-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K9TjgWNG3dUmSUHF7yXnPXEjb8cn5Y9IBKO0f1BpcgSBnL1XBZP6Yr++WFZd7aWX Ril1EjV6nYxy6BeDRqtImA== 0000950131-98-006311.txt : 19981201 0000950131-98-006311.hdr.sgml : 19981201 ACCESSION NUMBER: 0000950131-98-006311 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19981130 EFFECTIVENESS DATE: 19981130 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HILLIARD LYONS GOVERNMENT FUND INC CENTRAL INDEX KEY: 0000317872 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 610978881 STATE OF INCORPORATION: MD FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 002-68290 FILM NUMBER: 98761666 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-03070 FILM NUMBER: 98761667 BUSINESS ADDRESS: STREET 1: HILLIARD LYONS CTR CITY: LOUISVILLE STATE: KY ZIP: 40202 BUSINESS PHONE: 5025888832 MAIL ADDRESS: STREET 1: PO BOX 32760 CITY: LOUISVILLE STATE: KY ZIP: 40232 FORMER COMPANY: FORMER CONFORMED NAME: HILLIARD LYONS CASH MANAGEMENT INC DATE OF NAME CHANGE: 19830125 485BPOS 1 HILLIARD LYONS - GOVERNMENT FUND As filed with the Securities and Exchange Commission on December 1, 1998. Registration No. 2-68290 File No. 811-3070 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- Form N-1A Post-Effective Amendment No. 20 to REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 and Amendment No. 22 to REGISTRATION STATEMENT Under THE INVESTMENT COMPANY ACT OF 1940 --------------- Hilliard-Lyons Government Fund, Inc. (Exact Name of Registrant as Specified in Charter) Hilliard Lyons Center Louisville, Kentucky 40202 (Address of Principal Executive Offices) Registrant's Telephone Number: (502) 588-8400 William G. Strench, Esq. Brown, Todd & Heyburn PLLC 400 West Market, 32nd Floor Louisville, Kentucky 40202 (Name and Address of Agent for Service) It is proposed that this filing will become effective (check appropriate box) [X] immediately upon filing pursuant to paragraph (b) [_] on January 1, 1999 pursuant to paragraph (b) [_] 60 days after filing pursuant to paragraph (a)(1) [_] on (date) pursuant to paragraph (a)(1) of Rule 485 [_] 75 days after filing pursuant to paragraph (a)(2) [_] on (date) 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. --------------- Registrant has registered an indefinite amount of securities under the Securities Act of 1933 pursuant to Rule 24f-2. The Rule 24f-2 Notice for Registrant's most recent fiscal year was filed on November 23, 1998. ================================================================================ PROSPECTUS DATED DECEMBER 1, 1998 HILLIARD-LYONS GOVERNMENT FUND, INC. HILLIARD LYONS CENTER LOUISVILLE, KENTUCKY 40202 (502) 588-8400 Hilliard-Lyons Government Fund, Inc. (the "Fund") is an open-end, diversified management investment company. Its goal is to provide investors with liquidity and the highest possible level of current income consistent with the preservation of capital. The Fund seeks to achieve its goals by investing exclusively in short-term securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities or in repurchase agreements collateralized by such securities, or in a combination of both. Substantially all of the Fund's assets are invested in securities maturing in six months or less, with an average weighted maturity of less than 90 days. The Fund does not invest more than 10% of its total assets in repurchase agreements having a maturity of more than 7 business days. Only by action of the Board of Directors and on 30 days written notice to shareholders may the Fund change these investment policies. - ------------------------------------------------------------------------------- SUITABILITY The Fund is designed as a convenient and economical investment vehicle for the cash reserves or temporary cash balances of both individual and institutional investors. The Fund seeks to maintain a net asset value of $1.00 per share. THESE SECURITIES ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A NET ASSET VALUE OF $1.00 PER SHARE. - ------------------------------------------------------------------------------- DIVIDENDS PURCHASES AND COMMISSIONS Dividends from the Fund's net income The Fund is no-load, and the full are declared every business day and amount paid by the purchaser is paid on or shortly after the 15th invested in shares of the Fund. A day of each month in cash or purchase is effected after receipt reinvested in additional shares of of Federal funds. The minimum the Fund. initial purchase of shares is $1,000 and subsequent investments must be at least $100. - ------------------------------------------------------------------------------- ABOUT THIS PROSPECTUS This Prospectus sets forth concisely the information about the Fund which you should know before investing. Please read it and retain it for further reference. The Fund has filed with the Securities and Exchange Commission a Statement of Additional Information (the "Statement") about the Fund dated December 1, 1998. The Statement contains more detailed information about the Fund and is incorporated into this Prospectus by reference in its entirety. You may obtain a free copy of the Statement by writing to J. J. B. Hilliard, W. L. Lyons, Inc. ("Hilliard-Lyons"), Hilliard Lyons Center, Louisville, Kentucky 40202 or by calling (502) 588-8400. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED, ENDORSED, OR OTHERWISE SUPPORTED BY PNC BANK CORP. OR ITS AFFILIATES OR THE U.S. GOVERNMENT, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. TABLE OF CONTENTS
PAGE ---- SUMMARY OF EXPENSES.................................................. 3 FINANCIAL HIGHLIGHTS................................................. 4 WHO SHOULD INVEST.................................................... 4 INVESTMENT OBJECTIVES AND POLICIES................................... 5 HOW TO PURCHASE SHARES............................................... 6 Initial Investment--Minimum $1,000.................................. 6 Subsequent Investments--Minimum $100................................ 7 General Purchase Information........................................ 7 HOW TO REDEEM SHARES................................................. 8 Redemption by Telephone............................................. 8 Redemption by Mail.................................................. 9 Redemption by Check................................................. 9 Redemption by Systematic Withdrawal Plan............................ 9 General............................................................. 10 NET ASSET VALUE...................................................... 10 DAILY INCOME DIVIDENDS............................................... 11 TAXES................................................................ 11 Other Taxes......................................................... 12 MANAGEMENT OF THE FUND............................................... 12 Directors........................................................... 12 Investment Adviser and Distributor.................................. 12 Transfer and Dividend Agent......................................... 13 Expenses............................................................ 13 Banking Laws........................................................ 13 Year 2000........................................................... 13 ORGANIZATION AND CAPITALIZATION...................................... 14 REPORTS.............................................................. 14 ADDITIONAL INFORMATION............................................... 14
2 SUMMARY OF EXPENSES SHAREHOLDER TRANSACTION EXPENSES None ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) Advisory fees........................................................... .33% Other expenses.......................................................... .18% ---- Total Fund operating expenses........................................... .51% ====
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------- ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period............................. $5 $16 $29 $64
The purpose of the above Summary of Expenses is to assist the investor in understanding the various costs and expenses borne by the Fund and therefore, indirectly by investors. The example should not be considered to be a representation of past or future expenses. Actual expenses may be greater or less than those 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%. The example assumes reinvestment of all dividends and distributions. The Fund's yield for the last seven days of its most recent fiscal year (August 25-31, 1998) was 4.97%. From time to time, the Fund may advertise its yield. Yield figures are based on historical earnings and are not intended to indicate future performance. The yield of the Fund refers to the net investment income generated by an investment in the Fund over a specified period. If such period is less than one year, income is annualized. That is, the amount of income generated by the investment during the specified period is assumed to be generated over a one- year period and is shown as a percentage of the investment. Additional information concerning the Fund's performance appears in the Fund's Statement of Additional Information. 3 FINANCIAL HIGHLIGHTS The following table includes selected data for a share of capital stock outstanding throughout each year and other performance information derived from the financial statements. It should be read in conjunction with the financial statements and notes thereto. The information has been audited by Ernst & Young LLP, the Fund's independent auditors, whose report thereon appears in the Statement of Additional Information.
YEAR ENDED AUGUST 31, ----------------------------------------------------- 1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- Net asset value, Beginning of Year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 --------- --------- --------- --------- --------- Net investment income... .05 .05 .05 .05 .03 --------- --------- --------- --------- --------- Total From Investment Operations............ .05 .05 .05 .05 .03 Less Distributions: Dividend Distributions. ( .05) ( .05) ( .05) ( .05) ( .03) --------- --------- --------- --------- --------- Total Distributions.... ( .05) ( .05) ( .05) ( .05) ( .03) --------- --------- --------- --------- --------- Net asset value, End of Year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ========= ========= ========= ========= ========= Number of shares outstanding (000's omitted)............... 944,966 587,080 427,494 335,776 210,652 Total Investment Return. 5.11% 4.96% 4.96% 5.04% 2.85% SIGNIFICANT RATIOS AND SUPPLEMENTAL DATA Net assets, End of Year (000's omitted)....... $944,966 $587,080 $427,494 $335,776 $210,652 Operating expenses to average net assets.... .51% .57% .61% .72% .75% Net investment income to average net assets. 4.99% 4.86% 4.84% 4.97% 2.80% YEAR ENDED AUGUST 31, ----------------------------------------------------- 1993 1992 1991 1990 1989 --------- --------- --------- --------- --------- Net asset value, Beginning of Year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 --------- --------- --------- --------- --------- Net investment income... .03 .04 .06 .08* .08* --------- --------- --------- --------- --------- Total From Investment Operations............ .03 .04 .06 .08 .08 Less Distributions: Dividend Distributions. ( .03) ( .04) ( .06) ( .08) ( .08) --------- --------- --------- --------- --------- Total Distributions.... ( .03) ( .04) ( .06) ( .08) ( .08) --------- --------- --------- --------- --------- Net asset value, End of Year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ========= ========= ========= ========= ========= Number of shares outstanding (000's omitted)............... 221,050 234,600 232,660 226,389 111,506 Total Investment Return. 2.54% 3.87% 6.19% 8.04% 8.39% SIGNIFICANT RATIOS AND SUPPLEMENTAL DATA Net assets, End of Year (000's omitted)....... $221,050 $234,600 $232,660 $226,389 $111,506 Operating expenses to average net assets.... .71% .68% .70% .60% .79% Net investment income to average net assets. 2.51% 3.80% 6.01% 7.71%* 8.12%*
- -------- *Includes net realized gain (loss) on investments. WHO SHOULD INVEST The Fund is designed to suit the needs of investors who wish to keep cash balances invested in a portfolio of short-term securities which may be more professionally managed, diversified, higher yielding, more stable and more liquid than investors might be able to obtain on an individual basis. The Fund may also relieve the investor of many of the administrative problems associated with direct investment in short-term securities, such as scheduling maturities and reinvestments, safekeeping of securities and making numerous buy and sell decisions. 4 INVESTMENT OBJECTIVES AND POLICIES The Fund seeks preservation of capital, liquidity and the highest possible level of current income consistent with these objectives. The Fund can change these objectives only with prior shareholder approval. There is no guarantee that the Fund's objectives will be attained. By resolution of its Board of Directors, the Fund has adopted a policy of investing its assets exclusively in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities (which, except for securities covered by repurchase agreements, will mature in six months or less) or in repurchase agreements collateralized by such securities or in a combination of both. Securities subject to repurchase agreements may bear maturities in excess of six months, but the term of the repurchase agreement is normally not more than a few days. The Fund will not enter into a repurchase agreement having a duration of more than seven business days if, as a result, more than 10% of the value of the Fund's total assets would be so invested. The types of U.S. Government securities in which the Fund may invest include a variety of U.S. Treasury obligations, which differ primarily in their interest rates and lengths of maturities, and obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities, including mortgage-related securities. Some of the government agencies and instrumentalities which issue or guarantee securities in which the Fund may invest include the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association, General Services Administration, Federal Farm Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Maritime Administration, Student Loan Marketing Association, The Tennessee Valley Authority and the International Bank for Reconstruction and Development. Obligations of certain of these agencies and instrumentalities, such as the Government National Mortgage Association and the Export-Import Bank of the United States, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal National Mortgage Association, are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Student Loan Marketing Association, are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; and still others, such as those of the Federal Farm Credit Banks and the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. The Fund normally holds its portfolio securities to maturity. Historically, securities issued or guaranteed by the U.S. Government or its agencies and instrumentalities have involved minimal risk of loss of principal or interest, if held to maturity. The Fund may purchase the above-described debt securities outright or invest in securities by means of repurchase agreements with any member bank of the Federal Reserve System and dealers with which the Federal Reserve conducts open market transactions. A repurchase agreement is an instrument under which the purchaser (i.e., the Fund) acquires ownership of an obligation (debt security) and the seller agrees, at the time of sale, to repurchase the obligation at a mutually agreed upon time and price. The term of such an agreement is generally quite short, possibly overnight or a few days, although it may extend over a number of months not to exceed six months from its delivery. The resale price is in excess of the purchase price, reflecting an agreed upon rate of interest, which is effective for the period of time the Fund holds the purchased security and is not related to the coupon rate on the purchased security. Repurchase agreements may be considered loans to the sellers collateralized by the underlying securities. Under a repurchase agreement, the Fund's risk is limited to the ability of the seller to pay the agreed upon sum on the delivery date. In the opinion of management, however, such risk is not material because in the event of default the securities underlying the repurchase agreement serve as collateral for the seller's repurchase 5 obligation and the market value of such underlying securities will at all times equal or exceed the face amount of the seller's obligation, including the accrued interest earned thereon. At all times during its most recent fiscal year ended August 31, 1998, the Fund's net assets were invested exclusively in securities issued by the U.S. Government, its agencies or instrumentalities, or in repurchase agreements collateralized by such securities, or a combination of both. The Fund currently intends to invest more than 95% of its net assets in such securities and repurchase agreements. The yield differential between the securities the Fund invests in and other high quality, short-term investments such as certificates of deposit, bankers' acceptances and high-grade commercial paper is normally quite small. Should this differential widen to in excess of 1 3/4%, management may recommend to the Fund's Board of Directors that it consider authorizing investments in securities other than those issued or guaranteed by the U.S. Government, its agencies or instrumentalities, or in repurchase agreements collateralized by such securities. The Board of Directors may at its discretion, but only after 30 days written notice to shareholders, authorize this change in investment policy, provided such investments are not prohibited by the Fund's investment restrictions or by applicable law. The Fund has no present plans to change its policy with regard to the types or maturities of the securities in which it invests, and this prospectus will be supplemented to give further information should the Fund's Board of Directors authorize such a change. The Fund endeavors to exercise due care in the selection of its portfolio securities, and the risks associated with the securities the Fund purchases are nominal. Nevertheless, an investment in the Fund is not completely risk- free. The Fund's portfolio can depreciate in value if short-term interest rates increase. There is also a risk that demand for redemptions may require that some of the Fund's portfolio be liquidated prior to maturity at a price less than original cost, face amount or maturity value. If these events occur, they could cause a reduction in the net asset value of the Fund's shares and a loss to the Fund's shareholders. For an explanation of the effect that a decline in the value of the Fund's portfolio could have upon the Fund's dividends and its net asset value per share see "Daily Income Dividends". In pursuing its objectives, the Fund may engage in trading activity in order to take advantage of opportunities to enhance yield, protect principal or improve liquidity. This trading activity, and the relatively short maturity of the obligations purchased by the Fund, may result in high portfolio turnover, but such turnover should not increase the Fund's expenses since there are normally no brokerage commissions paid in connection with the purchase or sale of the types of securities in which the Fund invests. The Fund is managed so that the average maturity of all its investments does not exceed 90 days. The average maturity of the Fund's investments at any specific point in time is determined by Hilliard-Lyons based on an assessment of existing and prospective money market conditions. The weighted average maturity of the portfolio on August 31, 1998 was 53 days. HOW TO PURCHASE SHARES The Fund's shares are offered at present only to residents of the states of Arkansas, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Tennessee, Virginia, and West Virginia. Orders for the Fund's shares may be placed as follows: INITIAL INVESTMENT--MINIMUM $1,000 To open an account, complete and mail to J. J. B. Hilliard, W. L. Lyons, Inc., Hilliard Lyons Center, Louisville, Kentucky 40202, an application together with a check made payable to Hilliard-Lyons Government 6 Fund, Inc. An account with the Fund can also be opened in person at any office of Hilliard-Lyons. To shorten the time before the purchase becomes effective, payment may be made with immediately available funds on account at Hilliard- Lyons, including the proceeds of a trade that has completely settled on a prior day which therefore are immediately available to Hilliard-Lyons. The time when a purchase becomes effective is explained in "General Purchase Information". For assistance in opening an account, contact a financial consultant of Hilliard-Lyons. For convenience in effecting purchases and redemptions of Fund shares, an account will automatically be opened at Hilliard-Lyons for each investor opening an account with the Fund. To enable its shareholders to take advantage of the tax laws governing retirement plans, the Fund has established an Individual Retirement Account Plan ("IRA Plan"). For the purpose of investing in the IRA Plan, the initial minimum investment in Fund shares is $1,000; minimum subsequent investments are $100. For more information about the IRA Plan, see the Fund's Statement of Additional Information or contact a financial consultant of Hilliard-Lyons. SUBSEQUENT INVESTMENTS--MINIMUM $100 Subsequent investments may be made by sending a check payable to Hilliard- Lyons Government Fund, Inc., accompanied by a letter indicating the dollar value of the shares to be purchased and identifying the Fund, the account number, and the name or names in which the account is registered to Hilliard- Lyons, P.O. Box 32760, Louisville, Kentucky 40232. A shareholder also may deliver a check payable to the Fund to any office of Hilliard-Lyons and thereby add to his account, or may instruct Hilliard-Lyons in writing, by telephone or in person to purchase Fund shares with immediately available funds on account at Hilliard-Lyons. Shareholders who have brokerage accounts with Hilliard-Lyons may participate in a "sweep" program whereby Hilliard- Lyons automatically invests their account dividends and interest income in Fund shares on a daily basis, thus avoiding loss of interest from idle cash. To participate in the "sweep" program, shareholders should contact a financial consultant of Hilliard-Lyons. GENERAL PURCHASE INFORMATION The Fund is offering its shares without sales charge at a public offering price equal to the net asset value next determined after a purchase order becomes effective. See "Net Asset Value". If Federal funds are available to Hilliard-Lyons before 12:00 noon Boston time on any business day, the purchase order will be effective on that day. If Federal funds are available to Hilliard-Lyons after 12:00 noon on any business day, the purchase order will be effective on the next business day. (For purposes of this prospectus, the term "business day" means every day except Saturdays, Sundays and certain legal holidays.) Checks delivered to Hilliard-Lyons for investment in shares of the Fund normally do not become converted into Federal funds available to Hilliard- Lyons until approximately two business days after the check is deposited. If Hilliard-Lyons is instructed to purchase shares with immediately available funds on account at Hilliard-Lyons, Federal funds will be available to Hilliard-Lyons at the time it receives the instruction. A wire transfer of Federal funds will be available to Hilliard-Lyons at the time the Custodian receives the wire transfer. Each order accepted will be fully invested in whole and fractional shares. Each investment is confirmed by a monthly statement which provides the details of any transactions that took place that month. The information furnished includes the dollar amount invested, the number of shares purchased or redeemed, the price per share, and the aggregate shares owned. 7 The shares which a shareholder purchases are held in an open account, thereby relieving the shareholder of the responsibility of providing for the safekeeping of a negotiable share certificate. Shareholders have the same rights of ownership with respect to such shares as if certificates had been issued. If an order to purchase shares must be canceled due to non-payment, the purchaser will be responsible for any loss incurred by the Fund arising out of such cancellation. To recover any such loss, the Fund reserves the right to redeem shares owned by any purchaser whose order is canceled, and such purchaser may be prohibited from or restricted in the manner of placing further orders. The Fund reserves the right in its sole discretion to withdraw all or any part of the offering made by this prospectus or to reject purchase orders when, in the judgment of management, such withdrawal or rejection is in the best interest of the Fund and its shareholders. The Fund also reserves the right at any time to waive or increase the minimum requirements applicable to initial or subsequent investments with respect to any person or class of persons. HOW TO REDEEM SHARES Shareholders may redeem shares of the Fund at their net asset value as described below. See "Net Asset Value". A shareholder may elect to use either the telephone or mail redemption procedures or, if checks have been issued in respect of the shareholder's account, redemption by check. If a shareholder desires to utilize check redemption procedures this should be indicated on the shareholder's Fund application. Redemption by check or by telephone is not available for shares purchased by personal or corporate checks which have been on the books of the Fund for less than 15 days. REDEMPTION BY TELEPHONE A shareholder may withdraw any amount in excess of $100 from his account by calling Hilliard-Lyons at 502-588-8400. If the redemption request is received at any office of Hilliard-Lyons before 12:00 noon Boston time on any business day, the redemption order will be forwarded to the Custodian and the redemption will be effective as of 12:00 noon Boston time on that day. If the redemption request is received at any office of Hilliard-Lyons after 12:00 noon Boston time, the redemption will be effective on the following business day. Depending upon what was specified in the shareholder's application, the proceeds of a telephone redemption will be wired either to the shareholder's account at Hilliard-Lyons or to the shareholder's bank account. Shareholder's desiring to utilize the redemption by telephone procedure should so indicate on their Fund application. Further documentation may be required from corporations, fiduciaries and institutional investors. If a shareholder should desire the Fund to wire the proceeds of any telephone redemption request directly to the shareholder's bank and he has not so indicated on his Fund application, the shareholder will be required to furnish to the Fund, in advance of or concurrently with the request, a new Fund application identifying the bank and indicating the shareholder's account number. The signature(s) on any such instructions must be guaranteed by a member firm of the New York Stock Exchange or by a commercial bank or trust company (not a savings bank) which is a member of the Federal Deposit Insurance Corporation. Notaries Public are not acceptable guarantors. There will be a $10.00 charge for each wiring of proceeds over $5,000 and a $25.00 charge for each wiring of proceeds under $5,000, of redeemed shares if wired otherwise than to a shareholder's account at Hilliard-Lyons. This charge will be deducted from the proceeds to be wired and will be paid to Hilliard-Lyons to cover the administrative expenses of processing the redemption. 8 Funds will normally be transmitted on the business day on which the redemption becomes effective and credited to the shareholder's Hilliard-Lyons account on the same day. If a shareholder so desires, a check representing the proceeds of such redemption will be available to the shareholder at Hilliard- Lyons after such proceeds have been credited to the shareholder's Hilliard- Lyons account. Alternatively, and normally no later than the next business day, Hilliard-Lyons will mail a check representing such proceeds to the shareholder if so instructed. The Fund and Hilliard-Lyons reserve the right to reject a telephone request and the Fund, at its option, may limit the frequency or amount of such redemptions. The Fund in its discretion may honor telephonic withdrawal requests in amounts less than $100. REDEMPTION BY MAIL To redeem shares by mail, a shareholder must submit a written redemption request to Hilliard-Lyons, P.O. Box 32760, Louisville, Kentucky 40232, in proper form, specifying the number of shares to be redeemed and signed by the shareholder(s) in the same way as the account is registered, with signature(s) guaranteed by a member firm of the New York Stock Exchange or by a commercial bank or trust company (not a savings bank) which is a member of the Federal Deposit Insurance Corporation. Notaries Public are not acceptable guarantors. A shareholder should also include any documents required by special situations. Shareholders may request that proceeds from the redemption of shares be wired to their brokerage account at Hilliard-Lyons. Normally, payment will be made by check mailed within one business day after receipt of a redemption request in proper form. REDEMPTION BY CHECK The Fund will provide shareholders, upon request, with forms of checks drawn on the State Street Bank and Trust Company (the "Bank"). The Bank will establish a checking account for the shareholder. These checks may be made payable to any person in any amount of not more than $5,000,000. When such a check is presented to the Bank for payment, the Bank, as the shareholder's agent, will request the Fund to redeem a sufficient number of full and fractional shares in the shareholder's account to cover the amount of the check. The shareholder will continue earning daily income dividends until the check is cleared and such shares are redeemed. The shareholder will be subject to all applicable Bank rules and regulations including the right of the Bank not to honor checks in amounts exceeding the value of the account at the time the check is presented for payment. The Fund and the Bank each reserve the right to modify or terminate this service at any time after giving notice to the shareholders. If a shareholder wishes to use this method of redemption this should be indicated on the shareholder's Fund application. Checks should not be used to close a shareholder's account since the amount in the account, including accrued dividends, may not equal the amount of the check. Shareholders will receive their canceled checks for record keeping purposes monthly. REDEMPTION BY SYSTEMATIC WITHDRAWAL PLAN A systematic withdrawal plan (the "Withdrawal Plan") is available for shareholders of the Fund. The Withdrawal Plan allows for monthly or quarterly payments to the participating shareholder in amounts not less than $100. Shareholders desiring to utilize the Withdrawal Plan procedure should so indicate on their Fund application. Dividend 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 shareholder in redeeming 9 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 or income. If periodic withdrawals continuously exceed reinvested dividend distributions, the shareholder'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. Shareholders should consult their tax adviser regarding the tax consequences of participating in the Withdrawal Plan. GENERAL The redemption price will be the net asset value per share of the Fund next determined after receipt by the Custodian of a redemption request in proper form or, with respect to redemption by telephone, at the net asset value per share next determined after receipt of a redemption request by Hilliard-Lyons. In no event will payment be delayed more than seven days, except payment may be delayed (generally not in excess of 15 days) if the check in payment of all or a portion of the shares being redeemed has not cleared at the time the redemption request is received. The Fund may suspend the right of redemption or delay payment more than seven days during any period when the New York Stock Exchange is closed (other than customary weekend or holiday closings), when trading in the markets customarily utilized by the Fund is restricted or when an emergency exists so that disposal of investments or determination of net asset value is not reasonably practicable, or for such other period as the Securities and Exchange Commission by order may permit for protection of shareholders. Although the Fund will attempt to maintain a consistent share price of $1.00, it is possible that the value of the shares upon redemption may be more or less than the shareholder's cost, depending upon the market value of the Fund's portfolio securities at the time of redemption. See "Net Asset Value" and "Daily Income Dividends". The Board of Directors may authorize redemption of all of the shares in any account in which there are fewer than l,000 shares. Before authorizing such redemption, the Board of Directors must determine that it is in the Fund's economic best interests, or necessary to reduce disproportionately burdensome expenses in servicing shareholder accounts. At least 60 days' prior notice will be given before such redemption, during which time shareholders may bring their accounts up to the minimum set by the Board of Directors to avoid redemption. If a shareholder has any questions concerning the procedures for redeeming shares the shareholder should call Hilliard-Lyons or contact a Hilliard-Lyons financial consultant prior to submitting a redemption request. NET ASSET VALUE The net asset value per share of the Fund for purposes of pricing orders for both the purchase and redemption of Fund shares is determined once daily on each day except Saturdays, Sundays and certain legal holidays. Net asset value is determined as of 12:00 noon Boston time for the purpose of pricing orders received prior to that time. Net asset value per share is calculated by adding the value of all securities in the portfolio and other assets, subtracting liabilities and dividing by the number of shares outstanding. Expenses, including the fees payable to Hilliard-Lyons, are accrued daily. Portfolio securities are valued using the amortized cost method. 10 Since realized and unrealized changes in the value of the Fund's portfolio securities are ordinarily reflected in dividends rather than net asset value per share, such net asset value per share will ordinarily be maintained at $1.00. See "Daily Income Dividends". DAILY INCOME DIVIDENDS The net income of the Fund is determined as of 12:00 noon Boston time on each day on which the net asset value is determined and is declared as a dividend payable to holders of record immediately prior to the time of determination of net asset value on such day. Dividends declared since the preceding dividend payment date are distributed monthly. Monthly dividend distributions may be reinvested in additional shares or paid in cash, as the shareholder requests, and are payable to shareholders as of the fifteenth day of each month if the fifteenth is a day on which the net asset value is determined, or, if not, as of the preceding day on which the net asset value is determined. A monthly statement summarizing account activity will be mailed to each shareholder who has elected to receive dividends in additional shares of the Fund. Shareholders who have not elected to invest their dividends in shares of the Fund will receive a check with an attached statement providing information on that dividend and on recent transactions in their account. Shares begin earning income at 12:00 noon Boston time on the date the purchase becomes effective. See "How to Purchase Shares". Income earned on weekends, holidays, and other days which are not business days, will be declared as a dividend on the next business day. The Fund's net income for dividend purposes includes accrued interest and accretion of original issue and market discount earned and amortization of premium, plus or minus any net realized gain or loss in portfolio securities occurring since the previous dividend declaration, less the estimated expenses of the Fund for such period. Under this dividend policy, the daily dividend declared on Fund shares will fluctuate. By reflecting these capital changes in the dividends paid rather than in the net asset value per share, the net asset value per share will ordinarily remain constant at $1.00 unless the Fund experiences an extraordinarily large expense or loss on portfolio securities. The Fund has received an exemptive order from the Securities and Exchange Commission permitting it to compute net asset value per share of the Fund to an accuracy of 1% (the nearest penny). Therefore, the Fund's net asset value per share would decline to $.99 per share in the event that realized losses, plus expenses, since the prior dividend were to exceed the Fund's income (without regard to such losses or expenses) by an amount of $.005 or more per share. Accordingly, it is possible that a shareholder could purchase shares of the Fund at $1.00 per share and thereafter the value of these shares could decline to $.99 or less and the shareholder could thereby incur a loss on his investment. TAXES The Fund has elected to qualify under the Internal Revenue Code of 1986, as amended ("Code"), as a regulated investment company and to distribute all of its taxable income to shareholders, thereby relieving it of Federal income tax liability. To qualify for this treatment, it is necessary for the Fund to derive at least 90% of its gross income from dividends, interest and gain from the sale or other disposition of securities and certain other types of passive income; derive less than 30% of its gross income from the sale or other disposition of securities held less than three months; invest in securities within certain limits; and distribute to its shareholders at least 90% of its net income earned in any year. Since all net income is being distributed as dividends, it is taxable to shareholders as ordinary income, except for such portion as may exceed a shareholder's ratable share of the Fund's earnings and profits as 11 determined for tax purposes, which excess will be applied against and reduce the shareholder's cost or other tax basis for his shares. See "Daily Income Dividends". If the excess described above were to exceed the shareholder's tax basis for his shares, the amount thereof would be treated as gain from the sale or exchange of such shares. Dividends paid by the Fund from its net investment income, and distributions of the Fund's net realized short-term capital gains, are taxable to the shareholder as ordinary income regardless of whether they are paid in cash or additional shares. At present, no portion of the dividends paid by the Fund is expected to qualify for the dividends received deduction for corporations. To avoid being subject to a 31% Federal withholding tax on taxable dividends, capital gains distributions and proceeds of redemptions, shareholders' taxpayer identification numbers must be furnished and certified as to accuracy. Information concerning the tax status of dividends and distributions is mailed to shareholders annually. The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury Regulations presently in effect. For the complete provisions, reference should be made to the pertinent Code sections and the Treasury Regulations promulgated thereunder. The Code and these Regulations are subject to change by legislative or administrative action, respectively. OTHER TAXES The Fund may be subject to state or local tax in certain jurisdictions where the Fund may be deemed to be doing business. Shareholders are urged to consult their own tax advisers regarding specific questions as to Federal, state or local taxes. MANAGEMENT OF THE FUND DIRECTORS The business and affairs of the Fund are managed under the direction of its Board of Directors. The Statement of Additional Information contains general background information about each director and officer of the Fund. INVESTMENT ADVISER AND DISTRIBUTOR Hilliard-Lyons serves as the Fund's investment adviser. Hilliard-Lyons is a wholly owned subsidiary of PNC Bank Corp. ("PNC"). Hilliard-Lyons has its principal offices at Hilliard Lyons Center, Louisville, Kentucky 40202. PNC, a multi-bank holding company headquartered in Pittsburgh, Pennsylvania, is one of the largest financial service organizations in the United States. PNC's address is One PNC Plaza, 249 Fifth Avenue, Pittsburgh, Pennsylvania 15222- 2707. Hilliard-Lyons has been retained by the Fund as its investment adviser under an Investment Advisory Agreement (the "Agreement") dated December 1, 1998. Under the Agreement, Hilliard-Lyons supervises investment operations of the Fund and the composition of its portfolio and furnishes advice and recommendations with respect to investments and the purchase and sale of securities in accordance with the Fund's investment objectives, policies and restrictions; subject, however, to the general supervision and control of the Fund's Board of Directors. The Agreement also requires Hilliard-Lyons to furnish office facilities to the Fund at its own expense and to pay certain other expenses of the Fund. Hilliard-Lyons is a registered broker-dealer and a member of the New York, American and Chicago Stock Exchanges, the Chicago Board Options Exchange and the National Association of Securities Dealers, Inc. 12 Hilliard-Lyons maintains an Investment Advisory Department and is registered with the Securities and Exchange Commission as an investment adviser, rendering advice to both individual and institutional clients. Assets under management in this department on October 31, 1998, were over $5,000,000,000. For the services Hilliard-Lyons renders and facilities it furnishes, the Fund has agreed to pay Hilliard-Lyons an annual advisory fee. The annual advisory fee paid for the fiscal year ended August 31, 1998 was .33% of the Fund's average daily net assets for that fiscal year. Certain affiliated persons of the Fund are also affiliated persons of Hilliard-Lyons. Mr. Donald F. Kohler, Chairman of the Board of Directors of the Fund, is a former Executive Vice President and Director of Hilliard-Lyons. Mr. Joseph C. Curry, Jr., President of the Fund, is a Senior Vice President of Hilliard-Lyons. Ms. Dianna P. Wengler, Vice President and Treasurer of the Fund, is a Vice President of Hilliard-Lyons. Provident Distributors, Inc. (the "Distributor"), Four Falls Corporate Center, 6th Floor, West Conshohocken, Pennsylvania 19428, acts as the principal distributor of the Fund's shares. Hilliard-Lyons, a wholly owned subsidiary of PNC, has entered into a Broker-Dealer Agreement to sell shares of the Fund. You may invest or redeem in the Fund through Hilliard-Lyons. TRANSFER AND DIVIDEND AGENT State Street Bank and Trust Company, 225 Franklin Street, P.O. Box 1912, Boston, Massachusetts 02105, is the Fund's transfer agent and dividend disbursing agent. EXPENSES For the fiscal year ended August 31, 1998, the ratio of operating expenses to average net assets of the Fund was .51%. YEAR 2000 Like other mutual funds and financial in business organizations worldwide, investments in the Fund could be adversely affected if computer systems on which the Fund relies are unable to distinguish between the year 1900 and the year 2000 (typically, this is called the "Year 2000 Problem"). The Year 2000 Problem could have a negative impact on handling securities trades, pricing and account services and could otherwise have a material adverse effect on the Fund's business, operations and/or investments. Hilliard Lyons has commenced review of the Year 2000 Problem as it may effect the Fund, both directly and through the systems of the Fund's other service providers and is taking steps reasonably designed to address any Year 2000 Problems. In light of these remedial steps, Hilliard Lyons expects that its systems and the systems of the Fund's other service providers will be adapted to deal with the Year 2000 Problem before the beginning of the Year 2000. There can be no assurance, however, that the systems of Hilliard Lyons or the Fund's other service providers will be successfully adapted to deal with the Year 2000 Problem, or that interaction with other third-parties computer systems which are not prepared for that Year 2000 Problem will not impair their services at that time, or that the Year 2000 Problem will not have an adverse effect on global markets or economies generally. BANKING LAWS Banking laws and regulations presently prohibit a bank holding company registered under the Federal Bank Holding Company Act of 1956 or any bank or non-bank affiliate thereof from sponsoring, organizing or controlling a registered, open-end investment company engaged continuously in the issuance of its shares and 13 prohibit banks generally from issuing, underwriting, selling, or distributing securities such as fund shares. Such banking laws and regulations do not prohibit such a holding company or affiliate or banks generally from acting as investment adviser, transfer agent, or custodian to such an investment company or from purchasing shares of such a company for and upon the order of customers. PNC and Hilliard-Lyons are subject to such banking laws and regulations, but believe that they may perform the services for the Fund contemplated by their respective agreements, this prospectus and the statement of additional information without violating applicable banking laws or regulations. ORGANIZATION AND CAPITALIZATION The Fund operates as a diversified open-end management investment company. It was incorporated under the laws of Maryland on June 5, 1980 and has an authorized capital consisting of 1,500,000,000 shares of common stock, $.01 par value per share. All shares have equal non-cumulative voting rights and equal rights with respect to dividends, distributions, redemptions and liquidation. The shares are fully paid and non-assessable when issued and have no preemptive, conversion or exchange rights. REPORTS The Fund distributes semi-annual and annual reports to its shareholders. An annual report containing audited financial statements is issued after the end of each fiscal year, which ends on August 31. Tax information with regard to a shareholder's account is mailed to each shareholder annually. ADDITIONAL INFORMATION This prospectus does not contain all the information included in the Registration Statement filed with the Securities and Exchange Commission under the Securities Act of 1933 with respect to the securities offered hereby, certain portions of which have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Registration Statement including the exhibits filed therewith may be examined at the office of the Securities and Exchange Commission in Washington, D.C. Statements contained in this prospectus as to the contents of any contract or other document referred to are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement of which this prospectus forms a part, each such statement being qualified in all respects by such reference. 14 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, INVESTMENT BROKER OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION, AND IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. HILLIARD-LYONS GOVERNMENT FUND, INC. HILLIARD LYONS CENTER LOUISVILLE, KENTUCKY 40202 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Hilliard-Lyons Government Fund, Inc. Mailing address: Post Office Box 32760 Hilliard Lyons Center Louisville, Kentucky 40232 Phone: (502) 588-8400 Investment Adviser J. J. B. Hilliard, W. L. Lyons, Inc. Post Office Box 32760 Hilliard Lyons Center Louisville, Kentucky 40232 Phone: (502) 588-8400 Custodian and Transfer Agent State Street Bank and Trust Company 225 Franklin Street P.O. Box 1912 Boston, Massachusetts 02105 Distributor Provident Distributors Inc. Four Falls Corporate Center 6th Floor West Conshohocken, Pennsylvania 19428 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 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION DATED DECEMBER 1, 1998 - ------------------------------------------------------------------------------- HILLIARD-LYONS GOVERNMENT FUND, INC. HILLIARD LYONS CENTER LOUISVILLE, KENTUCKY 40202 (502) 588-8400 This Statement of Additional Information is not a prospectus but should be read in conjunction with the Fund's prospectus dated December 1, 1998 which may be obtained at no cost from J.J.B. Hilliard, W.L. Lyons, Inc. ("Hilliard- Lyons"), Hilliard Lyons Center, Louisville, Kentucky 40202. TABLE OF CONTENTS
PAGE ---- INVESTMENT OBJECTIVES AND POLICIES......................................... 3 Investment Restrictions................................................... 3 Change in Investment Policies............................................. 4 INDIVIDUAL RETIREMENT ACCOUNTS............................................. 4 NET ASSET VALUE............................................................ 6 MANAGEMENT................................................................. 6 INVESTMENT ADVISORY AND OTHER SERVICES..................................... 7 Investment Adviser and Distributor........................................ 7 Custodian................................................................. 9 Independent Auditors...................................................... 10 PORTFOLIO TRANSACTIONS..................................................... 10 YIELD INFORMATION.......................................................... 11 ADDITIONAL INFORMATION..................................................... 12 FINANCIAL STATEMENTS....................................................... 13 REPORT OF INDEPENDENT AUDITORS............................................. 18
2 INVESTMENT OBJECTIVES AND POLICIES The following information supplements the discussion under~ "Investment Objectives and Policies" in the Fund's prospectus. INVESTMENT RESTRICTIONS The Fund may not purchase a security if, as a result: (a) more than 5% of the value of the Fund's total assets would be invested in the securities of a single issuer, except securities issued or guaranteed by the U.S. Government, or any of its agencies or instrumentalities, and repurchase agreements collateralized by such securities; (b) 10% or more of the outstanding securities of any class of any issuer would be held by the Fund (for this purpose, all indebtedness of an issuer is deemed to be of a single class), except securities issued or guaranteed by the U.S. Government, or any of its agencies or instrumentalities, and repurchase agreements collateralized by such securities; (c) 25% or more of the value of the Fund's total assets would be invested in the securities of issuers having their principal business activities in the same industry, provided that this limitation does not apply to obligations issued or guaranteed by the U.S. Government, or its agencies or instrumentalities, or to repurchase agreements collateralized by such securities, or to certificates of deposit or domestic bankers' acceptances; (d) more than 5% of the value of the Fund's total assets would be invested in the securities (taken at cost) of issuers which, at the time of purchase, had been in operation less than three years, including predecessors and unconditional guarantors, except investments in obligations issued or guaranteed by the U.S. Government, or any of its agencies or instrumentalities, and repurchase agreements collateralized by such securities. The Fund may not: (1) purchase any common stock or other equity securities, or securities convertible into equity securities; (2) purchase securities with legal or contractual restrictions on resale (except repurchase agreements) or securities which are otherwise not readily marketable; (3) purchase or sell real estate (although it may purchase money market securities secured by real estate or interests therein, or issued by companies which invest in real estate or interests therein); (4) purchase securities of other investment companies, except in connection with a merger, consolidation, acquisition, or reorganization; (5) purchase or sell commodities or commodity contracts; (6) purchase participations or other direct interests in oil, gas, or other mineral exploration or development programs; (7) purchase securities on margin, except for use of short-term credit necessary for clearance of purchases of portfolio securities; (8) make loans, although it may purchase money market securities and enter into repurchase agreements; (9) borrow money, except as a temporary measure for extraordinary or emergency purposes, and then only from banks in amounts not exceeding the lesser of 10% of its total assets valued at cost or 5% of its total assets valued at market. The Fund will not borrow in order to increase income (leveraging), but only to facilitate redemption requests which might otherwise require untimely disposition of portfolio securities. Accordingly, the Fund will not purchase securities while borrowings are outstanding; (10) mortgage, pledge, hypothecate, or in any other manner transfer as security for indebtedness any security owned by the Fund, except as may be necessary in connection with permissible borrowings mentioned in (9) above, and then such mortgaging, pledging, or hypothecating may not exceed 15% of the Fund's assets, taken at cost; provided, however, that as a matter of operating policy, the Fund will limit any such mortgaging, pledging or hypothecating to 10% of its net assets, taken at market, in order to comply with certain state investment restrictions; (11) underwrite securities issued by other persons; (12) purchase or retain the securities of any issuer if, to the knowledge of the Fund's management, those officers and directors of the Fund, and of its investment adviser, each of whom owns beneficially more than 1/2 of 1% of the outstanding securities of such issuer, together own beneficially more than 5% of such securities; (13) invest in companies for the purpose of exercising management or control; or (14) invest in puts, calls, straddles, spreads or any combination thereof. 3 All of these investment restrictions, except that described as an operating policy in (10), are fundamental policies and may not be changed without the approval of at least a majority of the outstanding shares of the Fund or, if it is less, 67% of the shares represented at a meeting of shareholders at which the holders of 50% or more of the shares are represented. Operating policies are subject to change by the Board of Directors without shareholder approval. However, the operating policy of investing exclusively in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities and repurchase agreements collateralized by such securities, which securities (except those covered by repurchase agreements) will mature in six months or less, may be changed by the Board of Directors only if 30 days written notice is forwarded to shareholders. Likewise, such notice must be given if the Fund is to change its policy of investing not more than 10% of its total assets in repurchase agreements maturing in more than seven business days. CHANGE IN INVESTMENT POLICIES Should the yield differential between the securities in which the Fund invests and other high quality, short-term investments widen to in excess of 1 3/4%, management may recommend to the Fund's Board of Directors that it consider authorizing investments in securities other than those issued or guaranteed by the U.S. Government, its agencies or instrumentalities, or in repurchase agreements collateralized by such securities. The Board of Directors may, at its discretion, but only after 30 days written notice to the shareholders, authorize this change in investment policy, provided such investments are not prohibited by the Fund's investment restrictions or by applicable law. If such policy is changed (after 30 days written notice to shareholders) the Fund will only invest in the following: (i) short-term (maturing in one year or less) debt obligations which are payable in dollars, issued or guaranteed by the Federal government, Federal governmental agencies or instrumentalities, or certain banks, savings and loan associations, and corporations; (ii) certificates of deposit issued by domestic banks (but not foreign branches thereof) and savings and loan associations which have total assets in excess of $1 billion; (iii) bankers' acceptances or letters of credit guaranteed by U.S. commercial banks having total assets in excess of $1 billion; (iv) commercial paper which is rated A-2 or higher by Standard & Poor's Corporation ("Standard & Poor's") or rated P-2 or higher by Moody's Investors Service, Inc. ("Moody's") or, if not rated, will be issued by a corporation having an existing debt security rated AA or higher by Standard & Poor's or Aa or higher by Moody's; (v) other debt instruments (including bonds) issued by domestic corporations which either mature within one year or have been called for redemption by the issuer, with such redemption to be effective within one year, and which are rated AA or higher by Standard & Poor's or Aa or higher by Moody's; (vi) obligations issued by other entities, if the obligation is accompanied by a guarantee of principal and interest of a bank or corporation whose certificates of deposit or commercial paper may otherwise be purchased by the Fund; and (vii) repurchase agreements collateralized by any of the foregoing types of securities. Although securities underlying the repurchase agreements may have maturities longer than one year, no repurchase agreements will be entered into with a duration of more than seven business days, if as a result more than 10% of the Fund's total assets would be so invested. The Fund has no present plans to change its policy with regard to the types or maturities of the securities in which it invests, and the Fund's prospectus will be supplemented to give further information should the Fund's Board of Directors authorize such a change. INDIVIDUAL RETIREMENT ACCOUNTS To enable its shareholders to take advantage of the tax laws governing retirement plans, the Fund has established an Individual Retirement Account Plan ("IRA Plan"). Cash contributions to an IRA made under conditions outlined below are deductible from gross income, and investment earnings accumulate tax-free. 4 In the case of contributions made for the 1998 tax year, an individual is not permitted to make a deductible IRA contribution if the individual has adjusted gross income that exceeds an applicable dollar amount or if the individual is an active participant in an employer maintained defined benefit retirement plan for any part of the plan year ending with or within the individual's taxable year or, in the case of a defined contribution plan, if an employer contribution or any forfeiture is allocated to the individual's account with respect to the individual's taxable year. For a married individual filing a joint return, a contribution can be made if neither spouse is an active participant in an employer-sponsored plan or the couple has a combined applicable dollar amount of less than $50,000. The applicable dollar amount for single filers is $30,000. Active plan participants with adjusted gross income of $30,000 to $40,000 (if single) or $150,000 to $160,000 (if married) may deduct only a portion of an IRA contribution. In addition, no deduction for a contribution is permitted if the contributing individual is age 70 1/2 before the close of the taxable year. The Fund recommends that you consult with your tax adviser or other professional to determine whether or not contributions for 1998 will be deductible. The Fund uses the Individual Retirement Custodian Account Agreement of the Internal Revenue Service (Form 5305-A), in which provisions have been incorporated directing the Custodian, State Street Bank and Trust Company, to invest in shares of the Fund. For the purpose of investing in the IRA Plan, the initial minimum investment in Fund shares is $1,000; minimum subsequent investments are $100. Individuals are eligible to contribute to IRAs even if they currently participate in qualified pension plans, although, as indicated above, the contribution may not be deductible. Contribution limits are the lesser of 100% of compensation or $2,000. An individual may contribute and deduct $2,000 to an IRA for the individual's non-working spouse if a joint return is filed and the combined spousal IRA contributions (subject to a maximum limit of $2,000 each) do not exceed the spouses' combined income. Amounts contributed above these limits may be subject to a 6% excise tax. Under certain conditions, lump sums and partial distributions of any size received as distributions from other retirement plans m~ay be "rolled over" into the IRA Plan without a penalty. Withdrawals from the IRA constitute regular taxable income, but are subject to penalties in addition to the normal tax if they are made before the depositor attains the age of 59 1/2 (unless the withdrawal is made for certain exceptional reasons including, but not limited to, withdrawals after the depositor has become disabled or is deceased) or if minimum distributions are not made after the depositor attains the age of 70 1/2 years. State Street Bank and Trust Company, the Plan Trustee and Custodian, charges $5 to open an IRA and $10 as an annual maintenance fee. A fee of $10 is charged for a lump sum distribution. If you want to participate in the Fund's IRA Plan, contact Hilliard-Lyons. You will be sent Form 5305-A and designation of beneficiary forms. You should fill out the Form and send it to the Fund along with one beneficiary form and a check for your initial contribution (including $5 as the fee for opening the account). The Fund will review your application and forward it to the Custodian after a required seven day waiting period. You may revoke your investment by mail or by telegram during this period. Subsequent investments ($100 minimum) are sent directly to the Custodian, who will buy full and fractional Fund shares at the net asset value next determined after your check clears and the Custodian receives Federal funds. See "General Purchase Information" in the Fund's Prospectus. The Fund recommends that you consult with your tax adviser before investing in the IRA Plan. 5 NET ASSET VALUE As stated in the Fund's prospectus, net asset value per share as of a given date is calculated by adding the value of all securities in the portfolio and other assets of the Fund, subtracting liabilities and dividing by the number of shares outstanding. Expenses, including the fees payable to Hilliard-Lyons, are accrued daily. Portfolio securities are valued by use of the amortized cost method of valuation. The amortized cost method of valuation involves valuing a security at its cost on the date of purchase and thereafter assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. While this method provides certainty in valuation, it may result in periods during which value, as determined by this method, is higher or lower than the price the Fund would receive if it sold the instrument. During such periods the yield to investors in the Fund may differ somewhat from that obtained in a similar company which uses other methods to determine the fair market value of its portfolio securities. The relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value is monitored. The Board of Directors will decide what, if any, steps should be taken if there is a difference of more than 1/2 of 1% between the two. The Board of Directors will take any steps they consider appropriate to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. In connection with its attempt to maintain its net asset value per share of $1.00, the Fund has received an order of exemption from the Securities and Exchange Commission permitting the Fund to round its net asset value per share to the nearest one cent. In connection with the order of exemption, the Fund has agreed: (i) that its Board of Directors will undertake to assure, to the extent reasonably practicable, taking into account current market conditions affecting its investment objectives, that the Fund's price per share, rounded to the nearest one cent, will not deviate from $1.00; (ii) that it will maintain a dollar-weighted average portfolio maturity appropriate to its objective of maintaining a stable price per share and not, in any event, in excess of 90 days; and (iii) that its purchases of portfolio securities will be limited to those United States dollar denominated instruments which its Board of Directors determines present minimal credit risks and which are of high quality as determined by any major rating service or, in the case of any instrument that is not so rated, of comparable quality as determined by its Board of Directors. MANAGEMENT Directors and officers of the Fund, together with information as to their principal occupations during the past five years and affiliations, if any, with Hilliard-Lyons, are set forth below.
POSITION(S) HELD PRINCIPAL OCCUPATION(S) NAME AND ADDRESS WITH THE FUND DURING PAST 5 YEARS ---------------- ---------------- ----------------------- Donald F. Kohler*........ Chairman of the Board Retired, Former Executive Hilliard Lyons Center Vice President and Louisville, Kentucky Director, J. J. B. 40202 Hilliard, W. L. Lyons, Inc. Joseph C. Curry, Jr.*.... President Senior Vice President, J. J. Hilliard Lyons Center B. Hilliard, W. L. Lyons, Louisville, Kentucky Inc. 40202
6
POSITION(S) HELD PRINCIPAL OCCUPATION(S) NAME AND ADDRESS WITH THE FUND DURING PAST 5 YEARS ---------------- ---------------- ----------------------- J. Henning Hilliard..... Director Retired, former Senior Hilliard Lyons Center Executive and Director, J. Louisville, Kentucky J. B. Hilliard, W. L. 40202 Lyons, Inc. J. Robert Shine+........ Director Chairman and Certified 222 East Market Street Public Accountant, Monroe New Albany, Indiana Shine & Co., Inc. 47150 Samuel G. Miller+ ...... Director Retired, former Chairman of 402 Wynfield Close Vineyard Village Court Louisville, Kentucky 40206 Dianna P. Wengler*...... Vice President and Treasurer Vice President, J. J. B. Hilliard Lyons Center Hilliard, W. L. Lyons, Inc. Louisville, Kentucky 40202 Penny L. Wellinghurst*.. Secretary Investment Advisory Hilliard Lyons Center Department, J. J. B. Louisville, Kentucky Hilliard, W. L. Lyons, Inc. 40202
- -------- *An "interested person", as defined by the Investment Company Act of 1940. +Member of Audit Committee. No compensation is paid by the Fund to officers of the Fund and directors who are affiliated with Hilliard-Lyons. The Fund pays each unaffiliated director an annual retainer of $3,000, a fee of $750 for each meeting of the Board of Directors and of the Audit Committee attended and all expenses the directors incur in attending meetings. For the year ended August 31, 1998, unaffiliated directors received, in the aggregate, $15,000 from the Fund, excluding reimbursed expenses. The Fund's officers and directors together own less than 1% of its outstanding shares. INVESTMENT ADVISORY AND OTHER SERVICES INVESTMENT ADVISER AND DISTRIBUTOR Hilliard-Lyons has been retained by the Fund as its investment adviser under an Investment Advisory Agreement (the "Agreement") dated December 1, 1998. The Agreement was approved by the Board of Directors, including a majority of the directors who are not interested persons of Hilliard-Lyons, on September 17, 1998 and by the shareholders of the Fund, on November 23, 1998. The Agreement will be in effect for two years from December 1, 1998 through December 1, 2000 and will continue in effect from year to year thereafter, provided that such continuance is approved at least annually (a) by a majority of the Fund's directors who are not interested persons of Hilliard-Lyons and (b) by either the Fund's Board of Directors or by the vote of a majority of the outstanding voting securities of the Fund (as defined in the Investment Company Act of 1940). The Agreement may be terminated by Hilliard-Lyons at any time without penalty upon giving the Fund 60 days' written notice and may be terminated by the Fund at any time without penalty upon giving Hilliard-Lyons 7 60 days' written notice, provided that such termination by the Fund is directed or approved by the vote of a majority of the Board of Directors of the Fund or by the vote of a majority of the outstanding voting securities of the Fund (as defined in the Investment Company Act of 1940). The Agreement will automatically terminate in the event of its assignment. The Agreement requires Hilliard-Lyons at its own expense to furnish office space to the Fund and all necessary office facilities, equipment, and personnel for managing the assets of the Fund. Hilliard-Lyons pays all other expenses incurred by it in connection with managing the assets of the Fund, including, but not limited to, the cost and expense of research, analysis and supervision of the investment portfolio. Hilliard-Lyons pays the expense of determining the daily price of shares of the Fund and the related bookkeeping expenses (other than for such services as are provided by the Fund's Custodian) and one-half of the fees of any trade association of which the Fund may be a member. Hilliard-Lyons paid all costs and expenses incurred in connection with the Fund's organization, the initial registration for offer and sale of the Fund's shares under the Securities Act of 1933 and under applicable state securities laws and the initial registration of the Fund under the Investment Company Act of 1940, including legal, accounting and printing expenses. Under the Agreement, the Fund pays all charges of depositories, custodians, and other agencies for the safekeeping and servicing of its cash, securities, and other property, and of its transfer, shareholder record- keeping, dividend disbursing, and redemption agents. The Fund pays all charges of legal counsel and of independent auditors, other than those described in the preceding paragraph. The Fund is responsible for all interest expense. The expense of notices, proxy solicitation material, reports to its shareholders and of all prospectuses furnished from time to time to existing shareholders or used for regulatory purposes are the Fund's responsibility. The Fund pays for any bond and insurance coverage required by law, all brokers' commissions and other normal charges incident to the purchase and sale of portfolio securities. The Fund pays all taxes and corporate fees payable to Federal, state, or other governmental agencies and all stamp or other transfer taxes. The Fund bears all expenses of complying with Federal, state, and other laws regulating the issue or sale of shares except for those expenses that were attributable to initial Federal and state securities law compliance and those deemed to be sales or promotional expenses. The Fund also bears one-half of the fees of any trade association of which the Fund may be a member and all of the Fund's extraordinary expenses as may arise including expenses incurred in connection with litigation, proceedings and claims and expenses incurred in connection with the legal obligation of the Fund to indemnify its directors, employees, shareholders and agents with respect to any claims or litigation. In general, the Fund bears all expenses incidental to its operations not assumed by Hilliard-Lyons, with the exception of sales and promotional expenses which are borne by Hilliard-Lyons. For the services Hilliard-Lyons renders and facilities it furnishes pursuant to the Agreement, the Fund has agreed to pay Hilliard-Lyons an annual advisory fee of 1/2 of 1% of the first $200 million of average daily net assets, 3/8 of 1% of the next $100 million of average daily net assets, and 1/4 of 1% of average daily net assets in excess of $300 million. The fee accrues daily and is paid monthly. For the fiscal years ended August 31, 1996, 1997, and 1998 Hilliard-Lyons earned advisory fees, based on the formula described above, totalling $1,660,231, $1,880,981, and $2,550,536, respectively. Hilliard-Lyons has agreed to reimburse the Fund if total operating expenses of the Fund, excluding taxes, interest and (with prior written consent of the necessary state securities commissions) extraordinary expenses, exceed on an annual basis 1 1/2% of the first $30,000,000 of average daily net assets and 1% of average daily net assets over $30,000,000. Hilliard-Lyons reimburses the Fund for such excess expenses monthly as an offset against any amounts receivable from the Fund. All such reimbursements and offsets are subject to adjustments as of the end of each fiscal year. There were no reimbursements necessary in the fiscal years ended August 31, 1996, 1997, or 1998. 8 The Agreement provides that in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard for its obligations thereunder, Hilliard-Lyons is not liable for any act or omission in the course of or in connection with its rendering of services thereunder. Hilliard-Lyons has reserved the right to grant its name to other mutual funds and if the Agreement is terminated to withdraw its consent to the continuing use of its name by the Fund. Mr. Donald F. Kohler, Chairman of the Board of Directors of the Fund, is a former Executive Vice President and a Director of Hilliard-Lyons. Mr. Joseph C. Curry, Jr., President of the Fund, is a Senior Vice President of Hilliard- Lyons. Ms. Dianna P. Wengler, Vice-President and Treasurer of the Fund, is a Vice-President of Hilliard-Lyons. Mr. J. Henning Hilliard, a Director of the Fund, is a former Senior Executive and Director of Hilliard-Lyons. Ms. Penny Wellinghurst, Secretary of the Fund, is an employee of Hilliard-Lyons. The senior officers and directors of Hilliard-Lyons are: Brian M. Boor, Senior Vice President and Director; James W. Stuckert, Chairman and Chief Executive Officer; Joseph L. Heintzman, Jr., Senior Vice President and Chief Financial Officer; Kenneth L. Wagner, Senior Vice President and Secretary; James R. Allen, Executive Vice President and Director; Samuel C. Harvey, Executive Vice President and Director; Frank James Walker, Executive Vice President and Director; James M. Rogers, Executive Vice President, Chief Operating Officer, and Director; Ronald G. Hollander, Senior Vice President and Director; and Peter Mahurin, Senior Vice President and Director. The directors and officers of Hilliard-Lyons, including the aforementioned officers and directors of the Fund, may be deemed to control Hilliard-Lyons by reason of their position with Hilliard-Lyons. The Fund entered into a Distribution Agreement dated as of December 1, 1998 (the "Distribution Agreement") with Provident Distributors, Inc. (the "Distributor"). The terms of the Distribution Agreement were approved on November 23, 1998, by vote of the Board of Directors of the Fund, including a majority of the directors of the Fund who are not "interested persons" (as such term is defined in the Investment Company Act of 1940) of any party thereto, cast in person at a meeting called for the purpose of voting on such approval. Pursuant to the terms of the Distribution Agreement, the Distributor serves as the principal underwriter and distributor of the Fund's shares. Pursuant to an agreement with the Distributor, Hilliard-Lyons has agreed to pay the Distributor a fee of $2,000 per month for services it renders to the Fund. There is no fee payable by the Fund pursuant to the Distribution Agreement. The agreement also provides that Hilliard-Lyons bears the cost of all sales and promotional expenses, including the expenses of printing all sales literature and prospectuses, other than those utilized for regulatory purposes and those furnished from time to time to existing shareholders of the Fund. The continuance of the Distribution Agreement must be approved by a majority of the Fund's Board of Directors including a majority of the directors, who are not "interested persons". The Agreement will terminate automatically if assigned by either party thereto and is terminable upon 60 days written notice by the Fund and/or the Distributor. CUSTODIAN State Street Bank and Trust Company, 225 Franklin Street, P.O. Box 1912, Boston, Massachusetts 02105, is the Fund's custodian. As such, it is responsible for maintaining books and records with respect to the Fund's portfolio transactions and holds the Fund's portfolio securities and cash pursuant to a Custodian Agreement with the Fund. It also maintains the Fund's accounting and portfolio transaction records and computes the Fund's net asset value, net income and dividends daily. State Street Bank and Trust Company may, for settlement purposes, enter into sub-custodian agreements with other banks. INDEPENDENT AUDITORS Ernst & Young LLP, 400 West Market Street, Louisville, Kentucky 40202, have been selected as independent auditors of the Fund, and such firm also prepares the Fund's Federal and state income tax returns. 9 PORTFOLIO TRANSACTIONS Hilliard-Lyons, as investment adviser, places orders for all purchases and sales of portfolio securities. As a consequence of its investment policies and restrictions, the Fund does not generally purchase securities for which a brokerage commission is paid, but purchases securities from dealers at current market prices, or directly from the issuer. Purchases from underwriters of portfolio securities will include a commission or concession paid by the issuer to the underwriter, and purchases from dealers serving as market makers will include a dealer's mark-up. Although the Fund does not seek but may nonetheless make profits through short-term trading, Hilliard-Lyons may, on behalf of the Fund, dispose of any portfolio security prior to its maturity if it believes such disposition advisable. The Fund's policy of generally investing in securities with maturities of six months or less results in high portfolio turnover. However, since brokerage commissions are not normally paid by the Fund on investments which the Fund may make, turnover resulting from such investments has not adversely affected the net asset value or net income of the Fund. On occasions when the Fund and Hilliard-Lyons deem the purchase or sale of a security to be in the best interests of the Fund as well as other customers, Hilliard-Lyons, to the extent permitted by applicable laws and regulations, may, but is not obligated to, aggregate the securities to be sold or purchased for the Fund with those to be sold or purchased for other customers in order to obtain best execution. In such event, allocation of the securities so purchased or sold as well as any expenses incurred in the transactions are made by Hilliard-Lyons in the manner it considers to be most equitable and consistent with its fiduciary obligations to all such customers, including the Fund. In some instances, this procedure may adversely affect the size of the position or yield obtainable for the Fund. Portfolio securities are not purchased from or through or sold to or through Hilliard-Lyons or any affiliated person (as defined in the Investment Company Act of 1940) of Hilliard-Lyons when Hilliard-Lyons is acting as principal. Hilliard-Lyons is a frequent dealer in U.S. Treasury and U.S. agency securities. In addition, the Fund does not purchase securities during the existence of any underwriting or selling group related thereto of which Hilliard-Lyons is a member. As a result, substantially all of the Fund's purchases of Federal agency securities are made in the secondary market. Such limitation, in the opinion of the Fund, does not affect the Fund's ability to pursue its investment objectives. However, under certain circumstances, the Fund may be at a disadvantage because of this limitation in comparison with other funds with similar investment objectives but not subject to such limitation. No affiliated person of the Fund, including Hilliard-Lyons, may serve as a dealer in connection with transactions with the Fund. However, affiliated persons of the Fund may serve as its broker in any transactions conducted on an agency basis. The Adviser's overriding objective in placing orders for the purchase and sale of the Fund's portfolio securities with a particular bank, dealer or broker is to seek to obtain the best combination of price and execution. The best net price, giving effect to transaction and other costs, is normally an important factor in this decision, but a number of other judgmental considerations also enter into the decision. These considerations include, but are not limited to: (1) trading and operational capability; (2) financial condition and stability; and (3) reliability and integrity. Accordingly, the Fund may not necessarily be paying the lowest spread or commission available. When more than one broker or dealer is believed to be capable of providing the best combination of price and execution with respect to a particular portfolio transaction, Hilliard-Lyons may select a broker or dealer primarily on the basis of its ability to furnish research, statistical or similar services to Hilliard-Lyons. Since such information and services will be only supplementary to Hilliard-Lyons' own research efforts, the receipt of research information is not expected to significantly reduce Hilliard-Lyons' expenses. Research information furnished by brokers or dealers may be useful to Hilliard-Lyons in serving other clients, as well as the Fund. Conversely, the Fund may benefit from research information obtained by Hilliard-Lyons from the placement of portfolio transactions of other clients. 10 YIELD INFORMATION The Fund's yield is its current net investment income expressed in annualized terms. Yield is computed by dividing the Fund's average per share net investment income for a current period (for example, seven calendar days) by the Fund's average per share net asset value for the same period and annualizing the result on a 365-day basis. The Fund's net investment income changes in response to fluctuations in interest rates and in the expenses of the Fund. Any given yield quotation should not be considered as representative of what the Fund's yield may be for any specified period in the future. Because the yield will fluctuate, it cannot be compared with yields on savings accounts or other investment alternatives that provide an agreed to or guaranteed fixed yield for a stated period of time. However, yield information may be useful to an investor considering temporary investments in money market instruments. In comparing the yield of one money market fund to another, consideration should be given to each fund's investment policies, including the types of investments made, lengths of maturities of the portfolios, the method used by each fund to compute the yield (which may differ) and whether there are any special account charges which may reduce the effective yield. The following is an example of the yield calculation. The yield shown represents the average annualized net investment income per share for the seven days ended August 31, 1998. Total dividends per share from net investment income (seven days ended August 31, 1998)................................... $ .00095 Annualized (365 day basis)..................................... $ .04973 Average net asset value per share.............................. $1.00 Annualized net yield per share for seven calendar days ended August 31, 1998............................................... 4.97%
11 ADDITIONAL INFORMATION The prospectus and this Statement of Additional Information do not contain all the information included in the Registration Statement filed with the Securities and Exchange Commission under the Securities Act of 1933 with respect to the securities offered hereby, certain portions of which have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Registration Statement, including the exhibits filed therewith, may be examined at the office of the Securities and Exchange Commission in Washington, D.C. Statements contained in the prospectus and this Statement of Additional Information as to the contents of any contract or other document referred to are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement of which the prospectus and this Statement of Additional Information form a part, each such statement being qualified in all respects by such reference. 12 HILLIARD-LYONS GOVERNMENT FUND, INC. SCHEDULE OF INVESTMENTS AUGUST 31, 1998
PRINCIPAL PURCHASE MATURITY AMOUNT YIELD DATE VALUE ----------- -------- -------- ----------- U.S. GOVERNMENT AGENCY OBLIGATIONS -- 100.3% $10,000,000 Federal Farm Credit Bank 5.504% 09/01/98 $10,000,000 9,145,000 Federal Home Loan Bank 5.729 09/01/98 9,145,000 20,000,000 Federal Home Loan Bank 5.520 09/02/98 19,997,017 13,000,000 Federal Farm Credit Bank 5.507 09/03/98 12,996,114 15,000,000 Federal Home Loan Bank 5.502 09/04/98 14,993,325 10,000,000 Federal Home Loan Bank 5.485 09/08/98 9,989,558 20,000,000 Federal Home Loan Bank 5.529 09/09/98 19,976,089 9,000,000 Federal Farm Credit Bank 5.524 09/10/98 8,987,895 8,000,000 Federal Farm Credit Bank 5.541 09/11/98 7,988,000 4,500,000 Federal Home Loan Bank 5.512 09/11/98 4,493,300 15,000,000 Federal Home Loan Bank 5.490 09/14/98 14,970,913 7,000,000 Federal Farm Credit Bank 5.510 09/15/98 6,985,409 20,000,000 Federal Home Loan Bank 5.530 09/16/98 19,955,167 17,000,000 Federal Farm Credit Bank 5.508 09/17/98 16,959,276 13,000,000 Federal Home Loan Bank 5.520 09/18/98 12,967,034 5,000,000 Federal Farm Credit Bank 5.510 09/21/98 4,985,139 6,000,000 Federal Farm Credit Bank 5.520 09/21/98 5,982,133 17,000,000 Federal Farm Credit Bank 5.505 09/22/98 16,946,648 8,000,000 Federal Home Loan Bank 5.528 09/23/98 7,973,796 15,000,000 Federal Farm Credit Bank 5.517 09/24/98 14,948,538 20,000,000 Federal Home Loan Bank 5.540 09/25/98 19,928,133 11,000,000 Federal Farm Credit Bank 5.509 09/28/98 10,955,615 7,000,000 Federal Farm Credit Bank 5.522 09/29/98 6,970,818 5,000,000 Federal Farm Credit Bank 5.515 09/30/98 4,978,371 9,000,000 Federal Home Loan Bank 5.510 09/30/98 8,961,140 6,754,000 Federal Farm Credit Bank 5.531 10/01/98 6,723,776 8,000,000 Federal Farm Credit Bank 5.511 10/01/98 7,963,933 20,000,000 Federal Home Loan Bank 5.510 10/02/98 19,907,689 25,000,000 Federal Home Loan Bank 5.512 10/05/98 24,873,444 18,000,000 Federal Farm Credit Bank 5.533 10/06/98 17,905,325 15,000,000 Federal Home Loan Bank 5.526 10/07/98 14,919,750 15,000,000 Federal Home Loan Bank 5.508 10/08/98 14,917,367 12,000,000 Federal Home Loan Bank 5.524 10/09/98 11,932,107 20,000,000 Federal Home Loan Bank 5.543 10/13/98 19,874,933 8,000,000 Federal Home Loan Bank 5.532 10/14/98 7,948,782 8,000,000 Federal Home Loan Bank 5.530 10/14/98 7,948,591 21,000,000 Federal Home Loan Bank 5.515 10/15/98 20,862,170 20,000,000 Federal Home Loan Bank 5.540 10/16/98 19,865,250 10,000,000 Federal Farm Credit Bank 5.538 10/19/98 9,928,533 18,000,000 Federal Farm Credit Bank 5.522 10/20/98 17,867,700 14,000,000 Federal Home Loan Bank 5.540 10/21/98 13,895,194
See notes to financial statements. 13 HILLIARD-LYONS GOVERNMENT FUND, INC. SCHEDULE OF INVESTMENTS (CONTINUED) AUGUST 31, 1998
PRINCIPAL PURCHASE MATURITY AMOUNT YIELD DATE VALUE ----------- -------- -------- ------------ $12,000,000 Federal Home Loan Bank 5.542% 10/23/98 $ 11,906,400 15,000,000 Federal Farm Credit Bank 5.537 10/26/98 14,876,479 23,000,000 Federal Home Loan Bank 5.540 10/28/98 22,803,714 14,000,000 Federal Home Loan Bank 5.540 10/30/98 13,877,247 19,000,000 Federal Home Loan Bank 5.489 11/02/98 18,824,609 15,000,000 Federal Farm Credit Bank 5.523 11/03/98 14,859,563 12,000,000 Federal Farm Credit Bank 5.520 11/04/98 11,885,440 20,000,000 Federal Farm Credit Bank 5.508 11/05/98 19,806,444 12,000,000 Federal Home Loan Bank 5.510 11/06/98 11,882,080 17,000,000 Federal Home Loan Bank 5.508 11/09/98 16,825,353 18,000,000 Federal Farm Credit Bank 5.518 11/10/98 17,812,050 15,000,000 Federal Home Loan Bank 5.531 11/12/98 14,838,900 13,000,000 Federal Farm Credit Bank 5.510 11/13/98 12,859,495 7,000,000 Federal Farm Credit Bank 5.530 11/17/98 6,919,449 30,000,000 Federal Home Loan Bank 5.556 11/18/98 29,648,675 10,000,000 Federal Farm Credit Bank 5.505 11/20/98 9,881,778 5,000,000 Federal Home Loan Bank 5.530 11/20/98 4,940,222 17,000,000 Federal Home Loan Bank 5.530 11/25/98 16,784,053 16,000,000 Federal Home Loan Bank 5.520 11/27/98 15,792,360 9,090,000 Federal Home Loan Bank 5.540 12/02/98 8,965,720 8,000,000 Federal Home Loan Bank 5.486 12/04/98 7,888,871 6,390,000 Federal Home Loan Bank 5.532 12/14/98 6,291,054 12,000,000 Federal Farm Credit Bank 5.511 12/21/98 11,802,420 20,000,000 Federal Home Loan Bank 5.498 01/04/99 19,633,333 17,000,000 Federal Home Loan Bank 5.551 01/06/99 16,679,149 20,000,000 Federal Home Loan Bank 5.501 01/08/99 19,619,450 14,000,000 Federal Home Loan Bank 5.514 01/14/99 13,720,700 13,000,000 Federal Home Loan Bank 5.548 01/15/99 12,737,747 13,000,000 Federal Home Loan Bank 5.534 01/20/99 12,728,615 ------------ TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (amortized cost -- $947,460,342) 947,460,342 ------------ TOTAL INVESTMENTS (100.3%) (cost -- $947,460,342*) $947,460,342 ============
* Also represents cost for federal income tax purposes. The percentage shown for each investment category is the total value of that category as a percentage of the total net assets of the Fund. See notes to financial statements. 14 HILLIARD-LYONS GOVERNMENT FUND, INC. STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 1998 ASSETS Investments in money market instruments, at value: United States Government Agency Obligations, at value (amortized cost--$947,460,342)............................................. $947,460,342 ------------ Total Investments.............................................. 947,460,342 Cash............................................................. 2,583 Prepaid expenses................................................. 3,666 ------------ TOTAL ASSETS................................................... 947,466,591 ------------ LIABILITIES Dividends payable................................................ 2,054,324 Due to J.J.B. Hilliard, W.L. Lyons, Inc.--Note B................. 252,165 Miscellaneous accrued expenses................................... 194,279 ------------ TOTAL LIABILITIES.............................................. 2,500,768 ------------ NET ASSETS (equivalent to $1.00 per share; 1,500,000,000 shares authorized and 944,965,823 shares issued and outstanding)--Note C............................................................... $944,965,823 ============ HILLIARD-LYONS GOVERNMENT FUND, INC. STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1998 INVESTMENT INCOME Interest income.................................................. $ 42,367,727 EXPENSES Investment Advisory fee--Note B.................................. 2,550,536 Shareholder servicing fees--Note B............................... 772,607 Transfer agent fees.............................................. 221,993 Custodian fees................................................... 123,130 Printing and other expenses...................................... 83,144 Filing fees...................................................... 112,340 Insurance expense................................................ 32,371 Legal and audit fees............................................. 35,107 Directors' fees.................................................. 21,550 ------------ Total expenses.................................................. 3,952,778 ------------ Net investment income........................................... 38,414,949 ------------ Net increase in net assets resulting from operations............ $ 38,414,949 ============
See notes to financial statements. 15 HILLIARD-LYONS GOVERNMENT FUND, INC. STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED AUGUST 31 1998 1997 ------------- ------------- INCREASE IN NET ASSETS: FROM OPERATIONS Net investment income............................ $ 38,414,949 $ 24,409,576 ------------- ------------- Net increase in net assets resulting from operations..................................... 38,414,949 24,409,576 Dividends to shareholders ($.049903 and $.048529 per share, respectively)........................ ( 38,414,949) ( 24,409,576) ------------- ------------- Undistributed net investment income.............. 0 0 ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS Net capital share transactions (at $1.00 per share)--Note C.................................. 357,885,980 159,585,459 NET ASSETS Beginning of year................................ 587,079,843 427,494,384 ------------- ------------- End of year...................................... $944,965,823 $587,079,843 ============= =============
FINANCIAL HIGHLIGHTS The following table includes selected data for a share of capital stock outstanding throughout each year and other performance information derived from the financial statements. It should be read in conjunction with the financial statements and notes thereto.
FOR THE YEAR ENDED AUGUST 31, 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- Net asset value, beginning of year........................ $1.00 $1.00 $1.00 $1.00 $1.00 -------- -------- -------- -------- -------- Net investment income........ .05 .05 .05 .05 .03 -------- -------- -------- -------- -------- Total from investment operations................. .05 .05 .05 .05 .03 Less distributions: Dividend distributions...... ( .05) ( .05) ( .05) ( .05) ( .03) -------- -------- -------- -------- -------- Total distributions.......... ( .05) ( .05) ( .05) ( .05) ( .03) -------- -------- -------- -------- -------- Net asset value, end of year. $1.00 $1.00 $1.00 $1.00 $1.00 ======== ======== ======== ======== ======== Number of shares outstanding (000's omitted)............. 944,966 587,080 427,494 335,776 210,652 Total investment return...... 5.11% 4.96% 4.96% 5.04% 2.85% SIGNIFICANT RATIOS AND SUPPLEMENTAL DATA Net assets, end of year (000's omitted)............ $944,966 $587,080 $427,494 $335,776 $210,652 Operating expenses to average net assets......... .51% .57% .61% .72% .75% Net investment income to average net assets......... 4.99% 4.86% 4.84% 4.97% 2.80%
See notes to financial statements 16 HILLIARD-LYONS GOVERNMENT FUND, INC. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998 NOTE A--ACCOUNTING POLICIES Hilliard-Lyons Government Fund, Inc. (the "Fund") is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. SECURITY VALUATION: The Fund employs the amortized cost method of security valuation for U.S. Government securities which, in the opinion of the Board of Directors, represents fair value of the particular security. The Board monitors deviations between net asset value per share as determined by using available market quotations and the amortized cost method of security valuation. If the deviation in the aggregate is significant, the Board considers what action, if any, should be initiated to provide fair valuation. The Fund values repurchase agreements at cost and accrues interest into interest receivable. Normally, repurchase agreements are not subject to trading. Repurchase agreements are fully collateralized by U.S. Treasury and U.S. Government Agency obligations valued at bid prices plus accrued interest. U.S. Treasury and U.S. Government Agency obligations pledged as collateral for repurchase agreements are held by the Fund's custodian bank until maturity of the repurchase agreements. Provisions of the agreements provide that the market value of the collateral plus accrued interest on the collateral is greater than or equal to the repurchase price plus accrued interest at all times. In the event of default or bankruptcy by the other party to the agreements, the Fund maintains the right to sell the underlying securities at market value; however, realization and/or retention of the collateral may be subject to legal proceedings. FEDERAL INCOME TAXES: It is the policy of the Fund to continue 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. DIVIDENDS TO SHAREHOLDERS: The net investment income of the Fund is determined on each business day and is declared as a dividend payable to shareholders of record immediately prior to the time of determination of net asset value on each such day. Dividends declared since the preceding dividend payment date are distributed monthly. The Fund's net investment income for dividend purposes includes accrued interest and accretion of original issue and market discounts earned and amortization of premiums, plus or minus any net realized gain or loss on portfolio securities, if any, occurring since the previous dividend declaration, less the accrued expenses of the Fund for such period. INVESTMENT TRANSACTIONS: Investment transactions are accounted for on the date the securities are bought or sold. Net realized gains and losses on sales of investments, if any, are determined on the basis of identified cost. The Fund may enter into repurchase agreements with financial institutions, deemed to be credit worthy by J.J.B. Hilliard, W.L. Lyons, Inc. (the "Adviser"), subject to the seller's agreement to repurchase and the Fund's agreement to sell such security at a mutually agreed upon date and price. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE B--INVESTMENT ADVISORY FEES & OTHER TRANSACTIONS WITH AFFILIATES On October 23, 1997, the Fund renewed its investment advisory agreement with the Adviser. Under the investment advisory agreement, the Adviser supervises investment operations of the Fund and the composition of its portfolio, and furnishes advice and recommendations with respect to investments and the purchase and sale of securities in accordance with the Fund's investment objectives, policies and restrictions; subject, however, to the general supervision and control of the Fund's Board of Directors. For the services the Adviser renders, the Fund has agreed to pay the Adviser an annual advisory fee of 1/2 of 1% of the first $200 million of average daily net assets, 3/8 of 1% of the next $100 million of average daily net assets, and 1/4 of 1% of the average daily net assets in excess of $300 million. Such fee is accrued daily and paid monthly. The Adviser has agreed to reimburse the Fund if total operating expenses of the Fund, excluding taxes, interest and extraordinary expenses (as defined), exceed on an annual basis 1 1/2% of the first $30 million of average daily net assets and 1% of average daily net assets over $30 million. There was no reimbursement required for the year ended August 31, 1998. On August 20, 1998, PNC Bank Corp. entered into an Agreement and Plan of Merger with Hilliard-Lyons, Inc. (the "Merger") pursuant to which the Adviser will become a subsidiary of PNC Bank Corp. The Merger is expected to become effective on or after November 30, 1998. This Merger constitutes an assignment of the Investment Advisory Agreement (the "Agreement") as defined in the Investment Company Act of 1940. Shareholders are being asked to approve a new Agreement at a Special Shareholders Meeting scheduled to be held November 6, 1998. The Fund contracted with the Adviser to provide shareholder accounting services. The Adviser is paid a fee of $1.00 per open account each month. No compensation is paid by the Fund to officers of the Fund and Directors who are affiliated with the Adviser. The Fund pays each unaffiliated director an annual retainer of $3,000, a fee of $750 for each Board of Directors or committee meeting attended, and all expenses the Directors incur in attending meetings. NOTE C--CAPITAL STOCK The Fund was incorporated in June 1980 under the laws of the state of Maryland. At August 31, 1998, there were 1,500,000,000 shares of $.01 par value Common Stock authorized, and capital paid in aggregated $935,516,165. Transactions in Fund shares at $1.00 per share were as follows:
FOR THE YEAR ENDED AUGUST 31, 1998 1997 -------------- -------------- Shares sold 2,979,565,610 1,740,443,413 Shares issued to shareholders in reinvestment of dividends 36,974,418 23,618,228 -------------- -------------- 3,016,540,028 1,764,061,641 Less shares repurchased (2,658,654,048) (1,604,476,182) -------------- -------------- Net increase in capital shares 357,885,980 159,585,459 ============== ==============
17 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Shareholders Hilliard-Lyons Government Fund, Inc. We have audited the accompanying statement of assets and liabilities, including the schedule of portfolio investments, of the Hilliard-Lyons Government Fund, Inc. (the Fund) as of August 31, 1998, and the related statement of operations for the year then ended, statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of August 31, 1998, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fund as of August 31, 1998, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with generally accepted accounting principles. Louisville, Kentucky November 30, 1998 18 PART C: OTHER INFORMATION ITEM 24. FINANCIAL STATEMENT AND EXHIBITS (A) FINANCIAL STATEMENTS: (1) Financial Highlights (PART A, p. 4) (2) Schedule of Investments at August 31, 1998 (PART B, p. 13) (3) Statement of Assets and Liabilities at August 31, 1998 (PART B, p. 15) (4) Statement of Operations for Year ended August 31, 1998 (PART B, p. 15) (5) Statement of Changes in Net Assets for Years ended August 31, 1997 and 1998 (PART B, p. 16) (6) Report of Ernst & Young LLP, Independent Auditors (PART B, p. 18) (B) EXHIBITS (1) Restated Articles of Incorporation of Registrant. (1.1) Articles Supplementary to Articles of Incorporation. (2) Amended By-Laws of Registrant. (3) Not applicable. (4) Form of Investment Advisory Agreement between Registrant and J.J.B. Hilliard, W.L. Lyons, Inc. (5) Form of Distribution Agreement between Registrant and Provident Distributors, Inc. (6) Not applicable. (7) Form of Custodian Agreement between Registrant and State Street Bank and Trust Company. (8) Form of Transfer Agent's Agreement between Registrant and State Street Bank and Trust Company. (9) Consent of Ernst & Young LLP, independent auditors. (10) Not applicable. (11) Individual Retirement Custodial Account Agreement of the Internal Revenue Service, Form 5305-A; Application Information; and Designation of Beneficiary Form. (12) Not applicable. (13) Not applicable. (14) Not applicable. C-1 (19) 485(b) Certification from Brown, Todd & Heyburn PLLC. (20) Powers of Attorney executed by J. Henning Hilliard, Gilbert L. Pamplin, Owsley Brown, II, and Dillman A. Rash. (Incorporated by reference to Exhibit 15 to original N-1 filing.) (21) Powers of Attorney executed by Samuel G. Miller and Joseph C. Curry, Jr. (Incorporated by reference to Exhibit 17, Post- Effective Amendment No. 9.) (22) Power of Attorney executed by J. Robert Shine. (Incorporated by reference to Exhibit 18, Post-Effective Amendment No. 11.) ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT None. ITEM 26. NUMBER OF HOLDERS OF SECURITIES The number of record holders of each class of the Registrant's securities as of October 31, 1998, was as follows:
NUMBER OF TITLE OF CLASS RECORD HOLDERS -------------- -------------- Common Stock, $.01 par value 88,594
ITEM 27. INDEMNIFICATION See Restated Articles of Incorporation, Article Eleventh, Exhibit (1). ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER J.J.B. Hilliard, W.L. Lyons, Inc., the Investment Adviser of the Registrant ("Hilliard-Lyons"), is an investment banking and securities brokerage firm headquartered in Louisville, Kentucky. Hilliard-Lyons is a registered broker- dealer and is a member of the National Association of Securities Dealers, Inc., the New York Stock Exchange, the American Stock Exchange, the AMEX Commodities Exchange, the Midwest Stock Exchange, the Chicago Board Options Exchange and the New York Futures Exchange. It has 85 offices and more than 767 financial consultants doing business in 49 states. Hilliard-Lyons maintains an investment advisory department and is registered under the Investment Advisers Act of 1940. For information as to the business, profession, vocation or employment of a substantial nature of each of the directors and officers of Hilliard-Lyons, reference is made to Part I, Schedule D and Part II, Item 6, Schedule F of Form ADV (revised November , 1998) filed on or about November , 1998 for Hilliard-Lyons. ITEM 29. PRINCIPAL UNDERWRITERS (a) Provident Distributors, Inc. is Registrant's principal underwriter. Provident Distributors, Inc. currently serves as distributor and principal underwriter of Hilliard Lyons Growth Fund, Inc., an open-end non-diversified mutual 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:
POSITION WITH NAME AND PRINCIPAL UNDERWRITER POSITION WITH BUSINESS ADDRESS (DISTRIBUTOR) REGISTRANT ------------------ ------------- ------------- Donald F. Kohler.................... Senior Executive Chairman of the Hilliard Lyons Center Board Louisville, KY 40202 James W. Stuckert................... Chairman, None Hilliard Lyons Center Chief Executive Officer, Louisville, KY 40202 and Director
C-2
POSITION WITH POSITION NAME AND PRINCIPAL UNDERWRITER WITH BUSINESS ADDRESS (DISTRIBUTOR) REGISTRANT ------------------ ------------- ---------- Peter Mahurin............................ Senior Vice President, None Hilliard Lyons Center and Director Louisville, KY 40202 E. Neal Cory, II......................... Executive Vice President None Hilliard Lyons Center Louisville, KY 40202 Brian M. Boor............................ Senior Vice President None Hilliard Lyons Center and Director Louisville, KY 40202 Samuel C. Harvey......................... Executive Vice President None Joseph L. Heintzman, Jr. and Director Louisville, KY 40202 James R. Allen........................... Executive Vice President None Hilliard Lyons Center and Director Louisville, KY 40202 Frank James Walker....................... Executive Vice President None Hilliard Lyons Center and Director Louisville, KY 40202 Ronald G. Hollander...................... Vice President None Hilliard Lyons Center and Director Louisville, KY 40202 James M. Rogers.......................... Executive Vice President, None Hilliard Lyons Center Chief Operating Officer, Louisville, KY 40202 and Director
(c) The principal underwriter receives $1,000.00 per month as compensation for the duties or services rendered to the Registrant pursuant to the Distribution Agreement. ITEM 30. LOCATION OF ACCOUNTS AND RECORDS The accounts, books and other documents required to be maintained by Registrant pursuant to Section 31(a) of the Investment Company Act and rules promulgated thereunder are in the possession of State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02105 and J.J.B. Hilliard, W.L. Lyons, Inc., Hilliard Lyons Center, Louisville, KY 40202. ITEM 31. MANAGEMENT SERVICES Registrant is not a party to any management related service contract not discussed in Parts A or B of this Form. ITEM 32. UNDERTAKINGS Not Applicable. C-3 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT, HILLIARD-LYONS GOVERNMENT FUND, INC., CERTIFIES THAT IT MEETS ALL OF THE REQUIREMENTS FOR EFFECTIVENESS OF THIS REGISTRATION STATEMENT PURSUANT TO RULE 485 (b) UNDER THE SECURITIES ACT OF 1933 AND HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON BEHALF OF THE UNDERSIGNED, THERETO DULY AUTHORIZED, IN THE CITY OF LOUISVILLE AND THE STATE OF KENTUCKY ON THE 30TH DAY OF DECEMBER, 1997. HILLIARD-LYONS GOVERNMENT FUND, INC. By: DONALD F. KOHLER ----------------------------------- Donald F. Kohler, Chairman of the Board PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT OF THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN SUCH CAPACITIES AND ON THE DATE INDICATED:
SIGNATURE TITLE DATE --------- ----- ---- /s/ DONALD F. KOHLER Chairman of the Board November 23, 1998 - ------------------------------------ (Principal Executive Donald F. Kohler Officer) /s/ JOSEPH C. CURRY, JR.* Director November 23, 1998 - ------------------------------------ Joseph C. Curry, Jr. Director November 23, 1998 - ------------------------------------ Gilbert L. Pamplin /s/ J. HENNING HILLIARD* Director November 23, 1998 - ------------------------------------ J. Henning Hilliard /s/ J. ROBERT SHINE* Director November 23, 1998 - ------------------------------------ J. Robert Shine Director November 23, 1998 - ------------------------------------ Marianne R. Rowe /s/ SAMUEL G. MILLER* Director November 23, 1998 - ------------------------------------ Samuel G. Miller *By: DONALD F. KOHLER --------------------------- Donald F. Kohler Attorney-in-Fact
C-4 HILLIARD-LYONS GOVERNMENT FUND, INC. EXHIBIT INDEX
Sequentially Exhibit Numbered No. Description Page Number - ------- ----------- ------------ 1 Restated Articles of Incorporation of Registrant............................ 1.1 Articles Supplementary to Articles of Incorporation......................... 2 Amended By-Laws of Registrant............................................... 3 Not applicable.............................................................. 4 Form of Investment Advisory Agreement between Registrant and J.J.B. Hilliard, W.L. Lyons, Inc............................................ 5 Form of Distribution Agreement between Registrant and Provident Distributors, Inc........................................................... 6 Not applicable.............................................................. 7 Form of Custodian Agreement between Registrant and State Street Bank and Trust Company............................................................... 8 Form of Transfer Agent's Agreement between Registrant and State Street Bank and Trust Company...................................................... 9 Consent of Ernst & Young LLP, independent auditors.......................... 10 Not applicable.............................................................. 11 Individual Retirement Custodial Account Agreement of the Internal Revenue Service, Form 5305-A; Application Information; and Designation of Beneficiary Form............................................................ 12 Not applicable.............................................................. 13 Not applicable.............................................................. 14 Not applicable..............................................................
EX-99.1 2 ARTICLES OF INCORPORATION Exhibit No. 1 HILLIARD-LYONS CASH MANAGEMENT, INC. ------------------------------------ ARTICLES OF INCORPORATION FIRST: Formation. The undersigned, Parker W. Duncan, the post office address of whom is 545 South Third Street, Louisville, Kentucky 40202, being at least eighteen years of age, does hereby form a corporation under and by virtue of the General Corporation Law of the State of Maryland. SECOND: Name. The name of the Corporation is Hilliard-Lyons Cash Management, Inc. THIRD: Corporate Purposes. The purposes for which the Corporation is formed are: (1) To engage in the business of a management investment company. (2) To invest and reinvest in, to buy or otherwise acquire, to hold, for investment or otherwise, to sell or otherwise dispose of, to lend or to pledge, to trade in or deal in, securities or interests of all kinds, however evidenced, or obligations of all kinds, however evidenced, or rights or warrants to acquire such securities, interests, or obligations, of any private or public company, corporation, bank, association, general or limited partnership, trust or other enterprise or organization, foreign or domestic, or issued or guaranteed by any national or state government, foreign or domestic, or their instrumentalities or subdivisions; including but not limited to bonds, debentures, bills, time notes and all other evidences of indebtedness; negotiable or non-negotiable instruments; government securities; and money market instruments, including but not limited to bank certificates of deposit, finance paper, commercial paper, bankers acceptances, and all kinds of repurchase agreements, of any corporation, company, bank, trust, association, firm or other business organization however established, and of any country, state, municipality or other political subdivision, or of any other governmental or quasi-governmental agency or instrumentality. (3) To invest and reinvest in, to buy or otherwise acquire, to hold, for investment or otherwise, to sell or otherwise dispose of foreign currencies, funds, and exchange; deposits in banks, savings banks, trust companies, and savings and loan associations, foreign or domestic. (4) To exercise all rights, powers, and privileges as owner of any securities, property, or assets which might be exercised by any individual owning such securities, property, or assets in his own right. (5) To acquire (by purchase, lease, or otherwise) and to hold, use, maintain, develop, and dispose of (by sale or otherwise) any property, real or personal, and any interest therein. (6) To aid by further investment any corporation, company, trust, association, or firm, any obligation of or interest in which is held by the Corporation or in the affairs of which the Corporation has any direct or indirect interest; to do all acts and things designed to protect, preserve, improve, or enhance the value of such obligation or interest; to guarantee or become surety on any or all of the contracts, stocks, bonds, notes, debentures, and other obligations of any such corporation, company, trust, association, or firm. (7) In general to carry on any other business in connection with or incidental to any of the foregoing objects and purposes, to have and exercise all the powers conferred upon corporations by the laws of the State of Maryland as in force from time to time, to do everything necessary, suitable, or proper for the accomplishment of any purpose or the attainment of any object or the furtherance of any power hereinbefore set forth, either alone or in association with others, and to do every other act or thing incidental or appurtenant to or growing out of or connected with the aforesaid business or purposes, objects, or powers. The Corporation shall have the power to conduct and carry on its business, or any part thereof, and to have one or more offices, and to exercise any or all of its corporate powers and rights, in the State of Maryland, in any other 2 states, territories, districts, colonies, and dependencies of the United States, and in any or all foreign countries. The foregoing clauses shall be construed both as objects and powers, and the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the general powers of the Corporation. Nothing herein shall be construed or deemed to authorize the Corporation to engage in the business of banking. FOURTH: Address and Resident Agent. The post office address of the principal office of the Corporation in the State of Maryland is: c/o The Corporation Trust, Incorporated First Maryland Building 25 South Charles Street Baltimore, Maryland 21201 The name and post office address of the resident agent of the Corporation in the State of Maryland is: The Corporation Trust, Incorporated First Maryland Building 25 South Charles Street Baltimore, Maryland 21201 Such resident agent is a Maryland corporation. FIFTH: Common Stock. The total number of shares of stock which the Corporation shall have authority to issue is Five Hundred Million (500,000,000) shares of the par value of One Cent ($0.01) per share, all of which shall be of a single class called Common Stock, such shares having an aggregate par value of Five Million Dollars ($5,000,000). SIXTH: Preemptive Rights. No holder of any of the shares of the Corporation whether now or hereafter authorized or created shall be entitled as a right to subscribe for, purchase, or otherwise acquire any shares of the Corporation which the Corporation proposes to issue; and any and all of such shares of the Corporation, whether now or hereafter authorized or created, may be issued, or may be reissued or transferred if the same have been reacquired and have treasury status, to such persons, firms, corporations, and associations, and for 3 such lawful consideration, and on such terms as the Board of Directors in its discretion may determine, without first offering such shares, or any of such shares, to any said holder. SEVENTH: Issue, Redemption, and Repurchase of Common Stock. SECTION I ISSUE OF THE CORPORATION'S SHARES 1.01 General. The Board of Directors may from time to time issue, reissue, sell or cause to be issued and sold any of the Corporation's authorized shares of Common Stock, including any additional shares hereafter authorized and any shares redeemed or repurchased by the Corporation, for a consideration of not less than the par value thereof, except that only shares previously contracted to be sold may be issued during any period when the determination of net asset value is suspended pursuant to the provisions of Section III hereof. All shares of such authorized Common Stock, when issued in accordance with the terms of this Section I, shall be fully paid and nonassessable. 1.02 Price. No shares of Common Stock shall be issued or sold by the Corporation, except as a stock dividend distributed to stockholders, for less than an amount which would result in proceeds to the Corporation, in connection with such transaction, of at least the net asset value per share, determined as set forth in Section III hereof. The net asset value per share applicable to any such transaction shall be the net asset value per share next determined after receipt of an unconditional order for purchase of shares; except, that the Board of Directors may by resolution fix a time of day, prior to the time of day for determination of net asset value per share, prior to which orders received will be transacted at the net asset value per share determined that day, and after which orders received will be transacted at the net asset value per share determined on the next succeeding day on which such value is determined. The criteria for determining what constitutes an unconditional order for purchase of shares and the receipt of such an order shall be prescribed by resolution of the Board of Directors or by any officer of the Corporation to whom this duty is delegated by the Board of Directors. 1.03 On Merger or Consolidation. In connection with the acquisition of all or substantially all the assets or stock of another investment company, investment trust, or 4 of a company classified as a personal holding company under Federal Income Tax laws, the Board of Directors may issue or cause to be issued shares of Common Stock of the Corporation and accept in payment therefor, in lieu of cash, such assets at their market value, or such stock at the market value of the assets held by such investment company or investment trust, either with or without adjustment for contingent costs or liabilities, provided such assets are of the character in which the Board of Directors is permitted to invest the funds of the Corporation. 1.04 Fractional Shares. The Corporation may issue and sell or cause to be issued and sold fractions of shares having pro rata all the rights of full shares, including, without limitation, the right to vote and to receive dividends. SECTION II REDEMPTION AND REPURCHASE OF THE CORPORATION'S SHARES 2.01 Redemption of Shares. All shares of the Common Stock of the Corporation now or hereafter authorized shall be "subject to redemption" and "redeemable" in the sense used in the General Laws of the State of Maryland authorizing the formation of corporations, at the redemption or repurchase price for any such shares, determined in the manner set out in these Articles of Incorporation or in any amendment thereto; provided, however, that the Corporation shall have the right, at its option, to refuse to redeem the shares of stock at less than the par value thereof. Redeemed or repurchased shares may be resold by the Corporation. The Corporation shall redeem shares of its Common Stock subject to the conditions and at the price determined as hereinafter set forth. 2.02 Price. Shares shall be redeemed at their net asset value, determined as set forth in Section III hereof. The net asset value per share applicable to any such redemption of shares shall be the net asset value per share next determined after receipt of a proper request for redemption of such shares; except that the Board of Directors may, by resolution, fix a time of day, prior to the time of day for determination of net asset value per share, prior to which requests for redemption received shall be transacted at a net asset value per share determined that day, and after which requests for redemption received shall be transacted at the net asset value per share determined on the next succeeding day on which such value is determined. The criteria 5 for determining what constitutes a proper request for redemption and the receipt of such request shall be prescribed by resolution of the Board of Directors or by any officer of the Corporation to whom this duty is delegated by the Board of Directors. 2.03 Payment. Payment for such shares shall be made in cash to the stockholder of record within seven (7) days after the date of receipt of (a) a written unconditional and irrevocable instruction of the stockholder to redeem in form acceptable to the Corporation or its designated agent together with any certificates which may have been issued therefor, endorsed or accompanied by proper instrument of transfer, and such other documents as the Corporation or its designated agent may require or (b) such other direction or authorization of redemption by the stockholder as the Board of Directors shall authorize by resolution, subject to the provisions of Section 2.04 hereof. 2.04 Effect of Suspension of Determination of Net Asset Value. If, pursuant to Section 3.03 hereof, the Board of Directors shall declare a suspension of the determination of net asset value, the rights of stockholders (including those who shall have requested redemption pursuant to Sections 2.01, 2.02, and 2.03 hereof but who shall not yet have received payment) to have shares redeemed and paid for by the Corporation shall be suspended until the termination of such suspension is declared. Any record holder who shall have his redemption right suspended may, during the period of such suspension, by appropriate written notice of revocation at the office or agency where request for redemption was made, revoke any request or instruction for redemption not honored and withdraw any certificates tendered for redemption. The redemption price of shares for which redemption requests have not been revoked shall be the net asset value of such shares next determined as set forth in Section III after the termination of such suspension, and payment shall be made within seven (7) days after the date upon which the requirements of Section 2.03 were met plus the period during which the determination of net asset value was suspended. 2.05 Repurchase by Agreement. The Corporation may repurchase shares of the Corporation directly, or through its principal underwriter, if any, or another agent designated for the purpose, by agreement with the owner thereof at a price not exceeding the net asset value per share determined as of the time when the purchase or contract of purchase is made or the net asset value as of any time which may be later determined pursuant to Section III hereof, provided payment is not made for the shares prior to the time as of which such net asset value is determined. 6 2.06 Redemption of Stockholder's Interest. The Corporation shall have the right at any time without prior notice to the stockholder to redeem shares of any stockholder for their then current net asset value per share if at such time the stockholder owns shares having an aggregate net asset value of $1,000 or less subject to such terms and conditions as the Board of Directors may approve, and subject to the Corporation giving general notice to all stockholders of its intention to avail itself of such right, either by publication in the Corporation's prospectus, if any, or by such other means as the Board of Directors may determine. The Corporation shall also have the right to redeem any stockholder's shares or refuse to give effect to any transfer thereof on its books and records, at the Corporation's option and without notice, if in the opinion of the Corporation's Board of Directors ownership of the Corporation's shares has or may become concentrated to an extent which would cause the Corporation to be deemed to be a personal holding company under Federal Income Tax laws. SECTION III NET ASSET VALUE OF SHARES 3.01 By Whom Determined. The Board of Directors shall have the power and duty to determine from time to time the net asset value per share of the outstanding shares of Common Stock of the Corporation. It may delegate such power and duty to any one or more of the Directors or officers of the Corporation, to the investment adviser, custodian or depository of the Corporation's assets, or to another agent of the Corporation appointed for such purpose; except that the power to declare a suspension of the determination of net asset value pursuant to Section 3.03 may not be delegated. Any determination made pursuant to this Section by the Board of Directors or its delegates shall be binding on all parties concerned. 3.02 When Determined. The net asset value shall be determined at such times as the Board of Directors shall prescribe by resolution, provided that such net asset value shall be determined at least once each week. In the absence of a resolution of the Board of Directors, the net asset value shall be determined as of the close of trading in the over-the-counter government securities market. 3.03 Suspension of Determination of Net Asset Value. The Board of Directors of the Corporation may declare a suspension of the determination of net asset value (a) for any period during which the New York Stock Exchange is closed 7 (other than customary week-end and holiday closings), or during which trading in the markets customarily utilized by the Corporation is restricted; (b) for any period during which an emergency exists as a result of which disposal of the Corporation's investments or determination of net asset value is not reasonably practicable; or (c) for such periods as the Securities and Exchange Commission by order may permit for the protection of the Corporation's investors. Such suspension shall take effect at such time as the Board of Directors shall specify and thereafter there shall be no determination of net asset value until the Board of Directors shall declare the suspension at an end, except that the suspension shall terminate in any event on the first day on which (1) the condition giving rise to the suspension shall have ceased to exist and (2) no other condition exists under which suspension is authorized under this Section 3.03. Each declaration by the Board of Directors pursuant to this Section 3.03 shall be consistent with such rules and regulations, if any, relating to the subject matter thereof as shall have been promulgated by the Securities and Exchange Commission or any other governmental body having jurisdiction over the Corporation and as shall be in effect at the time. To the extent not inconsistent with such rules and regulations, the determination of the Board of Directors shall be conclusive. 3.04 Computation of Per Share Net Asset Value. a. Net Asset Value Per Share. The net asset value of each share as of any particular time shall be the quotient obtained by dividing the value of the net assets of the Corporation by the total number of shares outstanding rounded to such extent as the Board of Directors shall determine from time to time. b. Value of Corporation's Net Assets. The value of the Corporation's net assets as of any particular time shall be the value of the Corporation's assets less its liabilities, determined and computed as follows: (1) Corporation's Assets. The Corporation's assets shall be deemed to include: (A) all cash on hand or on deposit, including any interest accrued thereon, (B) all bills, demand notes, and accounts receivable, (C) all bonds, time notes, shares of stocks, subscription rights, and other securities owned or contracted for by the Corporation, (D) all stock and cash dividends and cash distributions payable to but not yet received by the Corporation (when the valuation of the underlying security is being determined ex-dividend), (E) all interest accrued on any interest-bearing securities owned by the Corporation (except accrued interest included in the valuation of discount paper on 8 which interest has been accrued ratably to the date of maturity), (F) all repurchase agreements, and (G) all other property of every kind and nature, including prepaid expenses. (2) Valuation of Assets. The value of such assets is to be determined as follows: (i) Cash and Prepaid Expenses. The value of any cash on hand and of any prepaid expenses shall be deemed to be their face amount. (ii) Other Current Assets. The value of any cash on deposit, accounts receivable, and cash dividends and interest declared or accrued as aforesaid and not yet received shall be deemed to be the face amount thereof, unless the Board of Directors or its delegate shall determine that any such item is not worth its face amount. In such case the value of the item shall be deemed to be its reasonable value, as determined by the Board of Directors or its delegate. (iii) Securities and All Other Assets. The value of all securities and all other assets of the Corporation shall be determined as follows: (1) The value of securities for which market quotations are readily available, as determined by the Board of Directors, shall be the mean between the bid and the asked prices at the time of appraisal. (2) All other securities and assets shall be valued at fair value in the best judgment of the Board of Directors. (3) Provided, that any or all of the Corporation's securities may be valued by such other method as the Board of Directors shall determine accurately reflects the fair value thereof. (3) The Corporation's Liabilities. The Corporation's liabilities shall not be deemed to include outstanding shares and surplus. They shall be deemed 9 to include: (A) all bills and accounts payable, (B) all expenses accrued (which may be accrued daily), (C) all contractual obligations for the payment of money or property, including the amount of any unpaid dividends or other unpaid distributions upon the Corporation's shares declared to stockholders of record at or before the time as of which the net asset value is being determined, (D) all reserves authorized or approved by the Board of Directors for taxes or contingencies, and (E) all other liabilities of whatsoever kind and nature. 3.05 Interim Determinations. Any determination of net asset value other than as of the close of trading in the over-the-counter government securities market may be made either by appraisal or by calculation or estimate. Any such calculation or estimate shall be based on changes in the market value of representative or selected securities or on changes in recognized market averages since the last closing appraisal or such other method as the Board of Directors shall determine in good faith accurately reflects fair value and made in a manner which in the opinion of the Board of Directors or its delegate will fairly reflect the changes in the net asset value. 3.06 Miscellaneous. For the purposes of this Section III: (a) Shares of the Corporation sold shall be deemed to be outstanding as of the time immediately after the time for determination of net asset value per share which, pursuant to Section 1.02 of this Article SEVENTH, applies to such sale, and thereafter the net sale price thereof shall be deemed an asset of the Corporation. (b) Shares of the Corporation for which a proper request for redemption has been made or which are subject to repurchase by the Corporation shall be deemed to be outstanding up to and including the time as of which the redemption or repurchase price is determined. After such time, they shall be deemed to be no longer outstanding and the price until paid shall be deemed to be a liability of the Corporation. (c) Funds on deposit and contractual obligations payable to the Corporation in foreign currency and liabilities and contractual obligations payable by the Corporation in foreign currency shall be taken at the current cable rate of exchange as nearly as practicable at the time as of which the net asset value is computed. 10 SECTION IV COMPLIANCE WITH INVESTMENT COMPANY ACT OF 1940 Notwithstanding any of the foregoing provisions of this Article SEVENTH, the Board of Directors may prescribe, in its absolute discretion, such other bases and times for determining the per share net asset value of the Corporation's Common Stock as it shall deem necessary, desirable or appropriate, provided that such bases and times are not inconsistent with the Investment Company Act of 1940, or any rule, regulation, order or interpretation thereunder, including any rule, regulation, order or interpretation adopted pursuant to Section 22 of the Investment Company Act of 1940 by the Securities and Exchange Commission or any securities association registered under the Securities Exchange Act of 1934, all as in effect now or as hereafter amended or added. EIGHTH: Board of Directors. The number of Directors of the Corporation shall be seven, which number may be increased or decreased pursuant to the By-Laws of the Corporation, but shall never be less than three; and the names and addresses of the Directors, who shall act until the first annual meeting or until their successors are duly chosen and qualified are: Donald F. Kohler 545 S. Third Street Louisville, KY 40202 Gilbert L. Pamplin 545 S. Third Street Louisville, KY 40202 Henning Hilliard 545 S. Third Street Louisville, KY 40202 Owsley Brown, II 850 Dixie Highway Louisville, KY 40210 Robert E. Gable 303 McClure Building Frankfort, KY 40601 J. V. Norman, Jr. 352 Starks Building Louisville, KY 40202 Dillman A. Rash 545 S. Third Street Louisville, KY 40202 11 NINTH: Stockholder Liability. Neither the stockholders personally nor their property shall be liable to any extent for the payment of the Corporation's debts. TENTH: Management of the Affairs of the Corporation. (1) Powers of the Corporation. All corporate powers and authority of the Corporation (except as at the time otherwise provided by statute, by these Articles of Incorporation, or by the By-Laws) shall be vested in and exercised by the Board of Directors or, to the extent specifically delegated by the Board of Directors, by one or more of the directors or officers of the Corporation, by the investment adviser, custodian or depository of the Corporation's assets, or by another agent of the Corporation appointed for such purpose, and in so acting such delegate shall be exercising the authority of the Board of Directors. (2) By-Laws. The Board of Directors shall have the power to make, alter, or repeal the By-Laws of the Corporation except to the extent that the By-Laws otherwise provide. (3) Compensation of Directors. The Board of Directors shall have power from time to time to authorize payment of compensation to the directors for services to the Corporation, including fees and expenses for attendance at meetings of the Board of Directors and of committees. (4) Inspection of Corporation's Books. The Board of Directors shall have power from time to time to determine whether and to what extent, and at what times and places and under what conditions and regulations, the accounts and books of the Corporation (other than the stock ledger) or any of them shall be open to the inspection of stockholders; and no stockholder shall have any right to inspect any account, book, or document of the Corporation except as at the time conferred by statute, unless authorized by a resolution of the stockholders or the Board of Directors. (5) Majority of Votes. Notwithstanding any provision of the General Corporation Laws of the State of Maryland requiring a greater proportion than a majority of the votes entitled to be cast in order to take or authorize any action, any such action may be taken or authorized upon the concurrence of at least a majority of the aggregate number of votes entitled to be cast thereon. 12 (6) Determination of Net Profits, etc.; Dividends. The Board of Directors or its authorized officer is expressly authorized to determine pursuant to applicable law and/or in accordance with generally accepted accounting principles and practices what constitutes net income, profits or earnings, or surplus and capital, to include in net income, profits or earnings the portion of subscription or redemption prices attributable to accrued net income, profits or earnings in such prices, and to determine what accounting periods shall be used by the Corporation for any purpose, whether annual or any other period, including daily; to set apart out of any funds of the Corporation such reserves for such purposes as it shall determine and to abolish the same; to declare and pay dividends and distributions in cash, securities, or other property from surplus or any funds legally available therefor, at such intervals (which may be as frequently as daily) or on such other periodic basis as it shall determine; to declare such dividends or distributions by means of a formula or other method of determination at meetings held less frequently than the frequency of the effectiveness of such declarations; to establish payment dates for dividends or any other distributions on any basis, including dates occurring less frequently than the effectiveness of the declaration thereof; and to provide for the payment of declared dividends on a date earlier than the specified payment date in the case of stockholders of the Corporation redeeming their entire ownership of shares of the Corporation. Inasmuch as the computation of net income, profits or earnings for Federal income tax purposes may vary from the computation thereof on the books, the above provisions shall be interpreted to give to the Board of Directors the power in its discretion to distribute for any fiscal year as dividends and as distributions, respectively, additional amounts sufficient to enable the Corporation to avoid or reduce its liability for taxes. ELEVENTH: Indemnification. (1) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an 13 action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise. The indemnification shall be against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (2) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise. The indemnification shall be against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue, or matter as to which the person has been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation, unless and only to the extent that the court in which the action or suit was brought, or a court of competent jurisdiction 14 determines upon application that, despite the adjudication of liability but in view of all circumstances of the case, the person is fairly and reasonably entitled to indemnity for the expenses which the court shall deem proper. (3) Unless otherwise expressly provided in these Articles of Incorporation, to the extent that a director, officer, employee, or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsection (1) or (2), or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (4) Any indemnification under subsection (1) or (2) (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsection (1) or (2). The determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the action, suit, or proceeding, or (2) if a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders in accordance with the Articles of Incorporation and By-Laws of the Corporation. (5) Expenses (including attorneys' fees) incurred in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition thereof if authorized in the specific case by the Board of Directors, upon receipt of an undertaking by or on behalf of the director, officer, employee or agent reasonably assuring that such amount will be repaid unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this section. (6) The indemnification provided by this section shall not be deemed exclusive of any other rights to which a person may be entitled by any By-Law, 15 agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding the office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and inure to the benefit of the heirs, executors, and administrators of the person. (7) The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against the liability under the provisions of this section. (8) For the purposes of this section, references to "the Corporation" include any constitutent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents as well as the resulting or surviving corporation; so that any person who is or was a director, officer, employee or agent of such a constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this section with respect to the resulting or surviving corporation as he would have with respect to such a constituent corporation if its separate existence had continued. (9) Anything herein contained to the contrary notwithstanding, no officer or director of the Corporation shall be indemnified for any liability to the Corporation or its security holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. 16 TWELFTH: Reservation of Right to Amend. ------- ----------------------------- The Corporation reserves the right to amend or repeal any provision contained in these Articles of Incorporation from time to time and at any time in the manner now or hereafter prescribed by the law of the State of Maryland and all rights herein conferred upon stockholders are granted subject to such reservation. THIRTEENTH: Name. ---------- ---- The Corporation acknowledges that it is adopting and can maintain its corporate name only through the continuing permission of J. J. B. Hilliard, W. L. Lyons, Inc., a Kentucky corporation, and agrees that J. J. B. Hilliard, W. L. Lyons, Inc., reserves to itself and any successor to its business the right to withdraw its permission at any time and may grant the exclusive or non-exclusive right to use the name "Hilliard-Lyons Cash Management, Inc." or "Hilliard-Lyons" or "Hilliard", or "Lyons" or "H-L" or any similar name, now or at any time in the future, to any other corporation or entity, including but not limited to any investment company of which J. J. B. Hilliard, W. L. Lyons, Inc. or any subsidiary or affiliate thereof or any successor to the business thereof shall be the investment adviser. FOURTEENTH: Contracts. ---------- --------- Any contract for services as investment adviser, underwriter, custodian, transfer agent, distributor, or disbursing agent or related services may be entered into with any corporation, firm, trust, or association, although one or more of the Board of Directors or officers of the Corporation may be an officer, director, trustee, shareholder, or member of such other party to the contract, and no such contract shall be invalidated or rendered voidable by reason of the existence of any such relationship, nor shall any person holding such relationship be liable merely by reason of such relationship for any loss or expense to the Corporation under or by reason of said contract or accountable for any profit realized directly or indirectly therefrom, provided that the contract when entered into was reasonable and fair. The same person (including a firm, corporation, trust, or association) may be the other party to any or all of the contracts for such services, and any individuals who may be members of the Board of Directors or officers of the Corporation may be financially interested or otherwise affiliated with persons who are parties to any or all of the contracts for such services. 17 IN WITNESS WHEREOF, I have signed these Articles of Incorporation and have acknowledged the same to be my act on this 12th day of May, 1980. Witness: /s/ Parker W Duncan -------------------------- Parker W. Duncan Janyce M. Hormung - ----------------- 18 EX-99.1.1 3 SUPPLEMENTARY TO ARTICLES OF INCORPORATION EXHIBIT NO. 1.1 ARTICLES SUPPLEMENTARY TO ARTICLES OF INCORPORATION OF HILLIARD-LYONS GOVERNMENT FUND, INC. Pursuant to the provisions of Sections 2-105(c) and 2-208.1 of the General Corporation Law of Maryland, an amendment to the articles of Incorporation of Hilliard-Lyons Government Fund, Inc. (the "Corporation") increasing the Corporation's authorized capital has been adopted as follows: FIRST: Immediately prior to the amendment to the Corporation's Articles of Incorporation, Article Five of the Corporation's Articles of Incorporation stated that "The total number of shares of stock which the Corporation shall have authority to issue is Eight Hundred Million (800,000,000) shares of the par value of One Cent ($0.01) per share, all of which shall be of a single class called Common Stock, such shares having an aggregate par value of Eight Million Dollars ($8,000,000)." SECOND: Immediately after the amendment to the Corporation's Articles of Incorporation, Article Five of the Corporation's Articles of Incorporation states that "The total number of shares of stock which the Corporation shall have authority to issue is One Billion Five Hundred Million (1,500,000,000) shares of the par value of One Cent ($0.01) per share, all of which shall be of a single class called Common Stock, such shares having an aggregate par value of Fifteen Million Dollars ($15,000,000)." THIRD: The Corporation is registered as an open-end company under the Investment Company Act of 1940. FOURTH: The Board of Directors of the Corporation approved this amendment to the Corporation's Articles of Incorporation increasing the total number of shares of capital stock that the Corporation has authority to issue in accordance with Section 2-105(c) of the General Corporation Law of Maryland. IN WITNESS WHEREOF, I have signed these Articles Supplementary and have acknowledged the same to be the act of Hilliard-Lyons Government Fund, Inc. on this 23rd day of October 1997. /s/ Joseph C. Curry, Jr. ------------------------------- Joseph C. Curry, Jr., President Witness: /s/ Penny L. Wellinghurst - -------------------------------- Penny L. Wellinghurst, Secretary Commonwealth of Kentucky ) ) SS: I, a Notary Public in and for the Commonwealth and county aforesaid, do hereby certify that on this day there personally appeared before me Joseph C. Curry, Jr., being by me first duly sworn, declared that he is President of Hilliard-Lyons Government Fund, Inc., that he signed the foregoing document as President of the Corporation and that the statements contained therein are true and correct. IN TESTIMONY WHEREOF, witness my signature and notarial seal this 23rd day of October, 1997. (Seal) /s/ Rebecca D. Gaddie ------------------------------- Notary Public My commission expires: 7-9-2000 -------- Amendment to the Articles of Incorporation Increasing Capitalization RESOLVED, that the Board of Directors hereby approves and adopts the following proposed amendment to Article Five to the Corporation's Articles of Incorporation so that Article Five shall be read in its entirety as follows: FIFTH: Common Stock - ----- ------------ The total number of shares of stock which the Corporation shall have authority to issue is One Billion Five Hundred Million (1,500,000,000) shares of the par value of One Cent ($0.01) per share, all of which shall be of a single class called Common Stock, such shares having an aggregate par value of Fifteen Million Dollars ($15,000,000). FURTHER RESOLVED, that the President and the Secretary be, and hereby are, authorized, empowered and directed to execute and file the Articles Supplementary on behalf of the Corporation, and are hereby authorized, empowered and directed to do all further acts and things, and to execute all further documents in writing, which they determine to be necessary or desirable in order to effect the adoption of the foregoing amendment to the Corporation's Articles of Incorporation increasing its authorized capital. ON BEHALF OF: HILLIARD LYONS FUND NO. 1701 CHECK NO. DATE [STATE STREET LOGO] --------- -------- 181030 10/20/97 STATE STREET BANK AND TRUST AMOUNT OF CHECK P.O. BOX 1031 ------------------- BOSTON, MA 02105 **********$160.00 PAY EXACTLY One hundred sixty and 00/100 Dollars TO THE STATE DEPARTMENT OF ASSESSMENT ORDER & TAXATION OF /s/ Jenny Gordon ------------------------------------- ??? STATE STREET BANK & TRUST COMPANY CUSTODIAN 181030 011000028 49122344 EX-99.2 4 AMENDED BY-LAWS EXHIBIT NO. 2 HILLIARD-LYONS CASH MANAGEMENT, INC. (A Maryland Corporation) AMENDED BY-LAWS ARTICLE I --------- NAME OF CORPORATION, LOCATION OF OFFICES, AND SEAL ----------------------------------------- Section 1.01. Name: The name of the Corporation is Hilliard-Lyons Cash Management, Inc. Section 1.02. Principal Office: The principal office of the Corporation in the State of Maryland shall be located in the City of Baltimore. The Corporation may also maintain an office in the City of Louisville, State of Kentucky. The Corporation may, in addition, establish and maintain such other offices and places of business as the Board of Directors may, from time to time, determine. Section 1.03. Seal: The corporate seal of the Corporation shall be circular in form and shall bear the name of the Corporation, and the words "Corporate Seal, Maryland." The form of the seal shall be subject to alteration by the Board of Directors and the seal may be used by causing it or a facsimile to be impressed or affixed or printed or otherwise reproduced. Any officer or Director of the Corporation shall have authority to affix the corporate seal of the Corporation to any document requiring the same. ARTICLE II ---------- SHAREHOLDERS ------------ Section 2.01. Annual Meetings: The annual shareholders' meeting, commencing with the year 1981, for the election of Directors and the transaction of other proper business shall be held on such day, not a legal holiday, as the Board of Directors shall establish. Any business of the Corporation may be transacted at the annual meeting without being specifically designated in the notice of meeting, except such business as is specifically required by statute to be stated in the notice. Notwithstanding the foregoing, the Corporation shall not be required to hold an annual shareholders' meeting in any year in which the election of directors is not required to be acted upon under the Investment Company Act of 1940. Section 2.02. Special Meetings: Special meetings of the shareholders may be called at any time by the President or the Board of Directors. Special meetings of the shareholders shall be called by the Secretary upon the written request of the holders of shares entitled to not less than 25% of all the votes entitled to be cast at such meetings, provided that (a) such request shall state the purposes of 2 such meeting and the matters proposed to be acted upon, and (b) the shareholders requesting such meeting shall have paid to the Corporation the reasonably estimated cost of preparing and mailing the notice thereof, which the Secretary shall determine and specify to such shareholders. No special meeting need be called upon the request of the holders of shares entitled to cast less than a majority of all votes entitled to be cast at such meeting to consider any matter which is substantially the same as a matter voted upon at any special meeting of the shareholders held during the preceding 12 months. Business transacted at all special meetings shall be confined to the objects stated in the notice of meeting. Section 2.03. Place of Meeting: All shareholders' meetings shall be held at the office of the Corporation in the City of Louisville, State of Kentucky, except that the Board of Directors may fix a different place of meeting, within the United States, which shall be specified in each notice or waiver of notice of the meeting. Section 2.04. Notice of Meetings: The Secretary or any Assistant Secretary shall cause notice of the place, date, and hour, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, to be mailed, postage prepaid, not less than 10 nor more than 90 days before the date of the meeting, to each shareholder entitled to vote at such meeting, at his address as it 3 appears on the records of the Corporation. Notice of any shareholders' meeting need not be given to any shareholder who shall sign a written waiver of such notice whether before or after the time of such meeting, which waiver shall be filed with the record of such meeting, or to any shareholder who shall attend such meeting in person or by proxy. Notice of adjournment of a shareholders' meeting to another time or place need not be given, if such time and place are announced at the meeting. Section 2.05. Voting - In General: At every shareholders' meeting each shareholder shall be entitled to one vote for each share and a proportionate vote for each portion of a share of stock of the Corporation validly issued and outstanding and held by such shareholder, except that no shares held by the Corporation shall be entitled to a vote. Except as otherwise specifically provided in the Articles of Incorporation or these By-Laws or as required by provisions of the Investment Company Act of 1940, as amended from time to time, all matters shall be decided by a vote of the majority of the votes cast at a meeting of shareholders, duly called and at which a quorum is present. The vote upon any question shall be by written ballot whenever requested by any person entitled to vote, but, unless such a request is made, voting may be conducted in any way approved by the meeting. 4 Section 2.06. Shareholders Entitled to Vote: If, pursuant to Section 7.06 hereof, a record date has been fixed for the determination of shareholders entitled to notice of or to vote at any shareholders' meeting, each shareholder of the Corporation shall be entitled to vote, in person by written ballot or by proxy, each share of stock outstanding in his name on the books of the Corporation on such record date and outstanding at the time of the meeting. If no record date has been fixed for the determination of shareholders, the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day on which notice of the meeting is mailed or the day 30 days before the meeting, whichever is the closer date to the meeting, or, if notice is waived by all shareholders, at the close of business on the tenth day next preceding the day on which the meeting is held. Section 2.07. Voting - Proxies: The right to vote by proxy shall exist only if the instrument authorizing such proxy to act shall have been executed in writing by the shareholder himself or by his attorney thereunto duly authorized in writing. No proxy shall be voted on after eleven months from its date unless it provides for a longer period. Each proxy shall be in writing subscribed by the shareholder or his duly authorized attorney and shall be dated, but need not be sealed, witnessed, or acknowledged. Proxies shall be delivered to the Secretary of the Corporation or person 5 acting as Secretary of the meeting before being voted. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by one of them unless at or prior to exercise of such proxy the Corporation receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a shareholder shall be deemed valid unless challenged at or prior to its exercise. At all meetings of shareholders, unless the voting is conducted by inspection, all questions relating to the qualification of voters and the validity of proxies and the acceptance or rejection of votes shall be decided by the Chairman of the meeting. Section 2.08. Quorum: The presence at any shareholders' meeting in person or by proxy, of shareholders entitled to cast a majority of the votes thereat shall be necessary and sufficient to constitute a quorum for the transaction of business. Section 2.09. Absence of Quorum: In the absence of a quorum, the holders of a majority of shares entitled to vote at the meeting and present thereat in person or by proxy, or, if no shareholder entitled to vote is present thereat in person or by proxy, any officer present thereat entitled to preside or act as Secretary of such meeting, may adjourn the meeting. Any business that might have been transacted at the meeting originally called may be transacted at any such adjourned meeting at which a quorum is present. 6 Section 2.10. Stock Ledger and List of Shareholders: It shall be the duty of the Secretary or Assistant Secretary of the Corporation to cause an original or duplicate stock ledger to be maintained at the office of the Corporation's transfer agent in Boston, Massachusetts. Such stock ledger may be in written form or any other form capable of being converted into written form within a reasonable time for visual inspection. Any one or more persons, each of whom has been a shareholder of record of the Corporation for more than six months next preceding such request, who owns in the aggregate 5% or more of the outstanding capital stock of the Corporation, may submit (unless the Corporation at the time of the request maintains a duplicate stock ledger at its principal office in Maryland) a written request to any officer of the Corporation or its resident agent in Maryland for a list of the shareholders of the Corporation. Within 20 days after such a request, there shall be prepared and filed at the Corporation's principal office in Maryland, a list containing the names and addresses of all shareholders of the Corporation and the number of shares of each class held by each shareholder, certified as correct by an officer of the Corporation, by its stock transfer agent, or by its registrar. Section 2.11. Action Without Meeting: Any action required or permitted to be taken at any meeting of shareholders may be taken without a meeting, if a consent in writing, setting forth such action, is signed by all the 7 shareholders and such consent is filed with the records of the Corporation. ARTICLE III ----------- BOARD OF DIRECTORS ------------------ Section 3.01. Number and Term of Office: The Board of Directors shall consist of seven Directors, which number may be increased or decreased by a resolution of a majority of the entire Board of Directors, provided that the number of Directors shall not be less than three nor more than fifteen. Each Director (whenever selected) shall hold office until his successor is elected and qualified or until his earlier death, resignation, or removal. Section 3.02. Qualification of Directors: A majority of the members of the Board of Directors shall be persons who are not "interested persons" of the underwriter of the Corporation's shares, as defined in the Investment Company Act of 1940. Section 3.03. Election of Directors: Initially the Directors of the Corporation shall be those persons named as such in the Articles of Incorporation. Thereafter, except as otherwise provided in Section 3.04 and 3.05 hereof, the Directors shall be elected by shareholders to serve until the next meeting of shareholders (provided, however, that a Director's term shall not cease following any special meeting of shareholders unless such special meeting of shareholders was called for the purpose of electing 8 Directors) and until their respective successors have been duly elected and qualified. Except as otherwise provided in Section 3.04 and 3.05 hereof, Directors may be elected at an annual or special shareholders' meeting. At any such meeting, Directors shall be elected by vote of the holders of the majority of the shares present in person or by proxy and entitled to vote thereon. Section 3.04. Removal or Resignation of Directors: At any shareholders' meeting, provided a quorum is present, any Director may be removed (either with or without cause) by the vote of the holders of a majority of the shares represented at the meeting, and at the same meeting a duly qualified person may be elected in his stead by a majority of the votes validly cast. Any Director may resign at any time by giving written notice to the Board of Directors, the President, or the Secretary of the Corporation. Such resignation shall take effect at the time specified in such notice or, if none be specified, at the time of its receipt, and unless tendered to take effect upon acceptance, the acceptance of such resignation shall not be necessary to make it effective. Section 3.05. Vacancies and Newly Created Directorships: If any vacancies shall occur in the Board of Directors by reason of death, resignation, removal, or otherwise, or if the authorized number of Directors shall be increased, the Directors then in office shall continue to act, and such vacancies (if not previously filled by the shareholders) may be filled by a majority of the Directors then in office, 9 although less than a quorum; provided, that immediately after filling such vacancy at least two-thirds of the Directors then holding office shall have been elected to such office by the shareholders of the Corporation. In the event that at any time, other than the time preceding the first annual shareholders' meeting, less than a majority of the Directors of the Corporation holding office at that time were so elected by the shareholders, a meeting of the shareholders shall be held promptly and in any event within 60 days for the purpose of electing Directors to fill any existing vacancies in the Board of Directors unless the Securities and Exchange Commission shall by order extend such period. Section 3.06. General Powers: (a) The property, affairs, and business of the Corporation shall be managed by or under the direction of the Board of Directors, which may exercise all the powers of the Corporation except those powers vested solely in the shareholders of the Corporation by statute, by the Articles of Incorporation, or by these By-Laws. (b) All acts done by any meeting of the Directors or by any person acting as a Director, so long as his successor shall not have been duly elected or appointed, shall, notwithstanding that it be afterwards discovered that there was some defect in the election of the Directors or of such person acting as aforesaid or that they or any of them were 10 disqualified, be as valid as if the Directors or such other person, as the case may be, had been duly elected and were or was qualified to be Directors or a Director of the Corporation. Section 3.07. Power to Issue and Sell Stock: The Board of Directors may from time to time issue and sell or cause to be issued and sold any of the Corporation's authorized shares to such persons and for such consideration, consistent with the Corporation's Articles of Incorporation, as the Board of Directors shall deem advisable. Section 3.08. Power to Declare Dividends: (a) The Board of Directors, from time to time as they may deem advisable, may declare and pay dividends in cash or other property of the Corporation, out of any source available for dividends, to the shareholders according to their respective rights and interests in accordance with the applicable provisions of the Articles of Incorporation. (b) The Board of Directors may prescribe from time to time that dividends declared may be payable at the election of any of the shareholders (exercisable before or after the declaration of the dividend), either in cash or in shares of the Corporation; provided, that the sum of the cash dividend actually paid to any shareholder and the net asset value of the shares received (determined as of such time as the Board 11 of Directors shall have prescribed, in accordance with the Articles of Incorporation, with respect to shares sold on the date of such election) shall not exceed the full amount of cash to which the shareholder would be entitled if he elected to receive only cash. (c) In accordance with Section 19 of the Investment Company Act of 1940, the Board of Directors shall cause any dividend payment to be accompanied by a written statement if wholly or partly from any source other than: (i) the Corporation's accumulated undistributed net income (determined in accordance with generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission then in effect) and not including profits or losses realized upon the sale of securities or other properties; or (ii) the Corporation's net income so determined for the current or preceding fiscal year. Such statement shall adequately disclose the source or sources of such payment and the basis of calculation, and shall be in such form as the Securities and Exchange Commission may prescribe. Section 3.09. Annual and Regular Meetings: The annual meeting of the Board of Directors for choosing officers and 12 transacting other proper business shall be held without notice following the annual meeting of shareholders each year. The Board of Directors from time to time may provide by resolution for the holding of regular meetings and fix their time and place (within or outside the State of Maryland). Notice of such regular meetings need not be given; provided, that notice of any change in the time or place of such meetings shall be sent promptly to each Director not present at the meeting at which such change was made in the manner provided for notice of special meetings. Members of the Board of Directors or any committee designated thereby may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting. Section 3.10. Special Meetings: Special meetings of the Board of Directors shall be held whenever called by the President or Secretary (or, in the absence or disability of the President and Secretary, by any Vice President), or a majority of the Directors then in office; at the time and place (within or outside the State of Maryland) specified in the respective notices or waivers of notice of such meetings. 13 Section 3.11. Notice: Notice of special meetings, stating the time and place, shall be mailed to each Director at his residence or regular place of business at least five days before the day on which a special meeting is to be held or caused to be delivered to him personally or to be transmitted to him by telegraph, cable, or wireless at least one day before the meeting. Section 3.12. Waiver of Notice: No notice of any meeting need be given to any Director who attends such meeting in person or to any Director who waives notice of such meeting in writing (which waiver shall be filed with records of such meeting), whether before or after the time of the meeting. Section 3.13. Quorum and Voting: At all meetings of the Board of Directors the presence of one-half or more of the number of Directors then in office shall constitute a quorum for the transaction of business, provided that there shall be present no less than one-third of the entire Board of Directors, and in no event less than two Directors. In the absence of a quorum, a majority of the Directors present may adjourn the meeting, from time to time, until a quorum shall be present. The action of a majority of the Directors present at a meeting at which a quorum is present shall be the action of the Board of Directors unless the concurrence of a greater proportion is required for such action by law, by the Articles of Incorporation, or by these By-Laws. 14 Section 3.14. Compensation: Each Director may receive such remuneration for his services, including reimbursement of expenses incurred, as shall be fixed from time to time by resolution of the Board of Directors. Nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Section 3.15. Action Without a Meeting: Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if written consents thereto are signed by all members of the Board and such written consents are filed with the minutes of proceedings of the Board. ARTICLE IV ---------- EXECUTIVE COMMITTEE AND OTHER COMMITTEES ---------------------------------------- Section 4.01. How Constituted: By resolution adopted by the Board of Directors, the Board may designate one or more committees, including an Executive Committee, each consisting of at least three Directors. Each member of a committee shall be a Director and shall hold office during the pleasure of the Board. The President shall be a member of the Executive Committee. 15 Section 4.02. Powers of the Executive Committee: Unless otherwise provided by resolution of the Board of Directors, when the Board of Directors is not in session the Executive Committee shall have and may exercise all powers of the Board of Directors in the management of the business and affairs of the Corporation that may lawfully be exercised by an Executive Committee, except the power to declare a dividend, to authorize the issuance of stock, or to recommend to shareholders any matter requiring shareholders' approval. Section 4.03. Other Committees of the Board of Directors: To the extent provided by resolution of the Board, other committees shall have and may exercise any of the powers that may lawfully be granted to the Executive Committee. Section 4.04. Proceedings, Quorum, and Manner of Acting: In the absence of appropriate resolution of the Board of Directors, each committee may adopt such rules and regulations governing its proceedings, quorum, and manner of acting as it shall deem proper and desirable, provided that the quorum shall not be less than two Directors. In the absence of any member of any such committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint a member of the Board of Directors to act in the place of such absent member. 16 Section 4.05. Other Committees: The Board of Directors may appoint other committees, each consisting of one or more persons, who need not be Directors. Each such committee shall have such powers and perform such duties as may be assigned to it from time to time by the Board of Directors, but shall not exercise any power which may lawfully be exercised only by the Board of Directors or a committee thereof. ARTICLE V --------- OFFICERS -------- Section 5.01. General: The officers of the Corporation shall be a President, a Secretary, and a Treasurer, and may include one or more Vice Presidents, Assistant Secretaries or Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 5.11 hereof. The Board of Directors may elect, but shall not be required to elect, a Chairman of the Board. Section 5.02. Election, Term of Office, and Qualifications: The officers of the Corporation (except those appointed pursuant to Section 5.11 hereof) shall be chosen by the Board of Directors at its first meeting or such subsequent meetings as shall be held prior to its first annual meeting, and thereafter annually at its annual meeting. If any officers are not chosen at any annual meeting, such 17 officers may be chosen at any subsequent regular or special meeting of the Board. Except as provided in Section 5.03, 5.04, and 5.05 hereof, each officer chosen by the Board of Directors shall hold office until the next annual meeting of the Board of Directors and until his successor shall have been chosen and qualified. Any person may hold one or more offices of the Corporation except the offices of President and Vice President shall not be held by the same person, but no officer shall execute, acknowledge, or verify any instrument in more than one capacity, if such instrument is required by law, by the Articles of Incorporation, or by these By-Laws to be executed, acknowledged, or verified by two or more officers. The Chairman of the Board and the President shall be chosen from among the Directors of the Corporation and may hold such offices only so long as they continue to be Directors. No other officer need be a Director. Section 5.03. Resignation: Any officer may resign his office at any time by delivering a written resignation to the Board of Directors, the President, the Secretary, or any Assistant Secretary. Unless otherwise specified therein, such resignation shall take effect upon delivery. Section 5.04. Removal: Any officer may be removed from office, whenever in the Board's judgment the best interest of the Corporation will be served thereby, by the vote of a majority of the Board of Directors given at any regular meeting or any special meeting called for such 18 purpose. In addition, any officer or agent appointed in accordance with the provisions of Section 5.11 hereof may be removed, either with or without cause, by any officer upon whom such power of removal shall have been conferred by the Board of Directors. Section 5.05. Vacancies and Newly Created Offices: If any vacancy shall occur in any office by reason of death, resignation, removal, disqualification, or other cause, or if any new office shall be created, such vacancies or newly created offices may be filled by the Board of Directors at any regular or special meeting or, in the case of any office created pursuant to Section 5.11 hereof, by any officer upon whom such power shall have been conferred by the Board of Directors. Section 5.06. Chairman of the Board: The Chairman of the Board, if there be such an officer, shall, in the absence or disability of the President, preside at all shareholders' meetings and shall preside at all meetings of the Board of Directors. He shall have such other powers and perform such other duties as may be assigned to him from time to time by the Board of Directors. Section 5.07. President: The President shall be the chief executive officer of the Corporation and shall preside at all shareholders' meetings and, unless there shall be a Chairman of the Board, at all meetings of the Board of 19 Directors. Subject to the supervision of the Board of Directors, he shall have general charge of the business, affairs, and property of the Corporation and general supervision over its officers, employees, and agents. Except as the Board of Directors may otherwise order, he may sign in the name and on behalf of the Corporation all deeds, bonds, contracts, or agreements. He shall exercise such other powers and perform such other duties as from time to time may be assigned to him by the Board of Directors. Section 5.08. Vice President: The Board of Directors may from time to time, designate and elect one or more Vice Presidents who shall have such powers and perform such duties as from time to time may be assigned to them by the Board of Directors or the President. At the request or in the absence or disability of the President, the Vice President (or, if there are two or more Vice Presidents, then the senior of the Vice Presidents present and able to act) may perform all the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Section 5.09. Treasurer and Assistant Treasurers: The Treasurer shall be the principal financial and accounting officer of the Corporation and shall have general charge of the finances and books of account of the Corporation. Except as otherwise provided by the Board of Directors, he shall have general supervision of the funds and property of 20 the Corporation and of the performance by the custodian of the Corporation of its duties with respect thereto. He shall render to the Board of Directors, whenever directed by the Board, an account of the financial condition of the Corporation and of all his transactions as Treasurer. He shall cause to be prepared annually a full and correct statement of the affairs of the Corporation, including a balance sheet and a financial statement of operations for the preceding fiscal year, which shall be submitted at the annual meeting of shareholders and filed within twenty days thereafter at the principal office of the Corporation in the State of Maryland. He shall perform all the acts incidental to the office of Treasurer, subject to the control of the Board of Directors. Any Assistant Treasurer may perform such duties of the Treasurer as the Treasurer or the Board of Directors may assign, and, in the absence of the Treasurer, he may perform all the duties of the Treasurer. Section 5.10. Secretary and Assistant Secretaries: The Secretary shall attend to the giving and serving of all notices of the Corporation and shall record all proceedings of the meetings of the shareholders, Directors, the Executive Committee, and other committees in a book to be kept for that purpose. He shall keep in safe custody the seal of the Corporation, and shall have charge of the records of the Corporation, including the stock books and such other books 21 and papers as the Board of Directors may direct and such books, reports, certificates, and other documents required by law to be kept, all of which shall at all reasonable times be open to inspection by any Director. He shall perform such other duties as pertain to his office or as may be required by the Board of Directors. Any Assistant Secretary may perform such duties of the Secretary as the Secretary or the Board of Directors may assign, and, in the absence of the Secretary, he may perform all the duties of the Secretary. Section 5.11. Subordinate Officers: The Board of Directors from time to time may appoint such other officers or agents as it may deem advisable, each of whom shall have such title, hold office for such period, have such authority and perform such duties as the Board of Directors may determine. The Board of Directors from time to time may delegate to one or more officers or agents the power to appoint any such subordinate officers or agents and to prescribe their respective rights, terms of office, authorities, and duties. Section 5.12. Remuneration: The salaries, if any, or other compensation of the officers of the Corporation shall be fixed from time to time by resolution of the Board of Directors, except that the Board of Directors may by resolution delegate to any person or group of persons the power to fix the salaries or other compensation of any subordinate 22 officers or agents appointed in accordance with the provisions of Section 5.11 hereof. Section 5.13. Surety Bonds: The Board of Directors may require any officer or agent of the Corporation to execute a bond (including, without limitation, any bond required by the Investment Company Act of 1940, as amended, and the rules and regulations of the Securities and Exchange Commission) to the Corporation in such sum and with such surety or sureties as the Board of Directors may determine, conditioned upon the faithful performance of his duties to the Corporation, including responsibility for negligence and for the accounting of any of the Corporation's property, funds, or securities that may come into his hands. ARTICLE VI ---------- EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES ---------------------------------------------- Section 6.01. General: Subject to the provisions of Section 5.07 hereof, all deeds, documents, transfers, contracts, agreements, and other instruments requiring execution by the Corporation shall be signed by the President or a Vice President and by the Treasurer or Secretary or an Assistant Treasurer or an Assistant Secretary, or as the Board of Directors may otherwise, from time to time, authorize. Any such authorization may be general or confined to specific instances. 23 Section 6.02. Checks, Notes, Drafts, etc.: Except as otherwise authorized by the Board of Directors, all checks and drafts for the payment of money shall be signed in the name of the Corporation by its Custodian, and all requisitions or orders for the payment of money by the custodian or for the issue of checks and drafts therefore, all promissory notes, all assignments of shares or securities standing in the name of the Corporation, and all requisitions or orders for the assignment of shares or securities standing in the name of the Custodian or its nominee, or for the execution of powers to transfer the same, shall be signed in the name of the Corporation by not less than two of its officers. Promissory notes, checks, or drafts payable to the Corporation may be endorsed only to the order of the Custodian or its nominee. Section 6.03. Voting of Securities: Unless otherwise ordered by the Board of Directors, any officer shall have full power and authority on behalf of the Corporation to attend and to act and to vote, or in the name of the Corporation to execute proxies to vote, at any meeting of stockholders of any company in which the Corporation may hold stock. At any such meeting any officer shall possess and may exercise (in person or by proxy) any and all rights, powers, and privileges incident to the ownership of such stock. 24 ARTICLE VII ----------- CAPITAL STOCK ------------- Section 7.01. Certificates: Each shareholder shall be entitled, upon request and upon payment of such charge as the Board of Directors may establish, to a certificate or certificates which shall represent and certify the number and kind and class of full shares owned by him in the Corporation. No certificates shall be issued for fractional shares. Each certificate shall be signed by the President or a Vice President and countersigned by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer and shall be sealed with the corporate seal. The signatures may be either manual or facsimile signatures and the seal may be either facsimile or any other form of seal. In case any officer who has signed any certificate ceases to be an officer of the Corporation before the certificate is issued, the certificate may nevertheless be issued by the Corporation with the same effect as if the officer had not ceased to be such officer as of the date of its issue. Section 7.02. Uncertificated Shares: The Corporation's stock ledger shall be deemed to represent and certify the number of full and/or fractional shares owned of record by a shareholder in those instances where a stock certificate for such shares has not been issued. 25 Section 7.03. Transfers of Shares: The shares of stock of the Corporation shall be transferable on the books of the Corporation at the request of the record holder thereof in person or by a duly authorized attorney, upon presentation to the Corporation or its transfer agent of a duly executed assignment or authority to transfer, or proper evidence of succession, and, if the shares are represented by a certificate, a duly endorsed certificate or certificates of stock surrendered for cancellation, and with such proof of the authenticity of the signatures as the Corporation or its transfer agent may reasonably require. The transfer shall be recorded on the books of the Corporation, the old certificates, if any, shall be cancelled, and the new record holder, upon request, shall be entitled to a new certificate or certificates. Section 7.04. Registered Shareholders: The Corporation shall be entitled to treat the holder of record of any shares as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Maryland. Section 7.05. Transfer Agents and Registrars: The Board of Directors may, from time to time, appoint or remove transfer agents and/or registrars of transfers of shares of stock of the Corporation, and it may appoint the same person 26 as both transfer agent and registrar. Upon any such appointment being made all certificates representing shares of capital stock thereafter issued shall be countersigned by one of such transfer agents or by one of such registrars of transfers or by both and shall not be valid unless so countersigned. If the same person shall be both transfer agent and registrar, only one countersignature by such person shall be required. Section 7.06. Fixing of Record Date. The Board of Directors may fix in advance a date as a record date for the determination of the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion, or exchange of stock, or for the purpose of any other lawful action, provided that such record date shall not be a date more than 60 days, and in the case of a meeting of shareholders not less than 10 days, prior to the date on which the particular action requiring such determination of shareholders is to be taken. In such case only such shareholders as shall be shareholders of record on the record date so fixed shall be entitled to such notice of, and to vote at, such meeting or adjournment, or to give such consent, or to receive payment of such dividend or other distribution, or to receive such allotment of rights, or to exercise such rights, or to take 27 such other action, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after any such record date. Section 7.07. Lost, Stolen, or Destroyed Certificates: Before issuing a new certificate for stock of the Corporation alleged to have been lost, stolen, or destroyed, the Board of Directors or any officer authorized by the Board may, in its discretion, require the owner of the lost, stolen, or destroyed certificate (or his legal representative) to give the Corporation a bond or other indemnity, in such form and in such amount as the Board or any such officer may direct and with such surety or sureties as may be satisfactory to the Board or any such officer, sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft, or destruction of any such certificate or the issuance of such new certificate. ARTICLE VIII ------------ CUSTODY OF SECURITIES --------------------- Section 8.01. Employment of a Custodian: The Corporation shall retain the services of a Custodian (including any sub-custodian for its Custodian) for all funds, securities, and similar investments owned by the Corporation pursuant to a written contract with such Custodian. The Custodian (and any sub-custodian) shall be a bank or trust 28 company having not less than $2,000,000 aggregate capital, surplus, and undivided profits (as shown in its last published report) and shall be appointed from time to time by the Board of Directors, which shall fix its remuneration. Section 8.02. Action Upon Termination of Custodian Contract: Upon termination of a Custodian Contract or inability of the Custodian to continue to serve, the Board of Directors shall promptly appoint a successor Custodian, but in the event that no successor Custodian can be found who has the required qualifications and is willing to serve, the Board of Directors shall call as promptly as possible a special meeting of the shareholders to determine whether the Corporation shall function without a Custodian or shall be liquidated. If so directed by vote of the holders of a majority of the outstanding shares of stock of the Corporation, the Custodian shall deliver and pay over all property of the Corporation held by it as specified in such vote. Section 8.03. Provisions of Custodian Contract: The Custodian Contract shall be upon such terms and conditions and may provide for such compensation as the Board of Directors deem necessary or appropriate, provided such contract shall further provide that the Custodian shall deliver securities owned by the Corporation only upon sale of such securities for the account of the Corporation and receipt of payment therefor by the Custodian or when such securities may be called, redeemed, retired, or otherwise become payable. Such limitations shall not prevent: 29 (a) The delivery of securities for examination to the broker selling the same in accord with the "street delivery" custom whereby such securities are delivered to such broker in exchange for a delivery receipt exchanged on the same day for an uncertified check of such broker to be presented on the same day for certification. (b) The delivery of securities of an issuer in exchange for or conversion into other securities alone or cash and other securities pursuant to any plan of merger, consolidation, reorganization, recapitalization, or readjustment of the securities of such issuer. (c) The conversion by the Custodian of securities owned by the Corporation pursuant to the provisions of such securities into other securities. (d) The surrender by the Custodian of warrants, rights, or similar securities owned by the Corporation in the exercise of such warrants, rights, or similar securities, or the surrender of interim receipts or temporary securities for definitive securities. (e) The delivery of securities as collateral on borrowing effected by the Corporation. 30 (f) The delivery of securities owned by the Corporation as a redemption in kind of securities issued by the Corporation. (g) The deposit of all or any part of the securities owned by the Corporation with a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934, which acts as a securities depository in the book-entry system of the Federal Reserve Banks and the use of the facilities of such system, all as provided under the provisions of Rule 17f-4 of the Investment Company Act of 1940. (h) Such other deposits, deliveries and transfers of securities owned by the Corporation which are permitted or authorized by applicable rules and orders of the Securities and Exchange Commission. The Custodian shall deliver funds of the Corporation only upon the purchase of securities for the portfolio of the Corporation and the delivery of such securities to the Custodian, but such limitation shall not prevent the release of funds by the Custodian for redemption of shares issued by the Corporation, for payment of interest, dividend disbursements, taxes, management fees, for payments in connection with the conversion, exchange, or surrender of securities owned by the Corporation as set forth in sub- 31 paragraphs (b), (c), and (d) above and for operating expenses of the Corporation. ARTICLE IX ---------- FISCAL YEAR, ACCOUNTANT ----------------------- Section 9.01. Fiscal Year: The fiscal year of the Corporation shall, unless otherwise ordered by the Board of Directors, be twelve calendar months beginning on the 1st day of September in each year and ending on the 31st day of the following August. Section 9.02. Accountant: The Corporation shall employ an independent public accountant or firm of independent public accountants as its Accountant to examine the accounts of the Corporation and to sign and certify financial statements of the Corporation. ARTICLE X --------- AMENDMENTS ---------- Section 10.01. General: Except as provided in Section 10.02 hereof, all By-Laws of the Corporation, whether adopted by the Board of Directors or the shareholders, shall be subject to amendment, alteration, or repeal, and new By-Laws may be made, by the affirmative vote of a majority of either: 32 (a) the holders of record of the outstanding shares of stock of the Corporation entitled to vote, at any annual or special meeting the notice or waiver of notice of which shall have specified or summarized the proposed amendment, alteration, repeal, or new By-Law; or (b) the Directors, at any regular or special meeting, the notice or waiver of notice of which shall have specified or summarized the proposed amendment, alteration, repeal, or new By-Law. Section 10.02. By Shareholders Only: (a) No amendment of any section of these By-Laws shall be made except by the shareholders of the Corporation if the By-Laws provide that such section may not be amended, altered or repealed except by the shareholders. (b) From and after the issue of any shares of the Common Stock of the Corporation, no amendment of this Article X or Article XI shall be made except by the shareholders of the Corporation. 33 ARTICLE XI ---------- MISCELLANEOUS ------------- (A) Except as hereinafter provided, no officer or Director of the Corporation and no officer or director of the Investment Adviser of the Corporation (as that term is defined in the Investment Company Act of 1940) or of any underwriter of the Corporation, and no Investment Adviser or underwriter of the Corporation, shall take long or short positions in the securities issued by the Corporation. The foregoing provision shall not prevent the purchase from the Corporation of shares issued by the Corporation by any officer or Director of the Corporation or by any partner, officer, director or shareholder of the Investment Adviser of the Corporation at the price available to the public generally at the moment of such purchase or, to the extent that any such person is a shareholder, at the price available to shareholders of the Corporation generally at the moment of such purchase, or as described in the current Prospectus of the Corporation. (B) The Corporation shall not lend assets of the Corporation to any officer or Director of the Corporation, or to any partner, officer, director, or shareholder of, or person financially interested in, the Investment Adviser or any underwriter of the Corporation, or to the Investment Adviser of the Corporation or to any underwriter of the Corporation. 34 (C) The Corporation shall not impose any restrictions upon the transfer of the shares of the Corporation, but this requirement shall not prevent the charging of customary transfer agent fees. (D) The Corporation shall not permit any officer or Director, or any officer, director or shareholder of the Investment Adviser or any underwriter of the Corporation to deal for or on behalf of the Corporation with himself as principal or agent, or with any partnership, association, or corporation in which he has a financial interest; provided, that the foregoing provisions shall not prevent (a) officers and Directors of the Corporation from buying, holding, or selling shares in the Corporation, or from being officers, directors or shareholders of or otherwise financially interested in the Investment Adviser or any underwriter of the Corporation; (b) purchases or sales of securities or other property by the Corporation from or to an affiliated person or to the Investment Adviser or any underwriter of the Corporation if such transaction is exempt from the applicable provisions of the Investment Company Act of 1940; (c) purchases of investments for the portfolio of the Corporation or sales of investments owned by the Corporation through a security dealer who is, or one or more of whose shareholders, officers, or directors is, an officer or Director of the Corporation, if such transactions are handled in the capacity of broker only and commissions charged do not exceed customary brokerage charges for such services; 35 (d) employment of legal counsel, registrar, transfer agent, dividend disbursing agent, or custodian who is, or has a partner, shareholder, officer, or director who is, an officer or Director of the Corporation, if only customary fees are charged for services to the Corporation; (e) sharing statistical, research, legal, and management expenses and office hire and expenses with any other investment company in which an officer or Director of the Corporation is an officer or director or otherwise financially interested. END OF BY-LAWS 36 EX-99.4 5 INVESTMENT ADVISORY AGREEMENT EXHIBIT NO. 4 INVESTMENT ADVISORY AGREEMENT This Agreement ("Advisory Agreement") made as of the 1st day of December, 1998/1/ between Hilliard-Lyons Government Fund, Inc., a Maryland corporation (the "Company"), and J.J.B. Hilliard, W.L. Lyons, Inc., a Kentucky corporation ("Adviser"), WHEREAS, the Company is an open-end, diversified management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, Adviser is engaged in the business of rendering investment advisory services and is registered as an Investment Adviser under the Investment Advisers Act of 1940; and WHEREAS, Company desires to retain Adviser as its investment adviser and Adviser is willing to render such services to Company; NOW, THEREFORE, this Agreement WITNESSETH: that in consideration of the payment to Adviser of the sum of $1.00, the receipt of which is hereby acknowledged, and in further consideration of the premises and the promises and covenants hereinafter set forth, the parties hereto agree as follows: 1. Adviser shall manage the investment and reinvestment of the assets of Company for the period and on the terms set forth in this Agreement, subject to the overall control of the Board of Directors of Company. Adviser shall for all purposes be deemed to be an independent contractor and not an agent of Company and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent Company in any way. 2. Adviser at its own expense shall furnish office space to Company and all necessary office facilities, equipment, and personnel for managing the assets of Company. Adviser shall pay the compensation of Directors who are affiliated with Adviser. Adviser shall also assume and pay all other expenses incurred by it in connection with managing the assets of Company, including, but not limited to, the cost and expense of research, analysis and supervision of the investment portfolio. Adviser shall pay all expenses in determination of daily pricing of the shares of Company and related bookkeeping expenses (other than for such services as are provided by the Company's custodian), the Company's organization expenses, and one-half of the fees of any trade association of which the - ------------------- /1/ The Agreement shall be executed and become effective upon the later of (a) the closing of the transactions contemplated by the Agreement and Plan of Merger by and between Hilliard-Lyons, Inc. and PNC Bank Corp. or (b) approval by the shareholders of the Company. Company may be a member. Adviser will pay all costs and expenses incurred in connection with the initial registration for offer and sale of Company's shares under the Securities Act of 1933 and under applicable state securities laws and the initial registration under the 1940 Act. 3. Company shall pay all charges of depositories, custodians, and other agencies for the safekeeping and servicing of its cash, securities, and other property, and of its transfer, shareholder recordkeeping, dividend disbursing, and redemption agents; all charges of legal counsel and of independent auditors; all compensation of directors other than those affiliated with Adviser; interest expense; all expenses of notices, proxy solicitation material, reports to its shareholders and of all prospectuses furnished from time to time to existing shareholders or used for regulatory purposes; all expenses of printing and mailing Company stock certificates; all expenses of bond and insurance coverage required by law; all brokers' commissions and other normal charges incident to the purchase and sale of portfolio securities; all taxes and corporate fees payable to Federal, state, or other governmental agencies, domestic or foreign; all stamp or other transfer taxes; all expenses of complying with Federal, state, and other laws regulating the issue or sale of shares except for those expenses attributable to initial Federal and state securities law compliance and those deemed to be sales or promotional expenses; one-half of the fees of any trade association of which Company may be a member; all extraordinary expenses as may arise including expenses incurred in connection with litigation, proceedings and claims and the legal obligations of Company to indemnify its Directors, employees, shareholders and agents with respect thereto; all expenses of meetings of the Board of Directors and shareholders; and all other expenses incidental to its organization and operations not specifically assumed by Adviser pursuant to paragraphs 2 and 5. 4. For all services rendered by Adviser hereunder, Company shall pay to Adviser and Adviser agrees to accept as full compensation for all services rendered hereunder, an annual gross investment advisory fee equal to 1/2 of 1% of the first $200 million of the average daily net assets of Company; 3/8 of 1% of the next $100 million of average daily net assets, and 1/4 of 1% of average daily net assets in excess of $300 million. Such fee shall be accrued daily and shall be paid to Adviser on the last day of each month. For the purpose of computing the advisory fee, monies deposited with the Federal Reserve pursuant to the Credit Control Act will be excluded from the Company's net assets. [TO BE INCLUDED IF THIS AGREEMENT IS IMPLEMENTED PRIOR TO ITS APPROVAL BY THE COMPANY'S SHAREHOLDERS--Any fees payable by the Company under this Agreement during the period commencing on the effective date of this Agreement and ending on the date of the initial approval of this Agreement by a majority of the outstanding voting securities of the Company shall be paid into an interest-bearing escrow account with an unaffiliated financial institution, as the Company and the Adviser may establish, to be released to the Adviser only upon such initial approval of this Agreement, or, if such approval shall not occur within the 60 days following consummation of the merger, to the Company.] 5. The total expenses of Company exclusive of taxes, of interest, of all brokers' and any bank commissions and other normal charges incident to the purchase and sale of portfolio securities, and (with the prior written consent of the necessary state securities commissions) of any extraordinary expenses of Directors and Adviser, but including fees paid to Adviser, shall not exceed on an annual basis 1-1/2% of the first $30,000,000 of average net assets and 1% of average net assets over $30,000,000, and Adviser agrees to reimburse Company for any sums expended for such expenses -2- in excess of that amount. Such expense reimbursements, if any, will be reimbursed to Company by Adviser monthly as an offset against any amounts receivable by Adviser from Company. All such reimbursements and offsets will be subject to adjustment as of the end of each fiscal year of the Company. 6. The services of Adviser to Company hereunder are not to be deemed exclusive, and Adviser shall be free to render similar services to others. Adviser may employ or contract with such other person, persons, corporation or corporations at its own cost and expense as it shall determine in order to assist it in carrying out this Agreement. 7. Neither Adviser nor any of its officers, directors, agents or employees shall be liable or responsible to Company or its shareholders for any error of judgment, mistake of law or any loss arising out of any investment, or for any other act or omission in the performance by Adviser of its duties under this Agreement, except for liability resulting from willful misfeasance, bad faith or gross negligence on the Adviser's part or from reckless disregard by Adviser of its obligations and duties under this Agreement. 8. This Agreement may not be amended without the affirmative votes (a) of a majority of the Board of Directors, including a majority of those directors who are not "interested persons" of Company or of Adviser, voting in person at a meeting called for the purpose of voting on such approval, and (b) of a "majority of the outstanding shares" of Company. The terms "interested person" and "vote of a majority of the outstanding shares" shall be construed in accordance with their respective definitions in sections 2(a)(19) and 2(a)(42) of the 1940 Act. 9. This Agreement may be terminated at any time, without payment of any penalty, by the Board of Directors of Company, or by a vote of a majority of the outstanding shares of Company upon at least sixty (60) days' written notice to Adviser. This Agreement may be terminated by Adviser at any time upon at least sixty (60) days' written notice to Company. This Agreement shall terminate automatically in the event of its assignment (as defined in Section 2(a)(4) of the Act). Unless terminated as hereinbefore provided, this Agreement shall continue in effect until two years from the date on which this Agreement is executed, and thereafter from year to year only so long as such continuance is specifically approved at least annually (a) by a majority of those directors who are not interested persons of Company or of Adviser, voting in person at a meeting called for the purpose of voting on such approval, and (b) by either the Board of Directors of Company or by a vote of a majority of the outstanding shares of Company. 10. The Company may use the name "Hilliard-Lyons Government Fund, Inc." or any other name derived from the name "J.J.B. Hilliard, W.L. Lyons, Inc." only for so long as this Agreement or any extension, renewal or amendment hereof remains in effect, including any similar agreement with any organization which shall have succeeded to the business of the Adviser as investment adviser. At such time as this Agreement or such other agreement shall no longer be in effect, the Fund will (by corporate action, if necessary) cease to use any name derived from the name "J.J.B. Hilliard, W.L. Lyons, Inc.", any name similar thereto or any other name indicating that it is advised by or otherwise connected with the Adviser or with any organization which shall have succeeded to the Adviser's business. -3- Dated: November 30, 1998 HILLIARD-LYONS GOVENMENT FUND, INC ___________________________ By: /s/ Joseph C. Curry, Jr. ____________________________________ J.J.B. HILLIARD, W.L. LYONS, INC. By: /s/ Samuel Harvey ____________________________________ -4- EX-99.5 6 DISTRIBUTION AGREEMENT Exhibit No. 5 DISTRIBUTION AGREEMENT Agreement, made as of the 1st day of December, 1998 between Hilliard-Lyons Government Fund, a Maryland corporation (the "Company"), and Provident Distributors, Inc., a Delaware corporation ("Distributor"). WHEREAS, the Company is an open-end, diversified management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Company desires to appoint Distributor as its distributor to provide for the sale and distribution of the shares of Common stock, $0.01 par value, of the Company ("Common Stock"), and Distributor is willing to render such services; NOW, THEREFORE, this Agreement WITNESSETH: that 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: 1. Except as otherwise provided herein, the Company hereby appoints the Distributor as its exclusive agent to sell and distribute shares of Common Stock of the Company at the net asset value thereof as described and set forth in the current prospectus of the Company, and Distributor accepts such appointment and agrees to render the services and perform the duties set forth in this Agreement without further compensation. The Distributor may make sales of the shares of Common Stock of the Company directly to the public or to or through dealers. The compensation of any such dealers shall be the responsibility of Distributor. 2. Notwithstanding the foregoing appointment, the Company may distribute its shares. 3. In performing its duties as Distributor, Distributor will act in conformity with the Articles of Incorporation, By-Laws and prospectus for the Company and with the instructions and directions of the Company's Board of Directors and the requirements of the Securities Act of 1933, the 1940 Act and all other applicable Federal and State laws and regulations. 4. After effectiveness of the Company's Registration Statement, Distributor will hold itself available to receive by mail, telex and/or telephone, orders for the purchase -2- of Common Stock and will accept or reject such orders on behalf of the Company in accordance with the provisions of the prospectus, and will transmit such orders as are so accepted to the Company's transfer agent as promptly as possible. 5. Distributor shall not be obligated to sell any certain number of shares of the Company's Common Stock. 6. The sale of the Company's shares may be suspended with or without prior notice whenever in the judgment of the Company it is in its best interest to do so. 7. Neither the Distributor nor any other person is authorized by the Company to give any information or to make any representation relative to the Company's shares other than those contained in the Registration Statement or prospectus filed with the Securities and Exchange Commission as the same may be amended from time to time or in any supplemental information to said prospectus approved by the Company. The Distributor agrees that any other information or representation other than those specified above which it or any dealer or other person who purchases shares through the Distributor may make in connection with the offer or sale of shares, shall be made entirely without liability on the part of the Company. No person or dealer other than the Distributor shall be deemed to be authorized hereby to act as agent for the Company for any purpose. The Distributor agrees that in offering or selling shares as agent for the Company it will in all respects duly conform to all applicable State and Federal laws and the rules and regulations of the National Association of Securities Dealers, Inc. including its -3- Code of Conduct. The Distributor will submit to the Company copies of all sales literature before using the same and will not use literature if disapproved by the Company. 8. Subsequent to the effectiveness of the Company's initial registration statement under the Securities Act of 1933, J.J.B. Hilliard, W.L. Lyons, Inc. will bear 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 Company. 9. 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 approved at least annually by the Board of Directors of the Company including a majority of the Directors of the Company who are not "interested persons" cast in person at a meeting called for that purpose. The term "interested persons" shall be construed in accordance with its definition in section 2(a)(19) of the 1940 Act. This Agreement may be terminated upon 60 days written notice by the Company and/or the Distributor. 10. This Agreement may not be assigned by the Distributor and shall automatically terminate in the event of an assignment as defined in the 1940 Act; provided, however, that the Distributor may employ such other person, persons, corporation -4- or corporations as it shall determine, in order to assist it in carrying out this Agreement. 11. Distributor shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Company in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under the Agreement. Any person, even though also an officer, employee or agent of Distributor, who may be or become an officer, director, employee or agent of the Company shall be deemed, when rendering services to the Company or acting in any business of the Company, to be rendering such services to or acting solely for the Company and not as an officer, partner, employee or agent or one under the control or direction of Distributor even though paid by it. 12. This Agreement may not be amended without the affirmative votes of a majority of the Board of Directors, including a majority of those directors who are not "interested persons" of the Company or of the Distributor, voting in person at a meeting called for the purpose of voting on such approval. Subject to this condition, this Agreement may be amended at any time by mutual agreement in writing of the parties hereto. -5- 13. This Agreement shall be construed in accordance with and governed by the laws of the State of Maryland. IN WITNESS WHEREOF, this Agreement has been executed for the Distributor and the Company and their respective corporate seals affixed hereto by their duly authorized officers the day and year first above written. PROVIDENT DISTRIBUTORS, INC. Attest: By:__________________________ ________________________________ Secretary (SEAL) HILLIARD-LYONS GOVERNMENT FUND, INC. Asset: By: /s/ Joseph C. Curry, Jr. __________________________ ________________________________ Secretary -6- EX-99.7 7 CUSTODIAN AGREEMENT Exhibit No. 7 CUSTODIAN CONTRACT This Contract between HILLIARD-LYONS CASH MANAGEMENT, INC., a Maryland corporation, hereinafter called the "Fund", and STATE STREET BANK AND TRUST COMPANY, hereinafter called the "Custodian", WITNESSETH: That in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows: I. Employment of Custodian and Property to be Held by It The Fund hereby employs the Custodian as the custodian of its assets pursuant to the provisions of the By-Laws of the Fund. The Fund agrees to deliver to the Custodian all securities and cash owned by it, and all payments of income, payments of principal or capital distributions received by it with respect to all securities owned by the Fund from time to time, and the cash consideration received by it for such new or treasury shares of its Common Stock, $.01 par value ("Shares"), of the Fund as may be issued or sold from time to time. The Custodian shall not be responsible for any property of the Fund held or received by the Fund and not delivered to the Custodian. The Custodian may from time to time employ one or more sub-custodians, but only in accordance with an applicable vote by the Board of Directors of the Fund, and provided that the Custodian shall have no more or less responsibility or liability to the Fund on account of any actions or omissions of any sub-custodian so employed than any such sub-custodian has to the Custodian. II. Duties of the Custodian with Respect to Property of the Fund Held by the Custodian A. Holding Securities. The Custodian shall hold and physically segregate for the account of the Fund all non-cash property, including all securities owned by the Fund, other than securities which are maintained pursuant to Section L of Article II in a clearing agency which acts as a securities depository or in a book-entry system authorized by the U.S. Department of the Treasury, collectively referred to herein as "Securities System". B. Delivery of Securities. The Custodian shall release and deliver securities owned by the Fund held by the Custodian or in a Securities System account of the Custodian only upon receipt of proper instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: l) Upon sale of such securities for the account of the Fund and receipt of payment therefor; 2) Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Fund, 2 3) In the case of a sale effected through a Securities System, in accordance with the provisions of Section L hereof; 4) To the Issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian; 5) To the Issuer thereof, or its agent, for transfer into the name of the Fund or into the name of any nominee or nominees of the Custodian or into the name or nominee name of any agent appointed pursuant to Section K of Article II or into the name or nominee name of any sub-custodian appointed pursuant to Article I; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new securities are to be delivered to the Custodian; 6) To the broker selling the same for examination in accordance with the "street delivery" custom; provided that the Custodian shall adopt such procedures, as the Fund from time to time shall approve, to ensure their 3 prompt return to the Custodian by the broker in the event the broker elects not to accept them; 7) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the Issuer of such securities, pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 8) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 9) For delivery as security in connection with any borrowings by the Fund requiring a pledge of assets by the Fund, but only against receipt of amounts borrowed; 10) Upon receipt of instructions from the transfer agent for the Fund (the "Transfer Agent"), for delivery to such 4 Transfer Agent or to holders of shares in connection with distributions in kind, as may be described from time to time in the Fund's currently effective prospectus, in satisfaction of requests by holders of Shares for repurchase or redemption; and 11) For any other proper corporate purposes, but only upon receipt of, in addition to proper instructions, a certified copy of a resolution of the Board of Directors or of the Executive Committee signed by an officer of the Fund and certified by the Secretary or an Assistant Secretary, specifying the securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purposes to be proper corporate purposes, and naming the person or persons to whom delivery of such securities shall be made. C. Registration of Securities. Securities held by the Custodian (other than bearer securities) shall be registered in the name of the Fund or in the name of any nominee of the Fund or of any nominee of the Custodian which nominee shall be assigned exclusively to the Fund, unless the Fund has authorized in writing the appointment of a nominee to be used in common with 5 other registered investment companies having the same investment adviser or in the name or nominee name of any agent appointed pursuant to Section K of Article II or in the name or nominee name of any sub-custodian appointed pursuant to Article I. All securities accepted by the Custodian on behalf of the Fund under the terms of this Contract shall be in "street" or other good delivery form. D. Bank Accounts. The Custodian shall open and maintain a separate bank account or accounts in the name of the Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Contract, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Fund, other than cash maintained by the Fund in a bank account established and used in accordance with Rule 17f-3 under the Investment Company Act of 1940. Funds held by the Custodian for the Fund may be deposited by the Custodian to its credit as Custodian in the Banking Department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the Investment Company Act of 1940 and that each such bank or trust company and the funds to be deposited with each such 6 bank or trust company shall be approved by vote of a majority of the Board of Directors of the Fund. Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity. E. Payments for Shares. The Custodian shall receive from the distributor of the Fund's Shares or from the transfer agent of the Fund and deposit into the Fund's account such payments as are received for Shares of the Fund issued or sold from time to time by the Fund. The Custodian will provide timely notification to the Fund and the Transfer Agent of any receipt by it of payments for Shares of the Fund. F. Investment and Availability of Federal Funds. Upon mutual agreement between the Fund and the Custodian, the Custodian shall, upon the receipt of proper instructions, which may be continuing instructions when deemed appropriate by the parties, 1) invest in such instruments as may be set forth in such instructions on the same day as received all federal funds received before a time agreed upon between the Custodian and the Fund; and 2) make federal funds available to the Fund as of specified times agreed upon from time to time by the Fund and the Custodian in the 7 amount of checks received in payment for Shares of the Fund which are deposited into the Fund's account. G. Collection of Income. The Custodian shall collect on a timely basis all income and other payments with respect to registered securities held hereunder to which the Fund shall be entitled either by law or pursuant to custom in the securities business, and shall collect on a timely basis all income and other payments with respect to bearer securities if, on the date of payment by the Issuer, such securities are held by the Custodian or agent thereof and shall credit such income, as collected, to the Fund's custodian account. Without limiting the generality of the foregoing, the Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on securities held hereunder. H. Payment of Fund Moneys. Upon receipt of proper instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out moneys of the Fund in the following cases only: 1) Upon the purchase of securities for the account of the Fund but only (a) against the delivery of such securities to the Custodian (or any bank, banking firm or trust company 8 doing business in the United States or abroad which is qualified under the Investment Company Act of 1940, as amended, to act as a custodian and has been designated by the Custodian as its agent for this purpose) registered in the name of the Fund or in the name of a nominee of the Custodian referred to in Section C of Article II hereof or in proper form for transfer; (b) in the case of a purchase effected through a Securities System, in accordance with the conditions set forth in Section L of Article II hereof or (c) in the case of repurchase agreements entered into between the Fund and the Custodian, or another bank, (i) against delivery of the securities either in certificate form or through an entry crediting the Custodian's account at the Federal Reserve Bank with such securities or (ii) against delivery of the receipt evidencing purchase by the Fund of securities owned by the Custodian along with written evidence of the agreement by the Custodian to repurchase such securities from the Fund; 2) In connection with conversion, exchange or surrender of securities owned by the Fund as set forth in Section B of Article II hereof; 9 3) For the redemption or repurchase of Shares issued by the Fund as set forth in Section J of Article II hereof; 4) For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund: interest, taxes, management, accounting, Transfer Agent and legal fees, and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses; 5) For the payment of any dividends declared pursuant to the governing documents of the Fund; 6) For any other proper purposes, but only upon receipt of, in addition to proper instructions, a certified copy of a resolution of the Board of Directors or of the Executive Committee of the Fund signed by an officer of the Fund and certified by its Secretary or an Assistant Secretary, specifying the amount of such payment, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper purpose, and naming the person or persons to whom such payment is to be made. 10 I. Liability for Payment in Advance of Receipt of Securities Purchased. In any and every case where payment for purchase of securities for the account of the Fund is made by the Custodian in advance of receipt of the securities purchased in the absence of specific written instructions from the Fund to so pay in advance, the Custodian shall be absolutely liable to the Fund for such securities to the same extent as if the securities had been received by the Custodian, except that in the case of repurchase agreements entered into by the Fund with a bank which is a member of the Federal Reserve System, the Custodian may transfer funds to the account of such bank prior to the receipt of written evidence that the securities subject to such repurchase agreement have been transferred by book-entry into a segregated non-proprietary account of the Custodian maintained with the Federal Reserve Bank of Boston or of the safe-keeping receipt, provided that such securities have in fact been so transferred by book-entry. J. Payments for Repurchases or Redemptions of Shares of the Fund. From such funds as may be available for the purpose but subject to the limitations of the Articles of Incorporation and the By-Laws and any applicable votes of the Board of Directors of the Fund pursuant thereto, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for 11 payment to holders of Shares who have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares of the Fund, the Custodian is authorized upon receipt of instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on the Custodian by the holder of Shares, which checks have been furnished by the Fund to the holder of Shares, when presented to the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time between the Fund and the Custodian. K. Appointment of Agents. The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company which is itself qualified under the Investment Company Act of 1940, as amended, to act as a custodian, as its agent to carry out such of the provisions of this Article II as the Custodian may from time to time direct; provided, however, that the appointment of any agent shall not relieve the Custodian of any of its responsibilities or liabilities hereunder. L. Deposit of Fund Assets in Securities Systems. The Custodian may deposit and/or maintain securities owned 12 by the Fund in a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934, which acts as a securities depository, or in the book-entry system authorized by the U.S. Department of the Treasury and certain federal agencies, collectively referred to herein as "Securities System" in accordance with applicable Federal Reserve Board and Securities and Exchange Commission rules and regulations, if any, and subject to the following provisions: 1) The Custodian may keep securities of the Fund in a Securities System provided that such securities are represented in an account ("Account") of the Custodian in the Securities System which shall not include any assets of the Custodian other than assets held as a fiduciary, custodian, or otherwise for customers. 2) The records of the Custodian with respect to securities of the Fund which are maintained in a Securities System shall identify by book-entry those securities belonging to the Fund. 3) The Custodian shall pay for securities purchased for the account of the Fund upon (i) receipt of advice from the Securities System 13 that such securities have been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of the Fund. The Custodian shall transfer securities sold for the account of the Fund upon (i) receipt of advice from the Securities System that payment for such securities has been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Fund. Copies of all advices from the Securities System of transfers of securities for the account of the Fund shall identify the Fund, be maintained for the Fund by the Custodian and be provided to the Fund at its request. The Custodian shall furnish the Fund confirmation of each transfer to or from the account of the Fund in the form of a written advice or notice and shall furnish to the Fund copies of daily transaction sheets reflecting each day's transactions in the Securities System for the account of the Fund on the next business day. 14 4) The Custodian shall provide the Fund with any report obtained by the Custodian on the Securities System's accounting system, internal accounting control and procedures for safeguarding securities deposited in the Securities System. 5) The Custodian shall have received the initial or annual certificate, as the case may be, required by Article IX hereof. 6) Anything to the contrary in this Contract notwithstanding, the Custodian shall be liable to the Fund for any loss or damage to the Fund resulting from use of the Securities System by reason of any negligence, misfeasance or misconduct of the Custodian or any of its agents or of any of its or their employees or from any failure of the Custodian or any such agent to enforce effectively such rights as it may have against the Securities System; at the election of the Fund, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claim against the Securities System or any other person which the Custodian may have as a consequence of any such loss or damage if and to the extent that the Fund has not been made whole for any such loss or damage. 15 M. Ownership Certificates for Tax Purposes. The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to securities of the Fund held by it and in connection with transfers of securities. N. Proxies. The Custodian shall, with respect to the securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of the Fund or a nominee of the Fund, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Fund such proxies, all proxy soliciting materials and all notices relating to such securities. O. Communications Relating to Fund Portfolio Securities. The Custodian shall transmit promptly to the Fund all written information (including, without limitation, pendency of calls and maturities of securities and expirations of rights in connection therewith) received by the Custodian from issuers of the securities being held for the Fund. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund all written information received by the Custodian from issuers of the securities whose tender or exchange is sought and from the party (or his agents) making the 16 tender or exchange offer. If the Fund desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Fund shall notify the Custodian at least three business days prior to the date on which the Custodian is to take such action. P. Proper Instructions. "Proper instructions" as used throughout this Article II and in Article III means a writing signed or initialled by one or more person or persons as the Board of Directors shall have from time to time authorized. Each such writing shall set forth the specific transaction or type of transaction involved, including a specific statement of the purpose for which such action is requested. Oral instructions will be considered proper instructions if the Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Fund shall cause all oral instructions to be confirmed in writing. Upon receipt of a certificate of the Secretary or an Assistant Secretary as to the authorization by the Board of Directors of the Fund accompanied by a detailed description of procedures approved by the Board of Directors, "proper instructions" may include communications effected directly between electro-mechanical or electronic 17 devices provided that the Board of Directors and the Custodian are satisfied that such procedures afford adequate safeguards for the Fund's assets. Q. Actions Permitted without Express Authority. The Custodian may in its discretion, without express authority from the Fund: l) make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this contract, provided that all such payments shall be accounted for to the Fund; 2) surrender securities in temporary form for securities in definitive form; 3) endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; and 4) in general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Fund except as otherwise directed by the Board of Directors of the Fund. R. Evidence of Authority. The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper believed by it to be genuine and to have been properly 18 executed by or on behalf of the Fund. The Custodian may receive and accept a certified copy of a vote of the Board of Directors of the Fund as conclusive evidence (a) of the authority of any person to act in accordance with such vote or (b) of any determination or of any action by the Board of Directors as described in such vote, and such vote may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary. III. Duties of Custodian with Resect to Books of Account and Calculation of Net Asset Value and Net Income The Custodian shall keep books of account and render statements, including interim monthly and complete quarterly financial statements, or copies thereof from time to time as requested by the Fund. Unless otherwise directed by receipt of proper instructions, the Custodian shall compute and determine, in accordance with the Fund's currently effective prospectus, the "net asset value" of a share in the Fund and promptly notify the Fund of the result of such computation and determination. In computing the "net asset value" the Custodian shall rely upon security quotations received by telephone or otherwise from sources designated by the Fund by proper instructions and may further rely upon information furnished to it by any officer of the Fund "thereunto duly authorized 19 relative (a) to liabilities of the Fund not appearing on the books of account, (b) to the existence, status and proper treatment of any reserve or reserves and (c) to the fair value of any security or other property for which market quotations are not readily available. Upon receipt of proper instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall calculate daily the "net income" of the Fund in a manner consistent with the Fund's Articles of Incorporation and in accordance with the then current prospectus of the Fund, and shall advise the Fund and the Transfer Agent daily of the total amount of such "net income". IV. Records The Custodian shall create and maintain all records relating to its activities and obligations under this Contract in such manner as will meet the obligations of the Fund under the Investment Company Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder, applicable federal and state tax laws and any other law or administrative rules or procedures which may be applicable to the Fund. All such records shall be the property of the Fund and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of the Fund and employees and agents of the Securities and Exchange Commission. The Custodian shall, at the Fund's request, 20 supply the Fund with a tabulation of securities owned by the Fund and held by the Custodian and shall, when requested to do so by the Fund and for such compensation as shall be agreed upon between the Fund and the Custodian, include certificate numbers in such tabulations. V. Opinion of Fund's Independent Accountant The Custodian shall take all reasonable action, as the Fund may from time to time request, to obtain from year to year favorable opinions from the Fund's independent accountants with respect to its activities hereunder in connection with the preparation of the Fund's Form N-1, and Form N-1R or other annual reports to the Securities and Exchange Commission and with respect to any other requirements of such Commission. VI. Reports to Fund by Independent Public Accountants The Custodian shall provide the Fund, at such times as the Fund may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, including securities deposited and/or maintained in a Securities System, relating to the services provided by the Custodian under this Contract; such reports, which shall be of sufficient scope and in sufficient detail, as may reasonably be required by the Fund, to provide reasonable assurance that any material inadequacies would be disclosed, shall state in detail material inadequacies disclosed by such 21 examination, and, if there are not such inadequacies, shall so state. VII. Compensation of Custodian The Custodian shall be entitled to reasonable compensation for its services and expenses as Custodian, as agreed upon from time to time between the Fund and the Custodian. VIII. Responsibility of Custodian So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Contract and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties. The Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Contract, but shall be kept indemnified by and shall be without liability to the Fund for any action taken or omitted by it in good faith without negligence. It shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. Notwithstanding the foregoing, the responsibility of the Custodian with respect to redemptions effected by check shall be in accordance with a separate Agreement entered into between the Custodian and the Fund. 22 If the Fund requires the Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to the Fund being liable for the payment of money or incurring liability of some other form, the Fund, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it. IX. Effective Period, Termination and Amendment This Contract shall become effective as of its execution, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than thirty (30) days after the date of such delivery or mailing; provided, however that the Custodian shall not act under Section L of Article II hereof in the absence of receipt of an initial certificate of the Secretary or an Assistant Secretary that the Board of Directors of the Fund have approved the initial use of a particular Securities System and the receipt of an annual certificate of the Secretary or an Assistant Secretary that the Board of Directors have reviewed the use by the Fund of such Securities System, as required in each case by Rule 17f-4 under the Investment Company Act of 1940, as 23 amended; provided further, however, that the Fund shall not amend or terminate this Contract in contravention of any applicable federal or state regulations, or any provision of the Articles of Incorporation or the By-Laws of the Fund, and further provided, that the Fund may at any time by action of its Board of Directors (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian, or (ii) immediately terminate this Contract in the event of the appointment of a conservator or receiver for the Custodian by the Comptroller of the Currency or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. Upon termination of the Contract, the Fund shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian for its costs, expenses and disbursements. X. Successor Custodian If a successor custodian shall be appointed by the Board of Directors of the Fund, the Custodian shall, upon termination, deliver to such successor custodian at the office of the Custodian, duly endorsed and in the form for transfer, all securities then held by it hereunder. If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of a certified copy of a vote of the Board of Directors of the Fund, deliver 24 at the office of the Custodian such securities, funds and other properties in accordance with such vote. In the event that no written order designating a successor custodian or certified copy of a vote of the Board of Directors shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the Investment Company Act of 1940, doing business in Boston, Massachusetts, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $25,000,000, all securities, funds and other properties held by the Custodian and all instruments held by the Custodian relative thereto and all other property held by it under this Contract. Thereafter, such bank or trust company shall be the successor of the Custodian under this Contract. In the event that securities, funds and other properties remain in the possession of the Custodian after the date of termination hereof owing to failure of the Fund to procure the certified copy of vote referred to or of the Board of Directors to appoint a successor custodian, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, funds and other properties and the provisions of this Contract relating to the duties and obligations of the Custodian shall remain in full force and effect. 25 XI. Interpretive and Additional Provisions In connection with the operation of this Contract, the Custodian and the Fund may from time to time agree on such provisions interpretive of or in addition to the provisions of this Contract as may in their joint opinion be consistent with the general tenor of this Contract. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the Articles of Incorporation or the By-Laws of the Fund. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Contract. XII. Directors All references to actions of or by the Directors herein shall require action by such Directors acting as a Board of Directors or formally constituted group and not individually. XIII. Massachusetts Law to Apply This Contract shall be construed and the provisions thereof interpreted under and in accordance with the laws of the Commonwealth of Massachusetts. 26 IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by a duly authorized officer as of the 24 day of December, 1980. HILLIARD-LYONS CASH MANAGEMENT, INC. ATTEST: /s/ Frederic H. Courtenary By: /s/ Donald F. Kohler - -------------------------- -------------------------------- STATE STREET BANK AND TRUST COMPANY ATTEST: /s/ Charles R. Baryski By: /s/ Bob Gashlil - -------------------------- -------------------------------- Assistant Secretary Vice President 27 EX-99.8 8 TRANSFER AGENCY AGREEMENT Exhibit No. 8 TRANSFER AGENCY AND SERVICE AGREEMENT between HILLIARD-LYONS GOVERNMENT FUND, INC. and STATE STREET BANK AND TRUST COMPANY TABLE OF CONTENTS -----------------
Page ---- Article 1 Terms of Appointment; Duties of the Bank .................. 1 Article 2 Fees and Expenses ......................................... 5 Article 3 Representations and Warranties of the Bank ................ 6 Article 4 Representations and Warranties of the Fund ................ 7 Article 5 Indemnification ........................................... 7 Article 6 Covenants of the Fund and the Bank ........................ 10 Article 7 Termination of Agreement .................................. 12 Article 8 Assignment ................................................ 12 Article 9 Amendment ................................................. 13 Article 10 Massachusetts Law to Apply ................................ 13 Article 11 Merger of Agreement ....................................... 13 Article 12 Counterparts .............................................. 13
TRANSFER AGENCY AND SERVICE AGREEMENT AGREEMENT made as of the day of , 1991, by and between HILLIARD-LYONS GOVERNMENT FUND, INC., a Maryland corporation, having its principal office and place of business at 545 South Third Street, Louisville, Kentucky, 40202 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company having its principal office and place of business at 225 Franklin Street, Boston, Massachusetts 02110 (the "Bank"). WHEREAS, the Fund desires to appoint the Bank as its transfer agent, dividend disbursing agent, custodian of certain retirement plans and agent in connection with certain other activities, and the Bank desires to accept such appointment; NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: Article 1 Terms of Appointment; Duties of the Bank 1.01 Subject to the terms and conditions set forth in this Agreement, the Fund hereby employs and appoints the Bank to act as, and the Bank agrees to act as its transfer agent for the Fund's authorized and issued shares of its common stock, $.001 par value, ("Shares"), dividend disbursing agent, custodian of certain retirement plans and agent in connection with any accumulation, open- account or similar plans provided to the shareholders of the Fund ("Shareholders") and set out in the currently effective prospectus and statement of additional information ("prospectus") of the Fund, including without limitation any periodic investment plan or periodic withdrawal program. -1- 1.02 The Bank agrees that it will perform the following services: (a) In accordance with procedures established from time to time by agreement between the Fund and the Bank, the Bank shall: (i) Receive for acceptance, orders for the purchase of Shares, and promptly deliver payment and appropriate documentation thereof to the Custodian of the Fund authorized pursuant to the Articles of Incorporation of the Fund (the "Custodian"); (ii) Pursuant to purchase orders, issue the appropriate number of Shares and hold such Shares in the appropriate Shareholder account; (iii) Receive for acceptance redemption requests and redemption directions and deliver the appropriate documentation thereof to the Custodian; (iv) In respect to the transactions in items (i), (ii) and (iii) above, the Bank shall in addition to executing transactions directly with shareholders execute transactions directly with J.J.B. Hilliard, W.L. Lyons, Inc. and other broker-dealers authorized by the Fund who shall thereby be deemed to be acting on behalf of the Fund; (v) At the appropriate time as and when it receives monies paid to it by the Custodian with respect -2- to any redemption, pay over or cause to be paid over in the appropriate manner such monies as instructed by the redeeming Shareholders; (vi) Effect transfers of Shares by the registered owners thereof upon receipt of appropriate instructions; (vii) Prepare and transmit payments for dividends and distributions declared by the Fund; (viii) If applicable, issue replacement certificates for those certificates alleged to have been lost, stolen or destroyed upon receipt by the Bank of indemnification satisfactory to the Bank and protecting the Bank and the Fund, and the Bank at its option, may issue replacement certificates in place of mutilated stock certificates upon presentation thereof and without such indemnity; (ix) Report abandoned property to the various states as authorized by the Fund per policies and principles agreed upon by the Fund and the Bank; (x) Maintain records of account for and advise the Fund and its Shareholders as to the foregoing; and (xi) Record the issuance of shares of the Fund and maintain pursuant to SEC Rule 17Ad-10(e) a record of the total number of shares of the Fund which are authorized, based upon data provided to it by the Fund, and issued and outstanding. The Bank shall also provide the Fund on a regular basis -3- with the total number of shares which are authorized and issued and outstanding and shall have no obligation, when recording the issuance of shares, to monitor the issuance of such shares or to take cognizance of any laws relating to the issue or sale of such shares, which functions shall be the sole responsibility of the Fund. (b) In addition to and neither in lieu nor in contravention of the services set forth in the above paragraph (a), the Bank shall: (i) perform the customary services of a transfer agent, dividend disbursing agent, custodian of certain retirement plans and, as relevant, agent in connection with accumulation, open-account or similar plans (including without limitation any periodic investment plan or periodic withdrawal program), including but not limited to: maintaining all Shareholder accounts, preparing Shareholder meeting lists, mailing proxies, receiving and tabulating proxies, mailing Shareholder reports and prospectuses to current Shareholders, withholding taxes on U.S. resident and non-resident alien accounts, preparing and filing U.S. Treasury Department Forms 1099 and other appropriate forms required with respect to dividends and distributions by federal authorities for all Shareholders, preparing and mailing confirmation forms and statements of account to Shareholders for all purchases and redemptions of Shares and other confirmable transactions in Shareholder accounts, preparing and mailing activity statements for Shareholders, and providing Shareholder account information -4- and (ii) provide a system which will enable the Fund to monitor the total number of Shares sold in each State. (c) In addition, the Fund shall (i) identify to the Bank in writing those transactions and assets to be treated as exempt from blue sky reporting for each State and (ii) verify the establishment of transactions for each State on the system prior to activation and thereafter monitor the daily activity for each State. The responsibility of the Bank for the Fund's blue sky State registration status is solely limited to the initial establishment of transactions subject to blue sky compliance by the Fund and the reporting of such transactions to the Fund as provided above. (d) Procedures as to who shall provide certain of these services in Article 1 may be established from time to time by agreement between the Fund and the Bank per the attached service responsibility schedule. The Bank may at times perform only a portion of these services and the Fund or its agent may perform these services on the Fund's behalf. Article 2 Fees and Expenses 2.01 For the performance by the Bank pursuant to this Agreement, the Fund agrees to pay the Bank an annual maintenance fee for each Shareholder account as set out in the initial fee schedule attached hereto. Such fees and out-of-pocket expenses and advances identified under Section 2.02 below may be changed from time to time subject to mutual written agreement between the Fund and the Bank. -5- 2.02 In addition to the fee paid under Section 2.01 above, the Fund agrees to reimburse the Bank for out-of-pocket expenses or advances incurred by the Bank for the items set out in the fee schedule attached hereto. In addition, any other expenses incurred by the Bank at the request or with the consent of the Fund, will be reimbursed by the Fund. 2.03 The Fund agrees to pay all fees and reimbursable expenses within five days following the receipt of the respective billing notice. Postage for mailing of dividends, proxies, Fund reports and other mailings to all shareholder accounts shall be advanced to the Bank by the Fund at least seven (7) days prior to the mailing date of such materials. Article 3 Representations and Warranties of the Bank The Bank represents and warrants to the Fund that: 3.01 It is a trust company duly organized and existing and in good standing under the laws of the Commonwealth of Massachusetts. 3.02 It is duly qualified to carry on its business in the Commonwealth of Massachusetts. 3.03 It is empowered under applicable laws and by its Charter and By- Laws to enter into and perform this Agreement. 3.04 All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement. 3.05 It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. -6- Article 4 Representations and Warranties of the Fund The Fund represents and warrants to the Bank that: 4.01 It is a corporation duly organized and existing and in good standing under the laws of Maryland. 4.02 It is empowered under applicable laws and by its Articles of Incorporation and By-Laws to enter into and perform this Agreement. 4.03 All corporate proceedings required by said Articles of Incorporation and By-Laws have been taken to authorize it to enter into and perform this Agreement. 4.04 It is an open-end and diversified management investment company registered under the Investment Company Act of 1940, as amended. 4.05 A registration statement under the Securities Act of 1933, as amended is currently effective and will remain effective, and appropriate state securities law filings have been made and will continue to be made, with respect to all Shares of the Fund being offered for sale. Article 5 Indemnification 5.01 The Bank shall not be responsible for, and the Fund shall indemnify and hold the Bank harmless from and against, any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of or attributable to: (a) All actions of the Bank or its agent or subcontractors required to be taken pursuant to this Agreement, provided that such actions are taken in good faith and without negligence or willful misconduct. -7- (b) The Fund's lack of good faith, negligence or willful misconduct or breach of any representation or warranty of the Fund hereunder. (c) The reliance on or use by the Bank or its agents or subcontractors of information, records and documents or services which (i) are received or relied upon by the Bank or its agents or subcontractors and/or furnished to it or performed by or on behalf of the Fund, and (ii) have been prepared, maintained and/or performed by the Fund or any other person or firm on behalf of the Fund. (d) The reliance on, or the carrying out by the Bank or its agents or subcontractors of any instructions or requests of the Fund. (e) The offer or sale of Shares in violation of any requirement under the federal securities laws or regulations or the securities laws or regulations of any state that such Shares be registered in such state or in violation of any stop order or other determination or ruling by any federal agency or any state with respect to the offer or sale of such Shares in such state. 5.02 The Bank shall indemnify and hold the Fund harmless from and against any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of or attributable to any action or failure or omission to act by the Bank as a result of the Bank's lack of good faith, negligence or willful misconduct. 5.03 At any time the Bank may apply to any officer of the Fund for instructions, and may consult with legal counsel -8- with respect to any matter arising in connection with the services to be performed by the Bank under this Agreement, and the Bank and its agents or subcontractors shall not be liable and shall be indemnified by the Fund for any action taken or omitted by it in reliance upon such instructions or upon the opinion of such counsel. The Bank, its agents and subcontractors shall be protected and indemnified in acting upon any paper or document furnished by or on behalf of the Fund, reasonably believed to be genuine and to have been signed by the proper person or persons, or upon any instruction, information, data, records or documents provided the Bank or its agents or subcontractors by machine readable input, telex, CRT data entry or other similar means authorized by the Fund, and shall not be held to have notice of any change of authority of any person, until receipt of written notice thereof from the Fund. The Bank, its agents and subcontractors shall also be protected and indemnified in recognizing stock certificates which are reasonably believed to bear the proper manual or facsimile signatures of the officers of the Fund, and the proper countersignature of any former transfer agent or former registrar, or of a co- transfer agent or co-registrar. 5.04 In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes, equipment or transmission failure or damage reasonably beyond its control, or other causes reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes. 5.05 Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this Agreement or for any consequential damages arising out of any act or failure to act hereunder. 5.06 In order that the indemnification provisions contained in this Article 5 shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party's prior written consent. Article 6 Covenants of the Fund and the Bank 6.01 The Fund shall promptly furnish to the Bank the following: (a) A certified copy of the resolution of the Board of Directors of the Fund authorizing the appointment of the Bank and the execution and delivery of this Agreement. (b) A copy of the Articles of Incorporation and By-Laws of the Fund and all amendments thereto. 6.02 The Bank hereby agrees to establish and maintain facilities and procedures reasonably acceptable to the Fund for safekeeping of stock certificates, check forms and facsimile -10- signature imprinting devices, if any; and for the preparation or use, and for keeping account of, such certificates, forms and devices. 6.03 The Bank shall keep records relating to the services to be performed hereunder, in the form and manner as it may deem advisable. To the extent required by Section 31 of the Investment Company Act of 1940, as amended, and the Rules thereunder, the Bank agrees that all such records prepared or maintained by the Bank relating to the services to be performed by the Bank hereunder are the property of the Fund and will be preserved, maintained and made available in accordance with such Section and Rules, and will be surrendered promptly to the Fund on and in accordance with its request. 6.04 The Bank and the Fund agree that all books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except as may be required by law. 6.05 In case of any requests or demands for the inspection of the Shareholder records of the Fund, the Bank will endeavor to notify the Fund and to secure instructions from an authorized officer of the Fund as to such inspection. The Bank reserves the right, however, to exhibit the Shareholder records to any person whenever it is advised by its counsel that it may be held liable for the failure to exhibit the Shareholder records to such person. -11- Article 7 Termination of Agreement 7.01 This Agreement may be terminated by either party upon one hundred twenty (120) days written notice to the other. 7.02 Should the Fund exercise its right to terminate, all out-of- pocket expenses associated with the movement of records and material will be borne by the Fund. Additionally, the Bank reserves the right to charge for any other reasonable expenses associated with such termination and/or a charge equivalent to the average of three (3) months' fees. Article 8 Assignment 8.01 Except as provided in Section 8.03 below, neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the written consent of the other party. 8.02 This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns. 8.03 The Bank may, without further consent on the part of the Fund, subcontract for the performance hereof with (i) Boston Financial Data Services, Inc., a Massachusetts corporation ("BFDS") which is duly registered as a transfer agent pursuant to Section 17A(c)(l) of the Securities Exchange Act of 1934, as amended ("Section 17A(c)(l)"), (ii) a BFDS subsidiary duly registered as a transfer agent pursuant to Section 17A(c)(l) or (iii) a BFDS affiliate; provided, however, that the Bank shall be as fully responsible to the Fund for the acts and omissions of any subcontractor as it is for its own acts and omissions. -12- Article 9 Amendment 9.01 This Agreement may be amended or modified by a written agreement executed by both parties and authorized or approved by a resolution of the Board of Directors of the Fund. Article 10 Massachusetts Law to Apply 10.01 This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of the Commonwealth of Massachusetts. Article 11 Merger of Agreement 11.01 This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject matter hereof whether oral or written. Article 12 Counterparts 12.01 This Agreement may be executed by the parties hereto on any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. -13- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers, as of the day and year first above written. HILLIARD-LYONS GOVERNMENT FUND, INC. BY: ----------------------------------- ATTEST: /s/ Michael L. Howard - ------------------------------ STATE STREET BANK AND TRUST COMPANY BY: ----------------------------------- Vice President ATTEST: - ------------------------------ Assistant Secretary -14- EX-99.9 9 CONSENT OF ERNST & YOUNG Exhibit No. 9 Consent of Ernst & Young LLP, Independent Auditors We consent to the references made to our firm under the captions "Financial Highlights" in the Prospectus and "Independent Auditors" in the Statement of Additional Information and to the use, in this Post-Effective Amendment Number 20 to Registration Statement (Form N-IA, Number 2-68290) of Hilliard-Lyons Government Fund, Inc., of our report dated September 18, 1998. Ernst & Young LLP Louisville, Kentucky November 25, 1998 EX-99.11 10 INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT EXHIBIT NO. 11 OMB No. 1545--0365 Expires 10-31-84 Form 5305-A ------------------ (Rev. (Dec. 1981) Do NOT File Department of the Treasury with Internal Internal Revenue Service Revenue Service Individual Retirement Custodial Account (Under Section 408(a) of the Internal Revenue Code) For Paperwork Reduction Act Notice, see back of this form. - -------------------------------------------------------------------------------- State of ) ------------------------------- SS For Use With County of ) Hilliard-Lyons Government Fund, Inc. - -------------------------------------------------------------------------------- Depositor's name Depositor's Date of birth ---------------------------- -------- Depositor's social security number ---------------------------------------------- Depositor's address ------------------------------------------------------------- Custodian's name State Street Bank and Trust Company ---------------------------------------------------------------- Custodian's address or principal place of business Boston, Massachusetts ------------------------------ The Depositor whose name appears above is establishing an individual retirement account (under section 408(a) of the Internal Revenue Code) to provide for his or her retirement and for the support of his or her beneficiaries after death. The Custodian named above has given the Depositor the disclosure statement required under the Income Tax Regulations under section 408(i) of the Code. The Depositor has deposited with the Custodian ----------------------------- ($ ) in cash. ----------------- The Depositor and the Custodian make the following agreement. Article I The Custodian may accept additional cash contributions on behalf of the Depositor for a tax year of the Depositor. The additional cash contributions are limited to $2,000 for the tax year unless the contribution is a rollover contribution described in section 402(a)(5), 402(a)(7), 403(a)(4), 403(b)(8), 405(d)(3), 408(d)(3), or 409(b)(3)(C) of the Code or an employer contribution to a simplified employee pension plan as described in section 408(k). Article II The Depositor's interest in the balance in the custodial account is nonforfeitable. Article III No part of the custodial funds may be invested in life insurance contracts nor may the assets of the custodial account be commingled with other property except in a common trust fund or common investment fund (within the meaning of section 408(a)(5) of the Code). Article IV 1. The Depositor's entire interest in the custodial account must be, or begin to be, distributed before the end of the tax year in which the Depositor reaches 70 1/2. By the end of that tax year, the Depositor may elect, in a manner acceptable to the Custodian, to have the balance in the custodial account distributed in: (a) A single-sum payment. (b) An annuity contract that provides equal or substantially equal monthly, quarterly, or annual payments over the life of the Depositor. The payments must begin by the end of that tax year. (c) An annuity contract that provides equal or substantially equal monthly, quarterly, or annual payments over the joint and last survivor lives of the Depositor and his or her spouse. The payments must begin by the end of the tax year. (d) Equal or substantially equal monthly, quarterly, or annual payments over a specified period that may not be longer than the Depositor's life expectancy. (e) Equal, or substantially equal monthly, quarterly, or annual payments over a specified period that may not be longer than the joint life and last survivor expectancy of the Depositor and his or her spouse. Even if distributions have begun to be made under option (d) or (e), the Depositor may receive a distribution of the balance in the custodial account at any time by giving written notice to the Custodian. If the Depositor does not choose any of the methods of distribution described above by the end of the tax year in which he or she reaches age 70 1/2, distribution to the Depositor will be made before the end of that tax year by a single-sum payment. If the Depositor elects as a means of distribution (b) or (c) above, the annuity contract must satisfy the requirements of section 408(b)(1), (3), (4), and (5) of the Code. If the Depositor elects as a means of distribution (d) or (e) above, figure the payments made in tax years beginning in the tax year the Depositor reaches age 70 1/2 as follows: (i) For the minimum annual payment, divide the Depositor's entire interest in the custodial account at the beginning of each year by the life expectancy of the Depositor (or the joint life and last survivor expectancy of the Depositor and his or her spouse, or the period specified under (d) or (e), whichever applies). Determine the life expectancy in either case on the date the Depositor reaches 70 1/2 minus the number of whole years passed since the Depositor became 70 1/2. (ii) For the minimum monthly payment, divide the result in (i) above by 12. (iii) For the minimum quarterly payment, divide the result in (i) by 4. 2. If the Depositor dies before his or her entire interest in the account is distributed to him or her, or if distribution is being made as provided in (e) above to his or her surviving spouse, and the surviving spouse dies before the entire interest is distributed, the entire remaining undistributed interest will, within 5 years after the Depositor's death or the death of the surviving spouse, be distributed in a single sum or be applied to purchase an immediate annuity for the beneficiary or beneficiaries of the Depositor or the Depositor's surviving spouse. Under the terms of the annuity, payments will be made either over the life of the beneficiary or beneficiaries, or over a specified term not longer than the life expectancy of the beneficiary or beneficiaries. Any annuity contract purchased will be immediately distributed to the beneficiary or beneficiaries. 3. Exceptions. (a) No annuity contract needs to be purchased if distributions over a specified term began before the death of the Depositor and the term is for a period permitted under (d) or (e) above. (b) No distribution need be made if the beneficiary elects to treat the entire interest in the account under the distribution rules in paragraph 1 of this article. Article V Unless the Depositor dies, is disabled (as defined in section 72(m) of the Code), or reaches age 59 1/2 before any amount is distributed from the account, the Custodian must receive from the Depositor a statement explaining how he or she intends to dispose of the amount distributed. Article VI 1. The Depositor agrees to provide the Custodian with information necessary for the Custodian to prepare any reports required under section 408(i) of the Code and the related regulations. 2. The Custodian agrees to submit reports to the Internal Revenue Service and the Depositor as prescribed by the Internal Revenue Service. - ------------------------------------------------------------------------------- ADDITIONAL INSTRUCTIONS I. It is important that Depositor read carefully the Prospectus about the shares of the Fund. The Prospectus for such shares, required to be delivered to Depositor by or on behalf of the Fund, describes any additional information Depositor should be aware of before making that selection. CUSTODIAN ASSUMES NO LIABILITY FOR INVESTMENT RESULTS OF DEPOSITOR'S SELECTION. II. Depositor should seek advice from Depositor's attorney regarding the legal consequences (including but not limited to federal and state tax matters) of entering into this Agreement, contributing to the custodial account, and ordering Custodian to make distributions from the account. Depositor should understand that Custodian and the Fund (or any company associated therewith) are prohibited by law from rendering such advice. APPENDIX "A" INCORPORATED INTO ARTICLE IX OF AGREEMENT ON I.R.S. FORM 5305-A BETWEEN State Street Bank and Trust Company, Custodian and The Depositor 2. Depositor's Selection of Mutual Fund Depositor directs Custodian to invest all custodial funds in investment shares issued by the Fund until Depositor hereafter gives Custodian contrary instructions pursuant to Article IX, paragraph ("para.") 6 below, which governs investment of the custodial account in Fund shares. 3. Opening Contribution (a) Initial Periodic Contribution. Initial contributions hereunder shall be in cash and are to be invested under this Agreement, which Depositor intends to be tax-deductible. Depositor contemplates future periodic contributions within the limits specified under heading "General Instructions" at bottom of page 2 of I.R.S. Form 5305-A, of which this is a part. Depositor assumes full and sole responsibility for making sure that the sum of periodic contributions during a single taxable year of Depositor do not exceed those limits. Depositor should not contribute after the custodial account ceases to be exempt by reason of either section 406(e) or 415(g) of the Internal Revenue Code. (b) Rollover Contribution. A rollover contribution by Depositor shall be a one-time deposit in cash to be invested under this Agreement. DEPOSITOR AGREES TO MAKE NO ADDITIONAL CONTRIBUTIONS, AND WARRANTS (1) that the entire such amount is a "rollover contribution" received within sixty (60) days prior to reinvestment hereunder by Depositor as a lump-sum distribution within one taxable year from an employees' trust, an employee annuity, another individual retirement account or annuity, or a U.S. retirement bond, as described in Internal Revenue Code section 402(a)(5), 403(a)(4), 408(d) (3), or 409(b)(3)(C); (2) that in the case of a rollover from an employees' trust or employee annuity, only the excess of the lump-sum distribution over amounts contributed thereto by Depositor makes up this rollover contribution, and no part of such distribution to Depositor consisted of property other than cash; (3) within one (1) year of receiving such distribution, Depositor did not receive another distribution thereof which in turn constituted a "rollover" referred to in Code section 408(d)(3)(B); and (4) the contribution as made satisfies all the requirements for rollover contributions as set forth under the Internal Revenue Code. 4. Tax and Other Legal Matters DEPOSITOR ACKNOWLEDGES HAVING READ THE SECTIONS ENTITLED "INSTRUCTIONS" AT BOTTOM OF PAGE 2 OF I.R.S. FORM 5305-A (of which this is a part), which describe tax matters important to Depositor, and "ADDITIONAL INSTRUCTIONS" preceding Appendix "A." 5. Custodian's Fees (a) For establishing this Agreement, Depositor shall pay Custodian a $5.00 one-time charge. Payment may be by separate check enclosed with the initial deposit; or Custodian will deduct it from the initial deposit. (b) In addition, Custodian shall be paid the following fees: Annual Maintenance Fee..........................................$10.00 Fee for processing either a lump-sum distribution or transfer of assets of entire custodial account, or returning an excess contribution....................................................$10.00 Fee for processing each periodic distribution (other than excess contribution)...................................................$ 2.00 (c) Upon thirty (30) days' prior written notice, Custodian may substitute a fee schedule differing from the one above. Custodian's fees, any income, gift, estate and inheritance taxes and other taxes of any kind whatsoever, including transfer taxes incurred in connection with the investment or reinvestment of the assets of the custodial account, that may be levied or assessed in respect to such assets, and all other administrative expenses incurred by Custodian in the performance of its duties including fees for legal services rendered to Custodian, may be charged to the custodial account, with the right to liquidate Fund shares for this purpose, or (at Custodian's option) to the Depositor. 6. Custodial Account (a) This Agreement shall take effect only when accepted and signed by Custodian. As directed, Custodian shall then open and maintain a separate custodial account for Depositor and invest the initial contribution hereunder in shares of the Fund. "Fund" means Hilliard-Lyons Government Fund, Inc., a regulated investment company as defined in Internal Revenue Code section 851(a). (b) The Custodian does not undertake to render any investment advice whatsoever to Depositor; its sole duties are those prescribed in Article IX, para. 8(c). (c) The Custodian shall invest subsequent contributions as directed. However, if any such written instructions are not received as required, or if received, are in the opinion of Custodian unclear, or if the accompanying contribution exceeds $2,000, Custodian may hold or return all or a portion of the contribution uninvested without liability for loss, of income or appreciation, and without liability for interest, pending receipt of written instructions or clarification. (d) All dividends and capital gain distributions received on shares of the Fund held in the custodial account shall (unless received in additional shares) be reinvested in shares of the Fund, if available, which shall be credited to the account. If any distribution on such shares may be received at the election of the shareholder in additional such shares or in cash or other property, Custodian shall elect to receive it in additional such shares. (e) All Fund shares acquired by Custodian hereunder shall be registered in the name of Custodian (with or without identifying Depositor) or of its nominee. Custodian shall deliver, or cause to be executed and delivered, to Depositor all notices, prospectuses, financial statements, proxies, and proxy soliciting materials relating to such Fund shares held in the custodial account. Custodian shall not vote any such Fund shares except in accordance with written instructions received from Depositor. 7. Distributions (This paragraph 7 supplements Article IV on Form 5305-A of the Agreement and must be read in conjunction with it). (a) Distribution of the custodial account assets in accordance with Article IV shall be made in a manner set forth in subparagraph (c)(1) or (2), whichever applies, except as Article IV otherwise requires and at such time as Depositor (or Depositor's Beneficiary if Depositor is deceased) shall elect by written order to Custodian, provided that distribution (except for distribution on account of Depositor's disability or death, return of an "excess contribution" referred to in subparagraph (d), or a "rollover" from this account), must be no earlier than age 59 1/2 if Depositor wants to avoid an "early distribution additional tax" under Code section 408(f). For that purpose, Depositor will be considered disabled if Depositor can prove, as provided in Code section 72(m)(7), that Depositor is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or be of long-continued and indefinite duration. Depositor (or Depositor's Beneficiary if Depositor is deceased) will order distribution in the manner and at the time permitted or required by Article IV and this paragraph. Custodian assumes no responsibility for the tax treatment of any distribution from the custodial account; such responsibility accrues solely to the person ordering the distribution. (b) Custodian assumes (and shall have) no responsibility to make any distribution on order of Depositor (or Depositor's Beneficiary if Depositor is deceased) unless and until such order specifies the occasion for 9. Amendment (This paragraph 9 supplements Article VIII on Form 5305-A.) (a) Depositor retains the right to amend this Agreement in any respect at any time, effective on a stated date which shall be at least sixty (60) days after giving written notice of the amendment (including its exact terms) to Custodian by registered or certified mail unless Custodian waives such notice as to that amendment. If Custodian does not wish to continue serving in that capacity under this Agreement as so amended, it may resign in accordance with Article IX, para 10. Depositor also delegates to the distributor (principal underwriter) of the Fund Depositor's right so to amend, including retroactively, as necessary or appropriate in the opinion of counsel satisfactory to the distributor, in order to conform with pertinent provisions of the Code and other laws or successor provisions of law or to obtain a governmental ruling that such requirements are met, to adopt a prototype or master plan for investment in shares of the Fund, or as otherwise may be advisable in the opinion of such counsel. Such an amendment by the distributor shall be communicated in writing to Depositor and Custodian, and Depositor shall be deemed to have consented thereto unless, within thirty (30) days after such communication to Depositor is mailed, Depositor either (1) gives Custodian a proper written order for a lump-sum distribution of the custodial account, or (2) removes Custodian and simultaneously appoints a Successor Custodian under Article IX, para. 10. (b) This paragraph 9 shall not be construed to restrict Custodian's freedom to substitute fee schedules in the manner provided by Article IX, para. 5(c), and no such substitution shall be deemed to be an amendment of this Agreement. 10. Resignation or Removal of Custodian (a) Custodian may resign at any time upon at least thirty (30) days prior notice in writing to Depositor, and may be removed by Depositor at any time upon at least thirty (30) days' prior notice in writing to Custodian. Upon such resignation or removal, Depositor shall appoint a Successor Custodian to serve under this Agreement. Upon receipt by Custodian of written acceptance of such appointment by the Successor Custodian, Custodian shall transfer to such Successor the assets of the custodial account and all necessary records (or copies thereof) pertaining thereto, provided that (if so requested by Custodian) any Successor Custodian agrees not to dispose of any such records without Custodian's consent. Custodian is authorized, however, to reserve such a portion of such assets as it may deem advisable for payment of all its fees, compensation, costs, and expenses, or for payment of any other liabilities constituting a charge on or against the assets of the custodial account or on or against Custodian, with any balance of such reserve remaining after the payment of all such items to be paid over to the Successor Custodian. (b) If within thirty (30) days after Custodian's resignation or removal or such longer time as Custodian may agree to, Depositor has not appointed a Successor Custodian which has accepted such appointment, Custodian shall terminate the custodial account pursuant to Article IX, para. 11, unless within that time the distributor referred to in Article IX, para. 9(a), appoints such Successor and gives written notice thereof to Depositor and Custodian. (c) Custodian shall not be liable for the acts or omissions of such Successor. (d) The Custodian, and every Successor Custodian appointed to serve under this Agreement, must be a bank as defined in Code section 401(d) (1) or such other person who qualifies to serve in the manner prescribed by Code section 408(a) (2) and satisfies the Depositor, distributor, or Custodian, upon request, as to such qualification. (e) After Custodian has transferred the custodial account assets (including any reserve balance as contemplated above) to the Successor Custodian, Custodian shall be relieved of all further liability with respect to this Agreement, the custodial account, and the assets thereof. 11. Termination of Account (a) Custodian shall terminate the custodial account if, within the time specified in Article IX, para. 10(b), after Custodian's resignation or removal, neither Depositor nor the distributor has appointed a Successor Custodian which has accepted such appointment. Termination of custodian account shall be effected by distributing all assets thereof in a lump sum in cash or in kind to Depositor, subject to Custodian's right to reserve funds as provided in Article IX, para. 10(a). (b) Upon termination of the custodial account this Agreement shall terminate and have no further force and effect, and Custodian shall be relieved from all further liability with respect to this Agreement, the custodial account, and all assets thereof so distributed. 12. Miscellaneous (a) References herein to the "Internal Revenue Code" or "Code" and sections thereof shall mean the same as amended from time to time hereafter, including successors to such sections. (b) Except where otherwise specifically required in this Agreement, any notice from Custodian to any person provided for in this Agreement shall be effective if sent by first-class mail to such person at that person's last address on Custodian's records. (c) This agreement is accepted by Custodian in, and shall be construed and administered in accordance with the laws of, the Commonwealth of Massachusetts. This Agreement is intended to qualify under section 408 of the Code as an Individual Retirement Account and to entitle Depositor to the Retirement Savings deduction under section 219 of the Code, and if any provision hereof is subject to more than one interpretation or any term used herein is subject to more than one construction, such ambiguity shall be resolved in favor of that interpretation or construction which is consistent with that intent. However, neither the Custodian nor the Fund (or company associated therewith), shall be responsible for whether or not such intentions are achieved through use of this Agreement, and Depositor is referred to Depositor's attorney for any such assurances.
HILLIARD-LYONS GOVERNMENT FUND, INC. INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT Important Notice on Reverse Side Please Read Carefully BENEFICIARY DESIGNATION UNDER ARTICLE IX, PARAGRAPH 7(c) (2) TO: State Street Bank and Trust Company, Custodian Custodial Account Number, (if assigned)__________________________ P.O. Box 1912 Boston, Massachusetts 02105 Name of Depositor __________________________________________________________________________________________________________________ Name of person making this designation, if Depositor is deceased: __________________________________________________________________ Upon my death while having any interest in the custodial account, the following person or persons shall receive the account. All previous beneficiary designations hereby are revoked. Beneficiary: _______________________________________________________________________________________________________________________ _______________________________________________________________________________________________________________________ Address of each Beneficiary specifically named above: _______________________________________________________________________________________________________________________ _______________________________________________________________________________________________________________________ Date _________________________________ Depositor's Signature________________________________________________________________________ SAMPLE BENEFICIARY DESIGNATIONS 1. Priscilla Alden, wife, if living, otherwise to James Alden, son, if living. 2. James Alden, son, and Mary Alden, daughter, in equal shares or all to the survivor if any. 3. Priscilla Alden, wife, if living, otherwise to James Alden, son, and Mary Alden, daughter, in equal shares or all to the survivor if any. 4. Priscilla Alden, wife, if living, otherwise in equal shares to all children of the Depositor who survives. - -------------------------------------------------------------DETACH HERE------------------------------------------------------------ HILLIARD-LYONS GOVERNMENT FUND, INC. INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT Important Notice on Reverse Side Please Read Carefully BENEFICIARY DESIGNATION UNDER ARTICLE IX, PARAGRAPH 7(c) (2) TO: State Street Bank and Trust Company, Custodian Custodial Account Number, (if assigned)__________________________ P.O. Box 1912 Boston, Massachusetts 02105 Name of Depositor __________________________________________________________________________________________________________________ Name of person making this designation, if Depositor is deceased: __________________________________________________________________ Upon my death while having any interest in the custodial account, the following person or persons shall receive the account. All previous beneficiary designations hereby are revoked. Beneficiary: _______________________________________________________________________________________________________________________ _______________________________________________________________________________________________________________________ Address of each Beneficiary specifically named above: _______________________________________________________________________________________________________________________ _______________________________________________________________________________________________________________________ Date _________________________________ Depositor's Signature________________________________________________________________________ SAMPLE BENEFICIARY DESIGNATIONS 1. Priscilla Alden, wife, if living, otherwise to James Alden, son, if living. 2. James Alden, son, and Mary Alden, daughter, in equal shares or all to the survivor if any. 3. Priscilla Alden, wife, if living, otherwise to James Alden, son, and Mary Alden, daughter, in equal shares or all to the survivor if any. 4. Priscilla Alden, wife, if living, otherwise in equal shares to all children of the Depositor who survives.
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