<PAGE>
November 10, 1997
Dear Shareholder:
We are pleased to report that the Hilliard Lyons Growth Fund made good
progress in the third quarter, advancing 3.5%. For the first nine months of
1997, the Fund was up 23.9%. The S&P 500 Index advanced 7.5% and 29.7% for the
three and nine month periods respectively. It is worth noting that the Fund was
one of very few growth funds to grow in the month of October, and fully made up
the gap in performance relative to the Index.
Beta
The tremendous growth of assets in mutual funds, foundations, retirement
plans, and other institutions has spawned a thriving consulting industry to
evaluate investment performance. In an effort to create standards of
evaluation, a number of indicators have been developed so that portfolios may
be categorized and characterized properly. One measurement is called beta. Its
purpose is to measure the volatility of a stock or a portfolio compared to the
Standard and Poor's 500 Index. It measures whether a particular stock jumps
around more than the average stock.
As we invest the Fund's assets, we pay little attention to the often arcane
measurements that the consultants use. But it is noteworthy that the beta of
the Hilliard Lyons Growth Fund is so incredibly low. It is reported by CDA
Weisenberger to be in the lowest 10% of volatility for all growth funds. This
characteristic explains why the Fund has tended to lag in markets that are
soaring. Likewise, in bad markets such as we had in October and on bad days,
such as October 27th when the market dropped 550 points, the Fund has
ordinarily held its value very well.
With the idea that understanding this extraordinarily low beta may help you
better to understand the Fund, we offer this explanation for the low volatility
in the Hilliard Lyons Growth Fund. First, the managements of most of our
companies go out of their way to communicate with shareholders in a frank and
thorough fashion. There is an effort to make sure that the expectations of
shareholders are reasonable. Bad news is freely discussed. Indeed, the problems
get the most attention in company communications, as executives realize that
the problems and their solutions are often at the forefront of shareholder
concerns. The second reason for low volatility is that our companies generally
operate businesses that are easy to understand and difficult to fantasize
about. The lack of fantasy power tends to put a lid on exaggerated optimism and
pessimism at market extremes. In our companies, what you see is what you get.
We are very comfortable with a portfolio of such securities. It is our hope
that the returns you get as an investor in the Fund will mirror the progress of
the companies that the Fund holds and not be the result of wild market swings.
We shoot for consistent progress at a superior rate.
Outlook
It seems clear that the nearly perfect economic conditions and investment
climate have given way to a more turbulent period. In our view the primary
cause of distortions has been the strength and sheer size of the U.S. economy
as it trades with other nations. It is vitally important in international
commerce for a stable medium of exchange to exist to facilitate trading goods.
Reflecting the might of the U.S. economy, the dollar's strength compared to
other currencies has destabilized the outlook for emerging economies in Asia
and South America.
Continued . . . . .
1
<PAGE>
It has been a most happy event to have the stock market go up, up, and up
some more in the last three years. An inevitable result, however, is that
stocks become priced at levels that leave them ill prepared to withstand bad
news. The crumbling stock markets and exchange rates in Southeast Asia do not
appear to us to be big events for economic conditions in this country. The
outsized response of our stock market serves as a reminder of the vulnerability
of a stock market reflecting supremely optimistic forecasts. Periodic market
weakness may be in the cards in the foreseeable future. We have a shopping list
prepared for days of bargain pricing.
You have our best wishes for happy holidays and a special thanks for your
continued support.
/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)
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Market
Shares Company Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 89.5%
-------------------------------------------------------------------------------
CAPITAL GOODS -- 16.2%
-----------------------------------------------------------------------
33,000 Dover Corp............................................... $ 2,239,875
21,000 General Electric Co...................................... 1,429,313
16,800 Hubbell Inc. CL B........................................ 777,000
43,000* Lydall Inc............................................... 1,007,812
40,500 Nordson Corp............................................. 2,374,313
-----------
7,828,313
CONSUMER DURABLE -- 7.3%
-----------------------------------------------------------------------
49,500 Donaldson Inc............................................ 2,376,000
40,000 Harley Davidson Inc...................................... 1,167,500
-----------
3,543,500
CONSUMER NON-DURABLE -- 5.7%
-----------------------------------------------------------------------
36,500* Bush Boake Allen Inc..................................... 1,213,625
38,000 PepsiCo Inc.............................................. 1,541,375
-----------
2,755,000
FINANCIAL -- 31.8%
-----------------------------------------------------------------------
27,000 American International Group Inc......................... 2,786,062
23* Berkshire Hathaway Inc................................... 1,030,400
80,000 Cincinnati Financial Corp................................ 6,560,000
48,000 Federal Home Loan Mortgage Corp.......................... 1,692,000
12,000 Fifth Third Bancorp...................................... 784,500
85,875 Synovus Financial Corp................................... 1,846,312
10,000 Wachovia Corp............................................ 720,000
-----------
15,419,274
HEALTH CARE -- 9.5%
-----------------------------------------------------------------------
38,500 Allergan Inc............................................. 1,393,219
35,000 Johnson & Johnson........................................ 2,016,875
39,550 Life Technologies Inc.................................... 1,196,388
-----------
4,606,482
</TABLE>
<TABLE>
<CAPTION>
Market
Shares Company Value
- --------------------------------------------------------------------------------
<C> <S> <C>
RETAIL & SERVICES -- 17.1%
------------------------------------------------------------------------
43,000 Brady WH Co................................................ 1,343,750
12,000 Gannett Inc................................................ 1,295,250
62,000 G & K Services Inc. CL A................................... 2,154,500
84,000 Walgreen Co................................................ 2,152,500
37,000 Wallace Computer Services Inc.............................. 1,364,375
----------
8,310,375
UTILITY -- 1.9%
------------------------------------------------------------------------
20,500 Century Telephone Enterprises.............................. 902,000
----------
902,000
TOTAL COMMON STOCKS -- (COST -- $24,963,902) 43,364,944
----------
</TABLE>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 10.3%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description
---------- -----------
<C> <S> <C> <C> <C>
$5,005,000 Federal Home Loan
Bank Purchase Yield
6.003%,
due 10/01/97........ 5,005,000
-----------
TOTAL U.S.
GOVERNMENT
AGENCY OBLIGATIONS
(AMORTIZED COST --
$5,005,000)........ 5,005,000
-----------
OTHER ASSETS LESS LIABILI-
TIES -- 0.2%.................. 72,741
-----------
NET ASSETS
(equivalent to $28.41 per share
of common stock based on
1,705,337 shares of $.001 par
value common stock outstanding,
authorized 150,000,000 shares). $48,442,685
===========
</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]
THIRD QUARTER REPORT
SEPTEMBER 30, 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.
THIRD QUARTER REPORT
SEPTEMBER 30, 1997
