<PAGE>
May 6, 1997
Dear Shareholder:
The net asset value of the Hilliard Lyons Growth Fund gained 1.4% in the
first quarter of 1997. This three month stretch contained a little of
everything that investors can experience--at times a raging bull, a growling
bear, and in the end fairly mundane results for the major market indices. Our
benchmark for comparison, the Standard & Poor's 500, gained 2.6%. Since the
quarter's rough patch occurred right at the end of the quarter, the prevailing
emotion currently is one of apprehension. The fact is most mutual fund
investors experienced far worse results than the averages. The Lipper Company
reported the following performance results for fund categories. Growth funds
as a group declined by 1.25%, but smaller company funds and medium size
company funds did much worse. The Lipper Index for small cap funds was down
6.97% and mid-cap funds dropped 5.89%. The market volatility has continued
into the second quarter of the year and the Standard & Poor's 500 Index shows
a modest gain at this writing as does the Hilliard Lyons Growth Fund. We
continue to believe that the outstanding financial characteristics of our
companies will serve you well in difficult market periods.
The Heart of the Matter
When stock prices begin to move sharply in one direction or another due to
strained investor emotions, it is sometimes difficult to remember clearly what
one is really trying to accomplish. Price movements themselves take center
stage, seeming to diminish the importance of underlying financial results in
determining the success or lack of it in a particular investment. In such
periods, we regularly remind ourselves what our objectives are and what
behavior on our part will cause us to achieve them. It is an appropriate time
to share those thoughts with you.
In a nutshell, we assume that if we pay a reasonable price for shares of a
company whose earnings quadruple in 10 years, the value of the stock will
quadruple in 10 years. That would yield an investment return of 15%. There
are, then, two things for us to think about. First, we must analyze the
company's earnings very carefully. We must determine that the company's
earning power is sustainable, and we must decide whether the company will be
able to reinvest its profits at a higher rate of return. Do opportunities in
its field abound? Is the management astute in the acquisition area? We should
spend most of our work days developing convictions about the earnings issues
for a wide variety of businesses.
The second judgment we must make is what constitutes a reasonable price to
pay for a company. We use a number of valuation guidelines. They are
mechanistic and this part of our job, though important in the ultimate outcome
of the investment, is much easier to deal with than the earnings issue. So
when market volatility leaves our heads spinning, we go back to these first
principles. Then a market downdraft can be seen for what it is, a welcome
opportunity to buy into long sought businesses at reasonable and sometimes
even bargain prices.
Outlook
Businessmen who export products to foreign countries often do what's known
as "forward selling" the currencies of the foreign countries where they are
dealing. They do this to ensure that their profits are not affected by
currency fluctuations. For example, if a business sells television sets to
wholesalers in England it would most likely receive payments at some point in
Continued . . . . .
1
<PAGE>
the future in pounds sterling. In order to ensure the profit, it would agree
to deliver pounds sterling for dollars to a currency trader at some point in
the future. The business would make payment with the pounds it was to receive
from the English wholesalers. Then it would not have to worry about changes in
the dollar relative to the pound. This activity would be more frenetic if most
people thought the pound's value would fall in relation to the dollar. Then
there would be a real incentive to "forward sell".
This sort of anticipatory thinking is particularly prevalent currently in
the bond and stock market. It has a reinforcing effect. People sell bonds
because they anticipate their prices to drop, which drives the prices down and
increases the conviction that they are going lower. The same attitudes roll
over into the stock market. Sellers, anticipating that higher inflation and
bond rates will drive stock prices lower, sell their stocks; this forces the
prices lower, feeding the perception that there is real trouble ahead. This
perceived need to stay one jump ahead of the next guy can take prices far away
from the reality of a given situation. What if the pounds don't really fall
compared to the dollar or interest rates don't go up because inflation doesn't
rear its ugly head? Such realizations cause very abrupt changes in markets.
Our point in all this is that the current market conditions are influenced
strongly by the belief that the economy is overheating, inflation is about to
burst forth, and the Federal Reserve Bank will have to raise rates to squeeze
the system and perhaps cause a recession. In our view, there is scant concrete
evidence that such a period lies ahead. It seems to us that the case could
just as easily be made for continued subdued inflation. Investors acting on
the assumption that significantly higher interest rates are just ahead may
wake up soon with evidence pointing in a distinctly different direction. It is
too soon, in our view, to assume that the economy is suddenly on a different
track of growth, inflation, and interest rates. The future course of events is
just that--the future. It will be revealed in time, and all the market
machinations and worrying about them don't amount to much. Individual company
performance does.
Thank you for your support. It is most appreciated and most helpful as we go
about our business.
/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, 1997
<TABLE>
<CAPTION>
Market
Shares Company Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 85.1%
-------------------------------------------------------------------------------
CAPITAL GOODS -- 17.2%
-----------------------------------------------------------------------
33,000 Dover Corp............................................... $ 1,732,500
14,000 General Electric Co...................................... 1,389,500
16,800 Hubbell Inc. CL B........................................ 709,800
43,000 Lydall Inc............................................... 870,750
34,500 Nordson Corp............................................. 1,742,250
-----------
6,444,800
CONSUMER DURABLE -- 6.4%
-----------------------------------------------------------------------
49,500 Donaldson Inc............................................ 1,720,125
20,000 Harley Davidson Inc...................................... 677,500
-----------
2,397,625
CONSUMER NON-DURABLE -- 8.3%
-----------------------------------------------------------------------
36,500* Bush Boake Allen Inc..................................... 939,875
7,000 International Flavors & Fragrances....................... 306,250
48,000 PepsiCo Inc.............................................. 1,566,000
2,500 Procter & Gamble Co...................................... 287,500
-----------
3,099,625
FINANCIAL -- 33.1%
-----------------------------------------------------------------------
18,000 American International Group Inc......................... 2,112,750
23* Berkshire Hathaway Inc................................... 832,600
76,000 Cincinnati Financial Corp................................ 5,339,000
48,000 Federal Home Loan Mortgage Corp.......................... 1,308,000
8,000 Fifth Third Bancorp...................................... 620,000
57,250 Synovus Financial Corp................................... 1,688,875
10,000 Wachovia Corp............................................ 545,000
-----------
12,446,225
HEALTH CARE -- 7.9%
-----------------------------------------------------------------------
38,500 Allergan Inc............................................. 1,121,313
35,000 Johnson & Johnson........................................ 1,850,625
-----------
2,971,938
RETAIL & SERVICES -- 10.6%
-----------------------------------------------------------------------
36,500 Brady WH Co.............................................. 917,062
12,000 Gannett Inc.............................................. 1,030,500
49,000 Walgreen Co.............................................. 2,051,875
-----------
3,999,437
</TABLE>
<TABLE>
<CAPTION>
Market
Shares Company Value
- --------------------------------------------------------------------------------
<C> <S> <C>
UTILITY -- 1.6%
------------------------------------------------------------------------
20,500 Century Telephone Enterprises.............................. 604,750
----------
604,750
TOTAL COMMON STOCKS -- (COST -- $20,818,752)....................... 31,964,400
----------
</TABLE>
REPURCHASE AGREEMENTS -- 14.4%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description
---------- -----------
<C> <S> <C>
$5,400,000 State Street Bank &
Trust Co., dated
3/31/97, with respect to
$5,095,000 U.S. Treasury
Bonds, 7 7/8%, due
2/15/21 (market value
-- $5,514,748). Purchase
Yield 5.50%, due 4/1/97................................. 5,400,000
-----------
TOTAL REPURCHASE AGREEMENTS
(COST -- $5,400,000).................................... 5,400,000
OTHER ASSETS LESS LIABILITIES -- (0.5%)............................ 192,706
-----------
NET ASSETS
(equivalent to $23.27 per share of
common stock based on 1,613,947
shares of $.001 par value common
stock outstanding, authorized
150,000,000 shares)................................................ $37,557,106
===========
</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 OF HILLIARD LYONS GROWTH FUND]
FIRST QUARTER REPORT
MARCH 31, 1997
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
Brown, Todd & Heyburn PLLC
3200 Providian Center
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, 1997
