-----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, H1DgJosKCkzArnGDyJCYTRHGvwVPIrMuJjcFwIFUvdyYV8k5HHtvdj6wBYoLMt/H LxsgijEkDtYA0VuD+/ryDA== 0000950131-97-006078.txt : 19971010 0000950131-97-006078.hdr.sgml : 19971010 ACCESSION NUMBER: 0000950131-97-006078 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19971009 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: SEC FILE NUMBER: 811-03070 FILM NUMBER: 97692829 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 ANNUAL REPORT - HILLIARD LYONS GOV'T FUND October 7, 1997 Dear Shareholder: We are pleased to provide this annual report on the Hilliard-Lyons Government Fund, Inc. ("HLGF" or the "Fund") for the year ended August 31, 1997. This has been an eventful year for the Fund. Net assets at the end of the year were a record $587 million. That compares to net assets of $427 million one year ago and $519 million six months ago. The average seven day yield ranged from a low of 4.60% to a high of 5.03% and as of the date of this letter was 5.00%. HLGF's yield this past year has consistently been above the average yield of money market funds which invest only in U.S. government and agency securities. Distributions of $.048529 were paid, equivalent to a 4.85% yield; those shareholders reinvesting income received a compound annual yield of 4.96%. This has been an interesting year for financial markets generally. The Dow Jones Industrial Average (DJIA) closed above 4000 for the first time in 1995. In the two years since then, the DJIA has surpassed the 8000 level, reaching a record closing high of 8299 on August 7, 1997. Other widely quoted, broader indices such as the NASDAQ Composite Index and the S & P 500 Stock Index have also reached record levels in 1997. Bond markets have also been active but the short term market has been less affected by the activity in other markets. Short term interest rates have been relatively stable. The spread between the Fund's high and low yields ranged only 1/2 of 1%. The Federal Reserve (the "Fed") raised the Federal Funds rate by 1/4 of 1% to 5.50% in March while the discount rate has remained unchanged. Actions by the Fed have a great impact on financial markets and the issue of when and what action it will take is widely debated. The Fed has sought to control inflation through monetary policy and has been successful. Many believe there will be no further Fed action this year. Long term interest rates as evidenced by the yield on the 30 year Treasury bond have fluctuated more than short term rates. Any economic report hinting at an increase in inflation causes the yield on longer issues to rise. The yield on the 30 year Treasury hit a yearly low of 6.29% in July only to rise to 6.67% during August after several reports suggested increased economic activity in July. This volatility creates significant price fluctuation in long bonds. Because the U.S. government is the largest borrower in the capital markets, there is no scarcity of its debt instruments. Consequently, rates it has to pay are constantly under pressure and thus government bonds provide returns which are only slightly less than those available in less liquid and less safe money market instruments. Federal agency paper rates key off direct government rates. Thus we are able to provide both high quality and high yield to our shareholders. As shown on the enclosed Schedule of Investments, at August 31, 1997, HLGF was 100% invested in short term discount notes issued by the Federal Farm Credit Banks and the Federal Home Loan Banks. The Fund's expense ratio, shown in the Financial Highlights, was only .57% for the year, the lowest expense ratio we have ever had. The Fund's greater asset size and longevity and experience of Fund management has contributed to these lower expenses. We expect that the distributions paid for the calendar year 1997 will be 100% exempt from state income tax in all states. This will be the third consecutive year that dividends paid by the Fund will be 100% exempt from state income tax. You will receive information verifying the percentage with your 1997 form 1099-Div. For the first time this year, your dividend information for HLGF will be included on your Hilliard Lyons form 1099-Div. You will not receive a separate form from the Fund. As it has in past years, the Fund, in order to comply with requirements of the Tax Reform Act of 1986, will pay all December 1997 dividends on December 31st rather than on the regular dividend date of the 15th of the month. This change is for the month of December ONLY. /s/ DONALD F. KOHLER /s/ JOSEPH C. CURRY, JR. /s/ DIANNA P. WENGLER DONALD F. KOHLER JOSEPH C. CURRY, JR. DIANNA P. WENGLER Chairman President Vice President and Treasurer HILLIARD-LYONS GOVERNMENT FUND, INC. SCHEDULE OF INVESTMENTS AUGUST 31, 1997
PRINCIPAL PURCHASE MATURITY AMOUNT YIELD DATE VALUE ----------- -------- -------- ----------- U.S. GOVERNMENT AGENCY OBLIGATIONS -- 100.2% $ 5,990,000 Federal Home Loan Bank 5.346% 09/02/97 $ 5,989,123 10,000,000 Federal Home Loan Bank 5.606 09/02/97 9,998,485 8,000,000 Federal Home Loan Bank 5.622 09/03/97 7,997,569 4,000,000 Federal Home Loan Bank 5.634 09/03/97 3,998,782 11,000,000 Federal Farm Credit Bank 5.473 09/04/97 10,995,077 13,000,000 Federal Home Loan Bank 5.621 09/05/97 12,992,099 10,000,000 Federal Farm Credit Bank 5.483 09/08/97 9,989,539 6,000,000 Federal Farm Credit Bank 5.461 09/09/97 5,992,853 5,000,000 Federal Farm Credit Bank 5.592 09/09/97 4,993,956 6,000,000 Federal Home Loan Bank 5.623 09/10/97 5,991,795 5,000,000 Federal Farm Credit Bank 5.578 09/11/97 4,992,458 5,000,000 Federal Home Loan Bank 5.579 09/12/97 4,991,704 7,550,000 Federal Farm Credit Bank 5.559 09/15/97 7,534,086 7,000,000 Federal Farm Credit Bank 5.504 09/16/97 6,984,250 13,000,000 Federal Home Loan Bank 5.571 09/17/97 12,968,685 9,000,000 Federal Farm Credit Bank 5.567 09/18/97 8,976,965 11,000,000 Federal Home Loan Bank 5.460 09/19/97 10,970,630 13,000,000 Federal Farm Credit Bank 5.568 09/22/97 12,958,898 11,000,000 Federal Farm Credit Bank 5.509 09/23/97 10,963,700 4,450,000 Federal Home Loan Bank 5.567 09/24/97 4,434,591 5,000,000 Federal Farm Credit Bank 5.540 09/25/97 4,982,033 9,000,000 Federal Home Loan Bank 5.559 09/26/97 8,966,188 12,000,000 Federal Farm Credit Bank 5.578 09/29/97 11,949,413 10,000,000 Federal Farm Credit Bank 5.501 09/30/97 9,956,500 8,000,000 Federal Home Loan Bank 5.582 10/01/97 7,963,800 10,000,000 Federal Home Loan Bank 5.527 10/03/97 9,952,178 11,000,000 Federal Home Loan Bank 5.502 10/06/97 10,942,678 6,000,000 Federal Home Loan Bank 5.508 10/08/97 5,966,947 9,000,000 Federal Home Loan Bank 5.493 10/09/97 8,949,175 6,000,000 Federal Home Loan Bank 5.499 10/10/97 5,965,225 6,000,000 Federal Farm Credit Bank 5.481 10/14/97 5,961,658 9,000,000 Federal Home Loan Bank 5.508 10/15/97 8,941,040 16,000,000 Federal Home Loan Bank 5.469 10/16/97 15,893,400 15,000,000 Federal Home Loan Bank 5.496 10/17/97 14,897,458 4,000,000 Federal Home Loan Bank 5.493 10/20/97 3,970,872 10,000,000 Federal Home Loan Bank 5.495 10/21/97 9,925,417 15,000,000 Federal Farm Credit Bank 5.489 10/22/97 14,886,525 6,000,000 Federal Farm Credit Bank 5.523 10/23/97 5,953,287
See notes to financial statements. 2 HILLIARD-LYONS GOVERNMENT FUND, INC. SCHEDULE OF INVESTMENTS (CONTINUED) AUGUST 31, 1997
PRINCIPAL PURCHASE MATURITY AMOUNT YIELD DATE VALUE ----------- -------- -------- ------------ $ 6,170,000 Federal Farm Credit Bank 5.489% 10/24/97 $ 6,121,494 4,000,000 Federal Home Loan Bank 5.569 10/24/97 3,968,200 11,000,000 Federal Home Loan Bank 5.513 10/27/97 10,908,113 13,000,000 Federal Farm Credit Bank 5.507 10/28/97 12,889,262 16,000,000 Federal Home Loan Bank 5.530 10/29/97 15,861,316 12,000,000 Federal Home Loan Bank 5.521 10/30/97 11,894,193 10,000,000 Federal Home Loan Bank 5.530 10/31/97 9,910,333 10,000,000 Federal Farm Credit Bank 5.532 11/03/97 9,905,500 10,000,000 Federal Home Loan Bank 5.508 11/05/97 9,903,222 7,690,000 Federal Home Loan Bank 5.530 11/05/97 7,615,300 5,000,000 Federal Farm Credit Bank 5.635 11/07/97 4,949,285 10,000,000 Federal Home Loan Bank 5.501 11/10/97 9,896,361 10,000,000 Federal Home Loan Bank 5.540 11/12/97 9,892,200 13,000,000 Federal Home Loan Bank 5.511 11/13/97 12,859,232 4,000,000 Federal Home Loan Bank 5.537 11/14/97 3,955,682 7,000,000 Federal Home Loan Bank 5.572 11/14/97 6,922,012 7,800,000 Federal Home Loan Bank 5.555 11/17/97 7,710,411 9,000,000 Federal Home Loan Bank 5.520 11/18/97 8,895,285 10,000,000 Federal Home Loan Bank 5.520 11/19/97 9,882,158 5,000,000 Federal Home Loan Bank 5.540 11/20/97 4,940,111 11,000,000 Federal Home Loan Bank 5.521 11/21/97 10,867,093 10,000,000 Federal Home Loan Bank 5.572 11/26/97 9,870,522 4,000,000 Federal Home Loan Bank 5.540 12/03/97 3,944,717 10,000,000 Federal Home Loan Bank 5.532 12/03/97 9,861,533 10,000,000 Federal Home Loan Bank 5.519 12/04/97 9,860,567 10,000,000 Federal Farm Credit Bank 5.546 12/08/97 9,853,817 10,000,000 Federal Home Loan Bank 5.608 01/02/98 9,816,183 10,000,000 Federal Home Loan Bank 5.618 01/05/98 9,811,350 5,000,000 Federal Home Loan Bank 5.585 01/09/98 4,902,861 ------------ TOTAL U. S. GOVERNMENT AGENCY OBLIGATIONS (amortized cost -- $588,407,352) 588,407,352 ------------ TOTAL INVESTMENTS (100.2%) (cost -- $588,407,352*) $588,407,352 ============
* 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 AUGUST 31, 1997 ASSETS Investments in money market instruments, at value: United States Government Agency Obligations, at value (amortized cost--$588,407,352)............................................. $588,407,352 ------------ Total Investments.............................................. 588,407,352 Cash............................................................. 147,519 Prepaid expenses................................................. 3,517 ------------ TOTAL ASSETS................................................... 588,558,388 LIABILITIES Dividends payable................................................ 1,276,010 Due to J. J. B. Hilliard, W. L. Lyons, Inc. -- Note B............ 176,700 Miscellaneous accrued expenses................................... 25,835 ------------ TOTAL LIABILITIES.............................................. 1,478,545 ------------ NET ASSETS (equivalent to $1.00 per share; 800,000,000 shares authorized and 587,079,843 shares issued and outstanding)--Note C............................................................... $587,079,843 ============ HILLIARD-LYONS GOVERNMENT FUND, INC. STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1997 INVESTMENT INCOME Interest income.................................................. $ 27,276,344 EXPENSES Investment Advisory fee--Note B.................................. 1,880,981 Transfer agent fees.............................................. 712,000 Custodian fees................................................... 99,160 Printing and other expenses...................................... 48,648 Filing fees...................................................... 45,690 Insurance expense................................................ 36,193 Legal and audit fees............................................. 33,093 Directors' fees.................................................. 11,003 ------------ Total expenses.................................................. 2,866,768 ------------ Net investment income........................................... 24,409,576 ------------ Net increase in net assets resulting from operations............ $ 24,409,576 ============
See notes to financial statements. 4 HILLIARD-LYONS GOVERNMENT FUND, INC. STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED AUGUST 31, 1997 1996 -------------- -------------- INCREASE IN NET ASSETS: FROM OPERATIONS Net investment income.......................... $ 24,409,576 $ 19,948,761 -------------- -------------- Net increase in net assets resulting from operations................................... 24,409,576 19,948,761 Dividends to shareholders ($.048529 and $.048527 per share, respectively)............. ( 24,409,576) ( 19,948,761) -------------- -------------- Undistributed net investment income............ 0 0 -------------- -------------- FROM CAPITAL SHARE TRANSACTIONS Net capital share transactions (at $1.00 per share)--Note C................................ 159,585,459 91,717,907 NET ASSETS Beginning of year.............................. 427,494,384 335,776,477 -------------- -------------- End of year.................................... $ 587,079,843 $ 427,494,384 ============== ==============
FINANCIAL HIGHLIGHTS The following table includes selected data for a share of capital stock outstanding throughout each year and other performance information derived from the financial statements. It should be read in conjunction with the financial statements and notes thereto.
FOR THE YEAR ENDED AUGUST 31, 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- Net asset value, Beginning of Year........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 -------- -------- -------- -------- -------- Net Investment income........ .05 .05 .05 .03 .03 -------- -------- -------- -------- -------- Total From Investment Operations................. .05 .05 .05 .03 .03 Less Distributions: Dividend Distributions...... ( .05) ( .05) ( .05) ( .03) ( .03) -------- -------- -------- -------- -------- Total Distributions.......... ( .05) ( .05) ( .05) ( .03) ( .03) -------- -------- -------- -------- -------- Net asset value, End of Year. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======== ======== ======== ======== ======== Number of shares outstanding (000's omitted)............. 587,080 427,494 335,776 210,652 221,050 Total Investment Return...... 4.96% 4.96% 5.04% 2.85% 2.54% SIGNIFICANT RATIOS AND SUPPLEMENTAL DATA Net assets, End of Year (000's omitted)............ $587,080 $427,494 $335,776 $210,652 $221,050 Operating expenses to average net assets......... .57% .61% .72% .75% .71% Net investment income to average net assets......... 4.86% 4.84% 4.97% 2.80% 2.51%
See notes to financial statements. 5 HILLIARD-LYONS GOVERNMENT FUND, INC. NOTES TO FINANCIAL STATEMENTS 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 val- uation for U.S. Government securities which, in the opinion of the Board of Di- rectors, 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 inter- est receivable. Normally, repurchase agreements are not subject to trading. Re- purchase agreements are fully collateralized by U.S. Treasury and U.S. Govern- ment Agency obligations valued at bid prices plus accrued interest. U.S. Trea- sury and U.S. Government Agency obligations pledged as collateral for repur- chase 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 proceed- ings. 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 fed- eral 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 expenses during the reporting period. Actual results could differ from those estimates. 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 in- vestment operations of the Fund and the composition of its portfolio, and fur- nishes 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 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 as- sets 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 year ended August 31, 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 commit- tee meeting attended, and all expenses the Directors incur in attending meet- ings. NOTE C--CAPITAL STOCK The Fund was incorporated in June 1980 under the laws of the state of Maryland. At August 31, 1997, there were 800,000,000 shares of $.01 par value Common Stock authorized, and capital paid in aggregated $581,209,045. Transactions in Fund shares at $1.00 per share were as follows:
FOR THE YEAR ENDED AUGUST 31, 1997 1996 -------------- -------------- Shares sold 1,740,443,413 1,341,481,777 Shares issued to shareholders in reinvestment of dividends 23,618,228 19,471,857 -------------- -------------- 1,764,061,641 1,360,953,634 Less shares repurchased (1,604,476,182) (1,269,235,727) -------------- -------------- Net increase in capital shares 159,585,459 91,717,907 ============== ==============
6 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Directors and Shareholders Hilliard-Lyons Government Fund, Inc. We have audited the accompanying statement of assets and liabilities of Hilliard-Lyons Government Fund, Inc., including the schedule of investments, as of August 31, 1997 and the related statement of operations for the year then ended, and the statements of changes in net assets for each of the two years in the period then ended, and the 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 August 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 Government Fund, Inc. at August 31, 1997, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Louisville, Kentucky September 12, 1997 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 INDEPENDENT AUDITORS Ernst & Young LLP 400 West Market Street Louisville, Kentucky 40202 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 HILLIARD-LYONS GOVERNMENT FUND, INC. ANNUAL REPORT AUGUST 31, 1997 [HILLIARD-LYONS LOGO APPEARS HERE] -----END PRIVACY-ENHANCED MESSAGE-----