on an exchange although transactions
in the over-the-counter market may be executed on an agency basis if it appears
likely that a more favorable overall price can be obtained.
With respect to transactions handled by Hilliard Lyons on a national
securities exchange, the commissions must conform to Rule 17e-1 under the 1940
Act which permits an affiliated person of a registered investment company to
receive brokerage commissions from such registered investment company provided
that such commissions are reasonable and fair compared to commissions received
by other brokers in connection with comparable transactions involving similar
securities during a comparable period of time. The Board of Directors of the
Fund has adopted "procedures" which provide that commissions paid to Hilliard
Lyons may not exceed (i) those which would have been charged by other qualified
brokers for comparable customers in similar transactions or (ii) those charged
by Hilliard Lyons for comparable customers in similar transactions. The Rule
requires that the Board, including its directors who are not "interested
persons" of the Fund or Hilliard Lyons determine no less frequently than
quarterly that all transactions effected pursuant to the Rule during the
preceding quarter were effected in compliance with such procedures. Hilliard
Lyons is also required to furnish reports and maintain records in connection
with such reviews.
The use of Hilliard Lyons as a broker for the Fund is subject to the
provisions of Section 11(a) under the Securities Exchange Act of 1934. Section
11(a)(1)(H) permits an exchange member to execute on that exchange's floor,
using its own floor brokers, trades on behalf of its managed accounts, including
affiliated investment advisers and investment companies. Members must comply
with the following two conditions, set out in Section 11(a)(1)(H), in order to
execute these trades lawfully: (1) A member must obtain from the person(s)
authorized to transact business for a managed account written authorization
permitting the member to effect trades on behalf of the account before doing so
(if a customer already has provided a member with an authorization pursuant to
Rule 11(a)2-2(T), the member need not obtain another written authorization to
meet the Section 11(a)(1)(H) authorization requirement); and (2) at least
annually, the member must disclose
19
<PAGE>
to the same person(s) the amount of the aggregate compensation the member
received in effecting such transactions. Further, members will be required to
comply with any rules the SEC may prescribe with respect to the above two
express requirements. The SEC has not indicated any such plans to date. The
Adviser previously obtained authorization from the Fund pursuant to Rule 11a2-
2(T) and has disclosed to the Fund the amount of the aggregate compensation the
Adviser received in effecting all such transactions.
The Fund paid total brokerage commissions during the year ending December
31, 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
20
<PAGE>
Distributor under the Distribution Plan for expenses incurred in connection with
the offering and sale of shares of the Fund, (c) the fees and expenses of the
Fund's directors, officers and employees who are not affiliated with the
Adviser, (d) the fees and certain expenses of the Fund's custodian and transfer
agent, (e) the fees and expenses of the Fund's legal counsel and independent
auditors, (f) brokerage and commission expenses, (g) all federal, state and
local taxes and corporate fees payable by the Fund to governmental agencies,
including any issue or transfer taxes chargeable to the Fund in connection with
its securities transactions, and any foreign taxes, (h) the dues, fees and other
charges of any trade association of which the Fund is a member, (i) the cost of
fidelity and liability insurance, (j) reimbursement of the organization expenses
of the Fund and the fees and expenses involved in registering and maintaining
registration of the Fund and of its shares with the Securities and Exchange
Commission and registering the Fund as a broker or dealer and qualifying its
shares under state securities laws, including the preparation and printing of
the Fund's Registration Statements, Prospectuses and Statements of Additional
Information for such purposes, (k) costs incurred in having the Fund's net asset
value computed at the times and in the manner specified in the Fund's prospectus
and/or statement of additional information, (l) allocable communications
expenses with respect to investor services and all expenses of stockholders' and
directors' meetings and preparing, printing and mailing Prospectuses, Statements
of Additional Information, reports and proxy materials to stockholders, and (m)
such non-recurring or extraordinary expenses as may arise outside the ordinary
course of the Fund's business, including litigation affecting the Fund and the
legal obligation the Fund may have to indemnify its officers and directors and,
in certain situations, the Distributor, with respect thereto.
DIVIDENDS, DISTRIBUTIONS AND TAXES
----------------------------------
Each dividend and capital gain distribution, if any, declared by the Fund
on its outstanding shares will be paid on the payment date fixed by the Board of
Directors in cash or in additional shares of the Fund having an aggregate net
asset value as of the record date of such dividend or distribution equal to the
cash amount of such dividend or distribution. Dividends and capital gain
distributions will normally be reinvested in additional shares of the same class
at net asset value without a sales charge, unless otherwise elected at purchase.
A stockholder may change such election at any time prior to the record date for
a particular dividend or distribution by written request to the Fund's transfer
agent.
It is the present policy of the Fund to make distributions annually of its
net investment income and of its net realized capital gains, if any, at the end
of the year in which earned or at the beginning of the next year. There is no
fixed dividend rate, and there can be no assurance that the Fund will pay any
dividends or realize any capital gains. Investors considering buying shares of
the Fund just prior to a dividend or capital gain distribution record date
should be aware that, although the price of shares purchased at that time may
reflect the amount of the forthcoming distribution, those who purchase just
prior to such date will receive a distribution that will nevertheless be taxable
to them.
The Fund is subject to a nondeductible 4% excise tax measured with respect
to certain undistributed amounts of ordinary income and capital gains. If
necessary to avoid this tax, and if
21
<PAGE>
in the best interests of the stockholders, the Fund's Board of Directors will,
to the extent permitted by the SEC, declare and pay distributions of its net
investment income and net realized capital gains more frequently than stated
above. To avoid the tax, the Fund must distribute during each calendar year, at
least the sum of (1) 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (2) 98% of its capital gains in
excess of its capital losses for the twelve-month period ending on October 31 of
the calendar year, and (3) all ordinary income and net capital gains for
previous years that were not previously distributed. A distribution will be
treated as paid during the calendar year if it is actually paid during the
calendar year or declared by the Fund in October, November or December of the
year, payable to stockholders of record as of a specified date in such a month
and actually paid by the Fund during January of the following year. Any such
distributions paid during January of the following year will be deemed to be
paid and received on December 31 of the year the distributions are declared,
rather than when the distributions are received.
If the Fund invests in foreign securities, it will be subject to
withholding taxes of the foreign country of the issuer on dividends which vary
depending on the particular jurisdiction. The Fund may at its election deduct
such amounts in computing taxable income or receive a credit against federal
income taxes owed for the taxable year.
The Fund intends to qualify for tax treatment as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code").
Qualification as a regulated investment company relieves the Fund of federal
income tax on that part of its net ordinary income and net realized capital
gains which it pays out to its stockholders. To qualify, the Fund must meet
certain relatively complex tests relating to the source of its income and the
diversification of its assets, including the requirement that less than 30% of
its gross income (generally exclusive of losses) may be derived from the sale or
other disposition of securities held for less than three months, and must
distribute at least 98% of its investment company taxable income (as defined in
the Code). In addition, the Fund must diversify its holdings so that, at the end
of each fiscal quarter, (i) at least 50% of the market value of the Fund's
assets is represented by cash, cash items, United States Government securities,
securities of other regulated investment companies and other securities with
such other securities limited, in respect of any one issuer, to an amount not
greater than 5% of the value of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than United States
Government securities or the securities of other regulated investment
companies). The Fund does not anticipate any difficulty in meeting these
requirements. Dividends out of net ordinary income and distributions of net
short-term capital gains are taxable to stockholders as ordinary income. In the
case of corporate stockholders, such distributions are eligible for the 70%
dividends-received deduction subject to proportionate reduction of the amount
eligible for deduction if the aggregate qualifying dividends received by the
Fund from domestic corporations in any year are less than its "gross income" as
defined by the Code. A corporation's dividends-received deduction will be
disallowed unless the corporation holds shares in the Fund at least 46 days.
Furthermore, a corporation's dividends-received deduction will be disallowed to
the extent a corporation's investment in shares of the Fund is financed with
indebtedness.
22
<PAGE>
The excess of net long-term capital gains over the net short-term capital
losses realized and distributed by the Fund to its stockholders as capital gain
distributions are taxable to the stockholders as long-term capital gains,
irrespective of the length of time a stockholder may have held the shares. Such
long-term capital gain distributions are not eligible for the dividends-received
deduction referred to above. Any dividend or distribution received by a
stockholder on shares of the Fund shortly after the purchase of such shares will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, such dividend or distribution,
although in effect a return of capital, is subject to applicable income taxation
as described above regardless of the length of time the shares may have been
held. If a stockholder held shares less than six months and during that period
received a distribution taxable to such stockholder as long-term capital gain,
any loss realized on the sale of such shares during such six-month period would
be a long-term loss to the extent of such distribution. The tax treatment of
distributions from the Fund is the same whether the distributions are received
in additional shares or in cash. Stockholders receiving distributions in the
form of additional shares will have a cost basis for federal income tax purposes
in each share received equal to the net asset value on the reinvestment date.
The Fund generally is required to withhold federal income tax at a rate of
31% ("backup withholding") from dividends paid to stockholders if (a) the payee
fails to furnish the Fund with and to certify the payee's correct taxpayer
identification number or social security number, (b) the Internal Revenue
Service (the "IRS") notifies the Fund that the payee has failed to report
properly certain interest and dividend income to the IRS and to respond to
notices to that effect, or (c) the payee fails to certify that backup
withholding is not required.
The Fund may be subject to state or local taxes in the jurisdiction in
which the Fund may be deemed to be doing business. Dividends and distributions
declared by the Fund may also be subject to state and local taxes. Prior to
investing in shares of the Fund, prospective stockholders should consult their
tax adviser concerning the federal, state and local tax consequences of such an
investment.
NET ASSET VALUE
---------------
Each security traded on a national securities exchange or traded over-the-
counter and quoted on the Nasdaq System is valued at the last sale price at
"closing time" on the date of valuation. Securities so traded for which there
was no sale on the date of valuation and other securities are valued at the mean
of the most recent bid and asked quotations, except that bonds not traded on a
securities exchange or quoted on the Nasdaq System are valued at prices provided
by a recognized pricing service unless the Adviser believes that any such price
does not represent a fair value. Each money market instrument having a maturity
of 60 days or less from the valuation date is valued on an amortized cost basis.
Other securities and assets are valued at fair value, as determined in good
faith by the Adviser under procedures established by, and under the supervision
and responsibility of, the Fund's Board of Directors.
23
<PAGE>
As stated in the Prospectus, the net asset value per share of each of the
Fund's classes of shares is determined on each "business day", currently any day
the New York Stock Exchange is open for business. The New York Stock Exchange is
presently scheduled to be closed on New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively.
As stated in the Prospectus, because of the differences in distribution
fees and class specific expenses, the per share net asset value of each class
may differ. For Class A Shares, the Fund's public offering price is the next
determined net asset value per Class A Share plus a sales charge paid at the
time of purchase. Based on the net asset value per share at December 31, 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
<PAGE>
PART C
OTHER INFORMATION
-----------------
ITEM 24. Financial Statements and Exhibits
---------------------------------
a) Financial Statements included in Part B:*
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statements of Changes in Net Assets
b) Exhibits:
(1) (a) Articles of Incorporation.*
(b) Articles Supplementary
(2) Bylaws.*
(3) Not applicable.
(4) Not applicable.
(5) (a) Investment Advisory Agreement between Registrant and
Hilliard Lyons Investment Advisors, a division of J.J.B.
Hilliard, W.L. Lyons, Inc.
(6) (a) Distribution Agreement between Registrant and
Provident Distributors, Inc.
(b) Distribution Fee Letter Agreement between J.J.B. Hilliard,
W.L. Lyons, Inc. and the Registrant.
(c) Form of Broker-Dealer Agreement between J.J.B. Hilliard,
W.L. Lyons, Inc. and Provident Distributors, Inc.
(d) Letter Agreement between J.J.B. Hilliard, W.L. Lyons, Inc.
and Provident Distributors, Inc.
(7) Not applicable.
- --------------------
*Previously filed.
<PAGE>
(8) Form of Custodian Agreement between Registrant and State Street
Bank and Trust Company.*
(9) Form of Transfer Agency and Service Agreement between Registrant
and State Street Bank and Trust Company.*
(10) Opinion and consent of Brown, Todd & Heyburn PLLC, counsel to
the Fund.*
(11) Consent of Ernst & Young LLP, Independent Auditors.
(12) Not applicable.
(13) Subscription Agreement with initial stockholder.*
(14) Not applicable.
(15) Amended and Restated Distribution Plan pursuant to Rule 12b-1.*
(16) Schedule of Computation of Registrant's performance data.*
(17) Not applicable.
(18) Rule 18f-3 Multiple Class Plan.*
(27) Financial Data Schedule.
- --------------------
*Previously filed.
ITEM 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
None.
ITEM 26. Number of Holders of Securities
-------------------------------
As of March 8, 1998, the number of record holders of the Registrant's
shares of common stock was approximately 4,525.
ITEM 27. Indemnification
---------------
Reference is made to Article IX of Registrant's Articles of Incorporation
and Article V of Registrant's Bylaws which are filed as exhibits to this
Registration Statement.
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a director, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Pursuant to the Distribution Agreement, between the Fund and Provident
Distributors, Inc. (the "Distributor"), the Fund is required to indemnify and
hold harmless the Distributor and each person, if any, who controls the
Distributor against any loss, liability, claim, damage or expense (including the
reasonable cost of investigating or defending any alleged loss, liability,
claim, damage or expense and reasonable counsel fees incurred in connection
therewith), arising by reason of any person acquiring any shares of the Fund,
which may be based upon the Securities Act of 1933, or on any other statute or
at common law, on the ground that the Fund's Registration Statement or related
Prospectus and Statement of Additional Information, as from time to time amended
and supplemented, or an annual or interim report to stockholders of the Fund,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, unless such statement or omission was made in reliance
upon, and in conformity with, information furnished to the Fund in connection
therewith by or on behalf of the Distributor.
ITEM 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
J.J.B. Hilliard, W.L. Lyons, Inc., through its division, Hilliard Lyons
Investment Advisors, is the investment adviser of the Registrant. For
information concerning the business, profession, vocation or employment of a
substantial nature of J.J.B. Hilliard, W.L. Lyons, Inc., reference is made to
Form ADV filed by it under the Investment Advisers Act of 1940.
Set forth below is a list as of March 12, 1999 of all and of all officers
(at the Executive Vice President level and above) of J.J.B. Hilliard, W.L.
Lyons, Inc. and the name and business address of the company (if any), other
than J.J.B. Hilliard, W.L. Lyons, Inc. and its affiliates, with which each such
individual has been connected since January 1, 1998, as well as the capacity in
which such individual was connected:
3
<PAGE>
<TABLE>
<CAPTION>
Name and Title of Name and Address of
Officer Company with which
of J.J.B. Hilliard, Officer or Director
W.L. Lyons, Inc. Is Connected Capacity
- ---------------- ------------------- --------
<S> <C> <C>
James M. Rogers none
Executive Vice
President and Chief
Operating Officer
James R. Allen none
Executive Vice
President, Branch
Administration
James W. Stuckert Royal Gold, Inc. director
Chief Executive Officer 1600 Wynkoop Street
Suite 1000
Denver, CO 80202
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
DataBeam Corporation director
3191 Nicholsville Road
Lexington, KY 50403
Lawson United Corporation director
113 West Main
Glasgow, KY 42141
Thomas Transportation Group, Inc. director
3600 Chamberlain Lane, Suite 610
Louisville, KY 40241
Samuel C. Harvey none
Executive Vice President,
Investment Management Group
F. James Walker none
Executive Vice President,
Financial Services
E. Neal Cory, II none
Executive Vice President,
Investment Management Group
</TABLE>
5
<PAGE>
Some of the officers of J.J.B. Hilliard, W.L. Lyons, Inc. serve as officers
of Hilliard-Lyons, Inc. and as directors or officers, or both, of other
subsidiaries of Hilliard-Lyons, Inc., each of which subsidiaries, other than
Hilliard Lyons Trust Company, is organized for the purpose of carrying out the
investment banking activities of J.J.B. Hilliard, W.L. Lyons, Inc. or activities
in support thereof.
ITEM 29. Principal Underwriters
(a) J.J.B. Hilliard, W.L. Lyons, Inc. is Registrant's principal
underwriter. J.J.B. Hilliard, W.L. Lyons, Inc. currently serves as
investment adviser and principal underwriter of Hilliard-Lyons
Government Fund, Inc., an open-end money market fund.
(b) Set forth below is certain information pertaining to the directors and
officers (at the Executive Vice President level and above) of J.J.B.
Hilliard, W.L. Lyons, Inc., the Registrant's principal underwriter:
<TABLE>
<CAPTION>
Positions
Name and Principal Positions and Offices and Offices
Business Address with Underwriter with Registrant
- ------------------ --------------------------- ---------------
<S> <C> <C>
James M. Rogers Executive Vice President, none
Hilliard Lyons Center Manager, Chief Operating Officer
Louisville, KY 40202
James R. Allen Executive Vice none
Hilliard Lyons Center President, Manager,
Louisville, KY 40202 Branch and Marketing
Administration
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
James W. Stuckert Chief Executive Officer none
Hilliard Lyons Center
Louisville, KY 40202
Samuel C. Harvey Executive Vice President President
Hilliard Lyons Center Investment Management Group
Louisville, KY 40202
F. James Walker Executive Vice President, none
Hilliard Lyons Center Financial Services Group
Louisville, KY 40202
E. Neal Cory, II Executive Vice President, none
Hilliard Lyons Center Investment Management Group
Louisville, KY 40202
</TABLE>
(c) Not applicable.
ITEM 30. Location of Accounts and Records
All such accounts, books and other documents are maintained at the office
of State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02105 and Hilliard Lyons Growth Fund, Inc., Hilliard Lyons Center,
Louisville, Kentucky 40202.
7
<PAGE>
ITEM 31. Management Services
Not applicable.
ITEM 32. Undertakings
------------
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to furnish to each person to whom a
prospectus is delivered with a copy of Registrant's latest annual
report to shareholders, upon request and without change.
8
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment No. 10 to the Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Louisville
and Commonwealth of Kentucky, on the 11th day of March, 1999.
HILLIARD LYONS GROWTH FUND, INC.
By: /s/ Donald F. Kohler
--------------------------------
Donald F. Kohler,
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 10 to the Registration Statement has been signed below
by the following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ DONALD F. KOHLER Chairman of the Board of March 11, 1999
- ----------------------------- Directors (Principal
Donald F. Kohler Executive Officer)
*/s/ WILLIAM A. BLODGETT, JR. Director March 11, 1999
- -----------------------------
William A. Blodgett, Jr.
*/s/ JOHN C. OWENS Director March 11, 1998
- -----------------------------
John C. Owens
*/s/ STEWART E. CONNER Director March 11, 1998
- -----------------------------
Stewart E. Conner
*By: /s/ DONALD F. KOHLER
------------------------
Donald F. Kohler
Attorney-in-Fact pursuant to
Power of Attorney previously
filed with the Commission
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
Exhibits:
--------
(1) (a) Articles of Incorporation.*
(b) Articles Supplementary*
(2) Bylaws.*
(3) Not applicable.
(4) Not applicable.
(5) (a) Investment Advisory Agreement between Registrant and Hilliard
Lyons Investment Advisors, a division of J.J.B. Hilliard, W.L.
Lyons, Inc.
(6) (a) Distribution Agreement between Registrant and Provident
Distributors, Inc.
(b) Distribution Fee Letter Agreement between J.J.B. Hilliard,
W.L. Lyons, Inc. and the Registrant.
(c) Form of Broker-Dealer Agreement between J.J.B. Hilliard,
W.L. Lyons, Inc. and Provident Distributors, Inc.
(d) Letter Agreement between J.J.B. Hilliard, W.L. Lyons, Inc.
and Provident Distributors, Inc.
(7) Not applicable.
(8) Form of Custodian Agreement between Registrant and State Street Bank
and Trust Company.*
(9) Form of Transfer Agency and Service Agreement between Registrant and
State Street Bank and Trust Company.*
(10) Opinion and consent of Brown, Todd & Heyburn PLLC, counsel to the
Fund.*
(11) Consent of Ernst & Young LLP, Independent Auditors.
(12) Not applicable.
(13) Subscription Agreement with initial stockholder.*
(14) Not applicable.
(15) Amended and Restated Distribution Plan pursuant to Rule 12b-1.*
(16) Schedule of Computation of Registrant's performance data.*
(17) Not applicable.
(18) Rule 18f-3 Multiple Class Plan.*
(27) Financial Data Schedule.
____________________
*Previously filed.
<PAGE>
Exhibit (5)(a)
INVESTMENT ADVISORY AGREEMENT
-----------------------------
THIS AGREEMENT dated as of December 1, 1998,/1/ between HILLIARD LYONS
GROWTH FUND, INC., a Maryland corporation ("Fund"), and HILLIARD LYONS
INVESTMENT ADVISORS ("Adviser"), a division of J.J.B. Hilliard, W.L. Lyons,
Inc., a Kentucky corporation.
WITNESSETH:
-----------
WHEREAS, the Fund desires to retain the Adviser to render certain specified
investment advisory services to the Fund and the Adviser is willing to render
such services.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the parties agree as follows:
1. Services of Adviser.
1.1 The adviser will regularly provide the Fund with investment
research, advice and supervision and will furnish continuously an investment
program for the Fund consistent with the investment objectives and policies of
the Fund. The Adviser will determine from time to time what securities shall be
purchased for the Fund and what securities shall be held or sold by the Fund,
subject to the provisions of the Fund's Articles of Incorporation and Bylaws and
of the Investment Company Act of 1940 (the "1940 Act"), and to the investment
objectives, policies and restrictions of the Fund, as each of the same shall be
from time to time in effect, and subject, further, to such policies and
instructions as the Board of Directors of the Fund may from time to time
establish and convey.
1.2 Subject to the general supervision of the Board of Directors of
the Fund, the Adviser will provide certain administrative services to the Fund.
In this regard, the Adviser will, to the extent not required to be provided by
others pursuant to the Fund's custodian agreement or transfer agent agreement,
(i) provide supervision of all aspects of the Fund's operations not incorporated
in section 1.1 above; (ii) provide the Fund with personnel to perform such
executive, administrative and clerical services as are reasonably necessary to
provide effective administration of the Fund; (iii) arrange for, at the Fund's
expense, (A) the preparation for the Fund of all required tax returns, (B) the
preparation and submission of reports to existing stockholders, and (C) the
periodic updating of the Fund's prospectus and statement of additional
information and the preparation of reports filed with the Securities and
Exchange Commission and other regulatory authorities; and (iv) provide the Fund
with adequate office space and all necessary office equipment and services
including telephone service, heat, utilities, stationery and office supplies.
1.3 The Adviser will maintain all books and records with respect to
the Fund's securities transactions required by sub-paragraphs (b)(5), (6), (9)
and (10) and paragraph (f) of Rule 31a-1 under the 1940 Act (other than those
records being maintained by the Fund's
________________________
/1/The Agreement will be executed and become effective upon the later of
(a) the closing of the transactions contemplated by the Agreement and Plan of
Merger by and between Hilliard-Lyons, Inc. and PNC Bank Corp. or (b) approval by
the shareholders of the Fund.
<PAGE>
custodian or transfer agent) and preserve such records for the periods
prescribed therefor by Rule 31a-2 under the 1940 Act.
1.4 The Adviser will keep the Fund informed of developments
materially affecting the Fund's portfolio and, in addition to providing the Fund
with statistical or other information the Fund may reasonably request with
respect to its investments.
2. Fees and Expenses
2.1 The Fund will pay the Adviser an investment advisory fee of 0.80%
per annum of the Fund's average daily net assets. This fee shall be accrued
daily and paid on the first business day of each January, April, July and
October for services performed the preceding quarter. Upon any termination of
this Agreement before the end of a quarter, the fee for such part of that
quarter shall be calculated through the date of termination and shall be payable
upon the date of termination of this Agreement. For the purpose of determining
fees payable to the Adviser, the value of the Fund's net assets shall be
computed at the times and in the manner specified in the Fund's prospectus
and statement of additional information.
2.2 The Adviser shall bear all expenses of its employees and overhead
incurred by it in connection with its duties under this Agreement. The Adviser
will also pay all salaries and fees of the Fund's directors and officers who are
interested persons (as such term is defined in the 1940 Act) of the Adviser.
2.3 The Fund assumes and shall pay all expenses of the Fund not set
forth in Section 2.2 including, without limitation: (i) the reimbursements
payable to the Distributor under the Distribution Plan for expenses incurred in
connection with the offering and sale of shares of the Fund, (ii) the salaries
and fees of the Fund's directors who are not interested persons and of officers
and employees who are not affiliated with the Adviser, (iii) the fees and
expenses of the Fund's custodian and transfer agent, (iv) the fees and expenses
of the Fund's legal counsel and independent auditors, (v) brokerage and
commission expenses, (vi) all federal, state, local and foreign 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, (vii) the dues, fees and other charges of any trade association of
which the Fund is a member, (viii) the cost of fidelity and liability insurance,
(ix) 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 statement and
prospectus for such purposes, (x) 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 statement of additional information, (xi) all expenses of stockholders' and
directors' meetings and preparing, printing and mailing prospectuses, statements
of additional information, reports and proxy materials to existing stockholders,
and (xii) 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. The
Fund shall not be required to pay expenses of activities which are primarily
intended to result in sales of shares of the Fund other than as provided for in
any Rule 12b-1 Distribution Plan adopted by the Fund.
2
<PAGE>
2.4 If, in any fiscal year, the sum of the Fund's operating expenses
(including the investment advisory fee payable pursuant to section 2.1 hereof,
but excluding taxes, interest, brokerage commissions relating to the purchase
or sale of portfolio securities and extraordinary expenses such as for
litigation) exceeds the expense limitations, if any, applicable to the Fund
imposed by state securities administrators, as such limitations may be modified
from time to time, the Adviser shall reimburse the Fund in the amount of such
excess to the extent required by such expense limitations, provided that the
amount of such reimbursement shall not exceed the amount of the Adviser's
investment advisory fee during such fiscal year.
2.5 In addition to the foregoing, the Adviser may from time to time
agree not to impose all or a portion of its fee otherwise payable hereunder
and/or undertake to reimburse the Fund for a portion of its operating expenses
not otherwise required to be borne or reimbursed by the Adviser. Any such fee
reduction or undertaking may be discontinued or modified by the Adviser at any
time.
3. Liability.
3.1 Neither the Adviser nor any of its officers, directors or
employees shall be liable for any error of judgment or mistake of law or for any
loss suffered by the Fund in connection with the matters to which this Agreement
relates, except (i) that the Adviser shall be under a fiduciary duty with
respect to receipt of compensation for services pursuant to Section 36 of the
1940 Act, and shall therefore be liable for a loss resulting from a breach of
such fiduciary duty (in which case any award of damages shall be limited to the
period and the amount set forth in Section 36(b)(3) of the 1940 Act), or (ii)
for a loss resulting from willful misfeasance, bad faith or gross negligence on
its or their part in the performance of, or from reckless disregard by it or
them of, its or their obligations and duties under this Agreement.
3.2 Any person, even though also employed by the Adviser, who may be
or become an employee of and paid by the Fund shall be deemed, when acting
within the scope of employment by the Fund, to be acting in such employment
solely for the Fund and not as an employee or agent of the Adviser.
4. Services Not Exclusive. It is understood that the services of the
Adviser are not deemed to be exclusive, and nothing in this Agreement shall
prevent 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.
5. Brokerage. The Adviser shall employ securities brokers that, in its
judgment, will implement the policy of the Fund to seek the best execution of
its portfolio transactions at reasonable expenses. For purposes of this
Agreement, "best execution" shall mean prompt, efficient and reliable execution
at the most favorable price obtainable. In making this determination, the
Adviser shall take into consideration a number of factors including, but not
limited to, the overall net economic results to the Fund (involving both price
paid or received and any commissions and other costs paid), the efficiency with
which the specific transaction is
3
<PAGE>
effected, the ability to effect the transaction at all where a large block is
involved, the known practices of brokers and their availability to execute
possibly difficult transactions in the future and the financial strength and
stability of the broker. Under such conditions as may be specified by the Fund's
Board of Directors in the interest of its stockholders and to ensure compliance
with applicable law and regulations, the Adviser may (a) subject to the
restrictions of the 1940 Act, place orders for the purchase and sale of
portfolio securities for the Fund's account with J.J.B. Hilliard, W.L. Lyons,
Inc.; and (b) pay commissions to brokers other than J.J.B. Hilliard, W.L. Lyons,
Inc. that are higher than might be charged by another qualified broker to obtain
brokerage and/or research services considered by the Adviser to be useful or
desirable in the performance of the Adviser's duties hereunder and for the
investment management of other advisory accounts over which the Adviser or the
Adviser's affiliates exercise investment discretion.
6. Name of Fund. The Fund may use any name including or derived from the
name of "J.J.B. Hilliard, W.L. Lyons, Inc." in connection with the Fund only for
so long as this Agreement or any extension, renewal or amendment hereof remains
in effect. The Fund agrees that any name including or derived from the name
"J.J.B. Hilliard, W.L. Lyons, Inc." may freely be used by the Adviser for any
purpose including other investment companies, entities, products or services.
Upon the termination of this Agreement, the Fund shall promptly take all
necessary and appropriate action to change its name to one that does not include
and is not derived from the name J.J.B. Hilliard, W.L. Lyons, Inc.; provided,
however, that the Fund may continue to use such name if the Adviser consents in
writing to such use.
7. Miscellaneous.
7.1 This Agreement shall become effective on the date hereof. It
shall continue in effect until two years from the date on which this Agreement
is executed, and thereafter from year to year only so long as such continuance
is specifically approved at least annually by (i) the Fund's directors or (ii) a
vote of a majority of the Fund's outstanding voting securities, provided that in
either event the continuance is also approved by a majority of the directors who
are not interested persons of any party thereto, by vote cast in person at a
meeting called for the purpose of voting on such approval. This Agreement is
terminable, without penalty, on 60 days written notice, by the Fund's directors
or by vote of holders of a majority of the Fund's outstanding voting securities,
or upon 60 days written notice by the Adviser. This Agreement will also
terminate automatically in the event of its assignment.
7.2 As used herein, the terms "interested person" and "majority of
the outstanding voting securities" will be deemed to have the same meaning that
those terms have under the 1940 Act and the rules and regulations under the 1940
Act, subject to any exemption that may be granted to the Fund under the 1940 Act
by the Securities and Exchange Commission.
7.3 This Agreement shall be construed in accordance with the laws of
the Commonwealth of Kentucky.
7.4 The captions in this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect.
7.5 If any provisions of this Agreement shall be held or made
invalid, in whole or in part, the other provisions of this Agreement shall
remain in force. Invalid provisions shall, in accordance with the intent and
purpose of this Agreement, be replaced by mutual
4
<PAGE>
consent of the parties with such valid provisions which in their economic effect
come as close as legally possible to such invalid provisions.
7.6 The Adviser shall be entitled to rely on any notice or other
communication believed by it to be genuine and correct and to have been sent to
it by or on behalf of the Fund.
7.7 This Agreement may be amended by the parties only if such
amendment is specifically approved by (i) the Board of Directors of the Fund,
and (ii) the vote of a majority of those directors of the Fund who are not
interested persons of the Adviser cast in person at a meeting called for the
purpose of voting on such approval.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its duly authorized officer as of the day and year first above
written.
HILLIARD LYONS GROWTH FUND, INC.
By: /s/ Joseph C. Curry, Jr.
------------------------
Title: Treasurer and Secretary
-----------------------
HILLIARD LYONS INVESTMENT ADVISORS
By: /s/ SAMUEL C. HARVEY
--------------------
Title: Executive Vice-President
------------------------
5
<PAGE>
Exhibit (6)(a)
DISTRIBUTION AGREEMENT
---------------------
THIS AGREEMENT made as of the 1st day of December, 1998 between HILLIARD
LYONS GROWTH FUND, INC., a Maryland corporation (the "Fund"), and PROVIDENT
DISTRIBUTORS, INC., a Delaware corporation (the "Distributor").
WITNESSETH:
-----------
WHEREAS, the Fund is registered under the Investment Company Act of 1940
(the "1940 Act"), as an open-end non-diversified management investment company
and an indefinite number of the Fund's shares have been registered under the
Securities Act of 1933 (the "Securities Act"), to be offered for sale to the
public in a continuous public offering in accordance with the terms and
conditions set forth in the prospectus and statement of additional information
(the "Prospectus" and "Statement of Additional Information", respectively)
included in the Fund's registration statement on Form N-1A as the same may be
amended and supplemented from time to time (the "Registration Statement"); and
WHEREAS, the Distributor is a securities firm engaged in the business of
selling securities either directly to purchasers or through other securities
dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of the Fund's shares in order
to promote the growth of the Fund and facilitate the distribution of its shares.
NOW, THEREFORE, for and in consideration of the premises and the covenants
contained herein, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints the
Distributor as the general distributor and agent of the Fund to sell shares of
Common Stock, par value $.001 per share, of the Fund (hereinafter referred to
as "Shares") to the public on a best efforts basis pursuant to the continuous
offering of the Fund's Shares.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
exclusive representative of the Fund to act as general distributor and agent in
connection with the continuous offering of the Fund's Shares, except that:
(a) The exclusive rights granted to the Distributor to sell Shares of
the Fund shall not apply to Shares issued and sold (i) in connection with the
merger or consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any such company by
the Fund; (ii) in connection with offers of exchange exempted from Section 11(a)
of the 1940 Act; or (iii) pursuant to reinvestment of dividends or capital gain
distributions.
<PAGE>
(b) Such exclusive rights shall also not apply to Shares issued and
sold directly by the Fund to its stockholders and other persons, provided that,
except with respect to Shares issued and sold by the Fund in transactions of the
type described in Section 2(a) above, the Distributor shall be entitled to the
applicable sales load as set forth in the Prospectus with respect to such
Shares.
Section 3. Purchase of Shares from the Fund. (a) The Distributor agrees to
use its best efforts to solicit offers to purchase the Shares upon the terms and
conditions set forth in the Prospectus.
(b) The Shares are to be sold by the Distributor and, if deemed
advisable by the Distributor, by securities dealers and financial advisors who
are members in good standing of the National Association of Securities Dealers,
Inc. and who have entered into sales agreements with the Distributor
("Authorized Dealers") upon the terms and conditions set forth in Section 8
hereof, to investors at the public offering price, as set forth in Section
3(c)hereof.
(c) The public offering price of the Shares, i.e., the price per
Share at which the Distributor or Authorized Dealers may sell Shares to the
public, shall be the public offering price as set forth in the currently
effective Prospectus and Statement of Additional Information included in the
Fund's Registration Statement, but not to exceed the net asset value at which
the Distributor is to purchase the Shares, plus the applicable sales charge as
set forth in the Prospectus. If the public offering price does not equal an even
cent, the public offering price may be adjusted to the nearest cent. All
payments to the Fund hereunder shall be made in the manner set forth in Section
3(1).
(d) The net asset value of Shares shall be determined by the Fund or
its agent in accordance with the method set forth in the Prospectus and
Statement of Additional Information and guidelines established by the Board of
Directors of the Fund. Such net asset value shall be determined on each day the
New York Stock Exchange is open for business and such public offering price
based upon such net asset value shall become effective as set forth from time to
time in the current Prospectus. The Fund (or its agent) shall furnish the
Distributor, with all possible promptness, a statement of each computation of
net asset value, and of the details entering into such computation.
(e) The Fund shall have the right to suspend the sale of its Shares
at times when redemption is suspended pursuant to the conditions set forth in
Section 4(b) hereof. The Fund shall also have the right to suspend the sale of
its Shares if trading on the New York Stock Exchange shall have been suspended,
if a banking moratorium shall have been declared by federal authorities, or if
there shall have been some other event, which, in the judgment of the Fund,
makes it impracticable or inadvisable to sell the Shares.
(f) The Distributors shall accept or reject orders it receives for
the purchase of Shares in accordance with the Prospectus or Statement of
Additional Information, and shall
2
<PAGE>
promptly transmit such orders as are so accepted to the Fund, or any agent of
the Fund designated in writing by the Fund. Any order may be rejected by the
Fund or the Distributor; provided, however, that neither the Fund nor the
Distributor will arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Shares. The Fund (or its agent) will confirm
orders upon receipt by the Fund (or its agent) of such orders together with
payment therefor, will apply such payment to the purchase of Shares and the
payment of the applicable sales charge, will make appropriate book entries
therefor, and will deliver the notice prescribed by the Maryland General
Corporation Law and Article 8 of the Maryland Uniform Commercial Code pursuant
to the instructions of the Distributor. The Distributor agrees to cause such
orders, such payment and such instructions to be delivered promptly to the Fund
(or its agent). The Distributor agrees to indemnify and reimburse the Fund for
any loss arising from non-payment by any investor of any purchase order accepted
by the Distributor.
Section 4. Redemption of Shares by the Fund. (a) Any of the outstanding
Shares may be tendered for redemption at any time, and the Fund agrees to redeem
the Shares so tendered in accordance with its obligations as set forth in the
Prospectus and Statement of Additional Information. Requests for redemption from
holders of Shares shall be submitted to the Distributor, Authorized Dealers or
to the Fund (or its agent) in accordance with the applicable provisions set
forth in the Prospectus. The price to be paid to redeem the Shares shall be
equal to the net asset value calculated in accordance with the provisions of
Section 3(d) hereof less any contingent deferred sales charge that may be
applicable in accordance with the Prospectus. All payments by the Fund (or its
agent) hereunder shall be made in accordance with the instructions of the
Distributor or redeeming stockholder on or before the seventh day subsequent to
the receipt by the Distributor or the Fund (or its agent) of a request for
redemption in proper form unless the Shares were recently purchased, in which
case the redemption proceeds will not be sent until the check received for the
Shares purchased has cleared.
(b) The Fund may suspend the right of redemption or postpone the date
of payment for more than seven days 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 has by order permitted such suspension, or (iii) an
emergency, as defined by rules of the Securities and Exchange Commission, exists
making disposal of portfolio investments or determination of the value of the
net assets of the Fund not reasonably practicable.
Section 5. Duties of the Fund. (a) The Fund, or any agent of the Fund
designated in writing by the Fund, shall furnish to the Distributor such
material regarding the Fund which the Distributor may reasonably request for use
in connection with the distribution of Shares, and this shall include copies of
its Prospectus and Statement of Additional Information and one certified copy of
all financial statements prepared for the Fund by independent public
accountants.
(b) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Shares for sale under the
securities laws of such states as the
3
<PAGE>
Distributor and the Fund may approve. Any such qualification may be withheld,
terminated or withdrawn by the Fund at any time in its discretion. As provided
in Section 9(c) hereof, the expense of qualification and maintenance of
qualification shall be borne by the Fund. The Distributor shall furnish such
information and other material relating to its affairs and activities as may be
required by the Fund in connection with such qualification.
(c) The Fund (or its agent) will furnish, in reasonable quantities
upon request by the Distributor, copies of annual and interim reports of the
Fund.
Section 6. Duties of the Distributor. (a) The Distributor shall use its
best efforts to solicit offers to purchase the Shares, but shall not be
obligated to sell any specific number of Shares. The services of the Distributor
to the Fund hereunder are not to be deemed exclusive and nothing herein
contained shall prevent the Distributor from entering into like arrangements
with other investment companies so long as the performances of its obligations
hereunder is not impaired thereby.
(b) In selling the Shares of the Fund, the Distributor shall use its
best efforts to comply with the requirements of all federal and state laws and
the requirements of the National Association of Securities Dealers, Inc.
("NASD") governing the sale of such securities. Neither the Distributor nor any
Authorized Dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement, related Prospectus and Statement of Additional
Information, or any sales literature specifically approved by the Fund.
(c) The Distributor will submit orders for Shares of the Fund only to
the extent of purchase orders actually received and not in excess of such
orders, and it will not avail itself of any opportunity of making a profit by
expediting or withholding orders.
(d) Immediately following the receipt of a redemption request, the
Distributor will transmit the redemption request to the Fund (or its agent).
(e) The Fund has adopted a Distribution Plan pursuant to the
provisions of Rule 12b-1 under the 1940 Act (the "Plan") which provides for the
payment of fees to the Distributor to reimburse it for expenses incurred in
connection with the offering and sale of the Shares and the Distributor agrees
to take no action inconsistent with, and to file all reports required by, the
Plan.
Section 7. Compliance with Laws. The Fund shall use its best efforts in all
respects to comply with the requirements of all federal and state laws and the
requirements of the NASD governing the issuance and sale of the Shares.
Section 8. Authorized Dealers and Service Agents. The Distributor may enter
into sales agreements with Authorized Dealers who wish to offer and sell Shares
and may enter into
4
<PAGE>
servicing agreements with financial institutions (including banks) and others
("Service Agents") for stockholder servicing and administrative services with
respect to Shares owned by stockholders for whom the Service Agent is the holder
of record or for whom the Service Agent performs administrative or servicing
functions, provided that the Fund shall approve the form of sales agreement or
servicing agreement used. The Distributor will supervise the Fund's relations
with Authorized Dealers and Service Agents. The Distributor will be responsible
for payment of all fees and other charges owed to Authorized Dealers or Service
Agents. The Fund (or its agent) will pay to Authorized Dealers, on behalf of the
Distributor and solely out of any sales charge received by the Fund with respect
to sales of Shares by Authorized Dealers, the applicable reallowance to dealers
in accordance with the Prospectus and Statement of Additional Information.
Section 9. Payment of Expenses. (a) The Fund shall bear all costs and
expenses of the Fund, including fees and disbursements of its counsel and
auditors and fees and expenses incurred in connection with (i) the preparation
and filing of its Registration Statement, including the Prospectus and Statement
of Additional Information, under the 1940 Act and the Securities Act, and all
amendments and supplements thereto, and (ii) the preparation and mailing of
annual and interim reports and proxy materials to stockholders (including but
not limited to the expense of setting in type and printing and distributing to
existing stockholders any such Registration Statement, Prospectus, Statement of
Additional Information, annual or interim report or proxy materials).
(b) (i) Subject to Section 9(b)(ii) hereof, after the Prospectus,
Statement of Additional Information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof which are to be used in connection
with the offering of Shares to Authorized Dealers or investors pursuant to this
Agreement, and the Distributor shall bear the costs and expenses of preparing,
printing and distributing any other literature used by the Distributor or
furnished by it for use by Authorized Dealers in connection with the offering of
the Shares for sale to the public and any expenses of advertising incurred by
the Distributor in connection with such offering.
(ii) Notwithstanding anything in Section 9(b)(i) to the
contrary, to the extent authorized by the Fund's Board of Directors pursuant to
the Plan and for so long as the Plan shall remain in effect, the Fund may
reimburse the Distributor for the expenses of printing and distributing
Prospectuses and Statements of Additional Information (other than those
distributed to existing stockholders of the Fund) and any other promotional
sales literature used by the Distributor or furnished by the Distributor to
investors or Authorized Dealers in connection with the offering of the Fund's
Shares.
(c) The Fund shall bear the costs and expenses of qualification of
the Shares for sale pursuant to this Agreement, and, if necessary or advisable
in connection therewith, of qualifying the Fund as a broker or dealer in such
states or other jurisdictions as shall be selected
5
<PAGE>
by the Fund and the Distributor, and the cost and expenses payable to each such
state for continuing qualification therein until the Fund decides to discontinue
such qualification, pursuant to Section 5(c) hereof.
Section 10. Compensation. The Fund shall promptly pay or cause to be paid
the Distributor any sales charge received by the Fund (net of any reallowance
payable to Authorized Dealers pursuant to Section 8 hereof) with respect to the
sale of Shares in accordance with the Prospectus and Statement of Additional
Information.
Section 11. Indemnification. (a) The Fund shall indemnify and hold
harmless the Distributor and each person, if any, who controls the Distributor
against any loss, liability, claim, damage or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim, damage or
expense reasonable counsel fees incurred in connection therewith), arising by
reason of any person acquiring any Shares, which may be based upon the
Securities Act, or on any other statute or at common law, on the ground that the
Registration Statement or related Prospectus and Statement of Additional
Information, as from time to time amended and supplemented, or an annual or
interim report to stockholders of the Fund, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statement therein not misleading, unless such
statement or omission was made in reliance upon, and in conformity with,
information furnished to the Fund in connection therewith by or on behalf of the
Distributor, provided, however, that in no case (i) is the indemnity of the Fund
in favor of the Distributor and any such controlling persons to be deemed to
protect the Distributor or any such controlling person thereof against any
liability to the Fund or its security holders to which the Distributor or any
such controlling person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of the reckless disregard of its obligations and duties under this
Agreement, or (ii) is the Fund to be liable under its indemnity obligation
contained in this paragraph with respect to any claim made against the
Distributor or such controlling persons, unless the Distributor or such
controlling persons, as the case may be, shall have notified the Fund in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor or such
controlling persons shall have received notice of such service on any designated
agent), but failure to notify the Fund of any such claim shall not relieve it
from any liability which it may have to the person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
subsection (a). The Fund will be entitled to participate at its own expense in
the defense, or, if it so elects, to assume the defense, of any suit brought to
enforce any such liability, but if the Fund elects to assume the defense, such
defense shall be conducted by counsel chosen by it and reasonably satisfactory
to the Distributor or such controlling person or persons, defendant or
defendants in the suit. In the event the Fund elects to assume the defense of
any such suit and retain such counsel, the Distributor or such controlling
person or persons, defendant or defendants in the suit, shall bear the fees and
expenses of any additional counsel retained by them, but, in case the Fund does
not elect to assume the defense of any such suit, it will reimburse the
Distributor or
6
<PAGE>
such controlling person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained by them. The Fund shall
promptly notify the Distributor of the commencement of any litigation or
proceedings against it or any of its officers or directors in connection with
the issuance or sale of any of the Shares.
(b) The Distributor shall indemnify and hold harmless the Fund and
each of its directors and officers and each person, if any, who controls the
Fund against any loss, liability, claim, damage or expense described in the
foregoing indemnity contained in subsection (a) of this Section, but only with
respect to statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund by or on behalf of the Distributor for
use in connection with the Registration Statement or related Prospectus and
Statement of Additional Information, as from time to time amended, or the annual
or interim reports to stockholders. In case any action shall be brought against
the Fund or any person so indemnified, in respect of which indemnity may be
sought against the Distributor, the Distributor shall have the rights and duties
given to the Fund, and the Fund and each person so indemnified shall have the
rights and duties given to the Distributor by the provisions of subsection (a)
of this Section 11.
Section 12. Duration and Termination of this Agreement. This Agreement
shall continue in effect for two years from the date of its execution and
thereafter for successive periods of one year each if such continuance is
specifically approved at least annually by (i) the Board of Directors of the
Fund, or by the vote of a majority of the outstanding voting securities of the
Fund, and (ii) the vote of a majority of those directors who are not interested
persons of the Distributor or of the Fund and have no direct or indirect
financial interest in the operation of the Plan or in this or any other
agreement related to the Plan, cast in person at a meeting called for the
purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Board of Directors of the Fund or any vote of a majority of the
outstanding voting securities of the Fund, or by the Distributor, on sixty days
written notice to the other party. This Agreement shall automatically terminate
in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the 1940 Act.
Section 13. Amendments of this Agreement. This Agreement may be amended by
the parties only if such amendment is specifically approved by (i) the Board of
Directors of the Fund, or by the vote of a majority of outstanding voting
securities of the Fund, and (ii) by the vote of a majority of those directors of
the Fund who are not interested persons of the Distributor or of the Fund and
have no direct or indirect financial interest in the operation of the Plan or
in this or any other agreement related to the Plan cast in person at a meeting
called for the purpose of voting on such approval.
7
<PAGE>
Section 14. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of Maryland
as at the time in effect and the applicable provisions of the 1940 Act. To the
extent that the applicable law of the State of Maryland conflicts with any of
the provisions of the 1940 Act, the latter shall control.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its duly authorized officer as of the day and year first above
written.
HILLIARD LYONS GROWTH FUND, INC.
By: /s/ JOSEPH C. CURRY, JR.
------------------------
PROVIDENT DISTRIBUTORS, INC.
By: /s/ JANE HAEGELE
----------------
8
<PAGE>
Exhibit (6)(b)
December 1, 1998
James M. Rogers
J.J.B. Hilliard, W.L. Lyons, Inc.
Hilliard Lyons Center
Louisville, KY 40202
Re: Provident Distributors, Inc.-Distribution Fees
Dear Mr. Rogers:
This letter services as an agreement between J.J.B Hilliard, W.L. Lyons,
Inc. ("Hilliard Lyons") and the Hilliard-Lyons Government Fund, Inc. and
Hilliard Lyons Growth Fund, Inc. (together the "Funds") with respect to payment
of distribution fees to Provident Distributors, Inc. ("PDI") pursuant to that
letter dated December 1, 1998 by and between PDI and Hilliard Lyons.
In consideration for the approval by the Funds of the Investment Advisory
Agreements between each the Funds and Hilliard Lyons, Hilliard Lyons will pay
PDI a monthly fee of $2,000, as well as any additional fees or expenses charged
by PDI for its services on behalf of the Funds in the ordinary course of
business, until the earlier of either the termination of the Investment Advisory
Agreements or PDI is no longer acting as the distributor for the Funds.
J.J.B. HILLIARD, W.L. LYONS, INC.
/s/ JAMES M. ROGERS Date: 12/1/98
-------------------------------
James M. Rogers, Executive
Vice President and
Chief Operating Officer
HILLIARD LYONS GOVERNMENT FUND
/s/ JOSEPH C. CURRY, JR. Date: 12/1/98
-------------------------------
Joseph C. Curry, Jr., President
HILLIARD LYONS GROWTH FUND, INC.
/s/ JOSEPH C. CURRY, JR. Date: 12/1/98
-------------------------------
Joseph C. Curry, Jr., Secretary
and Treasurer
<PAGE>
Exhibit (6)(c)
BROKER-DEALER AGREEMENT
FOR HILLIARD LYONS FUNDS
(FULLY DISCLOSED BASIS)
Provident Distributors, Inc.,
Four Falls Corporate Center, 6th Floor
West Conshobocken, PA 79428 2961
Ladies and Gentlemen:
We desire to enter into an Agreement with you for the sale of shares of
common stock of Hilliard Lyons Government Fund, Inc; Hilliard-Lyons Growth Fund,
Inc., open-end registered investment companies (hereinafter referred to as the
"Companies") of which you are the principal underwriter as such term is defined
in the Investment Company Act of 1940, as amended, and for which you are the
exclusive agent for the continuous distribution of shares pursuant to the terms
of a Distribution Agreement between you and the Companies. Unless the context
otherwise requires, as used herein the term "Prospectus" shall mean the
prospectus and related statement of additional information (the "Statement of
Additional Information") incorporated therein by reference, as amended and
supplemented, of each investment portfolio of the Companies ("Fund") included in
the then currently effective registration statement (or post-effective amendment
thereto) of the Companies, as filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the "Registration
Statement").
In consideration for the mutual covenants contained herein, it is hereby
agreed that our respective rights and obligations shall be as follows:
1. In all sales of Fund shares to the public, we shall act as dealer for our
own account and in no transaction shall we have any authority to act as agent
for the Company, any Fund, for you or for any other dealer.
2. All orders for the purchase of any Fund shares shall be executed at the
then current public offering price per share (i.e., the net asset value per
share plus the applicable sales load, if any) and all orders for the redemption
of any Fund shares shall be executed at the net asset value per shares, in each
case as described in the Prospectus of such Fund. The minimum initial purchase
order and minimum subsequent purchase order shall be as set forth in the
Prospectus of such Fund. All orders are subject to acceptance or rejection by
you at your sole discretion. Unless otherwise mutually agreed in writing, each
transaction shall be confirmed promptly in writing directly to the customer on a
fully disclosed basis and a copy of each confirmation shall be sent
simultaneously to us. We acknowledge that the Company has reserved the right, at
its discretion and without notice, to suspend the sale of shares or withdraw
entirely the sale of shares of any or all of the Funds.
3. In ordering shares of any Fund, we shall rely solely and conclusively on
the representations contained in the Prospectus of such Fund. We agree that we
shall not offer or sell shares of any Fund except in compliance with all
applicable federal and state securities laws and the rules and regulations of
applicable regulatory agencies or authorities. In connection with offers to sell
and sales of shares of each Fund, we agree to deliver or cause to be delivered
to each person to whom any such offer or sale is made, at or prior to time of
such offer or sale, a copy of the Prospectus and, upon request, the Statement of
Additional Information of such Fund. We further agree to obtain from each
customer to whom we sell Fund shares any taxpayer identification number
certification required under Section 3406 of the Internal Revenue Code of 1986,
as amended (the "Code"), and the regulations promulgated thereunder, and to
provide you or your designee with timely written notice of any failure to obtain
such taxpayer identification number certification in order to enable the
implementation of any required backup withholding in accordance with
Section 3406 of the Code and the regulations thereunder. Unless otherwise
mutually agreed in writing, you shall deliver or cause to be delivered to each
customer who purchases shares of any Funds from or through us copies of all
annual and interim reports, proxy solicitation materials, and any other
information and materials relating to such Funds and prepared by or on behalf of
you, the Fund or its investment adviser, custodian, transfer agent or dividend
disbursing agent for distribution to each such customer. You agree to supply us
with copies of the Prospectus, Statement of Additional Information, annual
reports, interim reports, proxy solicitation materials and any such other
information and materials relating to each Fund in reasonable quantities upon
request.
4. We shall not make any representations concerning any Fund shares other than
those contained in the Prospectus of such Fund or in any promotional materials
or sales literature furnished to us by you or the Fund. Except as otherwise
provided in Paragraph 3 of this Agreement, we shall not furnish or cause to be
furnished to any person or display or publish any information or materials
relating to any Fund (including, without limitation, promotional materials and
sale literature, advertisements, press releases, announcements, statements,
posters, signs or other similar material), except such information and materials
as may be furnished to us by you or the Fund, and such other information and
materials as may be approved in writing by you.
5. In determining the amount of any dealer reallowance payable to us
hereunder, you reserve the right to exclude any sales which you reasonably
determine are not made in accordance with the terms of the applicable Fund
Prospectuses and the provisions of this Agreement.
6. (a) In the case of any Fund shares sold with a sales load, customers may
be entitled to a reduction in sales load on purchases made from a Fund which
utilizes a letter of intent ("Letter of Intent") in accordance with such Fund's
Prospectus. In such case, our dealer reallowance will be paid based upon the
reduced sales load, but an adjustment to the dealer reallowance will be made in
accordance with the Prospectus of the applicable Fund to reflect the investor's
actual purchases if he or she should fail to fulfill the commitment in the
Letter of Intent. The sales load and/or dealer reallowance may be changed at any
time in your sole discretion upon written notice to us.
<PAGE>
(b) Subject to and in accordance with the terms of the Prospectus of each Fund
sold with a sales load, a reduced sales load may be applicable with respect to
customer accounts through a right of accumulation under which customers are per-
mitted to purchase shares of a Fund at the then current public offering price
per share applicable to the total of (i) the dollar amount of shares then being
purchased plus (ii) an amount equal to the then current net asset value or
public offering price originally paid per share, whichever is higher, of the
customer's combined holdings of the shares of such Fund and of any other open-
end registered investment companies which may be permitted by the applicable
Fund prospectus. In such case, we agree to furnish to you if orders are made by
wire, or to the transfer agent as such term is defined in the Prospectus of each
Fund (the"Transfer Agent") if orders are made by mail, sufficient information to
permit your confirmation of qualification for a reduced sales load; acceptance
of the purchase order is subject to such confirmation.
(c) With respect to Fund shares sold with a sales load, we agree to advise you
promptly at your request as to amounts of any and all sales by us qualifying for
a reduced sales load.
(d) Exchanges (i.e., the investment of the proceeds from the liquidation of
shares of one Fund in the shares of another Fund) shall, where available, be
made subject to and in accordance with the terms of each Fund Prospectus.
7. Subject to and in accordance with the terms of each Fund Prospectus and the
Service Plan, if any, adopted by the Board of Directors of the Company pursuant
to Rule 12h-1 under the Investment Company Act of 1940, as amended, we
understand that you may pay to certain financial institutions (which may include
banks), securities dealers and other industry professionals with which you have
entered into a Service Agreement in substantially the form annexed hereto as
Appendix A (or such other form as may be approved from time to time by the Board
of Directors of the Company) such fees as may be determined by you in accordance
with such Service Agreement for shareholder and administrative services as
described therein.
8. The procedures relating to all orders and the handling thereof will be
subject to the terms of the Prospectus of each Fund and your written
instructions to us from time to time. No conditional orders will be accepted. We
agree to place orders with you immediately for the same number of shares and at
the same price as any sales by us. We shall not withhold placing orders received
from customers so as to profit ourselves as a result of such withholding by a
change in the net asset value from that used in determining the offering price
to such customers, or otherwise; provided, however, that the foregoing shall not
prevent the purchase of shares of any Fund by us for our own bona fide
investment. We agree that: (a) we shall not effect any transactions (including,
without limitation, my purchases and redemptions) in any Fund shares registered
in the name of, or beneficially owned by, any customer unless such customer has
granted us full right, power and authority to effect such transactions on his or
her behalf and (b) you, each Fund, each Transfer Agent and your and their
respective officers, directors or trustees, agents, employees and affiliates
shall not be liable for, and shall be fully indemnified and held harmless by us
from and against, any and all claims, demands, liabilities and expenses
(including without limitation, reasonable attorneys fees) which may be incurred
by you or any of the foregoing persons entitled to indemnification from us
hereunder arising out of or in connection with the execution of any transactions
in Fund shares registered in the name of, or beneficially owned by, any customer
in reliance upon any oral or written instructions believed to be genuine and to
have been given by or on behalf of us.
9. (a) We agree to pay for purchase orders of any Fund shares from us in
accordance with the terms of the Prospectus of the applicable fund. On or before
the settlement date of each purchase order for shares of any Fund, we shall
either (i) remit to an account designated by you with the Transfer Agent an
amount equal to the then current public offering price of the shares of such
Fund being purchased less our dealer reallowance, if any, with respect to such
purchase order as determined by you in accordance with the terms of the
applicable Fund Prospectus, or (ii) remit to an account designated by you with
the Transfer Agent an amount equal to the then current public offering price of
the shares of each Fund being purchased without deduction for our dealer
reallowance, if any, with respect to such purchase order as determined by you in
accordance with the terms of the applicable Fund Prospectus, in which case our
dealer reallowance, if any, shall be payable to us on at least a monthly basis.
If payment for any purchase order is not received in accordance with the terms
of the applicable Fund Prospectus, you reserve the right, without notice, to
cancel the sale and to hold us responsible for any loss sustained as a result
thereof.
(b) If any shares sold to us under the terms of this Agreement are sold with a
sales load and are redeemed for the account of the Fund or are tendered for
redemption within seven (7) days after confirmation of our purchase order for
such shares: (i) we shall forthwith refund to you the full dealer reallowance
received by us on the sale; and (ii) you shall forthwith pay to the Fund your
portion of the sales load on the sale which had been retained by you and shall
also pay to the Fund the amount refunded by us.
10. Certificates for shares sold to us hereunder shall only be issued in
accordance with the terms of each Fund Prospectus upon our customer's specific
request and, upon such request, shall be promptly delivered to us by the
Transfer Agent unless we make other arrangements. However, in making delivery of
such share certificates to us, the Transfer Agent shall have adequate time to
clear any checks drawn for the payment of Fund shares.
11. We hereby represent and warrant to you that:
(a) we are a corporation, partnership or other entity duly organized and
validly existing in good standing under the laws of the jurisdiction in which
we were organized;
(b) the execution and delivery of this Agreement and the performance of the
transactions contemplated hereby have been duly authorized by all necessary
action and all other authorization and approvals (if any) required for our
lawful execution and delivery of this Agreement and our performance hereunder
have been obtained; and
(c) upon execution and delivery by us, and assuming due and valid execution and
delivery by you, this Agreement will constitute a valid and binding agreement,
enforceable against us in accordance with its terms.
12. We further represent and warrant to you that we are a member of the NASD
and, with respect to any sales in the United States, we agree to abide by all of
the rules and regulations of the NASD, including, without limitation, its
Business Conduct Rules. We agree to comply with all applicable federal and state
laws, rules and regulations. You agree to inform us, upon our
<PAGE>
request, as to the states in which you believe the shares of the Funds have
qualified for sale under, or are exempt from the requirements of the respective
securities laws of such states, but you shall have no obligation or
responsibility as to our right to sell shares in any jurisdiction. We agree to
notify you immediately in the event of (a) our expulsion or suspension from the
NASD, or (b) our violation of any applicable federal or state law, rule or
regulation arising out of or in connection with this Agreement or which may
otherwise affect in any material way our ability to act as a dealer in
accordance with the terms of this Agreement. Our expulsion from the NASD will
automatically terminate this Agreement immediately without notice. Our
suspension from the NASD for violation of any applicable federal or state law,
rule or regulation will terminate this Agreement effective immediately upon your
written notice to us of termination.
13. In the event that you breach any of the terms and conditions of this
Agreement, you will indemnify us, the funds, and our affiliates for any damages,
losses, costs and expenses (including reasonable attorneys' fees and expenses)
arising out of or relating to such breach. In the event that we breach any of
the terms and conditions of this Agreement, we will indemnify you and your
affiliates for any damages, losses, costs and expenses (including reasonable
attorneys' fees and expenses) arising out of or relating to such breach.
14. The names and addresses and other information concerning our customers are
and shall remain our sole property,and neither you nor your affiliates shall use
such names, addresses or other information for any purpose except in connection
with the performance of your duties and responsibilities hereunder and except
for servicing and informational mailings relating to the Funds. Notwithstanding
the foregoing, this Paragraph 14 shall not prohibit you or any of your
affiliates from utilizing for any purposes the names, addresses or other
information concerning any of our customers if such names, addresses or other
information is obtained in any manner other than from us pursuant to this
Agreement. The provisions of this Paragraph 14 shall survive the termination of
this Agreement.
15. We agree to serve as a service organization, in accordance with the terms
of the form of Service Agreement annexed hereto as Appendix A. By executing this
Agreement, each of the parties hereto agrees to be bound by all terms,
conditions, rights and obligations set forth in the form of Service Agreement
annexed hereto as Appendix A and further agrees that such form of Service
Agreement supersedes any and all prior service agreements between the parties
hereto.
16. By requesting expedited redemption, we agree that you, the Company, the
Transfer Agent, and your and their respective officers, directors or trustees,
agents, employees and affiliates shall not be liable for and shall be fully
indemnified and held harmless by us from and against any and all claims,
demands, liabilities and expenses (including, without limitation, reasonable
attorneys' fees) arising out of or in connection with any expedited redemption
payments.
17. Neither this Agreement nor the performance of the services of the
respective paries hereunder shall be considered to constitute an exclusive
arrangement, or to create a partnership, association or joint venture between
you and us. Neither party hereto shall be, act as, or represent itself as, the
agent or representative of the other, nor shall either party have the right or
authority to assume, create or incur any liability or any obligation of any
kind, express or implied, against or in the name of, or on behalf of, the other
party. This Agreement is not intended to, and shall not, create any rights
against either party hereto by any third party solely on account of this
Agreement. Neither party hereto shall use the name of the other party in any
manner without the other party's prior written consent, except as required by
any applicable federal or state law, rule or regulation, and except pursuant to
any promotional programs mutually agreed upon in writing by the parties hereto.
18. Except as otherwise specifically provided herein, all notices required or
permitted to be given pursuant to this Agreement shall be given in writing and
delivered by personal delivery or by postage prepaid, registered or certified
United States first class mail, return receipt requested, or by telex, telegram
or similar means of same day delivery (with a confirming copy by mail as
provided herein). Unless otherwise notified in writing, all notices to you shall
be given or sent to you at your offices, located at Four Falls Corporate Center,
6th Floor, West Conshohocken, PA 19121-2961 and all notices to us shall be given
or sent to us at the address shown below.
19. This Agreement shall become effective only when accepted and signed by you,
and may be terminated at any time by either party hereto upon fifteen (15) days
prior written notice to the other party. Not withstanding the termination of
this Agreement all unfulfilled obligations, duties and liabilities of either
party to the other as of the date of termination including, without limitation,
all obligations of indemnification of either to the other shall remain the
responsibility of the respective party. This Agreement may be amended only by a
written instrument signed by both the parties hereto and, may not be assigned by
either party without the prior written consent of the other party. This
agreement constitutes the entire agreement and understanding between the parties
hereto relating to the subject matter hereof and supersedes any and all prior
agreements between the parties hereto relating to the subject matter hereof.
20. This Agreement shall be governed by and construed in accordance with the
internal laws of the State of Delaware, without given effect to principles of
conflicts of laws.
Very truly yours,
- --------------------------------------------------------------------------------
Name of Broker-Dealer (Please Print or Type)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Address
Dated:
--------------------------------------------------------------------------
By: --------------------------------------------------------------------------
Authorized Dealer
Note:
Please sign and return both copies of this Agreement to Provident Distributors,
Inc. Upon acceptance a countersigned copy will be returned to you for your
files.
Accepted:
Provident Distributors, Inc.
Date:
--------------------------------------------------------------------------
By:
--------------------------------------------------------------------------
Authorized Signature
<PAGE>
Exhibit (6)(d)
PROVIDENT DISTRIBUTORS, INC.
FOUR FALLS CORPORATE CENTER 6th FLOOR
WEST CONSHOHOCKEN, PA 19428-2961
609-259-6533
610-260-6535 FAX
December 1, 1998
Mr. James M. Rogers
J.J.B. Hilliard, W.L. Lyons, Inc.
Hilliard Lyons Center
Louisville, Kentucky 40202
Dear Mr. Rogers:
This letter agreement sets out the duties, responsibilities and
compensation of Provident Distributors, Inc. (PDI) and J.J.B. Hilliard, W.L.
Lyons, Inc. (Hilliard Lyons) with respect to PDI's role as the distributor of
the Hilliard-Lyons Government Fund, Inc. and Hilliard-Lyons Growth Fund, Inc.
(the "Funds").
PDI has entered into a distribution contract with each Fund dated December
1, 1998. As the distributor, PDI will maintain the necessary licensing and
status with the National Association of Securities Dealers (NASD), all 50
states, and the Commonwealth of Puerto Rico in order for it to act as a sponsor-
distributor of a mutual fund. PDI will consult and advise as necessary with the
marketing group at Hilliard Lyons with respect to the regulatory aspect of the
Fund's advertising. PDI will file, and be responsible for this advertising with
the NASD. PDI will register the Funds under the PDI membership with NSCC
Fund/Serv. PDI will prepare and present a distributor's report and any other
necessary information to each Fund's Board of Directors. PDI will make available
to Hilliard Lyons all information, reports, people, etc. concerning its capacity
as the Funds' distributor in order for Hilliard Lyons to perform its role as the
Funds' investment advisor. Additionally, PDI will, at the request of Hilliard
Lyons, enter into dealer agreements with other broker-dealer firms authorizing
them to sell shares of the Funds. Hilliard Lyons will make available to PDI all
necessary information, reports, people, etc. to permit PDI to perform its role
as the Funds' distributor.
<PAGE>
2
PDI will be responsible for all normal expenses of the distributor. It is
understood, however, that Hilliard Lyons will bear the expense of preparing and
printing prospectuses, advertising and sales literature.
Hilliard Lyons will pay PDI a monthly fee of $2,000.00 for its general
consulting services, payable by the 5th business day of the following month. The
fee will be due the first month following PDI's executed distribution contract
with The Funds.
This letter agreement can be cancelled by either party with 60 days written
notice. This letter agreement will expire at the end of the month in which PDI
is no longer acting as the distributor for the Fund.
/s/ PHILLIP H. RINNANDER 12/1/98
-------------------------------- -------
For Provident Distributors, Inc. Date
/s/ JAMES M. ROGERS 12/1/98
------------------- -------
For Hilliard Lyons Date
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Independent Auditors" in the Statement of
Additional Information and to the incorporation by reference, in Post-Effective
Amendment Number 10 to the Registration Statement (Form N-1A No. 33-43177) and
related Prospectus of Hilliard Lyons Growth Fund, Inc., of those references and
of our report dated January 20, 1999 on the Hilliard Lyons Growth Fund, Inc.
/S/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Louisville Kentucky
March 9, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> HILLIARD LYONS GROWTH FUND, INC. CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 65,385,865
<INVESTMENTS-AT-VALUE> 97,586,731
<RECEIVABLES> 857,683
<ASSETS-OTHER> 4,540
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 98,448,954
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 347,222
<TOTAL-LIABILITIES> 347,222
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 57,225,435
<SHARES-COMMON-STOCK> 2,643
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 494,512
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,909,451
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 29,645,253
<NET-ASSETS> 88,497,465
<DIVIDEND-INCOME> 688,072
<INTEREST-INCOME> 774,864
<OTHER-INCOME> 0
<EXPENSES-NET> 968,424
<NET-INVESTMENT-INCOME> 494,512
<REALIZED-GAINS-CURRENT> 1,909,451
<APPREC-INCREASE-CURRENT> 7,241,195
<NET-CHANGE-FROM-OPS> 9,645,155
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 33,687,452
<NUMBER-OF-SHARES-REDEEMED> 13,188,919
<SHARES-REINVESTED> 2,196,708
<NET-CHANGE-IN-ASSETS> 22,695,241
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,473,146
<OVERDISTRIB-NII-PRIOR> 744
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 623,966
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 968,424
<AVERAGE-NET-ASSETS> 87,715,927
<PER-SHARE-NAV-BEGIN> 30.29
<PER-SHARE-NII> .20
<PER-SHARE-GAIN-APPREC> 3.89
<PER-SHARE-DIVIDEND> .18
<PER-SHARE-DISTRIBUTIONS> .59
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 38.49
<EXPENSE-RATIO> .013
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> HILLIARD LYONS GROWTH FUND, INC. CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 67,385,865
<INVESTMENTS-AT-VALUE> 97,586,731
<RECEIVABLES> 857,683
<ASSETS-OTHER> 4,540
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 98,448,954
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 347,222
<TOTAL-LIABILITIES> 347,222
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,143,832
<SHARES-COMMON-STOCK> 3
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (9,804)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 144,781
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 555,613
<NET-ASSETS> 9,604,267
<DIVIDEND-INCOME> 41,672
<INTEREST-INCOME> 34,730
<OTHER-INCOME> 0
<EXPENSES-NET> 86,206
<NET-INVESTMENT-INCOME> (9,804)
<REALIZED-GAINS-CURRENT> 144,781
<APPREC-INCREASE-CURRENT> 555,613
<NET-CHANGE-FROM-OPS> 690,590
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,191,286
<NUMBER-OF-SHARES-REDEEMED> 278,586
<SHARES-REINVESTED> 226,183
<NET-CHANGE-IN-ASSETS> 9,138,883
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 33,900
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 86,206
<AVERAGE-NET-ASSETS> 6,019,122
<PER-SHARE-NAV-BEGIN> 32.63
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> 1.57
<PER-SHARE-DIVIDEND> .14
<PER-SHARE-DISTRIBUTIONS> .85
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 33.33
<EXPENSE-RATIO> .021
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
