-----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, WjvhWnv3VSngv46J2784p5NvVscaaylU4ZzUwNoNRREbFE2F7jX/Djt97c4mtw9u MM599QZeUPagcx91YqkZXw== 0000950131-03-002073.txt : 20030411 0000950131-03-002073.hdr.sgml : 20030411 20030411100130 ACCESSION NUMBER: 0000950131-03-002073 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030228 FILED AS OF DATE: 20030411 EFFECTIVENESS DATE: 20030411 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HILLIARD LYONS GOVERNMENT FUND INC CENTRAL INDEX KEY: 0000317872 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: 03646344 BUSINESS ADDRESS: STREET 1: HILLIARD LYONS CTR STREET 2: PO BOX 32760 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 dn30d.txt HILLARD -LYONS GOVERNMENT FUND, INC. S/A/R March 28, 2003 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, 2003. Assets of the Fund continued to decline but at a much more modest pace than the prior period. Net assets declined $51 million to $1.6 billion during the six months compared to a decrease of $263 million in the year ended August 31, 2002. This decline is indicative of the money market fund industry as a whole which experienced outflows of $79 billion in 2002, the first negative year since 1993. The difference between interest rates on money market funds and interest rates on bank savings deposits is the biggest factor affecting cash inflows into retail money market funds. Some investors have shifted short term deposits away from money market funds and into bank deposits mirroring a pattern seen in the past when the money market fund yield advantage over bank deposits narrowed. This is believed to be a cyclical reaction to interest rates and not a permanent shift in investor preferences. The Federal Reserve (the "Fed") has cut the federal funds rate which is the rate banks charge each other for overnight loans eleven times since the beginning of 2001, the last a 1/2 point reduction in November to the current rate of 1.25%. This rate has a direct affect on loans that impact consumers from mortgages to credit card interest rates. At the last meeting of the policymaking Federal Open Market Committee held March 18, 2003, the Fed left interest rates unchanged. This was not unexpected but economists had anticipated a more specific indication of the Fed's outlook on the economy and the possible direction of interest rates. Economic data, always difficult to interpret, is now overshadowed by the war. The war with Iraq is weighing on equity markets and lessening consumer confidence. Businesses are also delaying capital spending which in turn delays the creation of new jobs and growth of consumer incomes. Economic growth will likely continue to be lackluster until a resolution to the war is at hand. A quick victory would boost the economy while unexpected developments could severely depress the economy. The Fed did make it clear that it would move to cut interest rates even before its next scheduled meeting should it decide the situation warranted action. Short term interest rates are at a 41 year low. The Fund's investment adviser, J.J.B. Hilliard, W.L. Lyons Inc. recognizes that these are difficult times for shareholders. In light of these historically low rates, the Adviser has voluntarily agreed to waive a portion of its advisory fee beginning April 1, 2003. The amount of the waiver will vary from time to time. The Adviser may discontinue or modify any such voluntary waiver in the future at its discretion. In this time of economic uncertainty, as always, the Fund is committed to offering its shareholders a high quality, convenient investment for cash that offers both a high degree of credit safety and sought after features such as check-writing. As shown on the Schedule of Investments that follows, at February 28, 2003 the Fund was fully invested in high quality, short term U.S. government agency securities. These securities offer a high degree of credit safety with the added benefit of income that flows through to shareholders as exempt from state income tax. Dividends paid in 2002 were completely free of state income tax in all states. /s/ Joseph C. Curry, Jr. /s/ Dianna P. Wengler JOSEPH C. CURRY, JR. DIANNA P. WENGLER President Vice President and Treasurer HILLIARD-LYONS GOVERNMENT FUND, INC. SCHEDULE OF INVESTMENTS (UNAUDITED) February 28, 2003
Principal Purchase Maturity Amount Yield Date Value - ----------- -------- -------- ----------- U.S. GOVERNMENT AGENCY OBLIGATIONS--100.1% $10,550,000 Federal Farm Credit Bank Discount Note 1.270% 03/03/03 $10,549,267 18,000,000 Federal Home Loan Bank Discount Note 1.251 03/03/03 17,998,770 23,000,000 Federal Home Loan Bank Discount Note 1.219 03/04/03 22,997,700 10,000,000 Federal Home Loan Bank Discount Note 1.197 03/05/03 9,998,689 30,000,000 Federal Home Loan Bank Discount Note 1.232 03/07/03 29,993,950 31,000,000 Federal Home Loan Bank Discount Note 1.219 03/10/03 30,990,700 25,000,000 Federal Home Loan Bank Discount Note 1.217 03/11/03 24,991,667 25,000,000 Federal Home Loan Bank Discount Note 1.298 03/12/03 24,990,253 22,000,000 Federal Home Loan Bank Discount Note 1.208 03/13/03 21,991,273 16,000,000 Federal Home Loan Bank Discount Note 1.286 03/14/03 15,992,691 30,000,000 Federal Farm Credit Bank Discount Note 1.271 03/17/03 29,983,333 23,000,000 Federal Home Loan Bank Discount Note 1.208 03/18/03 22,987,075 36,000,000 Federal Home Loan Bank Discount Note 1.291 03/19/03 35,977,140 29,000,000 Federal Home Loan Bank Discount Note 1.228 03/20/03 28,981,480 16,000,000 Federal Home Loan Bank Discount Note 1.291 03/21/03 15,988,711 8,745,000 Federal Home Loan Bank Discount Note 1.281 03/21/03 8,738,879 40,000,000 Federal Home Loan Bank Discount Note 1.251 03/24/03 39,968,567 20,000,000 Federal Home Loan Bank Discount Note 1.251 03/25/03 19,983,600 23,870,000 Federal Farm Credit Bank Discount Note 1.706 03/26/03 23,842,317 29,000,000 Federal Home Loan Bank Discount Note 1.220 03/27/03 28,974,867 28,000,000 Federal Home Loan Bank Discount Note 1.583 03/28/03 27,967,450 35,000,000 Federal Home Loan Bank Discount Note 1.251 03/31/03 34,964,125 27,075,000 Federal Home Loan Bank Discount Note 1.303 04/01/03 27,045,157 25,000,000 Federal Home Loan Bank Discount Note 1.240 04/02/03 24,972,889 25,000,000 Federal Home Loan Bank Discount Note 1.220 04/03/03 24,972,500 17,000,000 Federal Home Loan Bank Discount Note 1.576 04/04/03 16,975,226 19,000,000 Federal Farm Credit Bank Discount Note 1.427 04/07/03 18,972,661 28,000,000 Federal Home Loan Bank Discount Note 1.220 04/08/03 27,964,533 25,000,000 Federal Home Loan Bank Discount Note 1.257 04/09/03 24,966,525 20,000,000 Federal Farm Credit Bank Discount Note 1.686 04/10/03 19,963,333 19,000,000 Federal Home Loan Bank Discount Note 1.676 04/11/03 18,964,512 20,000,000 Federal Home Loan Bank Discount Note 1.713 04/11/03 19,961,825 25,000,000 Federal Farm Credit Bank Discount Note 1.269 04/14/03 24,961,952 24,638,000 Federal Home Loan Bank Discount Note 1.274 04/15/03 24,599,503 20,000,000 Federal Home Loan Bank Discount Note 1.293 04/15/03 19,968,250 20,000,000 Federal Home Loan Bank Discount Note 1.264 04/16/03 19,968,311 14,000,000 Federal Home Loan Bank Discount Note 1.246 04/16/03 13,978,086 19,202,000 Federal Home Loan Bank Discount Note 1.200 04/17/03 19,172,418 20,920,000 Federal Home Loan Bank Discount Note 1.697 04/21/03 20,870,803 33,000,000 Federal Home Loan Bank Discount Note 1.274 04/23/03 32,939,271 17,000,000 Federal Home Loan Bank Discount Note 1.242 04/24/03 16,968,839 10,000,000 Federal Home Loan Bank Discount Note 1.216 04/25/03 9,981,728 25,000,000 Federal Home Loan Bank Discount Note 1.225 04/25/03 24,953,976
See notes to financial statements. 2 HILLIARD-LYONS GOVERNMENT FUND, INC. SCHEDULE OF INVESTMENTS (UNAUDITED) February 28, 2003
Principal Purchase Maturity Amount Yield Date Value - ----------- -------- -------- -------------- $34,500,000 Federal Home Loan Bank Discount Note 1.219% 04/28/03 $ 34,433,300 25,000,000 Federal Home Loan Bank Discount Note 1.294 04/29/03 24,947,965 20,000,000 Federal Home Loan Bank Discount Note 1.460 04/30/03 19,952,333 15,000,000 Federal Home Loan Bank Discount Note 1.240 05/02/03 14,968,483 10,000,000 Federal Home Loan Bank Discount Note 1.240 05/02/03 9,978,989 13,000,000 Federal Home Loan Bank Discount Note 1.242 05/07/03 12,970,459 10,000,000 Federal Home Loan Bank Discount Note 1.230 05/07/03 9,977,481 15,000,000 Federal Home Loan Bank Discount Note 1.241 05/09/03 14,964,925 23,400,000 Federal Home Loan Bank Discount Note 1.638 05/12/03 23,343,793 25,000,000 Federal Home Loan Bank Discount Note 1.242 05/14/03 24,937,254 37,000,000 Federal Home Loan Bank Discount Note 1.240 05/16/03 36,904,705 30,000,000 Federal Home Loan Bank Discount Note 1.242 05/19/03 29,919,618 30,565,000 Federal Home Loan Bank Discount Note 1.263 05/21/03 30,479,724 30,000,000 Federal Home Loan Bank Discount Note 1.242 05/23/03 29,914,233 23,949,000 Federal Home Loan Bank Discount Note 1.253 05/28/03 23,876,993 20,000,000 Federal Home Loan Bank Discount Note 1.253 06/04/03 19,935,083 17,000,000 Federal Home Loan Bank Discount Note 1.247 06/13/03 16,939,839 19,000,000 Federal Home Loan Bank Discount Note 1.247 06/16/03 18,930,822 25,000,000 Federal Home Loan Bank Discount Note 1.221 06/17/03 24,910,000 31,672,000 Federal Home Loan Bank Discount Note 1.243 06/18/03 31,555,007 20,000,000 Federal Home Loan Bank Discount Note 1.242 06/20/03 19,924,767 20,000,000 Federal Home Loan Bank Discount Note 1.244 06/27/03 19,920,022 22,975,000 Federal Home Loan Bank Discount Note 1.223 07/09/03 22,875,442 10,000,000 Federal Home Loan Bank Discount Note 1.251 07/09/03 9,955,692 16,100,000 Federal Home Loan Bank Discount Note 1.247 07/14/03 16,026,041 10,218,000 Federal Home Loan Bank Discount Note 1.226 07/18/03 10,169,868 30,000,000 Federal Home Loan Bank Discount Note 1.237 07/24/03 29,853,308 11,000,000 Federal Home Loan Bank Discount Note 1.234 07/30/03 10,944,172 10,000,000 Federal Home Loan Bank Discount Note 1.234 07/30/03 9,949,247 32,000,000 Federal Farm Credit Bank Discount Note 1.223 08/01/03 31,836,800 -------------- TOTAL U. S. GOVERNMENT AGENCY OBLIGATIONS (amortized cost--$1,617,271,167) 1,617,271,167 -------------- TOTAL INVESTMENTS (100.1%) (cost--$1,617,271,167*) $1,617,271,167 ==============
* 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, 2003 ASSETS Investments, at value (amortized cost--$1,617,271,167)....................................... $1,617,271,167 -------------- Cash......................................................................................... 312,561 Prepaid expenses............................................................................. 105,298 -------------- TOTAL ASSETS............................................................................ 1,617,689,026 -------------- LIABILITIES Dividends payable............................................................................ 306,052 Due to Affiliate--Note B..................................................................... 908,040 Accrued expenses............................................................................. 221,339 -------------- TOTAL LIABILITIES....................................................................... 1,435,431 -------------- NET ASSETS (equivalent to $1.00 per share; 2,500,000,000 shares authorized and 1,616,253,595 shares issued and outstanding)--Note C...................................................... $1,616,253,595 ============== HILLIARD-LYONS GOVERNMENT FUND, INC. STATEMENT OF OPERATIONS (UNAUDITED) For the six months ended February 28, 2003 INVESTMENT INCOME Interest income.............................................................................. $ 12,553,899 EXPENSES Investment Advisory fee--Note B.............................................................. 2,364,503 Shareholder servicing fees--Note B........................................................... 2,054,572 Administrative fee--Note B................................................................... 1,479,292 Printing and other expenses.................................................................. 130,665 Custodian fees............................................................................... 81,450 Insurance expense............................................................................ 81,279 Transfer Agent............................................................................... 45,250 Filing fees.................................................................................. 40,725 Legal and Audit fees......................................................................... 28,960 -------------- Total expenses............................................................................. 6,306,696 -------------- Net investment income..................................................................... 6,247,203 -------------- Net increase in net assets resulting from operations...................................... $ 6,247,203 ==============
See notes to financial statements. 4 HILLIARD-LYONS GOVERNMENT FUND, INC. STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended For the February 28, Year Ended 2003 August 31, (UNAUDITED) 2002 -------------- -------------- FROM OPERATIONS Net investment income . . . . . . . . . . . . . . . . . . . .. $ 6,247,203 $ 28,105,327 -------------- -------------- Net increase in net assets resulting from operations........ 6,247,203 28,105,327 DISTRIBUTIONS TO SHAREHOLDERS FROM Net Investment Income......................................... (6,247,203) (28,105,327) -------------- -------------- Total distributions........................................... (6,247,203) (28,105,327) -------------- -------------- FROM CAPITAL SHARE TRANSACTIONS Net capital share transaction (at $1.00 per share)--Note C.... (50,991,635) (263,399,880) NET ASSETS Beginning of period........................................... 1,667,245,230 1,930,645,110 -------------- -------------- End of period................................................. $1,616,253,595 $1,667,245,230 ============== ==============
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.
For the Six Months Ended February 28, 2003 For the Year Ended August 31, (UNAUDITED) 2002 2001 2000 1999 1998 ------------ ---------- ---------- ---------- ---------- -------- Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ---------- ---------- ---------- ---------- ---------- -------- Net investment income............... -- (b) .01 .05 .05 .05 .05 ---------- ---------- ---------- ---------- ---------- -------- Total from investment operations.. -- (b) .01 .05 .05 .05 .05 Less distributions: From net investment income........ (-- )(b) (.01) (.05) (.05) (.05) (.05) ---------- ---------- ---------- ---------- ---------- -------- Total distributions............... (-- )(b) (.01) (.05) (.05) (.05) (.05) ---------- ---------- ---------- ---------- ---------- -------- 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).................... 1,616,254 1,667,245 1,930,645 1,366,422 1,108,817 944,966 Total investment return............. .38% 1.44% 5.14% 5.52% 4.65% 5.11% SIGNIFICANT RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000's omitted).................. $1,616,254 $1,667,245 $1,930,645 $1,366,422 $1,108,817 $944,966 Operating expenses to average net assets........................... .77%(a) .65% .44% .48% .46% .51% Net investment income to average net assets....................... .76%(a) 1.53% 4.92% 5.41% 4.55% 4.99%
(a)Annualized (b)Amount is less than $.005 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 policies 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 ("the Board") represents fair value of the particular security. The Board monitors deviations between net asset value per share as determined by using available market quotations and the amortized cost method of security valuation. 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 interest receivable. Normally, repurchase agreements are not subject to trading. Repurchase agreements are fully collateralized by U.S. Treasury and U.S. Government Agency obligations valued at bid prices plus accrued interest. U.S. Treasury and U.S. Government Agency obligations pledged as collateral for repurchase agreements are held by the Fund's custodian bank until maturity of the repurchase agreements. Provisions of the agreements provide that the market 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 legal proceedings. Federal Income Taxes: It is the policy of the Fund to continue 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. 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 interest and accretion of original issue and market discounts earned and amortization of premiums, plus or minus any net realized gain or loss on portfolio securities, 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. 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 expenses during the reporting period. Actual results could differ from those estimates. 6 HILLIARD-LYONS GOVERNMENT FUND, INC. NOTES TO FINANCIAL STATEMENTS (continued) (UNAUDITED) NOTE B--INVESTMENT ADVISORY FEES & OTHER TRANSACTIONS WITH AFFILIATES On October 9, 2002, the Fund renewed its investment advisory agreement with J.J.B Hilliard W.L. Lyons, Inc. (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 purchase and sale of securities in accordance with the Fund's investment objectives, policies and restrictions; subject, however, to the general supervision and control of the Fund's Board. 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 expenses 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, 2003. The Adviser has voluntarily agreed to waive a portion of its advisory fee beginning April 1, 2003. The amount of the waiver will vary from time to time. The Adviser may discontinue or modify any such voluntary waiver in the future at its discretion. The Fund has entered into a separate shareholder and administration services agreement (the "Administration Agreement") with the Adviser. Under the Administration Agreement, the Adviser provides certain shareholder and administrative functions for the Fund, including but not limited to: (i) preparing and mailing monthly statements to shareholders; (ii) forwarding shareholder communications from the Fund; (iii) responding to inquiries from shareholders concerning their investments in the Fund; (iv) maintaining account information relating to shareholders that invest in the fund; and (v) processing purchase, exchange and redemption requests from shareholders and placing orders and appropriate documentation with the Fund or its service providers. For its services to the Fund under the Administration Agreement, the Adviser receives a monthly fee from the Fund at the annual rate of .25% of the Fund's average daily net assets for shareholder services and .18% of the Fund's average daily net assets for administration services. 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 $5,000, a fee of $1,000 for each board or committee meeting attended, and all expenses the directors incur in attending meetings. The Audit Committee Chairman receives an additional annual retainer of $3,000. NOTE C--CAPITAL STOCK The Fund was incorporated in June 1980 under the laws of the state of Maryland. At February 28, 2003, there were 2,500,000,000 shares of $.01 par value Common Stock authorized, and capital paid in aggregated $1,600,091,059. Transactions in Fund shares at $1.00 per share were as follows:
Six months ended Year ended February 28, August 31, 2003 2002 -------------- -------------- Shares sold..... 2,477,580,311 5,347,712,722 Shares issued to shareholders in reinvestment of dividends...... 6,499,765 29,390,594 -------------- -------------- 2,484,080,076 5,377,103,316 Less shares repurchased.... (2,535,071,711) (5,640,503,196) -------------- -------------- Net increase (decrease) in capital shares. (50,991,635) (263,399,880) ============== ==============
7 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 Frost Brown & Todd LLC 400 West Market Street, 32/nd/ Floor Louisville, Kentucky 40202 Independent Public Accountants Deloitte & Touche LLP 200 Berkeley Street Boston, Massachusetts 02116 DIRECTORS AND OFFICERS BOARD OF DIRECTORS Samuel G. Miller Lindy B. Street J. Robert Shine OFFICERS Joseph C. Curry, Jr.--President Dianna P. Wengler--Vice President and Treasurer Stephanie J. Ferree--Secretary Hilliard-Lyons Government Fund, Inc. Semi-Annual Report February 28, 2003 [GRAPHIC] Bear & Bull -----END PRIVACY-ENHANCED MESSAGE-----