<PAGE>
February 13, 1998
Hilliard Lyons Growth Fund
Dear Shareholder:
It is a pleasure to report investment results for 1997 for the Hilliard
Lyons Growth Fund. The net asset value per share of the Fund increased by
40.4% with the dividend included. This compares favorably with the 33.4% gain
in the S&P 500 Index, the benchmark by which we judge our success. The Fund
has achieved an annualized return of 30.3% over the past three years and 18.7%
over the last five. The favorable performance relative to the S&P 500 Index
for 1997 is discussed below.
This year's growth has generated positive publicity for the Fund and
satisfying reviews from the mutual fund rating services. Morningstar, perhaps
the most often cited such service, rates the Hilliard Lyons Growth Fund five
stars, its highest rating, for the past year and the past three years.
Similarly high ratings have been earned from the other services, particularly
those which attempt to measure risk as well as absolute return. These reviews
have prompted a pick-up in incoming cash flow from new investors. The rate of
inflow is manageable and, if it remains approximately the same, will not be an
impediment to executing our plans effectively. Long term, the inflows will
tend to reduce expenses as a percentage of Fund assets as fixed expenses are
spread over a larger asset base.
1997
The Hilliard Lyons Growth Fund's good performance relative to the S&P 500
Index was the result of several factors, the most important of which was fine
operating results for the companies in which the Fund has invested. Earnings
for many of the Fund's holdings advanced at a fifteen to twenty percent rate.
Another reason for the Fund's relative success in 1997 was a concentration in
the financial services area. This group posted particularly strong results
over the past year.
As 1997 drew to a close, turmoil in the smaller nations of Southeast Asia
generated great anxiety in investors throughout the world. The Fund's holdings
tend to be in high quality businesses with strong finances and predictable
earnings growth. Such companies were natural havens for stock investors who
wanted to remain in equities and also feel secure. Since these are just the
sort of companies we've always emphasized, our major holdings finished the
year with a bang. The last factor which played a role in our relative success
was the good fortune to have two major holdings selected for the S&P 500 Index
this year. Such an action often produces a jump in price since index funds
must accumulate a position in the company as rapidly as possible. We had the
particular good fortune of having Cincinnati Financial, by far our largest
holding, added to the Index. The day it was announced that Cincinnati
Financial would be included in the Index, it jumped by more than 20%--a big
help in making the Fund's already fine year an extraordinary one. Of a more
subtle and profound nature, Cincinnati Financial's performance in 1997
validates our earlier decision to make the Fund non-diversified in structure,
a strategy which allows us to concentrate our holdings. Though we cannot
predict when and how this flexibility will be again employed, we think it is a
great advantage to the Fund.
OUTLOOK
Shakespeare wrote that there is a tide in the affairs of men. Indeed, it
seems so in the world of commerce and investment. We believe that a high tide
of economic optimism was reached in the middle of the year. Such optimism
explains the rhythms which characterize economic cycles. The businessman who
experiences particularly strong demand for his product builds a new plant,
increases the inventory he carries, increases his advertising and so forth.
Such activities usually involve the use of credit. Consumers, feeling a
greater sense of well being, expand their purchases and become more confident
of their ability to handle greater debt. At the other extreme, gloomy
perception fosters contraction that is a mirror image of the expansion mode.
The cycle changes when economic behavior is so bold that it is irrational. It
is probably fair to generalize that emotional extremes are exaggerated when
played out by youthful participants who are uninitiated as to how their hopes
and fears may occasionally run away with themselves.
The collapse in the Asian economies such as Thailand, Malaysia, Indonesia,
South Korea, and others offers a clear study in how optimistic assumptions
ultimately lead to big trouble. Most glaringly, businessmen and customers in
such countries assumed that their currencies would be freely convertible into
dollars at only modestly declining rates when, in fact, the economies made
such an assumption out of touch with reality. Nevertheless, acting with this
assumption, businessmen expanded wildly in real estate development and
industrial capacity. They face a painful liquidation of debts and
rationalization of capacity. A new order will emerge in time, but for now
confidence is shattered in societies booming just a year ago.
In mature economies such as ours, we should be wise in such matters,
presumably learning from past follies of our own. Still, the long run of good
fortune in stock market returns, job creation, economic expansion, low
inflation and gently falling interest rates is likely to have spawned over-
confidence, particularly with consumers and equity investors. Difficult
conditions are increasingly a fading and distant memory. Statistics indicate
that consumers are comfortable with elevated debt levels in relation to their
income, a possible indicator of over-confidence. How can that be surprising
with
<PAGE>
the strong stock market, full employment, and steady expansionary prospects in
the economy? The question to consider is whether our run of good luck has led
to economic and financial activity based on a supreme confidence that the
favorable conditions will continue forever.
Pleased as we are with this year's results, we are mindful of the message
imparted to contestants who enter center court to play their matches at
Wimbledon. Over the door there is a quotation from Rudyard Kipling which says
"If you can meet with Triumph and Disaster/and treat those two impostors just
the same..." We suspect this message is likely lost on the younger players.
But the older ones probably come to understand that in any given year the most
serendipitous of events can cause the most serendipitous of outcomes, and they
had best not place too much emphasis on any year's results. It is better that
they work on their conditioning, their strokes, and the mental state with
which they go into battle. Endless preparation is best to meet the unexpected
conditions they will surely face. We will likewise adopt that point of view,
remove our eyes from the scoreboard and retire to the practice courts to
prepare for the challenges ahead.
In closing, we extend a special thank you for your continued confidence in
us. We greet the upcoming year with great eagerness to seize new
opportunities.
Sincerely,
/s/ DONALD F. KOHLER /s/ SAMUEL C. HARVEY
DONALD F. KOHLER SAMUEL C. HARVEY
Chairman President
Comparison of Change in Value of $10,000 Investment in
HILLIARD LYONS GROWTH FUND, INC. AND THE S&P 500
February 1, 1992 through December 31, 1997
AVERAGE ANNUAL TOTAL RETURN*
----------------------------
1 Year Since Inception
----------------------------
33.77% 15.75%
----------------------------
* Returns have been reduced by the maximum
sales charge of 4.75%
<TABLE>
<CAPTION>
Fund S&P
------ ------
<S> <C> <C>
Start 9,525 10,000
92 10,185 10,966
93 10,606 12,071
94 10,882 12,230
95 14,269 16,826
96 17,125 20,692
97 24,046 27,598
</TABLE>
Past performance is not predictive of future performance.
* Annualized for the period 2-1-92 through 12-31-92.
2
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
COMMON STOCKS -- 79.9%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Company Cost Value
------ ------- ---- ------
CAPITAL GOODS -- 11.3%
----------------------------------------------------------------------
<C> <S> <C> <C>
66,000 Dover Corp. .................................. $ 928,470 $ 2,384,250
21,000 General Electric Co. ......................... 415,030 1,540,875
16,800 Hubbell Inc. CL B ............................ 408,960 828,450
40,500 Nordson Corp. ................................ 2,150,813 1,857,938
---------- -----------
3,903,273 6,611,513
CONSUMER DURABLE -- 5.7%
----------------------------------------------------------------------
49,500 Donaldson Inc. ............................... 1,290,682 2,230,594
40,000 Harley Davidson Inc. ......................... 816,700 1,095,000
---------- -----------
2,107,382 3,325,594
CONSUMER NON-DURABLE -- 6.2%
----------------------------------------------------------------------
45,000* Bush Boake Allen Inc. ........................ 1,204,175 1,178,437
31,000 Nike, Inc. ................................... 1,473,610 1,216,750
33,000 PepsiCo Inc. ................................. 542,948 1,202,438
---------- -----------
3,220,733 3,597,625
FINANCIAL -- 30.7%
----------------------------------------------------------------------
27,000 American International Group Inc. ............ 869,511 2,936,250
23* Berkshire Hathaway Inc. ...................... 208,980 1,058,000
60,000 Cincinnati Financial Corp. ................... 3,394,566 8,445,000
48,000 Federal Home Loan Mortgage Corp. ............. 554,653 2,013,000
12,000 Fifth Third Bancorp .......................... 272,000 981,000
50,875 Synovus Financial Corp. ...................... 430,155 1,666,156
10,000 Wachovia Corp. ............................... 364,350 811,250
---------- -----------
6,094,215 17,910,656
</TABLE>
See notes to financial statements.
3
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Market
Shares Company Cost Value
------ ------- ---- ------
HEALTH CARE -- 8.4%
----------------------------------------------------------------------
<C> <S> <C> <C>
38,500 Allergan Inc. ................................. 926,295 1,292,156
35,000 Johnson & Johnson.............................. 721,314 2,305,625
39,550 Life Technologies, Inc. ....................... 1,114,788 1,315,037
----------- ----------
2,762,397 4,912,818
RETAIL & SERVICES -- 16.3%
----------------------------------------------------------------------
43,000 Brady WH Co. CL A.............................. 880,062 1,333,000
24,000 Gannett Inc. .................................. 654,720 1,483,500
65,000 G & K Services Inc. CL A....................... 1,984,095 2,730,000
69,000 Walgreen Co. .................................. 602,837 2,164,875
47,000 Wallace Computer Services, Inc. ............... 1,556,722 1,827,125
----------- ----------
5,678,436 9,538,500
UTILITY -- 1.3%
----------------------------------------------------------------------
15,000 Century Telephone Enterprises ................. 473,400 747,188
----------- ----------
473,400 747,188
TOTAL COMMON STOCKS............................ $24,239,836 46,643,894
</TABLE>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 20.0%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Purchase Maturity Market
Amount Description Yield Date Value
----------- ----------- -------- -------- -----------
<C> <S> <C> <C> <C>
$11,663,461 Federal Home Loan Bank ........... 4.817% 01/02/98 11,663,461
-----------
TOTAL U. S. GOVERNMENT AGENCY
OBLIGATIONS (COST -- $11,663,461). 11,663,461
-----------
TOTAL INVESTMENTS (COST --
$24,239,836) (99.8%)............. $58,307,355
===========
</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
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Common stocks (cost $24,239,836)................................. $46,643,894
U.S. Government Agency Obligations at value (amortized cost
$11,663,461).................................................... 11,663,461
------------
Total investments............................................... 58,307,355
Cash.............................................................. 2,641
Receivables:
Dividends........................................................ 75,621
Shares sold...................................................... 272,335
Prepaid expenses.................................................. 1,617
------------
Total Assets.................................................... $58,659,569
============
LIABILITIES:
Payables:
Dividends payable................................................ $ 42,022
Due to adviser--Note B........................................... 122,674
Shares redeemed.................................................. 3,673
Accrued expenses................................................. 75,142
------------
Total Liabilities............................................... 243,511
------------
NET ASSETS:
Common stock ($.001 par value; 150,000,000 shares authorized and
1,928,647 shares issued and outstanding)......................... 1,929
Paid-in surplus................................................... 34,536,145
Net unrealized appreciation on investments........................ 22,404,058
Accumulated undistributed net realized gain on investments........ 1,473,146
Undistributed net investment income -- Note A..................... 780
------------
Total Capital (Net Assets) (equivalent to $30.29 per share)..... 58,416,058
------------
Total Liabilities and Capital................................... $58,659,569
============
</TABLE>
See notes to financial statements.
5
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends....................................................... $ 498,735
Interest........................................................ 298,357
-----------
Total investment income....................................... 797,092
EXPENSES:
Management fees -- Note B....................................... 365,543
12b-1 expenses -- Note B........................................ 57,719
Custodian fees.................................................. 49,275
Audit fees...................................................... 36,495
Transfer Agent fees............................................. 27,375
Directors' fees................................................. 25,550
Insurance expense............................................... 17,589
Legal fees...................................................... 17,030
Shareholder reports............................................. 14,580
Filing fees..................................................... 7,900
Trade Association............................................... 1,926
Organizational expenses -- Note A............................... 384
-----------
621,366
Waiver of management fee by Adviser -- Note B................... ( 40,862)
-----------
Total expenses................................................ 580,504
-----------
Net investment income....................................... 216,588
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments -- Note A...................... 4,695,525
Change in unrealized appreciation on investments................ 10,764,036
-----------
Net gain on investments....................................... 15,459,561
-----------
Net increase in net assets resulting from operations........ $15,676,149
===========
</TABLE>
See notes to financial statements.
6
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the year ended
December 31,
1997 1996
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income............................... $ 216,588 $ 164,312
Net realized gain on investments.................... 4,695,525 1,724,517
Net change in unrealized appreciation on
investments........................................ 10,764,036 3,972,253
----------- -----------
Net increase in net assets from operations........ 15,676,149 5,861,082
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................... (214,232) (164,559)
Net realized gain from investment transactions...... (3,222,379) (1,724,524)
----------- -----------
Total distributions............................... (3,436,611) (1,889,083)
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from 113,607 and 81,426 shares issued in
reinvestment of dividends, respectively............ 3,394,590 1,856,523
Proceeds from 357,550 and 186,661 shares sold,
respectively....................................... 9,612,901 4,059,750
Cost of 94,849 and 115,031 shares repurchased,
respectively....................................... (2,458,498) (2,519,966)
----------- -----------
Net increase in net assets from capital share
transactions..................................... 10,548,993 3,396,307
----------- -----------
Total increase in net assets..................... 22,788,531 7,368,306
NET ASSETS:
Beginning of period................................. 35,627,527 28,259,221
----------- -----------
End of period (including undistributed net
investment income of $780 in 1997 and distributions
in excess of net investment income of $1,576 in
1996).............................................. $58,416,058 $35,627,527
=========== ===========
</TABLE>
See notes to financial statements.
7
<PAGE>
HILLIARD LYONS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A -- ACCOUNTING POLICIES
Hilliard Lyons Growth Fund, Inc. (the "Fund") is a non-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, 1997, the Fund did not have a tax-basis
capital loss carryforward. In addition, from November 1, 1997 through December
31, 1997, 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, 1998.
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.
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 income and expenses
during the reporting period. Actual results could differ from those estimates.
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.
8
<PAGE>
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 41,694 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, 1997 exceed 1.30% of average daily net assets.
For the year ended December 31, 1997, there was no reimbursement necessary
from the Adviser and the waiver of the management fee amounted to $40,862.
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.
J. J. B. Hilliard, W. L. Lyons, Inc., the Distributor, received sales charges
of approximately $250,204. The Hilliard Lyons Profit Sharing Plan, as directed
by each participant, owns 548,325 shares of the Fund as of December 31, 1997.
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 year ended December 31, 1997, purchases and proceeds from sale of
investment securities (excluding short-term securities) were $8,652,260 and
$9,632,118, respectively.
The cost of investments for Federal income tax purposes and financial
reporting is the same. At December 31, 1997, the gross unrealized appreciation
and depreciation on investments was $22,979,530 and $575,472, respectively,
resulting in net unrealized appreciation of $22,404,058.
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 year ended December 31,
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period.... $22.95 $20.20 $15.98 $15.69 $15.19
--------- --------- --------- --------- ---------
Net investment income... 0.12 0.11 0.15 0.12 0.13
Net realized and
unrealized gain on
investments............ 9.13 3.92 4.82 0.29 0.50
--------- --------- --------- --------- ---------
Total from investment
operations............. 9.25 4.03 4.97 0.41 0.63
--------- --------- --------- --------- ---------
Less dividends from net
investment income...... ( 0.12) ( 0.11) ( 0.15) ( 0.12) ( 0.13)
Less dividends from net
realized gain on
investments............ ( 1.79) ( 1.17) ( 0.60) ( 0.00) ( 0.00)
--------- --------- --------- --------- ---------
Total distributions..... ( 1.91) ( 1.28) ( 0.75) ( 0.12) ( 0.13)
--------- --------- --------- --------- ---------
Net asset value:
End of period.......... $30.29 $22.95 $20.20 $15.98 $15.69
========= ========= ========= ========= =========
Total Investment
Return(1).............. 40.41% 19.98% 31.10% 2.60% 4.13%
SIGNIFICANT RATIOS AND
SUPPLEMENTAL DATA
Ratio of operating
expenses to average net
assets................. 1.30%(d) 1.58%(c) 1.75%(b) 1.75%(a) 1.75%
Ratio of net investment
income to average net
assets................. .49%(d) .52%(c) .82%(b) .68%(a) .75%
Portfolio turnover rate. 22.20% 18.79% 27.50% 20.10% 59.64%
Average commission rate
paid per share......... $ 0.0605 $ 0.0600 $ 0.0604 $ 0.0609 $ 0.0705
Net assets, end of
period (000s omitted).. $ 58,416 $ 35,628 $ 28,259 $ 20,476 $ 23,758
</TABLE>
(a) 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.
(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 1.85% and 0.71%,
respectively, for the year ended December 31, 1995.
(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 1.64% and 0.45%,
respectively, for the year ended December 31, 1996.
(d) 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 1.40% and 0.39%,
respectively, for the year ended December 31, 1997.
(1) Excludes maximum sales charge of 4.75%.
10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Directors and Shareholders
Hilliard Lyons Growth Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Hilliard Lyons Growth Fund, Inc., including the schedule of investments, as of
December 31, 1997, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in
the period then ended, and 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. Our procedures included confirmation of securities
owned as of December 31, 1997, 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
Hilliard Lyons Growth Fund, Inc. at December 31, 1997, the results of its
operations for the year ended, the changes in its net assets for each of the
two years in the period then ended, and financial highlights for each of the
five years in the period then ended, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
January 16, 1998
<PAGE>
[LOGO]
HILLIARD LYONS
GROWTH FUND
ANNUAL REPORT
DECEMBER 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.
ANNUAL REPORT
DECEMBER 31, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000879858
<NAME> HILLARD LYONS GROWTH FUND, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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