<PAGE>
As filed with the Securities and
Exchange Commission on May 1, 2000
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. 12 x
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and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 ___
Amendment No. 14 x
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(Check appropriate box or boxes)
HILLIARD LYONS GROWTH FUND, INC.
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(Exact Name of Registrant as Specified in Charter)
Hilliard Lyons Center
Louisville, Kentucky 40202
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(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (502) 588-8400
_____________________
Joseph C. Curry, Jr.
Treasurer and Secretary
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
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___________________________
It is proposed that this filing will become effective:
X immediately upon filing pursuant to paragraph (b) of Rule 485
___ on May 1, 2000 pursuant to paragraph (b) of Rule 485
___
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on __________ pursuant to paragraph (a)(1) of Rule 485
___ 75 days after filing pursuant to paragraph (a)(2) of Rule 485
___ on _____________ pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
___ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
Hilliard Lyons Growth Fund, Inc. is a mutual fund that has a primary
investment objective of providing long-term growth of capital. Current income
is a secondary consideration that is sought only when consistent with the
primary investment objective. The Fund's management seeks to achieve the
investment objectives by investing primarily in common stock of companies
believed to have potential for capital appreciation.
As with all mutual funds, the Securities and Exchange Commission ("SEC") has
not approved or disapproved the Fund's shares, nor has the SEC determined that
this prospectus is complete or accurate. It is a criminal offense to state
otherwise.
This Prospectus is dated May 1, 2000.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Risk/Return Summary........................................................ 3
Fund Investment Objectives............................................... 3
Principal Investment Strategies.......................................... 3
Principal Investment Risks............................................... 3
Annual Performance......................................................... 4
Average Annual Total Returns............................................... 5
Fees and Expenses of the Fund.............................................. 5
Investment Objectives, Strategies and Risks................................ 7
Investment Objectives.................................................... 7
Investment Strategies.................................................... 7
Principal Investment Risks............................................... 7
Management of the Fund..................................................... 8
Investment Adviser....................................................... 8
Portfolio Management..................................................... 9
Shareholder Information.................................................... 9
Purchase of Fund Shares.................................................. 9
Redemption of Shares..................................................... 11
Class A Shares--Initial Sales Charge..................................... 12
Sales Charge Waivers..................................................... 13
Contingent Deferred Sales Charge on Certain Redemptions.................. 13
Class B Shares--Deferred Sales Charge Alternative........................ 13
Distribution Arrangements................................................ 14
Dividends and Distributions.............................................. 14
Taxes.................................................................... 14
Financial Highlights....................................................... 16
</TABLE>
No dealer, sales person or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied
upon as having been authorized by the Fund, the Fund's Investment Adviser or
the Fund's Distributor. This Prospectus does not constitute an offer by the
Fund or by the Fund's distributor to sell or a solicitation of an offer to buy
any of the securities offered hereby in any jurisdiction to any person to whom
it is unlawful for the Fund to make such an offer in such jurisdiction.
2
<PAGE>
risk/return summary
Fund Investment Objectives. The Fund is an open-end, non-diversified
management investment company, that has a primary investment objective of
long-term growth of capital. Current income, which will be derived from
dividends and interest on portfolio securities, is a secondary consideration.
There can be no assurance that the Fund will achieve its investment
objectives.
Principal Investment Strategies. The Fund seeks to meet its investment
objective by investing in securities that are considered by the Fund's
Investment Adviser (the "Adviser") to have long-term capital appreciation
possibilities. Emphasis is placed on common stocks the Adviser believes are
priced low in relation to the underlying value of the enterprise or to its
anticipated growth rate. The Fund also seeks to meet its investment objective
through a growth investment approach which involves buying stocks with above-
average growth rates. Under normal market conditions, at least 65% of the
Fund's total assets will be invested in common stock of companies having a
market capitalization in excess of $500,000,000. The Fund may invest up to 30%
of its total assets in smaller companies that fit its investment criteria.
Principal Investment Risks. Because of the following risks, you could lose
money on your investment in the Fund over a short or long term:
. as a non-diversified fund, a greater percentage of the Fund's
portfolio may be invested in one company's securities than the
portfolio of a diversified fund. Because of this, the Fund may
experience greater volatility in investment performance.
. 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.
. because small companies are less actively followed by stock analysts
and less information is available on which to base stock price
evaluations, the market may overlook favorable trends in particular
smaller companies, and then adjust its valuation more quickly once
investor interest is gained. In addition, small company stocks may
trade less frequently and in more limited volume and be subject to
greater and more abrupt price swings than stocks of larger
companies.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
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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 bar chart shows the
average annual returns of the Fund's Class A Shares over the past seven
calendar years prior to the date of this Prospectus. Sales loads are not
reflected in the bar chart. If these sales loads had been included, the
returns shown below would have been lower. Remember that the past performance
of the Fund is not indicative of its future performance.
[ANNUAL PERFORMANCE GRAPH]
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).
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AVERAGE ANNUAL TOTAL RETURNS
This table shows how the Fund's performance compares with a broad-based
market indice that the Fund's management believes is an applicable benchmark
for the Fund: The S&P 500 average annual returns, and the Fund's average
annual returns, are shown for 1- and 5-year periods ended December 31, 1999
(the most recently completed calendar year prior to the date of this
prospectus) and since inception (January 6, 1992). Sales loads are not
reflected in the table. Remember that the past performance of the Fund is not
indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual Total
Returns for the
Periods Ended December 31, Since Inception
1999 Past One Year Past Five Years (January 6, 1992)
-------------------------- ------------- --------------- -----------------
<S> <C> <C> <C>
Class A Shares 3.23% 20.89% 14.54%
S&P 500 21.04% 28.51% 20.22%
</TABLE>
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
<TABLE>
<S> <C> <C>
Stockholder Fees (Fees paid directly from your
Investment)
<CAPTION>
Class A Class B
-------- --------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price).......................... 4.75%(1) None
Maximum Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, None(2)
whichever is lower).................................... 4.75%(3)
Sales Charge Imposed on Reinvested Dividends........... None None
Redemption Fees........................................ None(4) None
Exchange Fee........................................... None None
Maximum Account Fee.................................... None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fee......................................... 0.80% 0.80%
Distribution (Rule 12b-1) Fee.......................... 0.16% 0.84%
Other Expenses (including audit, legal, stockholder
services, transfer agent and custodian)................ 0.36%(5) 0.70%(5)
Total Annual Fund Operating Expenses................... 1.32%(5) 2.34%(5)
</TABLE>
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(1)Sales charges are reduced for purchases of $50,000 or more. No sales charge
is imposed on purchases by certain classes of investors. See "Purchase of
Shares."
(2)Purchases of $1 million or more are not subject to an initial sales charge;
however, a contingent deferred sales charge of 1% is imposed in the event of
certain redemption transactions within 12 months following such purchases. See
"Redemption of Shares."
(3)The maximum sales charges declines to 3.75% in second year, 2.75% in the
third and fourth years, 1.75% in the fifth year and is eliminated thereafter.
Class B Shares automatically convert to Class A Shares at the end of the month
which precedes the 7th anniversary of the purchase date.
(4)A transaction fee of $5.00 may be charged for redemption proceeds paid by
wire.
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(5)For the year ending December 31, 2000, 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, 1999. The ratio of total
operating expenses to average daily net assets for the year after the fee
waiver was 1.29% for the Class A Shares and 2.04% for the Class B Shares and
the ratio of the management fee to average daily net assets after the fee
waiver, for both the Class A Shares and Class B Shares for the year was .78%.
See "INVESTMENT ADVISER."
----------------
Example. You would pay the following total expenses on a $10,000 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).............. $603.00 $ 873.00 $1,164.00 $1,990.00
Class B
Assumes redemption at end of
period.......................... 712.00 1,005.00 1,425.00 2,293.00
Assumes no redemption at end of
period.......................... 237.00 730.00 1,250.00 2,293.00
</TABLE>
This table is provided to assist an investor in understanding the various
costs and expenses that an investor will bear, directly or indirectly, as a
stockholder of the Fund. Such costs and expenses do not reflect any waiver of
advisory fees. It should not be considered a representation of past or future
expenses, as actual expenses fluctuate and may be greater or less than these
shown. While the example assumes a 5% annual return, the Fund's actual
performance will vary and may result in an actual return greater or less than
5%.
6
<PAGE>
investment objectives, strategies and risks
Investment Objectives. 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.
Investment Strategies. It is anticipated that most of the time a major
portion of the Fund's portfolio will be invested in common stocks. Emphasis is
placed on common stocks the Adviser believes are priced low in relation to the
underlying value of the enterprise or to its anticipated growth rate.
Investment analysis focuses on fundamental factors such as balance sheet
strength and earnings generation ability. Quality and integrity of management,
competitive advantage in the marketplace and consistently high returns on
invested capital are particularly stressed. A guiding principle is the
consideration of common stocks as units of ownership of a business, and the
purchase of them when the price appears low in relation to the underlying
value of the enterprise or to its anticipated growth rate.
The Fund's growth investment approach involves buying stocks with above-
average growth rates. Typically, growth stocks are the stocks of faster
growing companies in more rapidly growing sectors of the economy. Generally,
growth stock valuation levels will be higher than value stocks and the market
averages.
The Fund 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.
The Fund may, from time to time, take temporary defensive positions that are
inconsistent with the Fund's principal investment strategies in attempting to
respond to adverse market economic, political, or other conditions. The Fund
may not achieve its investment objective when taking such a temporary
defensive position.
Principal Investment Risks. There is no assurance that the Fund will achieve
its investment objective. As a "non-diversified" investment company, the Fund
is not subject to the provisions of the Investment Company Act of 1940, as
amended (the "1940 Act"), that otherwise would limit the proportion of its
assets that may be invested in the securities of a single issuer. As a non-
diversified fund, the Fund's portfolio may be more concentrated than the
portfolio of a diversified fund. Because of this the Fund may experience
greater volatility in investment performance.
The main risk of any investment in stocks is that values fluctuate in price.
The value of your investment can go up or down depending upon market
conditions, which means you could lose money.
7
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The Fund's investment in smaller companies involves higher market risks.
Smaller companies may have limited product lines, markets, market share and
financial resources, or they may be dependent on a small or inexperienced
management team. In addition, their stocks may trade less frequently and in
more limited volume and be subject to greater and more abrupt price swings
than stocks of larger companies.
While the portfolio manager chooses stocks he believes to be undervalued,
there is no guarantee that prices won't move even lower.
management of the fund
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, 1999 of approximately $1,265,000,000. As of December 31, 1999,
the Adviser and its affiliates managed individual, corporate, fiduciary and
institutional accounts with assets aggregating approximately $3,881,000,000.
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, 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, on an annualized basis, exceeded 1.30% for
Class A Shares and 2.05% for Class B Shares. For the year ending December 31,
1999, the waiver of the management fee amounted to a total of $22,257 for both
classes of shares. With the management fee waiver total operating expenses for
the year ending December 31, 1999 amounted to 1.29% of average daily net
assets for Class A Shares, and 2.04% 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 1.32% of average daily net assets for
Class A Shares, and 2.34% of average daily net assets for Class B Shares.
8
<PAGE>
The advisory clients of the Adviser include individuals, personal trusts,
estates, employee benefit trusts, corporations and non-profit institutions,
many of which have investment objectives which may be similar to those of the
Fund. The Adviser invests assets of such accounts in investments substantially
similar to, or the same as, those which are expected to constitute the
principal investments of the Fund. When the same securities are purchased or
sold by the Fund and any of such other accounts at the same time, it is the
policy of the Adviser to allocate such purchases and sales in a manner which
is deemed equitable by the Adviser to all of the accounts involved, including
the Fund. However, it cannot be expected that all of the Adviser's clients,
including the Fund, will receive equal treatment at all times.
Portfolio Management. Shawn Ridley is the portfolio manager of the Fund. Mr.
Ridley is a Chartered Financial Analyst, Vice President of Hilliard Lyons, and
a Senior Vice President of Hilliard Lyons Trust Company. Mr. Ridley serves as
Director of the Investment Management Group Stock Selection Committee and as
Chief Equity Officer. Mr. Ridley joined Hilliard Lyons in 1992 after four
years as an Investment Counselor with Bank of Boston.
shareholder information
Pricing of the Fund's Shares. 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"). 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 amount 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.
The net asset value per share of each of the Fund's classes of shares is
determined on each "business day", currently any day that the New York Stock
Exchange is open for business. The New York Stock Exchange is presently
scheduled to be closed on New Years Day, Presidents Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day, and on the
preceding Friday or subsequent Monday when one of those holidays falls on a
Saturday or Sunday, respectively.
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 desires shares to convert
automatically to Class A Shares after seven years.
Purchase of Fund Shares. The following describes how an investor may
purchase shares of the Fund:
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
9
<PAGE>
sending it, together with a check payable to Hilliard Lyons Growth
Fund, Inc., to State Street Bank and Trust Company, Attention: Hilliard
Lyons Growth Fund, Inc., P.O. Box 8315, Boston, MA 02266-8315. When
purchasing Fund shares, investors must specify whether the purchase is
for Class A Shares or Class B Shares. The minimum initial investment
for either class is $1,000 and the minimum for additional investments
for either class is $100. The Distributor may in the future enter into
sales agreements with authorized dealers allowing Fund shares to be
purchased through such authorized dealers.
Additional Purchases. After an initial investment is made and a
stockholder's account is established, additional purchases may be made
either by telephoning the investment broker and placing an order, or by
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.
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".
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
10
<PAGE>
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 "Class
B Shares--Deferred Sales Charge Alternative". 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
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
11
<PAGE>
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.
Class A Shares--Initial Sales Charge. An initial sales charge may apply, as
described below, when purchasing Class A Shares of the Fund. Sales charges may
be reduced for large purchases as indicated below.
<TABLE>
<CAPTION>
Sales Charge Sales Charge as Maximum Authorized
as Percentage Percentage of Dealer Allowance
of Offering Net Amount as Percentage of
Amount of Purchase Price Invested Offering Price
------------------ ------------- --------------- ------------------
<S> <C> <C> <C>
Less than $50,000............. 4.75% 4.99% 4.25%
$50,000 up to (but less than)
$100,000..................... 4.00% 4.17% 3.50%
$100,000 up to (but less than)
$250,000..................... 3.00% 3.09% 2.50%
$250,000 up to (but less than)
$500,000..................... 2.25% 2.30% 2.00%
$500,000 up to (but less than)
$1 million................... 1.75% 1.78% 1.50%
$1 million or more............ None None None
</TABLE>
The offering price for the Fund's shares includes a front-end sales load. No
sales charge is payable at the time of purchase on investments of $1 million
or more; however, a 1% contingent deferred sales charge is imposed in the
event of redemption within 12 months following any such purchase. The
Distributor may pay a commission to its investment brokers or to authorized
dealers who initiate and are responsible for purchases of $1 million or more
as follows: 1% on sales to $3 million plus 0.50% on the excess over $3
million.
12
<PAGE>
Sales Charge Waivers. The Fund sells shares at net asset value without
imposition of sales charge to the following persons; (i) current and retired
(as determined by Hilliard Lyons) employees of Hilliard Lyons and its
affiliates, their spouses and children under the age of 25 and employee
benefit plans for such employees, provided orders for such purchases are
placed by the employee; (ii) any other investment company in connection with
the combination of such company with the Fund by merger, acquisition of assets
or otherwise; (iii) employees and directors of the Fund and registered
representatives of authorized dealers; (iv) existing advisory fee clients of
Hilliard Lyons Investment Management Group or Hilliard Lyons Trust Company on
purchases effected by transferring all or a portion of their investment
management or trust account to the Fund provided that such account had been
maintained for a period of six months prior to the date of purchase of fund
shares; (v) investors purchasing shares through a Hilliard Lyons investment
broker to the extent that the purchase of such shares is funded by the
proceeds from the sale of shares of any mutual fund (for which the investor
paid a front-end sales charge) other than a money market fund (a) purchased
within three years of the date of the purchase of Fund shares and held for at
least six months or (b) purchased at any time and for which Hilliard Lyons was
not a selling dealer, provided that in either case the order for Fund shares
must be received within 30 days after the sale of the other fund; (vi) trust
companies, bank trust departments and registered investment advisors
purchasing for accounts over which they exercise investment authority and
which are held in a fiduciary, agency, advisory, custodial or similar
capacity, provided that the amount collectively invested or to be invested in
the Fund by such entity or adviser during the subsequent 13-month period
totals at least $100,000 (vii) employer-sponsored retirement plans with assets
of at least $100,000 or 25 or more eligible participants, and (viii) accounts
established under a fee-based program sponsored and maintained by a registered
broker dealer or other financial intermediary and approved by the Distributor.
In order to take advantage of a sales charge waiver, a purchaser must
certify to the Distributor eligibility for a waiver and must notify the
Distributor whenever eligibility for a waiver ceases to exist. The Distributor
reserves the right to request additional information from a purchaser in order
to verify that such purchaser is so eligible.
Contingent Deferred Sales Charge on Certain Redemptions. Purchases of $1
million or more are not subject to an initial sales charge; however, a
contingent deferred sales charge is payable on these investments in the event
of a share redemption within 12 months following the share purchase, at the
rate of 1% of the lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the total cost of such
shares. In determining whether a contingent deferred sales charge is payable,
and the amount of the charge, it is assumed that shares purchased with
reinvested dividend and capital gain distributions and then other shares held
the longest are the first redeemed. The contingent deferred sales charge is
waived in the event of (a) the death or disability (as defined in (S)72(m)(7)
of the Code) of the stockholder, (b) a lump sum distribution from a benefit
plan qualified under the Employee Retirement Income Security Act of 1974
("ERISA"), or (c) systematic withdrawals from ERISA plans if the stockholder
is at least 59 1/2 years old. The Fund applies the waiver for death or
disability to shares held at the time of death or the initial determination of
disability of either an individual stockholder or one who owns the shares of a
joint tenant with the right of survivorship or as a tenant in common.
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
13
<PAGE>
current net asset value or original cost) which will vary according to the
number of years from the purchase of Class B Shares until the redemption of
those shares. The amount of the contingent deferred sales charge on Class B
Shares is set forth below.
<TABLE>
<CAPTION>
Contingent Deferred
Years Since Purchase Sales Charge
-------------------- -------------------
<S> <C>
Less than 1 year...................................... 4.75%
1 to 2 years.......................................... 3.75%
2 to 4 years.......................................... 2.75%
4 to 5 years.......................................... 1.75%
5 to 7 years.......................................... None
Year 7................................................ Reverts to A Shares
</TABLE>
Class B Shares are subject to higher distribution fees than Class A Shares
for a period of seven years (after which they convert to Class A Shares).
Shares purchased through reinvestment of dividends on Class B Shares also will
convert automatically to Class A Shares along with the underlying shares on
which they were earned. Conversion occurs at the end of the month which
precedes the seventh anniversary of the purchase date.
The higher fees mean a higher expense ratio, so Class B Shares pay
corresponding lower dividends and may have a lower net asset value than Class
A Shares.
The contingent deferred sales charge is waived in the event of (a) a total
or partial redemption made within one year of death or disability (as defined
in (S)72(m)(7) of the Code) of the stockholder; (b) systematic withdrawals up
to 10% of the net asset value of the account at the time the systematic
withdrawal is established; (c) systematic withdrawals from an IRA account; (d)
total or partial distributions from an IRA if the stockholder is at least 59
1/2 years old; (e) a lump sum distribution from an ERISA plan; or (f) a
redemption resulting from tax-free return of an excess contribution to an IRA.
Distribution Arrangements. The Fund has adopted a plan under Rule 12b-1 that
allows the Fund to pay distribution fees for the sale and distribution of its
shares. Because these fees are paid out of the Fund's assets on an on-going
basis, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.
Dividends and Distributions. It is the present policy of the Fund to make
distributions annually of its net investment income and its net realized
capital gains, if any, at the end of the year in which earned or at the
beginning of the next year. Dividends and capital gain distributions are
normally reinvested in additional shares of the same class at net asset value
without a sales charge, unless otherwise elected at purchase. The per share
dividends on Class B Shares may be lower than the per share on Class A Shares
principally as a result of the higher distribution fee applicable with respect
to Class B Shares. A stockholder may change such election at any time prior to
the record date for a particular dividend or distribution by written request
to the Transfer Agent. The Fund is subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of taxable income and
capital gains. If necessary to avoid the imposition of this tax and if in the
best interests of its stockholders, the Fund will declare and pay
distributions of its net investment income and net capital gains more
frequently than stated above.
Taxes. The Fund intends to continue to qualify each year as a "regulated
investment company" within the meaning of the Code. If the Fund qualifies as a
regulated investment company and if certain distribution requirements are met,
the Fund will not be subject to federal income tax on its investment income
and net capital
14
<PAGE>
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. In addition, the Fund must diversify its
holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of the Fund's assets is represented by cash, cash items, U.S.
government securities, securities of other regulated investment companies and
other securities with such other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the value of the Fund's assets and
10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its assets is invested in the securities of any one
issuer (other than U.S. government securities or the securities of other
regulated investment companies).
Dividends paid by the Fund from investment income and distributions of
short-term capital gains are taxable to stockholders as ordinary income for
federal income tax purposes, whether received in cash or reinvested in
additional shares. Distributions of long-term capital gains are taxable to
stockholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, regardless of the length of time the stockholder has held
shares of the Fund. Each stockholder receives an annual statement as to the
tax status and dollar amounts of dividends and distributions, if any, for the
prior calendar year. The Fund may be subject to state or local taxes in
jurisdictions in which the Fund may be deemed to be doing business. Dividends
and distributions declared by the Fund may also be subject to state and local
taxes.
The Fund generally is required to withhold federal income tax at a rate of
31% ("backup withholding") from dividends paid to stockholders if (i) the
payee fails to furnish the Fund with and to certify the payee's correct
taxpayer identification number or social security number, (ii) the Internal
Revenue Service (the "IRS") notifies the Fund that the payee has failed to
report properly certain interest and dividend income to the IRS and to respond
to notices to that effect, or (iii) the payee fails to certify that backup
withholding is not required.
Redemption of Fund shares or exercising a withdrawal through the Fund's
withdrawal plan may have tax consequences. See the "STATEMENT OF ADDITIONAL
INFORMATION" Investors must report any gain or loss realized for federal and
state income purposes. Investors should consult their tax adviser regarding
the tax consequences of redeeming or participating in the withdrawal plan.
15
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single class of the Fund's shares. The total returns
in the table represent the rate that an investor would have earned on an
investment in the Fund. This information has been audited by Ernst & Young
LLP, whose report, along with the Fund's financial statements, are included in
the Statement of Additional Information, which is available upon request.
<TABLE>
<CAPTION>
Investor B Investor A
------------------------------ ---------------------------------------------------
For the year Period from
Ended April 20, 1998* For the Year Ended December 31,
December 31, To December 31, ---------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
------------- --------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period..... $ 33.33 $ 32.63 $ 33.49 $ 30.29 $ 22.95 $ 20.20 $ 15.98
------- ------- ------- ------- ------- ------- -------
Net investment income.... (0.14) (0.02) 0.11 0.20 0.12 0.11 0.15
Net realized and
unrealized gain on
investments............. 0.97 1.57 0.98 3.89 9.13 3.92 4.82
------- ------- ------- ------- ------- ------- -------
Total from investment
operations.............. 0.83 1.55 1.09 4.09 9.25 4.03 4.97
------- ------- ------- ------- ------- ------- -------
Less dividends from:
Net investment income... (0.00) (0.00) (0.09) (0.18) (0.12) (0.11) (0.15)
Realized gains.......... (0.78) (0.71) (0.78) (0.71) (1.79) (1.17) (0.60)
In excess of net
investment income...... (0.00) (0.14) (0.00) (0.00) (0.00) (0.00) (0.00)
Total distributions...... (0.78) (0.85) (0.87) (0.89) (1.91) (1.28) (0.75)
------- ------- ------- ------- ------- ------- -------
Net asset value:
End of period........... $ 33.38 $ 33.33 $ 33.71 $ 33.49 $ 30.29 $ 22.95 $ 20.20
======= ======= ======= ======= ======= ======= =======
Total Investment Return
(Excludes sales charge). 2.44% 4.82%*** 3.23% 13.58% 40.41% 19.98% 31.10%
SIGNIFICANT RATIOS AND
SUPPLEMENTAL DATA
Ratio of operating
expenses to average net
assets.................. 2.04%(e) 2.05%(d)** 1.29%(e) 1.25%(d) 1.30%(c) 1.58%(b) 1.75%(a)
Ratio of net investment
income to average net
assets.................. (.44%)(e) (.23)%(d)** .30%(e) .64%(d) .49%(c) .52%(b) .82%(a)
Portfolio turnover rate
(f)..................... 24.60% 18.15% 24.60% 18.15% 22.20% 18.79% 27.50%
Net assets, end of period
(000s omitted).......... $13,343 $ 9,604 $87,293 $88,498 $58,416 $35,628 $28,259
</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 1.85% and 0.71%, respectively,
for the year ended December 31, 1995.
(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 1.64% and 0.45%, respectively,
for the year ended December 31, 1996.
(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 1.40% and 0.39%, respectively,
for the year ended December 31, 1997.
16
<PAGE>
(d) 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.
(e) Net of voluntary management fee waiver by the Adviser for A and B share
investors. 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
1.32% and 0.28% for A shares and 2.34% and (0.74%) for B shares respectively,
for the year ended December 31, 1999.
(f) Portfolio turnover rate is calculated on the basis of the portfolio as a
whole without distinguishing between the classes of shares issued.
*Commencement of B shares
**Annualized
***Not annualized
17
<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
[_] 2. Security No.
------------------------------------- --------------
Joint Tenant First Name Initial Last Name Social
(if any) With Security No.
Right of Sur- [_] 3.
vivorship-- ------------------------------------- --------------
use Line 2 First Name Initial Last Name Tax I.D. No.
-------------- ------------------------------------------
Name of Officer, Managing Partner,
Trustee or Custodian
Corporation,
Partnership, [_] 4.
Trust, or -------------------------------------- --------------
others in any Custodian's First Name Initial Last Name
fiduciary or
representative ------------------------------------------ --------------
capacity--use Minor's First Name Initial Last Name Minor's
Line 3 Social
-------------- Security No.
Gifts to Mi- Under the ____________________ Uniform Gifts to Minors Act
nors--use State of Minor's Residence
Line 4
--------------
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
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
<PAGE>
I remit herewith payment for $ of such Shares. Each purchase will be made
at the then reduced Offering Price applicable to the amount checked above,
as described in the Prospectus. By completing this section of the
application and signing it below, I agree to the terms and conditions of the
Letter of Intent as described in the Prospectus and I irrevocably constitute
and appoint State Street Bank and Trust Company my attorney, with full power
of substitution, to surrender for redemption any or all shares of the Fund
held in escrow to make up any deficiency in the sales charge if my total
purchases over the 13-month period are less than the total intended amount.
Cumulative Quantity Discount
See "Purchase of Shares" in Prospectus
Cumulative quantity discounts are applicable if a stockholder's current
holdings of existing shares total the requisite amount for receiving a
discount as described in the Prospectus. Below are listed all the accounts
(account name and number) which should be aggregated for a cumulative
quantity discount.
Name ___________________ Name ___________________ Name ___________________
Acct. No. ______________ Acct. No. ______________ Acct. No. ______________
Combined Purchase Privilege
List the names of the individuals, plans or trustees who are also opening
Fund accounts at this time with whom you are entitled to combine your
purchase as provided in the Prospectus under "Purchase of Shares".
Name _______________________________
Name _______________________________
5.YOU MAY WISH TO AVAIL YOURSELF OF OTHER STOCKHOLDER OPTIONS
Systematic Withdrawal Plan
This service is available only for accounts with a minimum net asset value
of $10,000 or more. You may receive payments of $100 or more.
[_] I wish to activate the automatic cash withdrawal service.
I would like a check for $ mailed on the following basis:
[_] monthly[_] quarterly
Withdrawals will be taken on the last business day of the month or calendar
quarter.
Automatic Investment Plan
You may make regular monthly or quarterly investments of $100 or more in
your Fund account with automatic transfers from your bank account subject to
your bank's approval.
Please contact your Investment Broker or call (800) 444-1854, extension 145,
to receive a Plan Authorization Form.
6.PLEASE SIGN YOUR NAME AND CERTIFY YOUR TAXPAYER IDENTIFICATION NUMBER
I (we) have full right, power, and legal capacity and am (are) of legal age
in my (our) state of residence to purchase shares of the Fund. I (we) affirm
that I (we) have received and read the current Prospectus of the Fund and
agree to its terms.
I (we) certify, under penalty of perjury, that (1) I (we) am (are) not
subject to backup withholding for underreporting interest or dividends
(strike out this clause (1) if the Internal Revenue Service has notified you
that you are subject to backup withholding) and (2) that my (our) correct
Social Security (taxpayer identification) number is as indicated on this
application. Sign below exactly as the account is to be registered
(corporations, etc., indicate titles):
Authorized Signature(s)
------------- ------------- ------------- -------------
Owner, Joint owner, Other Date
Trustee, Trustee,
etc. etc.
7.FOR USE BY AUTHORIZED DEALERS ONLY
Firm ________________________________
Home Office Address _________________
City, State, Zip ____________________ Branch Office Address _______________
_____________________________________ City, State, Zip ____________________
Rep's Name __________________________ _____________________________________
Rep's Number ________________________ Telephone ___________________________
(if known)
<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, Kentucky 40202
Investment Advisor
Hilliard Lyons Investment Advisors
Hilliard Lyons Center
Louisville, Kentucky 40202-2517
Distributor
J.J.B. Hilliard, W.L. Lyons, Inc.
Hilliard Lyons Center
P.O. Box 32760
Louisville, Kentucky 40232-2760
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, 2000
A Statement of Additional Information, which contains more details about
the Fund, is incorporated by reference in its entirety into this
Prospectus.
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to stockholders. In the Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its
last fiscal year.
You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling (800) 444-1854 from 8:30
a.m. to 5:00 p.m., central time, Monday through Friday.
Information about the Fund, including its reports and statement of
additional information, has been filed with the Securities and Exchange
Commission (SEC). It can be reviewed and copied at the SEC Public Reference
Room in Washington, DC or online at the SEC's website (http://www.sec.gov).
For more information, please call the SEC at (800) SEC-0330. You can also
request these materials by writing the Public Reference Section of the SEC,
Washington, DC 20549-6009, and paying a duplication fee.
Hilliard Lyons Growth Fund
Investment Company Act File #811-6423
<PAGE>
PART B
HILLIARD LYONS GROWTH FUND, INC.
Hilliard Lyons Center
Louisville, Kentucky 40202-2517
Telephone (502) 588-8400
__________________________
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 2000
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, 2000 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.
1
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information.................................................... 3
Investment Objective and Policies...................................... 3
Management............................................................. 12
Distribution Arrangements.............................................. 17
Portfolio Transactions and Brokerage................................... 20
Expenses of the Fund................................................... 21
Purchase, Pricing and Redemption of Shares............................. 22
Dividends, Distributions and Taxes..................................... 25
Net Asset Value........................................................ 27
Calculation of Investment Performance.................................. 28
Transfer Agent and Custodian........................................... 29
Counsel................................................................ 29
Independent Auditors................................................... 29
Other Information...................................................... 29
Appendix A............................................................. A-1
Financial Statements................................................... F-1
</TABLE>
2
<PAGE>
GENERAL INFORMATION
-------------------
Hilliard Lyons Growth Fund, Inc. (the "Fund") is an open-end, non-
diversified management investment company, incorporated under the laws of the
State of Maryland on September 5, 1991. 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 "Investment
Objective and Policies."
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
3
<PAGE>
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 (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.
4
<PAGE>
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 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 2000.
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.
5
<PAGE>
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 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 2000.
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.
6
<PAGE>
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 2000.
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 2000.
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
7
<PAGE>
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.
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 2000.
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 2000.
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
8
<PAGE>
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. In addition,
if bankruptcy proceedings are commenced with respect to the seller of the
security, realization upon the collateral by the Fund may be delayed or limited.
The Fund only enters into repurchase agreements involving U.S. government
obligations, or obligations of its agencies or instrumentalities, usually for a
period of seven days or less. The term of each of the Fund's repurchase
agreements is always less than one year and the Fund does not enter into
repurchase agreements of a duration of more than seven days if, taken together
with all other illiquid securities in the Fund's portfolio, more than 5% of its
net assets would be so invested.
Portfolio Turnover
- ------------------
The Fund does not seek to realize profits by participating in short-term
market movements and intends to purchase securities for long-term capital
appreciation. While the rate of portfolio turnover is not a limiting factor
when the Adviser deems changes appropriate, it is anticipated, given the Fund's
investment objective, that its annual portfolio turnover should not exceed 75%.
Portfolio turnover is calculated by dividing the lesser of the Fund's purchases
or sales of portfolio securities during the period in question by the monthly
average of the value of the Fund's portfolio securities during that period.
Excluded from consideration in the calculation are all securities with
maturities of one year or less when purchased by the Fund.
The portfolio turnover rate of the Fund increased from 18.2% for the year
ending December 31, 1998 to 24.6% for the year ending December 31, 1999.
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.
9
<PAGE>
(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 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
<PAGE>
(10) Purchase or sell real property (including limited partnership
interests, but excluding readily marketable interests in real estate investment
trusts or readily marketable 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.
12
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Principal
---------
Position with Occupation During
------------- -----------------
Name and Address Age the Fund Last Five Years
- ---------------- --- -------- ---------------
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
William A. Blodgett, Jr. 53 Director Vice President, Deputy
Brown-Forman Corporation General Counsel of
850 Dixie Highway Brown-Forman Corporation
Louisville, KY 40210 since October 1994;
Partner, Law Firm of
Woodward, Hobson & Fulton
prior thereto
- -----------------------------------------------------------------------------------------------------------
John C. Owens 73 Director Private Investor, formerly
116 Chinoe Road Managing Partner of Owens &
Lexington, KY 40502 Company, Certified Public
Accountants, Lexington, Ky
- -----------------------------------------------------------------------------------------------------------
Stewart E. Conner 58 Director Managing Partner, Law Firm
Wyatt Tarrant & Combs of Wyatt Tarrant & Combs,
2800 Citizens Plaza Louisville, Ky
Louisville, KY 40202
- -----------------------------------------------------------------------------------------------------------
Donald F. Kohler/(1)(2)/ 69 Chairman of the Investment Consultant;
Hilliard Lyons Center Board & President Executive Vice President of
Louisville, KY 40202 Hilliard Lyons from 1986 to
1996 and Director of
Hilliard Lyons from 1981 to
1996
- -----------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Joseph C. Curry, Jr. 55 Secretary and Treasurer Senior Vice President of
Hilliard Lyons Center Hilliard Lyons since July
Louisville, KY 40202 1994 and Vice President
prior thereto
- -----------------------------------------------------------------------------------------------------------
Dianna P. Wengler 39 Assistant Vice President of Hilliard
Hilliard Lyons Center Secretary Lyons 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)/ Director 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 of the Fund as a group
received aggregate compensation of $27,750 from the Fund during its fiscal year
ended December 31, 1999. The following table sets forth information concerning
compensation received by directors of the Fund during the year ending December
31, 1999. At March 8, 2000, the officers and directors of the Fund as a group
owned beneficially 14,069 shares of the Fund (.5% of the shares outstanding).
<TABLE>
<CAPTION>
Pension or
Retirement Total
Aggregate Benefits Accrued Estimated Annual Compensation
Name of Person, Compensation as part of Fund Benefits upon from Fund Paid
Position From Fund Expenses Retirement to Directors
- -------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C>
Donald F. Kohler, $ 0 0 0 $ 0
Director
Gilbert L. Pamplin, $ 0 0 0 $ 0
Director
</TABLE>
14
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
William A. Blodgett, $9,500 0 0 $9,500
Jr., Director
John C. Owens, $9,500 0 0 $9,500
Director
Stewart E. Conner $8,750 0 0 $8,750
Director
</TABLE>
On March 8, 2000, J.J.B. Hilliard, W.L. Lyons, Inc. Employees Profit
Sharing Plan Fund D owned beneficially and of record 16.1% of the outstanding
shares of the Fund.
Investment Adviser
- ------------------
As stated in the Prospectus, Hilliard Lyons Investment Advisors (the
"Adviser"), a division of Hilliard Lyons, acts as the Fund's investment adviser
and performs certain administrative services for the Fund. See "MANAGEMENT OF
THE FUND" 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 Government Fund, Inc., an open-end money market fund with
assets as of December 31, 1999 of approximately $1,265,000,000. As of December
31, 1999, the Adviser and its affiliates managed individual, corporate,
fiduciary and institutional accounts with assets aggregating approximately
$3,881,000,000.
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.
15
<PAGE>
As compensation for its services and related expenses, the Fund has agreed
to pay the Adviser a fee, accrued daily and payable quarterly, equal to 0.80%
per annum of the Fund's average daily net assets. This fee is higher than the
investment advisory fee paid by most investment companies. 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 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, 1999, the advisory fees totaled $836,525, of which $22,257
was waived. 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.
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 effective on January 2,
1992. It will continue in effect until March 31, 2001 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
16
<PAGE>
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 April ____, 2000
(the "Distribution Agreement") with J.J.B. Hilliard, W.L. Lyons, Inc. (the
"Distributor"). The terms of the Distribution Agreement were approved on April
___, 2000, 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. 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, 1999 and
1998, the aggregate amounts of the Fund's sales charges were $1,361,363 and
$1,534,213, respectively.
The Glass-Steagall Act and other applicable laws prohibit banks from
engaging in the business of underwriting, selling or distributing securities.
Although the scope of this prohibition under the Glass-Steagall Act has not been
clearly defined by the courts or regulatory agencies, the Distributor believes
that the Glass-Steagall Act should not preclude a bank from performing
stockholder servicing and administrative functions. The Distributor may engage
banks to perform such functions. However, judicial or administrative decisions
or interpretations of such laws, as well as changes in either federal or state
statutes or regulations relating to the permissible activities of banks and
their affiliates, could prevent a bank from servicing accounts of stockholders
of the Fund. In that case, its stockholder clients, if any, would be permitted
to remain stockholders of the Fund, and alternative means for continuing the
servicing of such stockholders would be sought. It is not expected that
stockholders would suffer any adverse financial consequences as a result of any
of these occurrences. In addition, state securities laws may differ from federal
law and may require banks and financial institutions to register as dealers.
After the Prospectus, Statement of Additional Information and annual and
interim reports of the Fund have been prepared and set in type, Hilliard Lyons
pays for the printing and distribution of copies thereof used in connection with
the offering of shares of the Fund to prospective investors. Hilliard Lyons also
pays for the cost of preparing, printing and
17
<PAGE>
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).
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)
18
<PAGE>
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, 1999:
(a) printing of prospectus and financial reports for delivery to
other than current stockholders: $6,640; and
(b) trail fees to Hilliard Lyons brokers: $120,480.
Stockholder servicing and administrative services may include: answering
client inquiries regarding the Fund; assisting clients in changing dividend and
redemption options, account designations and addresses; performing
subaccounting; establishing and maintaining stockholder accounts and records;
processing purchase and redemption transactions; investing client cash account
balances automatically in Fund shares; providing periodic statements showing a
client's account balance and integrating such statements with those of other
transactions and balances in the client's other accounts serviced by the
financial institution; arranging for bank wires; and such other services as the
Fund may request, to the extent the financial institution is permitted to
perform such services by applicable statute, rule or regulations.
The amounts and purposes of expenditures under the Plan must be reported to
the Independent Directors quarterly. The Independent Directors may require or
approve changes in the operation of the Plan and may require that total
expenditures by the Fund under the Plan be kept within limits lower than the
maximum amount permitted by the Plan as stated above.
Any change in the Plan that would materially increase the distribution
expenses of the Fund provided for in the Plan requires stockholder approval.
Otherwise, the Plan may be amended by votes of the majority of both (a) the
Fund's directors and (b) the Independent Directors, cast in person at a meeting
called for the purpose of voting on such amendment. While the Plan is in effect,
the Fund is required to commit the selection and nomination of candidates for
Independent Directors to the discretion of the Independent Directors.
In addition, if and to the extent that the advisory fee paid by the Fund to
the Adviser pursuant to the Advisory Agreement is considered as indirectly
financing any activity on the part of the Adviser, which is primarily intended
to result in the sale of Fund shares, such payments (which do not involve any
additional payments by the Fund under the Plan) are authorized under the Plan.
19
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
------------------------------------
In addition to making the investment decisions of the Fund, the Adviser
implements such decisions by arranging the execution of the purchase or sale of
portfolio securities with the objective of obtaining prompt, efficient and
reliable executions of such transactions at the most favorable price obtainable
("best execution"). Transactions in securities other than those for which a
securities exchange is the principal market are generally made with principals
or market makers at a negotiated "net" price which usually includes a profit to
the dealer or distributor. Brokerage commissions are paid primarily for
effecting transactions in securities traded on an exchange although transactions
in the over-the-counter market may be executed on an agency basis if it appears
likely that a more favorable overall price can be obtained.
With respect to transactions handled by Hilliard Lyons on a national
securities exchange, the commissions must conform to Rule 17e-1 under the 1940
Act which permits an affiliated person of a registered investment company to
receive brokerage commissions from such registered 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 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.
20
<PAGE>
The Fund paid total brokerage commissions during the year ending December
31, 1999 of $73,035. 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, 1998 of $56,482, none of which was paid to Hilliard Lyons. The Fund paid
total brokerage commissions during the year ended December 31, 1997 of $17,778
of which none was paid to Hilliard Lyons.
When consistent with the objective of obtaining best execution, Fund
brokerage may be directed to brokers or dealers, other than Hilliard Lyons,
which charge commissions that are higher than might be charged by another
qualified broker or dealer and which furnish at no extra charge brokerage and/or
research services to the Adviser considered by the Adviser to be useful or
desirable in its investment management of the Fund and its other advisory
accounts. Such brokerage and research services are of the type described in
Section 28(e) of the Securities Exchange Act of 1934. Under Section 28(e), the
commissions charged by a broker furnishing such brokerage or research services
may be greater than that which another qualified broker might charge if the
Adviser determines, in good faith, that the amount of such commission is
reasonable in relation to the value of brokerage or research services provided
by the executing broker, viewed in terms of either the particular transaction or
the overall responsibilities of the Adviser or its affiliate to the accounts
over which they exercise investment discretion. The Adviser need not place or
attempt to place a specific dollar value on such services or on the portion of
the commission which reflects such services but is required to keep records
sufficient to demonstrate the basis of its determinations.
Investment research obtained by allocations of Fund brokerage is used to
augment the internal research and investment strategy capabilities of the
Adviser. Research services furnished by brokers through which the Fund effects
securities transactions are used by the Adviser in carrying out its investment
management responsibilities with respect to all of its accounts. Such investment
information may be useful to one or more of the other accounts of the Adviser
and research information received for the commissions of such other accounts may
be useful to the Fund as well as such other accounts.
EXPENSES OF THE FUND
--------------------
Except as indicated above under "Adviser", the Fund is responsible for the
payment of its expenses, including (a) the fees payable to the Adviser, (b) the
reimbursements payable to the Distributor under the Distribution Plan for
expenses incurred in connection with the offering and sale of shares of the
Fund, (c) the fees and expenses of the Fund's directors, officers and employees
who are not affiliated with the Adviser, (d) the fees and certain expenses of
the Fund's custodian and transfer agent, (e) the fees and expenses of the Fund's
legal counsel and independent auditors, (f) brokerage and commission expenses,
(g) all federal, state and local taxes and corporate fees payable by the Fund to
governmental agencies, including any issue or transfer taxes chargeable to the
Fund in connection with its securities transactions, and any foreign taxes, (h)
the dues, fees and other charges of any trade association of which the Fund is a
21
<PAGE>
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.
PURCHASE, PRICING AND REDEMPTION 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 investments 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.
22
<PAGE>
Investors should bear in mind that total asset based sales charges (i.e.,
higher continuing distribution fee plus the contingent deferred sales charge) on
Class B Shares that are redeemed may exceed the total asset based sales charges
that would be payable on the same amount of Class A Shares, particularly if the
Class B Shares are redeemed shortly after purchase or if the investor qualifies
for a reduced sales load on the Class A Shares.
Investors should understand that the purpose and function of the initial
sales loads (and deferred sales charges, when applicable) with respect to Class
A Shares is the same as those of the deferred sales charges and higher
distribution fees with respect to Class B Shares in that the sales charges and
distribution fees applicable to each class provide for the financing of the
distribution of the shares of the Fund.
The two classes of shares represent interests in the same portfolio of
investments, have the same rights and are generally identical in all respects
except that each class bears its separate distribution expenses and,
potentially, certain other class expenses and has exclusive voting rights with
respect to any matter to which a separate vote of any class is required by the
1940 Act or Maryland law. The net income attributable to each class and
dividends payable on the shares of each will be reduced by the amount of
distribution and other expenses of each class. Class B Shares bear higher
distribution fees, which will cause the Class B Shares to pay lower dividends
than the Class A Shares.
Each class has advantages and disadvantages for different investors, and
investors should choose the class that best suits their circumstances and their
objectives. Dealers and agents may receive different compensation for selling
Class A Shares and Class B Shares.
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 purchase, 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.
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
23
<PAGE>
held must be brought to the attention of the Distributor or Transfer Agent.
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.
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.
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.
24
<PAGE>
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 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
25
<PAGE>
must meet certain relatively complex tests relating to the source of its income
and the diversification of its assets, including the requirement that less than
30% of its gross income (generally exclusive of losses) may be derived from the
sale or other disposition of securities held for less than three months, and
must distribute at least 98% of its investment company taxable income (as
defined in the Code). In addition, the Fund must diversify its holdings so that,
at the end of each fiscal quarter, (i) at least 50% of the market value of the
Fund's assets is represented by cash, cash items, United States Government
securities, securities of other regulated investment companies and other
securities with such other securities limited, in respect of any one issuer, to
an amount not greater than 5% of the value of the Fund's assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
United States Government securities or the securities of other regulated
investment companies). The Fund does not anticipate any difficulty in meeting
these requirements. Dividends out of net ordinary income and distributions of
net short-term capital gains are taxable to stockholders as ordinary income. In
the case of corporate stockholders, such distributions are eligible for the 70%
dividends-received deduction subject to proportionate reduction of the amount
eligible for deduction if the aggregate qualifying dividends received by the
Fund from domestic corporations in any year are less than its "gross income" as
defined by the Code. A corporation's dividends-received deduction will be
disallowed unless the corporation holds shares in the Fund at least 46 days.
Furthermore, a corporation's dividends-received deduction will be disallowed to
the extent a corporation's investment in shares of the Fund is financed with
indebtedness.
The excess of net long-term capital gains over the net short-term capital
losses realized and distributed by the Fund to its stockholders as capital gain
distributions are taxable to the stockholders as long-term capital gains,
irrespective of the length of time a stockholder may have held the shares. Such
long-term capital gain distributions are not eligible for the dividends-received
deduction referred to above. Any dividend or distribution received by a
stockholder on shares of the Fund shortly after the purchase of such shares will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, such dividend 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.
26
<PAGE>
The Fund may be subject to state or local taxes in the jurisdiction in
which the Fund may be deemed to be doing business. Dividends and distributions
declared by the Fund may also be subject to state and local taxes. Prior to
investing in shares of the Fund, prospective stockholders should consult their
tax adviser concerning the federal, state and local tax consequences of such an
investment.
NET ASSET VALUE
---------------
Each security traded on a national securities exchange or traded over-the-
counter and quoted on the Nasdaq System is valued at the last sale price at
"closing time" on the date of valuation. Securities so traded for which there
was no sale on the date of valuation and other securities are valued at the mean
of the most recent bid and asked quotations, except that bonds not traded on a
securities exchange or quoted on the Nasdaq System are valued at prices provided
by a recognized pricing service unless the Adviser believes that any such price
does not represent a fair value. Each money market instrument having a maturity
of 60 days or less from the valuation date is valued on an amortized cost basis.
Other securities and assets are valued at fair value, as determined in good
faith by the Adviser under procedures established by, and under the supervision
and responsibility of, the Fund's Board of Directors.
As stated in the Prospectus, the net asset value per share of 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, 1999 of
$33.71 per share, the maximum offering price per share was $35.39 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.
27
<PAGE>
CALCULATION OF INVESTMENT PERFORMANCE
-------------------------------------
From time to time, the Fund quotes its performance in advertisements or in
reports and other communications to stockholders. The Fund's "average annual
total return" figures described in the Prospectus are computed according to a
formula prescribed by the SEC. The formula can be expressed as follows:
P(1+T)/n/=ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000
investment made at the beginning of a 1, 5, or 10-year
period at the end of a 1, 5, or 10-year period (or
fractional portion thereof), assuming reinvestment of all
dividends and distributions.
Total return figures assume that the maximum 4.75% sales charge or maximum
applicable contingent deferred sales charge, as the case may be, has been
deducted from the investment at the time of purchase or redemption, as
applicable.
The Fund's performance varies from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance calculation should not be considered
representative of the Fund's performance for any specified period in the future.
In addition, because the performance fluctuates, it may not provide a basis for
comparing an investment in the Fund with certain bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors
comparing the Fund's performance with that of other mutual funds should give
consideration to the quality and maturity of the respective investment
companies' portfolio securities.
The table below provides investment results for the Fund for one year and
since inception. The results shown represent "total return" investment
performance, which assumes the reinvestment of all capital gains and income
dividends for the indicated periods. The tables do not make any allowance for
federal, state or local income taxes, which stockholders must pay on a current
basis.
Average Annual Return for Hilliard Lyons Growth Fund
Percentage Change
-----------------
------------------------------------------------
Fiscal Periods Ended Hilliard Lyons
December 31, 1999 Growth Fund
----------------- -----------
------------------------------------------------
28
<PAGE>
---------------------------------------
1 Year 3.20%
---------------------------------------
Since Inception 14.54%
---------------------------------------
* Returns have been reduced by the maximum sales charge of 4.75%.
The results should not be considered a representation of the total
return form an investment made in the Fund today. This information is provided
to help investors better understand the Fund and may not provide a basis for
comparison with other investments or mutual funds which use a different method
to calculate performance.
TRANSFER AGENT AND CUSTODIAN
----------------------------
State Street Bank and Trust Company, 225 Franklin Street, P.O. Box
8315, Boston, Massachusetts 02266-8315, is the Fund's transfer agent and is
custodian for the Fund's cash and securities. State Street Bank and Trust
Company does not assist in and is not responsible for investment decisions
involving assets of the Fund.
COUNSEL
-------
The legality of the shares offered hereby have been passed upon by
Brown, Todd & Heyburn PLLC, 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.
29
<PAGE>
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.
30
<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.
<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, 1999
COMMON STOCKS -- 89.4%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Company Cost Value
------- ------- ---- ------
BASIC INDUSTRY -- 6.0%
---------------------------------------------------------------------
<C> <S> <C> <C>
68,200 Ecolab Inc. ................................ $ 2,267,355 $ 2,668,325
115,000 Sigma-Aldrich Corp. ........................ 4,033,686 3,457,187
----------- -----------
6,301,041 6,125,512
CAPITAL GOODS -- 12.7%
---------------------------------------------------------------------
154,000 Dover Corp. ................................ 3,606,293 6,987,750
17,000 General Electric Co. ....................... 330,929 2,630,750
99,500 Teleflex Inc. .............................. 3,697,584 3,115,594
----------- -----------
7,634,806 12,734,094
CONSUMER DURABLE -- 6.6%
---------------------------------------------------------------------
73,000 Donaldson Inc. ............................. 958,858 1,756,562
76,000 Harley Davidson Inc. ....................... 1,856,697 4,868,750
----------- -----------
2,815,555 6,625,312
CONSUMER NON-DURABLE -- 7.9%
---------------------------------------------------------------------
103,100 Gillette Co. ............................... 3,859,856 4,246,431
74,000 Estee Lauder Cos............................ 1,880,879 3,732,375
----------- -----------
5,740,735 7,978,806
FINANCIAL -- 29.9%
---------------------------------------------------------------------
68,125 American International Group Inc. .......... 2,007,422 7,366,016
100* Berkshire Hathaway Inc. .................... 5,349,280 5,610,000
238,000 Cincinnati Financial Corp. ................. 5,478,503 7,422,625
72,500 Federal Home Loan Mortgage Corp. ........... 1,603,279 3,412,031
24,000 Fifth Third Bancorp ........................ 642,500 1,761,000
225,112 Synovus Financial Corp. .................... 3,454,790 4,474,101
----------- -----------
18,535,774 30,045,773
HEALTH CARE -- 9.4%
---------------------------------------------------------------------
75,000 Abbott Laboratories......................... 3,079,500 2,723,438
53,000 Allergan Inc. .............................. 596,668 2,636,750
44,000 Johnson & Johnson........................... 1,360,355 4,097,500
----------- -----------
5,036,523 9,457,688
</TABLE>
See notes to financial statements.
F-1
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS--continued
December 31, 1999
<TABLE>
<CAPTION>
Market
Shares Company Cost Value
------- ------- ---- ------
RETAIL & SERVICES -- 16.9%
---------------------------------------------------------------------
<C> <S> <C> <C>
126,400 Brady WH Co. CL A............................ $ 2,857,125 $ 4,289,700
75,000 CVS Corp..................................... 2,556,375 2,995,312
59,000 Gannett Inc. ................................ 2,760,857 4,812,188
89,000 G & K Services Inc. CL A..................... 2,997,720 2,881,375
68,000 Walgreen Co. ................................ 281,335 1,989,000
----------- -----------
11,453,412 16,967,575
----------- -----------
Total Common Stocks.......................... $57,517,846 $89,934,760
</TABLE>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 11.0%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Purchase Maturity
Amount Description Yield Date Market Value
----------- ----------- -------- -------- ------------
<C> <S> <C> <C> <C>
$11,070,000 Federal Home Loan Bank .......... 1.521% 01/03/00 $ 11,069,077
------------
Total U. S. Government Agency
Obligations (Cost --$11,069,077). 11,069,077
------------
TOTAL INVESTMENTS (Cost --
$68,586,923) (100.4%)........... $101,003,837
============
</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, 1999
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Common stocks (cost $57,517,846)................................ $ 89,934,760
U.S. Government Agency Obligations at value (amortized cost
$11,069,077)................................................... 11,069,077
------------
Total investments.............................................. 101,003,837
Cash............................................................. 1,620
Receivables:
Dividends....................................................... 114,066
Capital shares sold............................................. 66,962
Prepaid expenses................................................. 2,838
------------
Total Assets................................................... $101,189,323
============
LIABILITIES:
Dividends payable............................................... $ 12,451
Due to adviser -- Note C........................................ 192,574
Capital shares redeemed......................................... 206,122
Accrued expenses................................................ 142,541
------------
Total Liabilities.............................................. 553,688
------------
NET ASSETS:
Common stock ($.001 par value; 150,000,000 shares authorized and
2,989,534 shares issued and outstanding)........................ 2,990
Paid-in surplus.................................................. 68,223,065
Accumulated undistributed net realized gain on investments....... (687)
Net unrealized appreciation on investments....................... 32,416,914
Distributions in excess of net investment income -- Note B....... (6,647)
------------
Total Capital (Net Assets)..................................... $100,635,635
============
Net assets
Investor A shares.............................................. $ 87,292,503
Investor B shares.............................................. 13,343,132
------------
$100,635,635
============
Shares of capital stock
Investor A shares.............................................. 2,589,834
Investor B shares.............................................. 399,700
------------
2,989,534
Net asset value
Investor A shares -- redemption price per share................ $ 33.71
============
Investor B shares -- offering price per share*................. $ 33.38
============
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)....... $ 35.39
============
</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, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends......................................................... $ 923,383
Interest.......................................................... 744,503
----------
Total investment income......................................... 1,667,886
EXPENSES:
Management fees -- Note C......................................... 836,525
12b-1 expenses (Investor A) -- Note C............................. 143,367
12b-1 expenses (Investor B) -- Note C............................. 106,106
Transfer agent fees (Investor A).................................. 71,100
Transfer agent fees (Investor B).................................. 60,415
Custodian fees.................................................... 57,800
Shareholder reports............................................... 47,100
Audit fees........................................................ 39,840
Directors' fees................................................... 30,560
Legal fees........................................................ 27,160
Filing fees....................................................... 21,315
Insurance expense................................................. 20,066
Trade association................................................. 3,662
----------
1,465,016
----------
Waiver of management fees by Adviser -- Note C...................... (22,257)
Total expenses.................................................. 1,442,759
----------
Net investment income......................................... 225,127
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments -- Note B........................ 842,228
Change in unrealized appreciation on investments.................. 2,216,048
----------
Net gain on investments......................................... 3,058,276
----------
Net increase in net assets resulting from operations.......... $3,283,403
==========
</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,
1999 1998
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income............................. $ 225,127 $ 484,708
Net realized gain on investments.................. 842,228 2,054,232
Net change in unrealized appreciation on
investments...................................... 2,216,048 7,796,808
------------ ------------
Net increase in net assets from operations...... 3,283,403 10,335,748
DISTRIBUTIONS TO INVESTOR A SHAREHOLDERS FROM:
Net investment income............................. (230,061) (449,910)
Net realized gain on investments.................. (2,082,601) (1,803,844)
------------ ------------
Total distributions............................. (2,312,662) (2,253,754)
DISTRIBUTIONS TO INVESTOR B SHAREHOLDERS FROM:
Net investment income and in excess of net
investment income................................ (0) (37,291)
Net realized gain on investments.................. (290,695) (193,153)
------------ ------------
Total distributions............................. (290,695) (230,444)
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from 74,783 and 74,534 shares issued in
reinvestment of dividends, respectively.......... 2,556,418 2,422,891
Proceeds from 533,912 and 1,360,496 shares sold,
respectively..................................... 18,039,663 42,878,738
Cost of 550,163 and 432,675 shares repurchased,
respectively .................................... (18,742,224) (13,467,505)
------------ ------------
Net increase in net assets from capital share
transactions................................... 1,853,857 31,834,124
------------ ------------
Total increase in net assets................... 2,533,903 39,685,674
NET ASSETS:
Beginning of period............................... 98,101,732 58,416,058
------------ ------------
End of period (includes distribution in excess of
net investment income of $6,647 and $1,713,
respectively).................................... $100,635,635 $ 98,101,732
============ ============
</TABLE>
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. which owns 43,922 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,
1999 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, 1999, the
waiver of the management fee amounted to $8,327 for the Class A share
investors and $13,930 for Class B share investors.
The Fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "Plan"). Under the Plan, the
Fund reimburses the Distributor quarterly at an annualized rate of up to .25%
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 Distributor, received sales charges
of approximately $1,361,363 during the year ended December 31, 1999. The
Hilliard Lyons Profit Sharing Plan, as directed by each participant, owns
473,286 shares of the Fund as of December 31, 1999.
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
F-7
<PAGE>
$750 for each Board or Committee meeting attended and certain expenses the
directors incur in attending meetings.
NOTE D -- PORTFOLIO TRANSACTIONS
For the year ended December 31, 1999, purchases and proceeds from sale of
investment securities (excluding short-term securities) were $26,052,410 and
$21,927,944, respectively.
The cost of investments for Federal income tax purposes and financial
reporting is the same. At December 31, 1999, the gross unrealized appreciation
and depreciation on investments was $34,047,810 and $1,630,896, respectively,
resulting in net unrealized appreciation of $32,416,914.
F-8
<PAGE>
NOTE E -- CAPITAL TRANSACTIONS
<TABLE>
<CAPTION>
For the year ended
December 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares issued...................... $ 12,771,731 $ 33,687,452
Dividends reinvested............................. 2,268,953 2,196,708
Shares redeemed.................................. (16,965,804) (13,188,919)
------------ ------------
Change in net assets from Investor A share
transactions.................................... $ (1,925,120) $ 22,695,241
============ ============
Investor B shares:
Proceeds from shares issued...................... $ 5,267,932 $ 9,191,286
Dividends reinvested............................. 287,465 226,183
Shares redeemed.................................. (1,776,420) (278,586)
------------ ------------
Change in net assets from Investor B share
transactions.................................... $ 3,778,977 $ 9,138,883
============ ============
SHARE TRANSACTIONS:
Investor A shares:
Issued........................................... 377,611 1,070,524
Reinvested....................................... 66,329 67,549
Redeemed......................................... (496,929) (423,897)
------------ ------------
Change in Investor A shares...................... (52,989) 714,176
============ ============
Investor B shares:
Issued........................................... 156,301 289,972
Reinvested....................................... 8,454 6,985
Redeemed......................................... (53,234) (8,778)
------------ ------------
Change in Investor B shares........................ 111,521 288,179
============ ============
</TABLE>
F-9
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Hilliard Lyons Growth Fund, Inc.
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Hilliard Lyons Growth Fund, Inc. as
of December 31, 1999, the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years then
ended, and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation
of securities owned as of December 31, 1999, by correspondence with the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Hilliard Lyons Growth Fund, Inc. as of December 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years then ended and the financial highlights for each of the periods
indicated therein, in conformity with accounting principles generally accepted
in the United States.
[LOGO SIGNATURE]
Louisville, Kentucky
January 25, 2000
F-10
<PAGE>
PART C
OTHER INFORMATION
-----------------
ITEM 23. 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
J.J.B. Hilliard, W.L. Lyons, Inc.
(7) Not applicable.
- --------------------
<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) Form of Subscription Agreement with initial stockholder.
(14) Not applicable.
*(15) Amended and Restated Distribution Plan pursuant to Rule 12b-1.
(16) Not applicable.
(17) Not applicable.
*(18) Form of Rule 18f-3 Multiple Class Plan.
(19) Code of Ethics
- --------------------
*Previously filed.
ITEM 24. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
None.
ITEM 25. 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 Registration Statement post-effective amendment 12.
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 had
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
J.J.B. Hilliard, W.L. Lyons, Inc. (the "Distributor"), the Fund is
required to indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigation 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.
- ------------------------------
*Previously filed.
<PAGE>
ITEM 26. 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 April 5, 2000 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:
----------------------------------------------------------------------
Name and Title of Officers Name and Address of Company
of J.J.B. Hilliard, W.L. with which Officer or
Lyons, Inc. Director is connected Capacity
---------------------------------------------------------------------
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
---------------------------------------------------------------------
James W. Stuckert Lawson United Corporation Director
113 West Main
Glasgow, KY 42141
---------------------------------------------------------------------
James W. Stuckert Thomas Transportation Director
Group, Inc.
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
---------------------------------------------------------------------
Ralph S. Michael, III T.H.E., Inc Director
Director 2545 E. 11th Street
PNC Bank Corp. Tulsa, OK 74104
---------------------------------------------------------------------
Thomas K. Whitford None
Director
PNC Bank Corp.
---------------------------------------------------------------------
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.
<PAGE>
ITEM 27. Principal Underwriters
(a) J.J.B. Hilliard, W.L. Lyons, Inc. is Registrant's principal
underwriter. J.J.B. Hilliard, W.L. Lyons, Inc. currently serves
as investment adviser and principal underwriter of Hilliard-Lyons
Government Fund, Inc., an open-end money market fund.
(b) Set forth below is certain information pertaining to the
directors and officers (at the Executive Vice President level and
above) of J.J.B. Hilliard, W.L. Lyons, Inc. the Registrant's
principal underwriter:
---------------------------------------------------------------------
Positions
and Offices
Name and Principal Positions and Offices with
Business Address with Underwriter Registrant
---------------------------------------------------------------------
James M. Rogers Executive Vice President, None
Hilliard Lyons Center Chief Operating Officer
Louisville, KY 40202
---------------------------------------------------------------------
James R. Allen Executive Vice President, None
Hilliard Lyons Center Director, Branch and
Louisville, KY 40202 Marketing Administration
---------------------------------------------------------------------
James W. Stuckert Chief Executive Officer, None
Hilliard Lyons Center Chairman
Louisville, KY 40202
---------------------------------------------------------------------
Samuel C. Harvey Executive Vice President None
Hilliard Lyons Center Investment Management Group
Louisville, KY 40202
---------------------------------------------------------------------
F. James Walker Executive Vice President, None
Hilliard Lyons Center Director Financial Services
Executive Vice President, Group
---------------------------------------------------------------------
B. Neal Cory, II Executive Vice President, None
Hilliard Lyons Center Director Investment
Louisville, KY 40202 Management Group
---------------------------------------------------------------------
(c) Not applicable.
- ------------------
<PAGE>
ITEM 28. Location of Accounts and Records
All such accounts, books and other documents are maintained at
the office of State Street Bank and Trust Company, 325 Franklin
Street, Boston, Massachusetts 02105 and Hilliard Lyons Growth Fund,
Inc., Hilliard Lyons Center, Louisville, Kentucky 40202.
- --------------------
<PAGE>
ITEM 31. Management Services
Not Applicable.
ITEM 32. Undertakings
------------
Not Applicable
- ----------------------
6
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(a)(1) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment No. 12 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 28th, day of April, 2000.
HILLIARD LYONS GROWTH FUND, INC.
By: /s/ Donald F. Kohler
--------------------------------
Donald F. Kohler,
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 12 to the Registration Statement has been signed below
by the following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ DONALD F. KOHLER Chairman of the Board of April 28, 2000
- ----------------------------- Directors (Principal
Donald F. Kohler Executive Officer) and President
*/s/ WILLIAM A. BLODGETT, JR. Director April 28, 2000
- -----------------------------
William A. Blodgett, Jr.
*/s/ JOHN C. OWENS Director April 28, 2000
- -----------------------------
John C. Owens
*/s/ STEWART E. CONNER Director April 28, 2000
- -----------------------------
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 6(a)
DISTRIBUTION AGREEMENT
----------------------
THIS AGREEMENT made as of the 30th day of April, 2000 between HILLIARD
LYONS GROWTH FUND, INC., a Maryland corporation (the "Fund"), and J.J.B.
HILLIARD, W.L. LYONS, INC., a Kentucky corporation (the "Distributor").
W I T N E S S E T H:
- - - - - - - - - -
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(f).
(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 Distributor shall accept or reject orders it receives for the
purchase of Shares in accordance with the Prospectus or Statement of Additional
Information, and shall promptly transmit such orders as are so accepted to the
Fund, or any agent of the Fund
2
<PAGE>
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 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
3
<PAGE>
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 performance 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 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
4
<PAGE>
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 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.
5
<PAGE>
Section 10. Compensation. The Fund shall promptly pay or cause to be paid
to 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 and 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 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; 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 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.
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<PAGE>
(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 by 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.
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.
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<PAGE>
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.
----------------------------------
J.J.B. HILLIARD, W.L. LYONS, INC.
By: /s/ James M. Rogers
----------------------------------
8
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" in the prospectus and under the caption
"Independent Auditors" in the Statement of Additional Information, both included
in Post-Effective Amendment No. 12 to the Registration Statement (Form N-1A No.
33-43177) of Hilliard Lyons Growth Fund, Inc., and to the use of our report
dated January 25, 2000, included therein.
/S/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Louisville Kentucky
April 26, 2000
<PAGE>
Exhibit 19
J.J.B. HILLIARD, W.L. LYONS, INC.
HILLIARD LYONS GROWTH FUND, INC.
CODE OF ETHICS
--------------
1. DEFINITIONS
-----------
(a) "Access person" means (i) with respect to the Fund, any director,
officer or advisory person of the Fund and (ii) with respect to
Hilliard, any director or officer of Hilliard who, with respect
to the Fund, makes any recommendation, participates in the
determination of which recommendation shall be made or whose
functions or duties relate to the determination of which
recommendation shall be made to the Fund, or who, in connection
with his duties, obtains any information concerning securities
recommendations being made by Hilliard to the Fund.
(b) "Advisory person" means (i) any employee of the Fund or Hilliard
(or of any company in a control relationship to the Fund or
Hilliard), who, in connection with his regular functions or
duties, makes, participates in, or obtains information regarding
the purchase or sale of a security by the Fund, or whose
functions relate to the making of any recommendations with
respect to such purchases or sales; and (ii) any natural person
in a control relationship to the Fund or Hilliard who obtains
information concerning recommendations made to the Fund with
regard to the purchase or sale of a security.
(c) "Beneficial ownership" shall be interpreted in the same manner as
it would be in determining whether a person is subject to the
provisions of Section 16 of the Securities Exchange Act of 1934
and the rules and regulations thereunder, except that the
determination of direct or indirect beneficial ownership shall
apply to all securities which an access person has or acquires.
(d) "Control" shall have the same meaning as that set forth in
Section 2(a)(9) of the Investment Company Act of 1940.
(e) "Covered Security" shall have the meaning set forth in Section
2(a)(36) of the Investment Company Act of 1940, except that it
shall not include shares of registered open-end investment
companies, direct obligations of the Government of the United
States, bankers' acceptances, bank certificates of deposit,
commercial paper, and high quality short-term debt securities
(including repurchase agreements).
<PAGE>
(f) "Disinterested director" means a director of the Fund who is not
an "interested person" of the Fund within the meaning of Section
2(a)(19) of the Investment Company Act of 1940.
(g) "Fund" means Hilliard Lyons Growth Fund, Inc.
(h) "Hilliard" means J.J.B. Hilliard, W.L. Lyons, Inc.
(i) "Initial public offering" means an offering of securities
registered under the Securities Act of 1933, the issuer of which,
immediately before the registration, was not subject to the
reporting requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934.
(j) "Investment person" means (i) any portfolio manager and (ii) any
employee of the Fund or Hilliard who provides information and
advice to a portfolio manager or who helps execute a portfolio
manager's decisions; and (iii) any natural person who controls
the Fund or Hilliard and who obtains information regarding the
purchase or sale of securities of the Fund.
(k) "Limited offering" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to Section
4(2) or Section 4(6) or pursuant to Rule 504, Rule 505 or Rule
506 thereunder.
(l) "Portfolio manager" means any person who has the direct
responsibility and authority to make decisions about investments
made by the Fund.
(m) "Purchase or sale of a security" includes, inter alia, the buying
----- ----
or writing of an option to purchase or sell a security.
(n) "Security held or to be acquired" by the Fund shall mean any
security which, within the most recent 15 days (i) is or has been
held by the Fund, or (ii) is being or has been considered by the
Fund or Hilliard for purchase by the Fund and (iii) any option to
purchase or sell, and any security convertible into or
exchangeable for any such security.
2. STATEMENT OF GENERAL FIDUCIARY PRINCIPLES
-----------------------------------------
The following general fiduciary principles shall govern all personal
investment activities: (1) access persons shall have a duty at all
times to place the interests of shareholders of the Fund first; (2)
all personal securities transactions shall be conducted consistent
with this Code of Ethics and in such a manner as to avoid any actual
or potential conflict of interest or any abuse of the individual's
position of trust and responsibility; and (3) access persons should
not take inappropriate advantage of their positions.
<PAGE>
3. PROHIBITED PURCHASES AND SALES
------------------------------
(a) No portfolio manager shall:
(i) purchase or sell, directly or indirectly, any covered
security within seven calendar days before the Fund trades
in that security.
(ii) purchase, directly or indirectly, any covered security
within seven calendar days after the Fund sells that
security.
(iii) sell, directly or indirectly, any covered security within
seven calendar days after the Fund purchases that security.
(b) No investment person shall:
(i) purchase, directly or indirectly, any securities in an
initial public offering.
(ii) acquire, directly or indirectly, any securities in a
limited offering without the express prior approval of the
Chairman of the Fund. Such prior approval should take into
account, among other factors, whether the investment
opportunity should be reserved for the Fund and its
shareholders, and whether the opportunity is being offered
to an individual by virtue of his position with the Fund.
Advisory persons who are authorized to acquire securities
in a limited offering or who otherwise hold securities
previously acquired in a limited offering must disclose
that investment if they play a part in the Fund's
subsequent consideration of an investment in the issuer. In
such circumstances, the Fund's decision to purchase
securities of the issuer shall be subject to an independent
review by advisory persons with no personal interest in the
issuer.
(iii) profit in the purchase and sale, or sale and purchase, of
the same (or equivalent) covered securities within 60
calendar days unless (A) the market capitalization of the
issuer at the time of the purchase or sale exceeds
$150,000,000 and the average daily trading volume of the
security during the four-week period preceding the purchase
or sale exceeds 3,000 shares, or (B) the Fund neither
purchases nor sells the same (or equivalent) securities
within 60 calendar days of the purchase or sale by such
investment person.
(c) No access person shall:
3
<PAGE>
(i) purchase or sell, directly or indirectly, any covered
security in which he has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership and
which to his actual knowledge at the time of such purchase
or sale: (A) is being considered for purchase or sale by the
Fund; or (B) is being purchased or sold by the Fund.
(ii) execute a securities transaction in a covered security on a
day during which the Fund has a pending "buy" or "sell"
order in that same security until that order is executed or
withdrawn unless the market capitalization of the issuer at
the time of the transaction exceeds $150,000,000 and the
average daily trading volume of the security during the
four-week period preceding the transaction exceeds 3,000
shares.
4. EXEMPTED TRANSACTIONS
---------------------
The prohibitions of Section 3 of this Code of Ethics shall not apply
to:
(a) Purchases or sales effected in any account over which the access
person has no direct or indirect influence or control.
(b) Purchases or sales of securities which are not eligible for
purchase or sale by the Fund.
(c) Purchases or sales which are non-volitional on the part of either
the access person or the Fund.
(d) Purchases which are part of an automatic dividend reinvestment
plan.
(e) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to
--- ----
the extent such rights were acquired from such issuer, and sales
of such rights so acquired.
(f) Purchaser or sales determined by the Chairman of the Fund to be
only remotely potentially harmful to the Fund because they would
be very unlikely to affect a highly institutional market, or
because they clearly are not related economically to the
securities to be purchased, sold or held by the Fund.
5. REPORTING
---------
(a) Each access person other than disinterested directors shall
disclose to the Fund or Hilliard all of his personal holdings in
covered securities at the time his employment commences (or upon
becoming an access person)
4
<PAGE>
and annually thereafter. Each such holdings report shall be made
within 10 days after the commencement of employment (or becoming
an access person). Annual reports shall be made within 10 days
after the end of the calendar year beginning with the calendar
year ending December 31, 2000. Holdings reports shall include the
following information, which must be current as of a date within
30 days of the date of submission:
(i) The title, number of shares and principal amount of
each covered security in which such access person has any direct
beneficial ownership when the person becomes an access person;
(ii) The name of any broker, dealer or bank with whom the
access person maintains an account in which any securities are
held for the direct benefit of such person as of the date the
person became an access person; and
(iii) The date the report is submitted by the access person.
(b) Every access person shall report to the Fund and Hilliard the
information described in Section 5(c) of this Code of Ethics with
respect to transactions in any covered security in which such
access person has, or by reason of such transaction acquires, any
direct or indirect beneficial ownership in the security including
securities acquired in exempt transactions pursuant to Section 4;
provided, however, that (i) an access person shall not be
required to make a report with respect to transactions effected
for any account over which such person does not have any direct
or indirect influence or control and (ii) a disinterested
director shall not be required to report any transaction by the
director involving a security, except where such director knew,
or in the ordinary course of fulfilling his official duties as a
director of the Fund, should have known during the 15-day period
immediately preceding or after the date of the transaction, the
security is or was purchased or sold by the Fund or such purchase
or sale by the Fund is or was considered by the Fund or Hilliard,
on behalf of the Fund.
(c) Every transaction report shall be made not later than 10 days
after the end of the calendar quarter in which the transaction to
which the report relates was effected, and shall contain the
following information:
(i) The date of the transaction, the title, the interest rate
and maturity (if applicable); the number of shares, and the
principal amount of each security involved;
(ii) The nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
5
<PAGE>
(iii) The price at which the transaction was effected; and
(iv) The name of the broker, dealer or bank with or through whom
the transaction was effected; and
(v) The date the report is filed.
(d) Every access person other than Disinterested Directors shall
direct his broker to supply to the Chairman of the Fund or the
Chairman of Hilliard, on a timely basis, duplicate copies of
periodic statements for all securities accounts.
(e) Any reports made pursuant to this Section 5 may contain a
statement that the report shall not be construed as an admission
by the person making such report that he has any direct or
indirect beneficial ownership in the security to which the report
relates.
(f) The Chairman of the Fund and the Chairman of Hilliard or their
designees shall identify all access persons who are under a duty
to make reports to such entities pursuant to this Section 5 and
shall inform such persons of such duty.
(g) The Chairman of the Fund and the Chairman of Hilliard or their
designees shall be responsible for implementing compliance
procedures and designating appropriate personnel to review
reports made pursuant to this Section. No person who regularly
reviews such reports shall be permitted to review his own reports
and such reports shall be reviewed by a management or compliance
person senior to the reviewer.
6. GIFTS
-----
Investment persons are prohibited from receiving any gift or other
item of more than de minimis value from any person or entity that does
business with or on behalf of the Fund; provided, however, that
attendance and the receipt of complimentary meals at investment
conferences shall not be prohibited by this Section 6.
6
<PAGE>
7. SERVICE AS A DIRECTOR
---------------------
Investment persons shall be prohibited from serving on the boards of
directors of publicly traded companies, absent prior authorization
from the Board of Directors of the Fund based upon a determination
that the board service would be consistent with the interests of the
Fund and its shareholders. If such board service is authorized,
"Chinese Wall" or other procedures shall be established to isolate the
advisory person serving as a director from those making investment
decisions with respect to the securities of such publicly traded
company.
8. CERTIFICATION OF COMPLIANCE WITH CODES OF ETHICS
------------------------------------------------
All access persons shall certify annually that they have read and
understand this Code of Ethics and recognize that they are subject
thereto. Further, access persons shall certify annually that they
have complied with the requirements of this Code of Ethics and that
they have disclosed or reported all personal securities transactions
and holdings required to be disclosed or reported pursuant to the
requirements of this Code of Ethics.
9. SANCTIONS
---------
Any profits realized on trades prohibited by Section 3(a) or Section
3(b)(iii) of this Code of Ethics shall be disgorged to the Fund. The
Board of Directors of the fund and Hilliard may also impose such other
sanctions as it deems appropriate upon discovering a violation of this
Code of Ethics, including, inter alia, a letter of censure or
----- ----
suspension or termination of the employment of the violator.
10. DIRECTOR APPROVAL AND REPORTS
-----------------------------
(a) The Fund and Hilliard will prepare an annual report to the Board
of Directors of the Fund that summarizes existing codes and procedures
concerning personal investing and any additional procedures adopted during
the year; describes any material issues arising under the Code or such
procedures since the last report, including but not limited to any material
violations of the Code or such procedures and any sanctions imposed in
response thereto; identifies material conflicts that arose during the year;
and identifies any recommended changes in existing restrictions or
procedures based upon the parties' experience under this Code of Ethics,
evolving industry practices, or developments in applicable laws or
regulations. Such report shall include any certifications required by Rule
17j-1.
(b) The Fund and Hilliard shall submit this Code to the Board of
Directors of the Fund for approval within the time frames required by Rule
17j-1. Any material changes to this Code shall be submitted to such Board
within six months of such change.
11. RECORDKEEPING
-------------
7
<PAGE>
Hilliard shall maintain the following records, on its own behalf and on
behalf of the Fund, in a manner specified:
(a) A copy of this Code or any amendment thereof, which is or at any
time within the past five years has been in effect shall be preserved in an
easily accessible place.
(b) A record or any violation of this Code or any amendment thereof
and of any action taken as a result of such violation shall be preserved in
an easily accessible place for a period of not less than five years
following the end of the fiscal year in which the violation occurs.
(c) A copy of each transaction and holding report made by an access
person pursuant to this Code shall be preserved for a period of not less
than five years from the end of the fiscal year in which it is made, the
first two years in an easily accessible place.
(d) A list of all person who are or within the past five years have
been required to make reports pursuant to this Code shall be maintained in
an easily accessible place.
(e) A list of the names of all persons who are or within the past five
years have been responsible for reviewing the reports filed pursuant to
Section 5 of this Code shall be maintained in an easily accessible place.
(f) A record of any approvals granted pursuant to Section 3(b) of this
Code shall be preserved for a period of five years from the end of the
fiscal year in which such approval is given.
(g) A copy of each report made pursuant to Section 10 of this Code
must be maintained for at least five years after the end of the fiscal year
in which it was made, the first two years in an easily accessible place.
8
