<PAGE>
AUGUST 12, 1996
Dear Shareholder:
The Hilliard Lyons Growth Fund had a flat second quarter and finished the
first six months of the year ahead by 7.13%. The comparable performance for
the Standard & Poor's 500 Index for these periods was 4.49% and 10.10%
respectively. As July was a very volatile month for equity investors, it
should be noted that the Fund performed relatively well, and its year-to-date
gain at the end of July approximated that of the S & P 500. More on this
later.
We are quite pleased with the additional flexibility provided by our newly
adopted non-diversified structure. We have opportunistically increased
concentration in our favorite holdings and believe that the benefits to
performance which we expected are already being felt.
EQUITY MARKETS IN 1996
Our flat performance in the second quarter should come as no surprise to our
shareholders. The fact is, our stocks had advanced 53% over the last six
quarters. Certainly our tree would grow to the sky if this persisted! Stock
performance ultimately is determined by the real economic growth in the value
of a business. That growth may be measured in book value progress, earnings
per share increases, and other indications of increasing financial power. When
stock prices grow more rapidly than companies' underlying financial worth for
an extended period, there's bound to be trouble. The trouble deepens when
individuals, mutual funds, and other institutional investors want the
investment party to keep on swinging.
In their desire to keep the fun going, investors must deceive themselves in
greater and greater measure to justify higher prices. This is a good deal
easier to do when they invest in companies with ill-defined prospects which
defy accurate evaluation and leave the blue sky open for their imagination.
This explains the intense interest in small growth companies, some with no
sales or earnings. Likewise, building an infrastructure to fully utilize
modern technology in information processing and communications has an open-
ended feel which allows investors to extrapolate growth rates far into the
future. The Hilliard Lyons Growth Fund has little exposure to either of these
areas. In fact, the fundamentals of our holdings are really quite
straightforward (and quite good, we believe). We expect our stock price
performance to track the business performance of our companies fairly closely.
While it is always difficult to produce good absolute performance in a bad
stock market, there is no bubble to be burst in our case. We believe that the
more turbulent the markets, the clearer the strengths of our Fund become.
ECONOMIC CONDITIONS AT MID-YEAR
The man in the street must think it odd that sharp stock market movements
tend to take so many companies in one direction or the other. Such movements
suggest that there are dramatic moments in time when the economy of the nation
changes on a dime and affects nearly all companies in a similar way. To our
thinking, this group behavior is a psychological phenomenon that does not
accurately represent the tremendously varied nature of business activity in
our country. In July the stock market swooned because it looked like business
was getting too good.
1
<PAGE>
Then it catapulted forward once statistics came out which suggested that it
really wasn't all that good. The mass movements are even nuttier when one
considers that much of the data that are published are relatively old by
publication time, and the economy may be exhibiting quite different trends from
those the reports suggest.
Making heads or tails of all this for practical use in investing is
impossible in our view, except for those who wish to trade on a very short-term
basis. We try simply to identify facts that are significant enough to have an
effect on overall business demand. Currently, we believe there is a case to be
made for a slow-down in the growth of demand for many goods. Just about all the
statistics point to a consumer who has liberally used available credit
(particularly credit cards) and is experiencing a greater degree of difficulty
in keeping up with debt repayment. Also, in the recession of the early nineties
there was significant postponement of expensive durable goods purchases. This
seeded a strong recovery in many industries over the past couple of years. The
spell of heightened demand seems over on the basis of what we hear from most of
the companies we own. Nevertheless, none of the companies we regularly follow
expects significantly lower demand so we have no basis to expect a serious
recession.
Given this outlook, we are comfortable with our holdings. Our investments are
chosen because of the respect we feel toward their managers' ability to
maximize the bang they get for their bucks when reinvesting net income. This
quality is particularly valuable in turbulent markets and sluggish business
climates. We expect the business values of our companies to advance even if
slower economic growth develops.
As always, we are thankful for your support and work diligently to keep it.
Sincerely,
/s/ Donald F. Kohler
DONALD F. KOHLER
Chairman
/s/ Samuel C. Harvey
SAMUEL C. HARVEY
President
2
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS
(UNAUDITED)
JUNE 30, 1996
COMMON STOCKS -- 86.9%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Company Cost Value
------ ------- ---- ------
<C> <S> <C> <C>
BASIC INDUSTRY -- 0.6%
-----------------------------------------------------------------------
7,350 Sonoco Products Co............................. $ 136,910 $ 208,556
---------- ----------
136,910 208,556
CAPITAL GOODS -- 14.4%
-----------------------------------------------------------------------
26,000 Dover Corp..................................... 630,550 1,199,250
14,000 General Electric Co............................ 565,278 1,211,000
8,400 Hubbell Inc. CL B.............................. 408,960 556,500
35,000 Lydall Inc..................................... 818,975 770,000
14,500 Nordson Corp................................... 799,188 819,250
---------- ----------
3,222,951 4,556,000
CONSUMER DURABLE -- 3.8%
-----------------------------------------------------------------------
46,500 Donaldson Inc.................................. 1,218,502 1,197,375
---------- ----------
1,218,502 1,197,375
CONSUMER NON-DURABLE -- 13.4%
-----------------------------------------------------------------------
28,500* Bush Boake Allen Inc........................... 790,084 619,875
8,000 CPC International Inc.......................... 339,924 576,000
14,000 International Flavors & Fragrances............. 477,681 666,750
48,000 PepsiCo Inc.................................... 886,525 1,698,000
7,500 Procter & Gamble Co............................ 365,983 679,688
---------- ----------
2,860,197 4,240,313
FINANCIAL -- 28.0%
-----------------------------------------------------------------------
18,000 American International Group Inc............... 869,512 1,775,250
23* Berkshire Hathaway Inc......................... 208,980 706,100
37,500 Cincinnati Financial Corp...................... 1,999,774 2,151,562
12,000 Federal Home Loan Mortgage Corp................ 554,652 1,026,000
14,000 Fifth Third Bancorp............................ 476,000 756,000
77,250 Synovus Financial Corp......................... 983,277 1,670,531
18,000 Wachovia Corp.................................. 655,830 787,500
---------- ----------
5,748,025 8,872,943
</TABLE>
See notes to financial statements.
3
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
(UNAUDITED)
JUNE 30, 1996
<TABLE>
<CAPTION>
Market
Shares Company Cost Value
------ ------- ---- ------
<C> <S> <C> <C>
HEALTH CARE -- 10.2%
------------------------------------------------------------------------
38,500 Allergan Inc................................... 926,295 1,511,125
35,000 Johnson & Johnson.............................. 721,314 1,732,500
----------- ----------
1,647,609 3,243,625
RETAIL & SERVICES -- 12.5%
------------------------------------------------------------------------
26,500 Brady WH Co. CL A.............................. 484,125 589,625
12,000 Gannett Inc.................................... 654,720 849,000
20,000 May Department Stores Co....................... 565,751 875,000
49,000 Walgreen Co.................................... 880,348 1,641,500
----------- ----------
2,584,944 3,955,125
TECHNOLOGY -- 1.2%
------------------------------------------------------------------------
8,000 Teleflex Inc................................... 227,310 382,000
----------- ----------
227,310 382,000
UTILITY -- 2.8%
------------------------------------------------------------------------
27,500 Century Telephone Enterprises.................. 871,837 876,563
----------- ----------
871,837 876,563
TOTAL COMMON STOCKS............................ $18,518,285 27,532,500
</TABLE>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 13.1%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Purchase Maturity Market
Amount Description Yield Date Value
--------- ----------- -------- -------- ------
<C> <S> <C> <C> <C>
$4,145,000 Federal Home Loan Bank............. 5.477% 07/01/96 4,143,757
-----------
TOTAL U. S. GOVERNMENT AGENCY OBLIGATIONS (COST --
$4,143,757)......................................... 4,143,757
-----------
TOTAL INVESTMENTS (COST -- $22,662,042)(100.0%)....... $31,676,257
===========
</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.
See notes to financial statements.
4
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
JUNE 30, 1996
ASSETS:
Investments at market value:
<TABLE>
<S> <C>
Common stocks (cost $18,518,285).............................. $27,532,500
U.S. Government Agency Obligations at value (amortized cost
$4,143,757).................................................. 4,143,757
-----------
Total investments.............................................. 31,676,257
Cash........................................................... 902
Receivables:
Dividends..................................................... 42,380
Shares sold................................................... 74,507
Deferred organizational expenses -- Note A..................... 12,101
Prepaid expenses............................................... 8,074
-----------
Total Assets................................................. $31,814,221
===========
LIABILITIES:
Payables:
Due to adviser -- Note B...................................... $ 62,051
Organizational expenses -- Note A............................. 17,896
Shares redeemed............................................... 4,228
Accrued expenses............................................... 42,357
-----------
Total Liabilities............................................ 126,532
-----------
CAPITAL:
Common stock ($.001 par value; 150,000,000 shares authorized
and 1,464,605 shares issued and outstanding).................. 1,466
Paid-in surplus................................................ 22,001,599
Accumulated undistributed net realized gain on investments..... 591,563
Net unrealized appreciation on investments..................... 9,014,215
Accumulated undistributed net investment income -- Note A...... 78,846
-----------
Total Capital (Net Assets) (equivalent to $21.64 per share).. 31,687,689
-----------
Total Liabilities and Capital................................ $31,814,221
===========
</TABLE>
See notes to financial statements.
5
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends..................................................... $ 207,076
Interest...................................................... 124,228
----------
Total investment income..................................... 331,304
EXPENSES:
Management fees -- Note B..................................... 121,484
Custodian fees................................................ 24,870
12b-1 expenses -- Note B...................................... 21,818
Audit fees.................................................... 18,200
Transfer Agent fees........................................... 14,250
Directors' fees............................................... 12,440
Organizational expenses -- Note A............................. 11,590
Insurance expense............................................. 7,570
Legal fees.................................................... 6,980
Shareholder reports........................................... 6,515
Filing fees................................................... 4,560
Trade Association............................................. 853
----------
Total expenses.............................................. 251,130
----------
Net investment income..................................... 80,174
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments -- Note A.................... 591,561
Change in unrealized appreciation on investments.............. 1,346,446
----------
Net gain on investments..................................... 1,938,007
----------
Net increase in net assets resulting from operations...... $2,018,181
==========
</TABLE>
See notes to financial statements.
6
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JUNE 30, ENDED
1996 DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) 1995
FROM OPERATIONS: ------------ ------------
<S> <C> <C>
Net investment income............................. $ 80,174 $ 197,087
Net realized gain on investments.................. 591,561 919,975
Net change in unrealized appreciation on invest-
ments............................................ 1,346,446 5,335,064
------------ ------------
Net increase in net assets from operations...... 2,018,181 6,452,126
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................. 0 ( 196,792)
Realized gain from investment transactions........ 0 ( 811,088)
Distributions in excess of net investment income.. 0 0
------------ ------------
Total distributions............................. 0 ( 1,007,880)
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from 0 and 49,498 shares issued in rein-
vestment of
dividends, respectively.......................... 0 991,935
Proceeds from 121,325 and 446,320 shares sold, re-
spectively....................................... 2,597,468 8,924,169
Cost of 56,001 and 377,902 shares repurchased, re-
spectively....................................... ( 1,187,181) ( 7,576,898)
------------ ------------
Net increase in net assets from capital share
transactions................................... 1,410,287 2,339,206
------------ ------------
Total increase in net assets.................. 3,428,468 7,783,452
NET ASSETS:
Beginning of period............................... 28,259,221 20,475,769
------------ ------------
End of period (includes undistributed net invest-
ment income of $78,846 and distributions in ex-
cess of net investment income
of ($1,325), respectively)....................... $31,687,689 $28,259,221
============ ============
</TABLE>
See notes to financial statements.
7
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A--ACCOUNTING POLICIES
Hilliard Lyons Growth Fund, Inc. (the "Fund") is a diversified open-end
management investment company registered under the Investment Company Act of
1940, as amended. The Fund was incorporated under the laws of the state of
Maryland and commenced operations on January 6, 1992. The following is a
summary of significant accounting policies followed by the Fund in preparation
of its financial statements.
SECURITY VALUATION: Securities traded on a national securities exchange or
traded over-the-counter and quoted on the NASDAQ System are valued at last
sales prices. Securities so traded for which there were no sales and other
securities are valued at the mean of the most recent bid-asked quotations
except that bonds not traded on a securities exchange nor quoted on the NASDAQ
System will be valued at prices provided by a recognized pricing service
unless the Adviser believes that such price does not represent a fair value.
Each money market instrument having a maturity of 60 days or less from the
valuation date is valued on an amortized cost basis. Other securities and
assets will be valued at fair value, as determined in good faith by the
Adviser under procedures established by, and under the supervision and
responsibility of, the Fund's Board of Directors.
Normally, repurchase agreements are not subject to trading. U.S. Government
obligations pledged as collateral for repurchase agreements are held by the
Fund's custodian bank until maturity of the repurchase agreement. Provisions
of the agreement provide that the market value of the collateral is sufficient
in the event of default; however, in the event of default or bankruptcy by the
other party to the agreement, realization and/or retention of the collateral
may be subject to legal proceedings.
FEDERAL INCOME TAXES: It is the policy of the Fund to qualify under the
Internal Revenue Code as a regulated investment company and to distribute all
of its taxable income to shareholders, thereby relieving the Fund of federal
income tax liability. The Fund intends to utilize provisions of Federal income
tax laws which allow a realized capital loss to be carried forward for eight
years following the year of loss and offset such losses against any future
realized gains. At December 31, 1995, the Fund did not have a tax-basis
capital loss carryforward. In addition, from November 1, 1995 through December
31, 1995, the Fund did not incur any net realized capital losses. If the Fund
had incurred net capital losses during this period, as permitted by tax
regulations, the Fund would elect to defer these losses and treat them as
arising in the fiscal year ended December 31, 1996.
DIVIDEND POLICY: It is the policy of the Fund to make distributions annually
of its net investment income and its net realized capital gains, if any, at
the end of the year in which earned or at the beginning of the next year.
Dividends and capital gain distributions will normally be reinvested in
additional shares at net asset value without a sales charge, unless otherwise
elected at purchase.
DEFERRED ORGANIZATIONAL EXPENSES: Deferred organizational expenses included on
the statement of assets and liabilities include organizational costs incurred
during the start up of the Fund that J. J. B. Hilliard, W. L. Lyons, Inc., the
Distributor, had paid for the Fund. It is the policy of the Fund that the Fund
will reimburse these organizational expenses. These expenses are being
amortized using the straight-line method over sixty (60) months.
8
<PAGE>
The Distributor has agreed that in the event that any of the initial 34,990
shares that it purchased are redeemed during the period of amortization of the
Fund's organizational and start-up expenses, the redemption proceeds will be
reduced by any such unamortized organizational expenses in the same proportion
as the number of initial shares being redeemed bears to the number of initial
shares outstanding at the time of redemption.
OTHER: The accounts of the Fund are kept on the accrual basis of accounting.
Security transactions are recorded on the trade date. Realized gains or losses
from sales of securities are determined on the specific identified cost basis.
Dividend income is recognized on the ex-dividend date.
NOTE B--INVESTMENT ADVISORY AGREEMENT
The investment adviser, Hilliard Lyons Investment Advisors (the "Adviser") is
a division of J. J. B. Hilliard, W. L. Lyons, Inc. which owns 37,098 shares of
the Fund. Under the Investment Advisory Agreement, the Adviser receives a fee,
accrued daily and paid quarterly, at an annual rate of .80% of the Fund's
average daily net assets. The Adviser has voluntarily agreed to reduce the fee
payable to it under the Advisory Agreement and, if necessary, reimburse the
Fund on a quarterly basis, by the amount by which the Fund's total annualized
operating expenses (exclusive of taxes, interest, brokerage commissions and
extraordinary expenses but including the Adviser's compensation) for the
fiscal year ending December 31, 1996 exceed 1.75% of the first $50 million of
average daily net assets and 1.50% of average daily net assets in excess of
$50 million. For the six months ended June 30, 1996, there was no
reimbursement necessary from the Adviser and no waiver of the management fee.
The Fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "Plan"). Under the Plan, the
Fund reimburses the Distributor quarterly at an annualized rate of up to .25%
of the Fund's average daily net assets for distribution expenses actually
incurred provided the expenses for which reimbursement is made are primarily
intended to result in the sale of Fund shares and are approved by the Fund's
Board of Directors. Expenses for which the Distributor may be reimbursed under
the Plan include, but are not limited to, payments to investment brokers of
the Distributor and to authorized dealers for distribution of shares of the
Fund and for promotion of the maintenance of holdings by established
stockholders and stockholder servicing.
For transactions executed during the six months ended June 30, 1996, the Fund
incurred brokerage commissions of $9,654. Additionally, J. J. B. Hilliard, W.
L. Lyons, Inc., the Distributor, received sales charges of approximately
$44,866. The Hilliard Lyons profit sharing plan, as directed by each
participant, owns 368,031 shares of the Fund as of June 30, 1996.
No compensation is paid by the Fund to officers and directors of the Fund who
are affiliated with the Adviser or Hilliard Lyons. The Fund pays each
unaffiliated director an annual retainer of $5,000 and a fee of $500 for each
Board or Committee meeting attended and certain expenses the directors incur
in attending meetings.
NOTE C--PORTFOLIO TRANSACTIONS
For the six months ended June 30, 1996, purchases and proceeds from sale of
investment securities (excluding short-term securities) were $4,189,982 and
$2,478,364, respectively.
The cost of investments for Federal income tax purposes and financial
reporting is the same. At June 30, 1996, the gross unrealized appreciation and
depreciation on investments was $9,254,527 and $240,312, respectively,
resulting in net unrealized appreciation of $9,014,215.
9
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share of capital stock
outstanding throughout each period and other performance information derived
from the financial statements. It should be read in conjunction with the
financial statements and notes thereto.
<TABLE>
<CAPTION>
For the six Period from
months ended For the year ended January 6,
June 30, December 31, 1992* to
1996 ---------------------------------- December 31,
(UNAUDITED) 1995 1994 1993 1992
------------ -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period... $ 20.20 $ 15.98 $ 15.69 $ 15.19 $ 14.29
-------- -------- -------- -------- --------
Net investment income... 0.05 0.15 0.12 0.13 0.10
Net realized and change
in unrealized gain on
investments............ 1.39 4.82 0.29 0.50 0.90
-------- -------- -------- -------- --------
Total from investment
operations............. 1.44 4.97 0.41 0.63 1.00
-------- -------- -------- -------- --------
Less dividends from net
investment income...... ( 0.00) ( 0.15) ( 0.12) ( 0.13) ( 0.10)
Less dividends from net
realized capital gains. ( 0.00) ( 0.60) ( 0.00) ( 0.00) ( 0.00)
-------- -------- -------- -------- --------
Total distributions..... ( 0.00) ( 0.75) ( 0.12) ( 0.13) ( 0.10)
-------- -------- -------- -------- --------
Net asset value:
End of period......... $ 21.64 $ 20.20 $ 15.98 $ 15.69 $ 15.19
======== ======== ======== ======== ========
Total Investment Return
(1).................... 7.13% 31.10% 2.60% 4.13% 7.09%**
SIGNIFICANT RATIOS AND
SUPPLEMENTAL DATA
Operating expenses to
average net assets..... 1.63%** 1.75%(c) 1.75%(b) 1.75% 1.71%**(a)
Net investment income to
average net assets..... .55%** .82%(c) .68%(b) .75% 1.07%**(a)
Portfolio turnover rate. 9.63% 27.50% 20.10% 59.64% 19.63%
Average commission rate
paid................... $0.0600 $0.0604 $0.0609 $0.0705 $0.0706
Net assets, end of pe-
riod (000s
omitted)............... $31,688 $28,259 $20,476 $23,758 $22,404
</TABLE>
(a) Net of voluntary expense reimbursement and management fee waiver by the
Adviser. If the Fund had borne all expenses that were assumed by the
Adviser and paid the full management fee, the annualized ratios of
expenses and net investment income to average net assets would have been
2.76% and 0.02%, respectively, for the period January 6, 1992 through
December 31, 1992.
(b) Net of voluntary management fee waiver by the Adviser. If the Fund had
paid the full management fee, the annualized ratios of expenses and net
investment income to average net assets would have been 1.94% and 0.50%,
respectively, for the year ended December 31, 1994.
(c) Net of voluntary management fee waiver by the Adviser. If the Fund had
paid the full management fee, the annualized ratios of expenses and net
investment income to average net assets would have been 1.85% and 0.71%,
respectively, for the year ended December 31, 1995.
(1) Excludes maximum sales charge of 4.75%.
* Commencement of operations
** Annualized
10
<PAGE>
----------------------------------------
LOGO
SEMI-ANNUAL REPORT
JUNE 30, 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.
Donald F. Kohler
John C. Owens
Gilbert L. Pamplin
Dillman A. Rash
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 & 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.
SEMI-ANNUAL REPORT
JUNE 30, 1996
