<PAGE>
May 3, 1996
Dear Shareholder:
We are pleased to report that the Hilliard Lyons Growth Fund had a fine
quarter to begin 1996. The Fund's net asset value advanced by 6.38% exceeding
the gain in the Standard & Poor's 500 Index which advanced 5.37%. Both our
goal of achieving a strong absolute return and our relative goal of beating
the S&P 500 were achieved this quarter.
On April 19 an important change in the structure of the Fund was ratified by
its shareholders. The Fund will now be defined as a non-diversified fund for
regulatory purposes, which we believe adds valuable flexibility to the choices
we have for investing the Fund's assets. Our increased ability to take full
advantage of our best ideas has the potential to be of significant benefit to
our shareholders.
METHODOLOGY
There was little in the way of dramatic news in the first quarter of 1996.
Stocks went up nicely, the bond market dropped, and the economy progressed in
a moderate and well balanced fashion as it has for many months. In the absence
of external news, it might be worthwhile to take a moment to review the
methodology by which we determine what to buy and how much. Our stock
selection is born of a straight-forward proposition--rising earning power
drives stock prices higher because the value of a business is greater when it
can earn more money. This proposition is readily verified by examining charts
which track ten year stock price movements overlaid pictorially on earnings
per share progress. While the stock prices dance all over the place in the
short run, over a ten year period they are inevitably drawn back to the
earnings lines.
Guided by this proposition, we analyze those factors which lead us to
believe that a company is likely to experience high earnings growth. What do
we look for? The notion that it "takes money to make money" is true. Visualize
the business that requires no capital for support. If you draw a blank,
welcome to the club. So, we want to identify companies that are likely to
sustain the current earning power generated from their existing business. They
will then have the necessary "money to make money". This leads to the second
key feature we seek--management which has established an excellent record of
reinvesting earnings. Current business operations represent the present, and
reinvestment of earnings from those operations represents the future.
We place particular importance on the caliber of people who run the
businesses we own. The future is so full of uncertainty that predictions
beyond a year or two are most often worthless. And yet the personal
characteristics of business people who are winners tend to endure through
changing times. We try to form judgments about business managers based on
personal visits where possible, the way they write and talk to shareholders,
and, most importantly, a candid examination of the actions they've taken in
their careers and the extent to which they have succeeded in producing wealth
for those who backed them.
Continued . . . . .
1
<PAGE>
The third feature we analyze is a company's reinvestment opportunities. In
some cases the business in which a company operates offers unlimited
opportunity to employ earnings. In others, there is little in the way of
investment opportunity, and the company must look outside its field to employ
its capital. We have both types of companies in Hilliard Lyons Growth Fund.
Walgreen is employing its capital very profitably in the expansion of its drug
store business and would seem to have ample opportunities for the foreseeable
future. On the other hand, the Fund owns shares of Berkshire Hathaway which
has little in the way of opportunities available to it in its existing
businesses. But what an investor we have in Warren Buffett! We try to analyze
what type of manager is needed in a given situation and whether that's the
type of manager we have.
In summary, we are looking for businesses with earning power which is not
likely to erode abruptly and managers who possess skills which are suitable to
their company's reinvestment possibilities. A list of such companies
constitutes the group from which our investments are drawn. The buying and
selling of companies on the list, of course, is driven by the pricing of the
companies' stock relative to our estimation of their worth. We do not seek
precision in determining buy and sell points. We do believe that it is
possible to make a judgment whether a company is deeply underpriced or
substantially over-valued. Most of the time, however, companies trade at
prices which are likely to be appropriate under the circumstances. Our
activities are driven by attempting to capitalize on the extreme cases, which
is why the Fund's turnover ratio is low compared to most funds. Wealth that is
created for our shareholders is much more apt to be derived from the growth in
the value of our businesses than from clever short term trading.
We hope this summary is helpful in understanding the Fund's investment
philosophy. Your continuing confidence is appreciated as we go about our work.
Sincerely yours,
/s/ DONALD F. KOHLER
DONALD F. KOHLER
Chairman
/s/ SAMUEL C. HARVEY
SAMUEL C. HARVEY
President
2
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
STATEMENT OF NET ASSETS
(UNAUDITED)
MARCH 31, 1996
<TABLE>
<CAPTION>
Market
Shares Company Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 82.5%
-------------------------------------------------------------------------------
BASIC INDUSTRY -- 2.4%
-----------------------------------------------------------------------
17,700 Nalco Chemical Co........................................ $ 544,275
7,350 Sonoco Products Co....................................... 200,288
-----------
744,563
CAPITAL GOODS -- 12.0%
-----------------------------------------------------------------------
26,000 Dover Corp............................................... 1,189,500
14,000 General Electric Co...................................... 1,090,250
8,400 Hubbell Inc. CL B........................................ 544,950
14,500 Nordson Corp............................................. 880,875
-----------
3,705,575
CONSUMER DURABLE -- 1.8%
-----------------------------------------------------------------------
20,300 Donaldson Inc............................................ 558,250
-----------
558,250
CONSUMER NON-DURABLE -- 13.1%
-----------------------------------------------------------------------
25,500* Bush Boake Allen Inc. ................................... 663,000
8,000 CPC International Inc.................................... 555,000
14,000 International Flavors & Fragrances....................... 670,250
24,000 PepsiCo Inc.............................................. 1,518,000
7,500 Procter & Gamble Co...................................... 635,625
-----------
4,041,875
FINANCIAL -- 27.0%
-----------------------------------------------------------------------
18,000 American International Group Inc......................... 1,685,250
23* Berkshire Hathaway Inc................................... 778,550
23,100 Cincinnati Financial Corp................................ 1,463,963
12,000 Federal Home Loan Mortgage Corp.......................... 1,023,000
14,000 Fifth Third Bancorp...................................... 812,000
51,500 Synovus Financial Corp................................... 1,738,125
18,000 Wachovia Corp............................................ 805,500
-----------
8,306,388
HEALTH CARE -- 9.8%
-----------------------------------------------------------------------
38,500 Allergan Inc............................................. 1,419,687
17,500 Johnson & Johnson........................................ 1,614,375
-----------
3,034,062
</TABLE>
<TABLE>
<CAPTION>
Market
Shares Company Value
- --------------------------------------------------------------------------------
<C> <S> <C>
RETAIL & SERVICES -- 12.8%
------------------------------------------------------------------------
26,500 Brady WH Co................................................ 566,437
12,000 Gannett Inc................................................ 807,000
20,000 May Department Stores Co................................... 965,000
49,000 Walgreen Co................................................ 1,598,625
----------
3,937,062
TECHNOLOGY -- 1.2%
------------------------------------------------------------------------
8,000 Teleflex Inc............................................... 361,000
----------
361,000
UTILITY -- 2.4%
------------------------------------------------------------------------
23,000 Century Telephone Enterprises.............................. 730,250
----------
730,250
TOTAL COMMON STOCKS -- (COST -- $16,576,182) 25,419,025
----------
</TABLE>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 17.8%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description
---------- -----------
<C> <S> <C> <C> <C>
$5,490,000 Federal Home Loan
Bank Purchase Yield
5.325%,
due 04/01/96........ 5,488,399
------------
TOTAL U.S.
GOVERNMENT
AGENCY OBLIGATIONS
(AMORTIZED COST --
$5,488,399)........ 5,488,399
------------
OTHER ASSETS LESS LIABILI-
TIES -- (0.3%)................ ( 84,802)
------------
NET ASSETS
(equivalent to $21.49 per share
of common stock based on
1,434,513 shares of $.001 par
value common stock outstanding,
authorized 150,000,000 shares). $ 30,822,622
============
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the total net assets of the Fund.
* Non-income producing security.
3
<PAGE>
--------------------------------------
LOGO
FIRST QUARTER REPORT
MARCH 31, 1996
J.J.B. HILLIARD, W.L. LYONS, INC.
HILLIARD LYONS CENTER
LOUISVILLE, KENTUCKY 40202
(502) 588-8400
(800) 444-1854
--------------------------------------
DIRECTORS
William A. Blodgett, Jr. Gilbert L. Pamplin
Donald F. Kohler Dillman A. Rash
John C. Owens
OFFICERS
Donald F. Kohler--Chairman
Samuel C. Harvey--President
Thomas A. Corea--Vice President
Joseph C. Curry, Jr.--Vice President, Treasurer and Secretary
Dianna P. Wengler--Vice President
DISTRIBUTOR
J.J.B. Hilliard, W.L. Lyons, Inc.
Hilliard Lyons Center
P.O. Box 32760
Louisville, Kentucky 40232-2760
(502) 588-9145
(800) 444-1854
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02266
AUDITORS
Ernst & Young LLP
400 West Market Street
Louisville, Kentucky 40202
LEGAL COUNSEL
Hirn Doheny Reed & Harper
2000 Meidinger Tower
Louisville, Kentucky 40202
This report is intended for the information of shareholders of the Hilliard
Lyons Growth Fund, Inc., but it may also be used as sales literature when pre-
ceded or accompanied by the current prospectus, which gives details about
charges, expenses, investment objectives and operating policies of the Fund.
FIRST QUARTER REPORT
MARCH 31, 1996
