<PAGE>
May 7, 1999
Dear Shareholder:
In the first quarter of 1999, the net asset value of the Growth Fund was
virtually unchanged dropping .4%. The Fund's performance lagged that of the
S&P 500 index which gained 4.6% in the quarter, a continuation of trends which
began in the fourth quarter of 1998. The tiering of the market into "have's"
and "have not's" has created a challenging environment for the Hilliard Lyons
Growth Fund as it holds a core belief that the price one pays to become an
owner in a business matters. At this writing, it appears that the tiering
phenomenon, which has become so exaggerated, is breaking down. In fact, on May
1 the Fund was up 6.1% for the year and had closed most of the performance gap
relative to the S&P Index. More on this later.
The Hilliard Lyons Growth Fund reached a milestone in the first quarter with
net assets decisively breaking through the $100,000,000 mark. The Fund has
experienced steady net purchases by new investors, which we believe reflects
confidence that our style will produce solid returns and that we can execute
our plans effectively. Also, during the quarter, Tom Corea resigned from
Hilliard Lyons, Inc., the Fund's advisor, and, therefore, his position as an
officer of the Fund ceases. Tom made valuable contributions to the Fund both
in individual security analysis and in its philosophical development. We will
miss him.
The Market
As mentioned earlier, in the past two or three years the market has
developed what we perceive to be a malady which might be likened to bipolar
disorder. At the grandiose pole, a narrow list of companies is accorded market
valuations that were last seen more than 25 years ago in the speculative
market of the late 60's and the favorite 50 syndrome of the early 70's. At the
depressed pole, one finds the majority of publicly traded securities which
have had mediocre investment performance in the last two years. A haunting
leitmotif accompanying the tiering as it developed has been an ever-building
speculative fever in Internet-related companies. Anyone who wants to take the
temperature of this fever can perform a simple analysis. Take any Internet
company, multiply its shares outstanding by its market price. Then compare the
total to annual sales and earnings for the company. Woe to the shareholder
when the fever breaks.
As mentioned earlier, this tiering process has posed the Fund a difficult
dilemma. We have always preferred companies which are in the favored category,
seeking as Warren Buffet has said, "To buy a great company at a good price
rather than a mediocre company at a cheap price." Our problem is even finding
a good price among the great companies. To be sure, we have benefitted from
the phenomenon with such holdings as Walgreens, Fifth Third, and others, which
have been blessed in the market place. It has been the re-deploying of funds
from overpriced securities and the deployment of new money that has been
difficult on a favorable basis. Our attempts to find winners in the "have-not"
category have met with mixed success. Several of our choices have lagged in
the matter that means most--moving corporate earnings per share ahead
decisively. In light of this experience, we have been especially pleased to
see cracks in the two-tier system, the fall of which we consider to be
inevitable. We have ample buying power to make concentrated new commitments to
great companies or to add to the positions we already have in them. We believe
the rigidity which produced today's circumstances have sown the seeds of
terrific opportunities that will appear later.
Continued . . . . .
1
<PAGE>
A Tiffany World
In 1930, the renowned economist John Maynard Keynes wrote an essay entitled
"The Economic Possibilities of our Grandchildren." In that essay, Keynes
argued that toward the end of the twentieth century, mankind would begin to
face its permanent problem of using its leisure time and wealth wisely, having
advanced beyond the subsistent needs which have always hounded it. There are
many areas of the world, and indeed in our own country, where I would not
press such an idea out loud, but the fact is, one only need look around to see
the veracity of Keynes' musings. A drive through the red-hot communities of
Florida and the sampling of home and condo prices helps one grasp the
phenomenon. The business performance of Tiffany even in beleaguered Japan is
an eye-opener. From Carnival Cruise Lines to Nascar popularity to indulgence
in new jazzed-up movie theatres, signs abound heralding the arrival of the era
Keynes envisioned in the depths of The Depression.
We are so focused on individual company issues that sometimes we are slow on
the uptake on the larger trends emerging in our society. To the extent that we
have been late in recognizing the profit implications deriving from burgeoning
wealth of individuals in developing countries, we hope to more than make up in
embracing its pervasive implications for future economic behavior. We intend
to aim analytical energy in this direction being mindful that the wealth
effect of rising stock prices has raised this trend to consciousness and must
be considered in valuing potential investments.
Many thanks for your continued support.
DONALD F. KOHLER
Chairman
SAMUEL C. HARVEY
President
2
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Company Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 85.4%
-------------------------------------------------------------------------------
BASIC INDUSTRY -- 3.6%
---------------------------------------------------------------------
126,000 Sigma-Aldrich.......................................... $ 3,685,500
-----------
3,685,500
CAPITAL GOODS -- 12.5%
---------------------------------------------------------------------
162,000 Dover Corp............................................. 5,325,750
21,000 General Electric Co.................................... 2,323,125
48,000 Nordson Corp........................................... 2,676,000
112,000 Raychem Corp........................................... 2,527,000
-----------
12,851,875
CONSUMER DURABLE -- 7.2%
---------------------------------------------------------------------
123,000 Donaldson Co. Inc...................................... 2,214,000
91,000 Harley-Davidson Inc.................................... 5,232,500
-----------
7,446,500
CONSUMER NON-DURABLE -- 11.9%
---------------------------------------------------------------------
86,900** Bush Boake Allen Inc................................... 2,389,750
40,000 Gillette Co............................................ 2,377,500
42,000 Lauder Estee Cos. Inc. CL A............................ 3,969,000
142,000 Mattel Inc............................................. 3,532,250
-----------
12,268,500
FINANCIAL -- 28.8%
---------------------------------------------------------------------
57,500 American International Group Inc....................... 6,935,938
60** Berkshire Hathaway Inc................................. 4,284,000
221,000 Cincinnati Financial Corp.............................. 8,052,687
72,500 Federal Home Loan Mortgage Corp........................ 4,141,562
18,000 Fifth Third Bancorp.................................... 1,186,875
52,312 Synovus Financial Corp................................. 1,069,127
50,000 Wachovia Corp.......................................... 4,059,375
-----------
29,729,564
HEALTH CARE -- 6.7%
---------------------------------------------------------------------
31,500 Allergan Inc........................................... 2,768,062
44,000 Johnson & Johnson...................................... 4,122,250
-----------
6,890,312
</TABLE>
<TABLE>
<CAPTION>
Market
Shares Company Value
- --------------------------------------------------------------------------------
<C> <S> <C>
RETAIL & SERVICES -- 11.8%
-----------------------------------------------------------------------
134,400 Brady WH Co. CL A......................................... 2,814,000
59,000 Gannett Co................................................ 3,717,000
80,000 G & K Services Inc. CL A.................................. 3,695,000
68,000 Walgreen Co............................................... 1,921,000
----------
12,147,000
TECHNOLOGY -- 2.9%
-----------------------------------------------------------------------
89,500 Teleflex Inc.............................................. 3,048,594
----------
3,048,594
Total Common Stocks -- (Cost --$59,429,993) 88,067,845
----------
</TABLE>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 15.0%
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description
----------- -----------
<C> <S> <C>
$15,490,000 Federal Home Loan
Bank Purchase
Yield 4.867%, due
04/01/99......... 15,490,000
Total U.S. Gov-
ernment Agency
Obligations (Am-
ortized Cost--
$15,490,000)..... 15,490,000
OTHER ASSETS LESS LIABILI-
TIES --
(-0.4%)....................... (369,196)
------------
TOTAL NET ASSETS.............. $103,188,649
============
Net assets
Investor A
shares........... $ 91,773,197
Investor B
shares........... 11,415,452
------------
$103,188,649
Shares of capital stock
Investor A
shares........... 2,745,217
Investor B
shares........... 343,618
------------
3,088,835
Net asset value
Investor A
shares--redemp-
tion price per
share............ $ 33.43
------------
Investor B
shares--offering
price per share*. $ 33.22
------------
</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.
* Redemption price of Investor B shares varies based on length of time shares
are held.
** Non-income producing security.
HILLIARD LYONS GROWTH FUND, INC.
STATEMENT OF NET ASSETS
(UNAUDITED)
March 31, 1999
3
<PAGE>
----------------------------------
First Quarter Report
March 31, 1999
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
Stewart E. Conner
John C. Owens
OFFICERS
Donald F. Kohler -- Chairman
Samuel C. Harvey -- President
Joseph C. Curry, Jr. -- Treasurer and Secretary
Dianna P. Wengler -- Asst. Secretary
DISTRIBUTOR
Provident Distributors, Inc.
Four Falls Corporate Center, 6th Floor
West Conshohocken, Pennsylvania
19428-2961
(610) 260-6533
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, 1999
