-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CVhQ6skIziEU/hlitiyzwE0pMwbUYvYKPn65SwRUVrRDd2a4d7hIRk8r6u0of3P5 ySmP6XPAcoYi2RcTgnQ/rw== 0000950131-97-002021.txt : 19970325 0000950131-97-002021.hdr.sgml : 19970325 ACCESSION NUMBER: 0000950131-97-002021 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970324 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HILLIARD LYONS GOVERNMENT FUND INC CENTRAL INDEX KEY: 0000317872 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 610978881 STATE OF INCORPORATION: MD FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03070 FILM NUMBER: 97561765 BUSINESS ADDRESS: STREET 1: HILLIARD LYONS CTR CITY: LOUISVILLE STATE: KY ZIP: 40232 BUSINESS PHONE: 5025888832 MAIL ADDRESS: STREET 1: PO BOX 32760 CITY: LOUISVILLE STATE: KY ZIP: 40232 FORMER COMPANY: FORMER CONFORMED NAME: HILLIARD LYONS CASH MANAGEMENT INC DATE OF NAME CHANGE: 19830125 N-30D 1 HILLIARD-LYONS GOVERNMENT FIND, INC. SAR March 14, 1997 Dear Shareholder: We are pleased to present this report on the Hilliard-Lyons Government Fund, Inc. ("HLGF" or the "Fund") for the six months ended February 28, 1997. Net assets of the Fund on February 28, 1997 were $519 million. This is a 21% increase over net assets of $428 million six months ago and a 54% increase over net assets of $336 million one year ago. The Fund has since gone on to a new record net asset level of $525 million in March. The average seven day yield ranged from 4.60% to 4.82% during the six months. Distributions of $.023724 were paid which is equivalent to a 4.78% yield. For those shareholders in the dividend reinvestment plan, this equates to a compound annual yield of 4.83%. As of the date of this letter, the current seven day yield was 4.76%. For the calendar year ended December 31, 1996, 100% of the dividends paid by the Fund were exempt from state income tax in all states. This is the second year in a row that all dividends paid were fully exempt. The percentage of dividends eligible for exemption will vary as it is dependent on the investments of the Fund. However, given the current investment strategy of the Fund, we believe the dividends paid will be substantially exempt from state income tax under current tax laws. The Fund's narrow yield spread of 22 basis points during the six months reflects the recent stability of short term interest rates. Fears of inflation had many believing the Federal Reserve ("Fed") would raise the discount rate and target rate for federal funds but the Fed has not changed those rates in over a year. It still may. Federal Reserve chairman, Alan Greenspan, did rattle financial markets recently with remarks made during his congressional testimony in February. He warned of unwarranted investor exuberance in the stock market. And in an uncharacteristic comment about bond prices, he said that an overly optimistic attitude was evident in the quality spreads on high-yield corporate bonds. He later moderated his comments on the stock market stating that if corporate earnings are what analysts expect, stock prices may not be too high. The Fed's long and seemingly successful campaign against inflation has been a major factor in the advance of financial markets. Inflation has not been as low as it is now since the early 1960's. Companies have increased their profit margins by cutting costs rather than raising prices. Investors have continued to put money into taxable money market funds though not nearly at the rate they have invested in stock mutual funds. Assets of taxable money market funds rose 17% during the period January 1996-January 1997. During this same period, HLGF's net assets rose 20%. HLGF's greater than average increase in net assets is attributable to the Fund's investment strategy which offers its shareholders a competitive yield with the safety and tax advantages of U.S. government securities. As shown on the enclosed Schedule of Investments, HLGF was 100% invested in short term discount notes issued by the Federal Farm Credit Banks and the Federal Home Loan Banks. HLGF is one of only a few money market funds to invest exclusively in such high quality securities. Some money market fund advisors have once again had to buy troubled securities from their money market funds to keep their net asset value per share from falling below $1.00 per share. We do not intend for this ever to happen in the Hilliard-Lyons Government Fund. With us, quality and safety are primary objectives, and if we have to give up a little yield to meet these objectives, we shall do so. Because the U.S. Government is the largest and most frequent borrower, yields on government and government agency securities have been about as high as non- government short term paper, and the Fund has been a beneficiary of this market condition. /s/ DONALD F. KOHLER /s/ JOSEPH C. CURRY, JR. /s/ DIANNA P. WENGLER DONALD F. KOHLER Chairman JOSEPH C. CURRY, JR. DIANNA P. WENGLER President Vice President and Treasurer HILLIARD-LYONS GOVERNMENT FUND, INC. SCHEDULE OF INVESTMENTS (UNAUDITED) FEBRUARY 28, 1997
PRINCIPAL PURCHASE MATURITY AMOUNT YIELD DATE VALUE ----------- -------- -------- ------------ U.S. GOVERNMENT AGENCY OBLIGATIONS--100.2% $ 8,480,000 Federal Home Loan Bank 5.346% 03/03/97 $ 8,477,517 12,000,000 Federal Home Loan Bank 5.364 03/03/97 11,996,533 10,000,000 Federal Home Loan Bank 5.479 03/04/97 9,995,542 5,000,000 Federal Farm Credit Bank 5.350 03/05/97 4,997,094 10,000,000 Federal Farm Credit Bank 5.334 03/06/97 9,992,792 6,000,000 Federal Farm Credit Bank 5.342 03/07/97 5,994,760 4,000,000 Federal Farm Credit Bank 5.334 03/10/97 3,994,810 9,000,000 Federal Farm Credit Bank 5.426 03/11/97 8,986,775 9,000,000 Federal Farm Credit Bank 5.353 03/12/97 8,985,673 8,000,000 Federal Home Loan Bank 5.363 03/13/97 7,986,080 15,000,000 Federal Home Loan Bank 5.276 03/14/97 14,972,213 5,000,000 Federal Home Loan Bank 5.404 03/17/97 4,988,311 6,000,000 Federal Home Loan Bank 5.403 03/18/97 5,985,097 15,000,000 Federal Farm Credit Bank 5.415 03/19/97 14,960,475 14,000,000 Federal Home Loan Bank 5.395 03/20/97 13,961,208 12,000,000 Federal Home Loan Bank 5.283 03/24/97 11,960,670 8,000,000 Federal Home Loan Bank 5.365 03/26/97 7,971,167 6,300,000 Federal Home Loan Bank 5.400 03/27/97 6,276,295 9,000,000 Federal Home Loan Bank 5.327 03/31/97 8,961,225 5,000,000 Federal Home Loan Bank 5.355 04/01/97 4,977,525 9,000,000 Federal Farm Credit Bank 5.337 04/02/97 8,958,320 14,000,000 Federal Home Loan Bank 5.335 04/03/97 13,933,010 18,000,000 Federal Home Loan Bank 5.382 04/04/97 17,910,920 8,600,000 Federal Farm Credit Bank 5.358 04/07/97 8,553,861 8,000,000 Federal Farm Credit Bank 5.331 04/08/97 7,956,089 9,000,000 Federal Home Loan Bank 5.332 04/09/97 8,949,398 10,000,000 Federal Home Loan Bank 5.353 04/10/97 9,942,111 5,785,000 Federal Farm Credit Bank 5.333 04/11/97 5,750,674 4,975,000 Federal Home Loan Bank 5.355 04/11/97 4,945,367 10,200,000 Federal Farm Credit Bank 5.362 04/14/97 10,134,924 8,000,000 Federal Farm Credit Bank 5.353 04/15/97 7,947,800 5,900,000 Federal Farm Credit Bank 5.359 04/16/97 5,860,572 9,000,000 Federal Home Loan Bank 5.374 04/17/97 8,938,548 9,000,000 Federal Farm Credit Bank 5.352 04/21/97 8,933,573 8,000,000 Federal Home Loan Bank 5.374 04/24/97 7,937,240 8,000,000 Federal Farm Credit Bank 5.353 04/25/97 7,936,322 10,000,000 Federal Farm Credit Bank 5.362 04/28/97 9,916,061 8,000,000 Federal Home Loan Bank 5.259 04/29/97 7,932,609 10,000,000 Federal Home Loan Bank 5.449 04/30/97 9,912,000 10,000,000 Federal Home Loan Bank 5.395 05/01/97 9,911,042 13,000,000 Federal Home Loan Bank 5.342 05/05/97 12,877,944 5,000,000 Federal Home Loan Bank 5.342 05/06/97 4,952,333
2 HILLIARD-LYONS GOVERNMENT FUND, INC. SCHEDULE OF INVESTMENTS (CONTINUED) (UNAUDITED) FEBRUARY 28,1997
PRINCIPAL PURCHASE MATURITY AMOUNT YIELD DATE VALUE ---------- -------- -------- ------------ 10,000,000 Federal Home Loan Bank 5.342 05/07/97 9,903,222 13,000,000 Federal Home Loan Bank 5.363 05/08/97 12,871,820 7,500,000 Federal Home Loan Bank 5.331 05/12/97 7,422,150 6,000,000 Federal Farm Credit Bank 5.331 05/13/97 5,936,855 11,000,000 Federal Home Loan Bank 5.334 05/14/97 10,882,648 6,000,000 Federal Farm Credit Bank 5.333 05/15/97 5,935,125 8,000,000 Federal Farm Credit Bank 5.298 05/16/97 7,912,853 5,465,000 Federal Home Loan Bank 5.267 05/19/97 5,403,478 5,000,000 Federal Home Loan Bank 5.267 05/20/97 4,943,000 5,000,000 Federal Home Loan Bank 5.320 05/20/97 4,942,444 15,000,000 Federal Farm Credit Bank 5.269 05/21/97 14,826,863 10,000,000 Federal Farm Credit Bank 5.340 05/22/97 9,881,783 10,000,000 Federal Home Loan Bank 5.278 05/23/97 9,881,494 11,000,000 Federal Home Loan Bank 5.417 05/28/97 10,858,833 9,000,000 Federal Farm Credit Bank 5.291 05/29/97 8,885,412 8,310,000 Federal Home Loan Bank 5.327 06/05/97 8,195,433 5,000,000 Federal Home Loan Bank 5.297 06/06/97 4,930,618 ------------ TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (amortized cost -- $520,126,511) 520,126,511 ------------ TOTAL INVESTMENTS (100.2%) (cost -- $520,126,511*) $520,126,511 ============
* Also represents cost for federal income tax purposes. 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. See notes to financial statements. 3 HILLIARD-LYONS GOVERNMENT FUND, INC. STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) FEBRUARY 28, 1997 ASSETS Investments in money market instruments, at value: United States Government Agency Obligations, at value (amortized cost--$520,126,511)............................................ $520,126,511 ------------ Total Investments.............................................. 520,126,511 Cash............................................................. 179,512 Prepaid expenses................................................. 33,595 ------------ TOTAL ASSETS................................................... 520,339,618 LIABILITIES Dividends payable................................................ 872,333 Due to J.J.B. Hilliard, W.L. Lyons, Inc.--Note B................. 146,210 Miscellaneous accrued expenses................................... 102,214 ------------ TOTAL LIABILITIES.............................................. 1,120,757 ------------ NET ASSETS (equivalent to $1.00 per share; 800,000,000 shares authorized and 519,218,861 shares issued and outstanding)--Note C............................................................... $519,218,861 ============ HILLIARD-LYONS GOVERNMENT FUND, INC. STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997 INVESTMENT INCOME Interest income.................................................. $ 12,445,327 EXPENSES Investment Advisory fee--Note B.................................. 889,463 Transfer agent fees.............................................. 347,520 Custodian fees................................................... 47,640 Printing and other expenses...................................... 22,207 Insurance expense................................................ 17,924 Legal and audit fees............................................. 16,717 Directors' fees.................................................. 6,291 Filing fees...................................................... 5,818 ------------ Total expenses.................................................. 1,353,580 ------------ Net investment income........................................... 11,091,747 ------------ Net increase in net assets resulting from operations............ $ 11,091,747 ============
See notes to financial statements. 4 HILLIARD-LYONS GOVERNMENT FUND, INC. STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED FOR THE FEBRUARY 28, YEAR ENDED 1997 AUGUST 31, INCREASE IN NET ASSETS: (UNAUDITED) 1996 ------------ ------------ FROM OPERATIONS Net investment income.............................. $ 11,091,747 $ 19,948,761 ------------ ------------ Net increase in net assets resulting from operations....................................... 11,091,747 19,948,761 Dividends to shareholders ($.023724 and $.048527 per share, respectively).......................... ( 11,091,747) ( 19,948,761) ------------ ------------ Undistributed net investment income................ 0 0 ------------ ------------ FROM CAPITAL SHARE TRANSACTIONS Net capital share transactions (at $1.00 per share)--Note C.................................... 91,724,477 91,717,907 NET ASSETS Beginning of period................................ 427,494,384 335,776,477 ------------ ------------ End of period...................................... $519,218,861 $427,494,384 ============ ============
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.
SIX MONTHS ENDED FEBRUARY 28, 1997 YEAR ENDED AUGUST 31, (UNAUDITED) 1996 1995 1994 1993 1992 ----------- -------- -------- -------- -------- -------- Net asset value, Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 -------- -------- -------- -------- -------- -------- Net Investment income... .02 .05 .05 .03 .03 .04 -------- -------- -------- -------- -------- -------- Total From Investment Operations............ .02 .05 .05 .03 .03 .04 Less Distributions: Dividend Distributions. ( .02) ( .05) ( .05) ( .03) ( .03) ( .04) -------- -------- -------- -------- -------- -------- Total Distributions.... ( .02) ( .05) ( .05) ( .03) ( .03) ( .04) -------- -------- -------- -------- -------- -------- Net asset value, End of Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======== ======== ======== ======== ======== ======== Number of shares outstanding (000's omitted)............... 519,219 427,494 335,776 210,652 221,050 234,600 Total Investment Return. 4.83%(a) 4.96% 5.04% 2.85% 2.54% 3.87% SIGNIFICANT RATIOS AND SUPPLEMENTAL DATA Net assets, End of Period (000's omitted).............. $519,219 $427,494 $335,776 $210,652 $221,050 $234,600 Operating expenses to average net assets.... .58%(a) .61% .72% .75% .71% .68% Net investment income to average net assets. 4.78%(a) 4.84% 4.97% 2.80% 2.51% 3.80%
- ------- (a) Annualized See notes to financial statements. 5 HILLIARD-LYONS GOVERNMENT FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE A--ACCOUNTING POLICIES Hilliard-Lyons Government Fund, Inc. (the "Fund") is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended. The following is a summary of significant accounting poli- cies followed by the Fund in the preparation of its financial statements. SECURITY VALUATION: The Fund employs the amortized cost method of security valuation for U.S. Government securities which, in the opinion of the Board of Directors, represents fair value of the particular security. The Board moni- tors deviations between net asset value per share as determined by using available market quotations and the amortized cost method of security valua- tion. If the deviation in the aggregate is significant, the Board considers what action, if any, should be initiated to provide fair valuation. The Fund values repurchase agreements at cost and accrues interest into inter- est receivable. Normally, repurchase agreements are not subject to trading. Repurchase agreements are fully collateralized by U.S. Treasury and U.S. Gov- ernment Agency obligations valued at bid prices plus accrued interest. U.S. Treasury and U.S. Government Agency obligations pledged as collateral for re- purchase agreements are held by the Fund's custodian bank until maturity of the repurchase agreements. Provisions of the agreements provide that the mar- ket value of the collateral plus accrued interest on the collateral is greater than or equal to the repurchase price plus accrued interest at all times. In the event of default or bankruptcy by the other party to the agreements, the Fund maintains the right to sell the underlying securities at market value; however, realization and/or retention of the collateral may be subject to le- gal proceedings. FEDERAL INCOME TAXES: It is the policy of the Fund to continue to qualify un- der the Internal Revenue Code as a regulated investment company and to dis- tribute all of its taxable income to shareholders, thereby relieving the Fund of federal income tax liability. DIVIDENDS TO SHAREHOLDERS: The net investment income of the Fund is determined on each business day and is declared as a dividend payable to shareholders of record immediately prior to the time of determination of net asset value on each such day. Dividends declared since the preceding dividend payment date are distributed monthly. The Fund's net investment income for dividend purposes includes accrued inter- est and accretion of original issue and market discounts earned and amortiza- tion of premiums, plus or minus any net realized gain or loss on portfolio se- curities, if any, occurring since the previous dividend declaration, less the accrued expenses of the Fund for such period. INVESTMENT TRANSACTIONS: Investment transactions are accounted for on the date the securities are bought or sold. Net realized gains and losses on sales of investments, if any, are determined on the basis of identified cost. The Fund may enter into repurchase agreements with financial institutions, deemed to be credit worthy by J.J.B. Hilliard, W.L. Lyons, Inc. (the "Advis- er"), subject to the seller's agreement to repurchase and the Fund's agreement to sell such security at a mutually agreed upon date and price. 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 revenues and ex- penses during the reporting period. Actual results could differ from those es- timates. NOTE B--INVESTMENT ADVISORY AGREEMENT On October 1, 1996, the Fund renewed its investment advisory agreement with the Adviser. Under the investment advisory agreement, the Adviser supervises investment operations of the Fund and the composition of its portfolio, and furnishes advice and recommendations with respect to investments and the pur- chase and sale of securities in accordance with the Fund's investment objec- tives, policies and restrictions; subject, however, to the general supervision and control of the Fund's Board of Directors. For the services the Adviser renders, the Fund has agreed to pay the Adviser an annual advisory fee of 1/2 of 1% of the first $200 million of average daily net assets, 3/8 of 1% of the next $100 million of average daily net assets, and 1/4 of 1% of the average daily net assets in excess of $300 million. Such fee is accrued daily and paid monthly. The Adviser has agreed to reimburse the Fund if total operating ex- penses of the Fund, excluding taxes, interest and extraordinary expenses (as defined), exceed on an annual basis 1 1/2% of the first $30 million of average daily net assets and 1% of average daily net assets over $30 million. There was no reimbursement required for the six months ended February 28, 1997. No compensation is paid by the Fund to officers of the Fund and Directors who are affiliated with the Adviser. The Fund pays each unaffiliated director an annual retainer of $2,000, a fee of $500 for each Board of Directors or com- mittee meeting attended, and all expenses the Directors incur in attending meetings. NOTE C--CAPITAL STOCK The Fund was incorporated in June 1980 under the laws of the state of Mary- land. At February 28, 1997, there were 800,000,000 shares of $.01 par value Common Stock authorized, and capital paid in aggregated $519,218,861. Transac- tions in Fund shares at $1.00 per share were as follows:
--- SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, AUGUST 31, 1997 1996 ------------ -------------- Shares sold 789,737,805 1,341,481,777 Shares issued to shareholders in reinvestment of dividends 10,928,970 19,471,857 ------------ -------------- 800,666,775 1,360,953,634 Less shares repurchased (708,942,298) (1,269,235,727) ------------ -------------- Net increase in capital shares 91,724,477 91,717,907 ============ ==============
6 HILLIARD-LYONS GOVERNMENT FUND, INC. Hilliard Lyons Center Louisville, Kentucky 40202 (502) 588-8400 Investment Adviser and Distributor J.J.B. Hilliard, W.L. Lyons, Inc. Hilliard Lyons Center Louisville, Kentucky 40202 (502) 588-8400 Custodian and Transfer Agent State Street Bank and Trust Company 225 Franklin Street P.O. Box 1912 Boston, Massachusetts 02105 Legal Counsel Brown, Todd & Heyburn PLLC 3200 Providian Center Louisville, Kentucky 40202 DIRECTORS AND OFFICERS BOARD OF DIRECTORS Joseph C. Curry, Jr. J. Henning Hilliard Donald F. Kohler Samuel G. Miller Gilbert L. Pamplin Dillman A. Rash J. Robert Shine OFFICERS Donald F. Kohler Chairman Joseph C. Curry, Jr. President Dianna P. Wengler Vice President and Treasurer Michael L. Howard Secretary HILLIARD-LYONS GOVERNMENT FUND, INC. SEMI-ANNUAL REPORT FEBRUARY 28, 1997 LOGO -----END PRIVACY-ENHANCED MESSAGE-----