-----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, QjrNzTF4q/rGJuY4hra/7aEul0UH++7bIqM5BIF6JyMzNy9DqyB6Fwxey+YsWFag nty2WJT7O5Lisu/2o+Tlew== 0001193125-03-074349.txt : 20031106 0001193125-03-074349.hdr.sgml : 20031106 20031106155300 ACCESSION NUMBER: 0001193125-03-074349 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030831 FILED AS OF DATE: 20031106 EFFECTIVENESS DATE: 20031106 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-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-03070 FILM NUMBER: 03982376 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-CSR 1 dncsr.txt HILLIARD LYONS GOVERNMENT FUND, INC. ANNUAL REPORT ============================= OMB APPROVAL ============================= OMB Number: 3235-0570 Expires: Nov. 30, 2005 Estimated average burden hours per response: 5.0 ============================= UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-3070 Hilliard-Lyons Government Fund, Inc. --------------------------------------------------- (Exact name of registrant as specified in charter) P. O. Box 32760, Louisville, Kentucky 40232-2760 ------------------------------------------------------- (Address of principal executive offices) (Zip code) Joseph C. Curry Jr. William A. Strench Hilliard-Lyons Government Fund, Inc. Frost Brown Todd PLLC P. O. Box 32760 400 West Market Street, 32/nd/ Floor Louisville, Kentucky 40232-2760 Louisville, Kentucky 40202-3363 (Name and address of agents for service) Registrant's telephone number, including area code: (502) 588-8602 Date of fiscal year end: August 31 Date of reporting period: August 31, 2003 ITEM 1. REPORTS TO STOCKHOLDERS. The Annual Report to Stockholders follows. September 18, 2003 Dear Shareholder: We are pleased to present this report on the Hilliard-Lyons Government Fund, Inc. ("HLGF" or the "Fund") for the year ended August 31, 2003. Assets of the Fund declined only modestly during a period of historically low interest rates. Net assets declined $60 million to $1.6 billion during the year 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. Banks compete directly with retail money market funds for idle investor dollars. Money market funds pay their shareholders dividends earned from their investments while bank products can pay any rate set by the bank. Some banks have set artificially high rates on products such as money market deposit accounts. These rates are used to entice investors to move money to the bank in the hope they will then use other bank products. The Federal Reserve (the "Fed") has cut the federal funds rate, which is the rate banks charge each other for overnight loans, thirteen times since the beginning of 2001 to its current rate of 1.00%, a 45 year low. This rate has a direct effect on loans that impact consumers from mortgages to credit card interest rates. As widely expected, at the latest meeting of the policymaking Federal Open Market Committee held September 16, 2003, the Fed left interest rates unchanged and indicated they do not believe rates will be increased any time soon. Economic data indicates the economy continues to strengthen, although job data is still troubling. There is some concern that the rate of inflation could become too low with a perceived minor risk of disinflation which could hamper the economic recovery just as it has started to strengthen. Recent economic data on manufacturing, corporate profits and business spending coupled with guidance from the Fed has helped propel equity markets to recent high levels. The Dow Jones Industrial Average is up about 15% so far this year while the NASDAQ Composite Index is up about 41%, fueled by the many technology stocks included in that Index. With short term interest rates at a 45 year low, the Fund's investment adviser, J.J.B. Hilliard, W.L. Lyons, Inc. (the "Adviser") recognizes that these are difficult times for shareholders. In light of these historically low rates, the Adviser voluntarily agreed to waive a portion of its advisory fee beginning April 1, 2003. For the period April 1 through August 31, 2003, the Adviser waived over $1 million of fees. This fee waiver helped the Fund control expenses and added to the dividends paid by the Fund. The Fund's expense ratio for the year ended August 31, 2003 was .69% with the fee waiver, while it would have been .77% without the waiver. The Adviser may discontinue or modify this voluntary waiver in the future at its discretion. In this time of historically low interest rates and economic uncertainty, the Fund strives to offer its shareholders both a high degree of credit safety and the highest possible current income consistent with the preservation of capital. The Fund also offers convenient features such as unlimited, free check-writing. As shown on the Schedule of Investments that follows, at August 31, 2003 the Fund was 100% 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. Information on dividends paid by the Fund for the calendar year 2003 will be included with the Form 1099-Div which will be sent by the Adviser to all shareholders in January 2004. We appreciate your investment in the Hilliard-Lyons Government Fund, Inc. and we will continue to do our best to manage the Fund for the benefit of our shareholders. /s/ Joseph C. Cury Jr. /s/ Dianna P. Wengler JOSEPH C. CURRY, JR DIANNA P. WENGLER President Vice President and Treasurer Portfolio Manager
2 HILLIARD-LYONS GOVERNMENT FUND, INC. SCHEDULE OF INVESTMENTS August 31, 2003
Principal Purchase Maturity Amount Yield Date Value - ----------- - -------- -------- -------------- U.S. GOVERNMENT AGENCY OBLIGATIONS--100.1% $25,000,000 Federal Home Loan Bank Discount Note 1.085% 09/02/03 $ 24,999,259 39,000,000 Federal Home Loan Bank Discount Note 1.144 09/03/03 38,997,562 21,000,000 Federal Home Loan Bank Discount Note 0.986 09/04/03 20,998,303 1,684,000 Federal Home Loan Bank Discount Note 1.057 09/05/03 1,683,805 20,000,000 Federal Home Loan Bank Discount Note 1.156 09/08/03 19,995,590 13,000,000 Federal Home Loan Bank Discount Note 1.173 09/08/03 12,997,093 25,000,000 Federal Home Loan Bank Discount Note 1.027 09/09/03 24,994,389 38,935,000 Federal Home Loan Bank Discount Note 1.193 09/10/03 38,923,612 24,000,000 Federal Home Loan Bank Discount Note 1.027 09/11/03 23,993,267 20,000,000 Federal Home Loan Bank Discount Note 1.027 09/12/03 19,993,828 33,000,000 Federal Home Loan Bank Discount Note 1.226 09/15/03 32,984,562 20,000,000 Federal Home Loan Bank Discount Note 0.955 09/16/03 19,992,167 19,000,000 Federal Home Loan Bank Discount Note 0.894 09/17/03 18,992,569 20,000,000 Federal Home Loan Bank Discount Note 1.045 09/17/03 19,990,844 25,000,000 Federal Home Loan Bank Discount Note 0.904 09/18/03 24,989,493 20,800,000 Federal Home Loan Bank Discount Note 0.904 09/19/03 20,790,744 20,000,000 Federal Home Loan Bank Discount Note 0.843 09/22/03 19,990,317 20,000,000 Federal Home Loan Bank Discount Note 0.843 09/23/03 19,989,856 21,000,000 Federal Home Loan Bank Discount Note 0.864 09/24/03 20,988,596 13,000,000 Federal Home Loan Bank Discount Note 1.046 09/24/03 12,991,445 30,000,000 Federal Home Loan Bank Discount Note 0.955 09/25/03 29,981,200 20,000,000 Federal Home Loan Bank Discount Note 0.981 09/26/03 19,986,597 30,000,000 Federal Home Loan Bank Discount Note 0.955 09/29/03 29,978,067 21,000,000 Federal Home Loan Bank Discount Note 0.843 09/30/03 20,985,959 30,000,000 Federal Home Loan Bank Discount Note 0.966 10/01/03 29,976,250 15,000,000 Federal Home Loan Bank Discount Note 0.986 10/03/03 14,987,067 18,500,000 Federal Home Loan Bank Discount Note 1.156 10/06/03 18,479,586 24,000,000 Federal Home Loan Bank Discount Note 1.015 10/07/03 23,976,000 25,000,000 Federal Home Loan Bank Discount Note 0.996 10/08/03 24,974,819 23,000,000 Federal Home Loan Bank Discount Note 1.005 10/09/03 22,975,965 34,000,000 Federal Home Loan Bank Discount Note 0.991 10/10/03 33,964,087 22,000,000 Federal Home Loan Bank Discount Note 1.130 10/14/03 21,970,832 23,000,000 Federal Home Loan Bank Discount Note 0.885 10/15/03 22,975,543 19,000,000 Federal Home Loan Bank Discount Note 0.965 10/16/03 18,977,438 39,000,000 Federal Home Loan Bank Discount Note 1.011 10/17/03 38,950,416 27,000,000 Federal Home Loan Bank Discount Note 1.026 10/20/03 26,962,882 6,300,000 Federal Home Loan Bank Discount Note 0.915 10/21/03 6,292,125 40,000,000 Federal Home Loan Bank Discount Note 1.016 10/22/03 39,943,333 26,000,000 Federal Home Loan Bank Discount Note 1.026 10/23/03 25,962,069 33,200,000 Federal Home Loan Bank Discount Note 1.039 10/24/03 33,150,047
See notes to financial statements. 3 HILLIARD-LYONS GOVERNMENT FUND, INC. SCHEDULE OF INVESTMENTS--continued August 31, 2003
Principal Purchase Maturity Amount Yield Date Value - ----------- -------- -------- -------------- $30,000,000 Federal Home Loan Bank Discount Note 0.895% 10/27/03 $ 29,958,933 40,000,000 Federal Home Loan Bank Discount Note 0.895 10/28/03 39,944,267 11,912,000 Federal Home Loan Bank Discount Note 1.069 10/29/03 11,891,810 25,000,000 Federal Home Loan Bank Discount Note 1.078 10/31/03 24,955,833 18,000,000 Federal Home Loan Bank Discount Note 1.057 11/05/03 17,966,200 18,700,000 Federal Home Loan Bank Discount Note 0.931 11/07/03 18,668,155 22,000,000 Federal Home Loan Bank Discount Note 1.006 11/10/03 21,957,650 25,000,000 Federal Home Loan Bank Discount Note 1.057 11/12/03 24,948,000 25,000,000 Federal Home Loan Bank Discount Note 1.057 11/14/03 24,946,556 31,000,000 Federal Home Loan Bank Discount Note 1.045 11/17/03 30,931,904 25,000,000 Federal Home Loan Bank Discount Note 1.049 11/19/03 24,943,383 21,000,000 Federal Home Loan Bank Discount Note 1.052 11/21/03 20,951,096 37,000,000 Federal Home Loan Bank Discount Note 1.047 11/26/03 36,908,959 25,000,000 Federal Home Loan Bank Discount Note 1.018 11/28/03 24,938,889 20,000,000 Federal Home Loan Bank Discount Note 1.058 12/01/03 19,947,422 25,000,000 Federal Home Loan Bank Discount Note 1.018 12/03/03 24,935,417 24,000,000 Federal Home Loan Bank Discount Note 1.017 12/09/03 23,934,000 24,036,000 Federal Home Loan Bank Discount Note 1.019 12/31/03 23,955,212 30,000,000 Federal Home Loan Bank Discount Note 0.978 01/02/04 29,901,600 26,000,000 Federal Home Loan Bank Discount Note 1.054 01/09/04 25,902,825 26,000,000 Federal Home Loan Bank Discount Note 1.069 01/16/04 25,896,108 35,000,000 Federal Home Loan Bank Discount Note 1.105 01/21/04 34,850,348 30,000,000 Federal Home Loan Bank Discount Note 1.115 02/04/04 29,857,780 30,000,000 Federal Home Loan Bank Discount Note 1.111 02/11/04 29,851,942 41,000,000 Federal Home Loan Bank Discount Note 1.116 02/18/04 40,787,996 -------------- TOTAL U. S. GOVERNMENT AGENCY OBLIGATIONS (at amortized cost--$1,608,459,868) 1,608,459,868 -------------- TOTAL INVESTMENTS (100.1%) (at cost--$1,608,459,868*) $1,608,459,868 ==============
* 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. 4 HILLIARD-LYONS GOVERNMENT FUND, INC. STATEMENT OF ASSETS AND LIABILITIES August 31, 2003 ASSETS Investments, at value (at amortized cost--$1,608,459,868).... $1,608,459,868 Cash......................................................... 2,873 Prepaid expenses............................................. 7,710 -------------- TOTAL ASSETS........................................... 1,608,470,451 -------------- LIABILITIES Dividends payable............................................ 357,662 Due to affiliates--Note B Investment advisory fee.................................... 82,748 Shareholder servicing fee.................................. 350,320 Administrative fee......................................... 252,230 Accrued directors fees....................................... 14,921 Accrued expenses............................................. 178,166 -------------- TOTAL LIABILITIES...................................... 1,236,047 -------------- NET ASSETS................................................... $1,607,234,404 ============== Shares of beneficial interest outstanding.................. 1,607,234,404 ============== Net asset value per share (net assets / shares of beneficial interest outstanding). $1.00 =====
See notes to financial statements. 5 HILLIARD-LYONS GOVERNMENT FUND, INC. STATEMENT OF OPERATIONS For the year ended August 31, 2003 INVESTMENT INCOME Interest income........................................ $22,008,755 ----------- EXPENSES Investment advisory fee--Note B........................ 4,737,893 Shareholder servicing fee--Note B...................... 4,112,893 Administrative fee--Note B............................. 2,961,283 Printing and other expenses............................ 227,331 Insurance expense...................................... 165,075 Custodian fees......................................... 157,700 Filing fees............................................ 80,150 Legal and audit fees................................... 65,965 Transfer agent fees.................................... 63,925 Directors fees......................................... 40,000 ----------- Total expenses....................................... 12,612,215 Waiver of investment advisory fee--Note B.............. (1,239,115) ----------- Total net expenses................................... 11,373,100 ----------- Net investment income................................ 10,635,655 ----------- Net increase in net assets resulting from operations. $10,635,655 ===========
See notes to financial statements. 6 HILLIARD-LYONS GOVERNMENT FUND, INC. STATEMENT OF CHANGES IN NET ASSETS
For the year ended August 31, -------------------------------- 2003 2002 --------------- --------------- FROM OPERATIONS Net investment income...................................... $ 10,635,655 $ 28,105,327 --------------- --------------- Net increase in net assets resulting from operations..... 10,635,655 28,105,327 DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income...................................... ( 10,635,655) ( 28,105,327) --------------- --------------- Total distributions...................................... ( 10,635,655) ( 28,105,327) --------------- --------------- FROM CAPITAL SHARE TRANSACTIONS Net capital share transactions (at $1.00 per share)--Note C ( 60,010,826) ( 263,399,880) --------------- --------------- NET ASSETS Beginning of year.......................................... 1,667,245,230 1,930,645,110 --------------- --------------- End of year................................................ $ 1,607,234,404 $ 1,667,245,230 =============== ===============
See notes to financial statements. 7 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. The total returns in the table represent the rate that an investor would have earned on an investment in the Fund (assuming reinvestment of all dividends and distributions). The 2003 and 2002 information has been audited by Deloitte & Touche LLP. Information for the prior years was audited by another independent auditor, whose report expressed an unqualified opinion.
For the year ended August 31, ------------------------------------------------------------- 2003 2002 2001 2000 1999 ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 ---------- ---------- ---------- ---------- ---------- Net investment income............. .01 .01 .05 .05 .05 ---------- ---------- ---------- ---------- ---------- Total from investment operations. .01 .01 .05 .05 .05 ---------- ---------- ---------- ---------- ---------- Less distributions: From net investment income....... (.01) (.01) (.05) (.05) (.05) ---------- ---------- ---------- ---------- ---------- Total distributions.............. (.01) (.01) (.05) (.05) (.05) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year...... $1.00 $1.00 $1.00 $1.00 $1.00 ========== ========== ========== ========== ========== Total investment return........... .63% 1.44% 5.14% 5.52% 4.65% SUPPLEMENTAL DATA Net assets, end of year (000's omitted)................ $1,607,234 $1,667,245 $1,930,645 $1,366,422 $1,108,817 RATIOS TO AVERAGE NET ASSETS Operating expenses............... .69%(a) .65% .44% .48% .46% Net investment income............ .65%(a) 1.53% 4.92% 5.41% 4.55%
(a)Net of voluntary investment advisory fee waiver by the Adviser. If the Fund had paid the full investment advisory fee, the annualized ratios of expenses and net investment income to average net assets would have been .77% and .57%, respectively, for the year ended August 31, 2003. See notes to financial statements. 8 HILLIARD-LYONS GOVERNMENT FUND, INC. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2003 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 (the "1940 Act"), as amended. The Fund was incorporated in June 1980 under the laws of the state of Maryland. The primary investment objective of the Fund is to provide investors with liquidity and the highest possible level of current income consistent with the preservation of capital. 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 in accordance with Rule 2a-7 of the 1940 Act. The Board of Directors (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. Repurchase Agreements: Repurchase agreements are fully collateralized by U.S. Treasury and U.S. Government Agency obligations. It is the policy of the Fund to take possession of collateral. 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 daily and is paid monthly. The tax character of distributions paid during 2003 and 2002 was as follows:
For the year ended August 31, ----------------------------- 2003 2002 ----------- ----------- Distributions paid from ordinary income....... $10,635,655 $28,105,327 ----------- ----------- Total Distributions.... $10,635,655 $28,105,327
Investment Transactions: Investment transactions are accounted for on the date the securities are bought or sold. Income is accrued daily. Discounts on securities purchased are amortized over the lives of the respective securities. 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 accounting principles generally accepted in the United States of America 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 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 year ended August 31, 2003. The Adviser voluntarily agreed to waive a portion of its advisory fee beginning April 1, 2003. The Adviser may discontinue or modify any such voluntary waiver at its discretion. The Adviser waived $1,239,115 for the period April 1, 2003 through August 31, 2003. 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 and the audit committee chairman an annual retainer of $3,000, a fee of $1,000 for each board or committee meeting attended, and all expenses the directors incur in attending meetings. Total fees paid to directors for the year ended August 31, 2003 were $45,000. Transfer agent fees are paid to State Street Bank & Trust Co. NOTE C--CAPITAL STOCK At August 31, 2003, there were 2,500,000,000 shares of $.01 par value Common Stock authorized. Each transaction in Fund shares was at the net asset value of $1.00 per share. The dollar amount represented is the same as the shares shown below for such transactions.
For the year ended August 31, ------------------------------ 2003 2002 -------------- -------------- Shares sold.................. 5,290,394,643 5,347,712,722 Shares issued to shareholders in reinvestment of dividends 10,741,531 29,390,594 Less shares repurchased...... (5,361,147,000) (5,640,503,196) -------------- -------------- Net increase (decrease) in capital shares.............. (60,010,826) (263,399,880) ============== ==============
9 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Hilliard-Lyons Government Fund, Inc.: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of the Hilliard-Lyons Government Fund, Inc. (the "Fund") as of August 31, 2003, and the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights for each of the two years in the period then ended. These financial statements are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial highlights for each of the three years in the period ended August 31, 2001 were audited by other auditors whose report, dated October 2, 2001, expressed an unqualified opinion on those statements. We conducted our audits in accordance with the auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements 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 the securities owned as of August 31, 2003 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, such financial statements present fairly, in all material respects, the financial position of Hilliard-Lyons Government Fund, Inc. as of August 31, 2003, the results of its operations for the year then ended, the changes in its net assets and its financial highlights for each of the two years in the period then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Boston, Massachusetts October 8, 2003 10 HILLIARD-LYONS GOVERNMENT FUND, INC. MANAGEMENT INFORMATION CHART (UNAUDITED)
Number of Portfolios in Other Term of Office Fund Complex Directorships Positions Held and Length of Principal Occupation(s) Overseen by Held by Name and Address Age With The Fund Time Served During Past Five Years Director Director ---------------- --- -------------- ----------------- --------------------------------- ------------- ------------- J. Robert Shine**....... 79 Director Indefinite; since Chairman and Certified 1 None 222 East Market Street October 17,1989 Public Accountant, New Albany, IN 47150 Monroe, Shine & Co., Inc. Samuel G. Miller**...... 78 Director Indefinite; since Retired, Chairman of 1 None 402 Wynfield Close Court March 26, 1987 Vineyard Village Louisville, KY 40206 Lindy B. Street**....... 57 Director Indefinite; since Retired, former Senior 1 None 406 Wynfield Close Court November 2, 1999 Vice President of Marketing Louisville, KY 40206 & Public Affairs of Columbia/ HCA Healthcare Corporation Joseph C. Curry, Jr.*... 58 President Annually Senior Vice President, N/A N/A Hilliard Lyons Center J.J.B. Hilliard, W.L. Lyons, Inc. Louisville, KY 40202 Dianna P. Wengler*...... 43 Vice Annually Vice President, N/A N/A Hilliard Lyons Center President and J.J.B. Hilliard, W.L. Lyons, Inc. Louisville, KY 40202 Treasurer Stephanie J. Ferree*.... 25 Secretary Annually Mutual Fund Administration N/A N/A Hilliard Lyons Center J.J.B. Hilliard, W.L. Lyons, Inc. Louisville, KY 40202
* An "interested person", as defined by the Investment Company Act of 1940 **Member of Audit Committee Additional information about the Fund's directors and officers is contained in the Statement of Additional Information ("SAI") constituting Part B of the Fund's Registration Statement on Form N-1A filed with the SEC. The most recent post-effective amendment to that Registration Statement is available electronically at the SEC's Internet web site, www.sec.gov and at the Adviser's web site, www.hilliard.com. The Fund will also furnish a copy of the SAI portion of the Registration Statement, without charge, to any shareholder who requests by calling the Adviser at (888) 878-7845 (toll-free). - -------- A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling the Adviser toll-free at (888) 878-7845 or is available on the Adviser's web site, www.hilliard.com. This information will also be available after January 1, 2004 on the SEC's web site, www.sec.gov. 11 HILLIARD-LYONS GOVERNMENT FUND, INC. Hilliard Lyons Center Louisville, Kentucky 40202 (502) 588-8400 Investment Adviser, Administrator 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, 32nd 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 J. Robert Shine Lindy B. Street OFFICERS Joseph C. Curry, Jr. - President Dianna P. Wengler - Vice President and Treasurer Stephanie J. Ferree - Secretary Hilliard-Lyons Government Fund, Inc. Annual Report August 31, 2003 [LOGO] BEAR AND BULL(R) ITEM 2. CODE OF ETHICS. As of August 31, 2003, the Hilliard-Lyons Government Fund, Inc. has adopted a code of ethics that applies to its principal executive officer and principal financial officer. A copy of the registrant's code of ethics is filed herewith as exhibit (a)(1). ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The Board of Directors of the Hilliard-Lyons Government Fund, Inc. has determined that there is a financial expert serving on the audit committee. Mr. J. Robert Shine is the audit committee financial expert and is considered to be independent in accordance with Commission rules. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not required for annual reports filed for periods ending before December 15, 2003. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable to open-end investment companies. ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to open-end investment companies. ITEM 8 [RESERVED] ITEM 9. CONTROLS AND PROCEDURES. (a) Within the 90-day period prior to the filing of this report, the registrant's management carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940). Based on their evaluation, the Chief Executive Officer and Chief Financial Officer believe that the registrant's disclosure controls and procedures are effectively designed to ensure that information required to be disclosed by the registrant in the Report is recorded, processed, summarized and reported by the filing date, including ensuring that information required to be disclosed in the Report is accumulated and communicated to the registrant's management, including the registrant's President and Treasurer as appropriate to allow timely decisions regarding required disclosure. (b) There have been no changes in the registrant's internal control over financial reporting during the registrant's most recent fiscal half-year that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 10. EXHIBITS. (a)(1) Any code of ethics or amendment thereto. Filed herewith. (a)(2) Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940. Filed herewith. (b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940. Furnished herewith. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) HILLIARD-LYONS GOVERNMENT FUND, INC. By (Signature and Title) /s/ Joseph C. Curry Jr. ---------------------------------------------- Joseph C. Curry Jr. President Date: November 5, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title) /s/ Dianna P. Wengler ---------------------------------------------- Dianna P. Wengler Vice President and Treasurer Date: November 5, 2003 By (Signature and Title) /s/ Joseph C. Curry Jr. ---------------------------------------------- Joseph C. Curry Jr. President Date: November 5, 2003 EX-99.CODE ETH 3 dex99codeeth.txt CODE OF ETHICS Exhibit (a)(1) HILLIARD-LYONS GOVERNMENT FUND, INC. CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS Effective June 18, 2003 I. Introduction/Covered Persons The Hilliard-Lyons Government Fund, Inc. (the "Company") has been successful in large part by managing its business with honesty and integrity. The principal officers of the Company have an important and elevated role in corporate governance and in promoting investor confidence. To further the ends of ethical and honest conduct among its officers, the Board of Directors of the Company has adopted this Code of Ethics. This Code of Ethics is designed to comply with Section 406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated by the Securities and Exchange Commission (the "SEC") thereunder. This Code of Ethics applies to the principal executive officer, principal financial officer, controller and other senior financial officers of the Company, as may be identified from time to time by the Audit Committee (collectively, the "Covered Persons"). The Audit Committee shall be responsible for the overall administration of this Code of Ethics, but has delegated to Joseph Curry (the "Ethics Compliance Officer") the responsibility to oversee the day-to-day operation of this Code of Ethics. This Code of Ethics is in addition to, not in replacement of, the Company's Code of Ethics for access persons (the "Investment Company Code of Ethics"), adopted pursuant to Rule 17j-1 under the Investment Company Act of 1940, as amended (the "Investment Company Act"). The Covered Persons may also be subject to the Investment Company Code of Ethics. II. Code of Ethics Requirements This Code of Ethics requires each Covered Person to: 1. Act with honesty and integrity, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; 2. Provide full, fair, accurate, timely and understandable disclosure in reports submitted to or filed with the SEC and in all other public communications made by the Company; 3. Comply with laws, rules and regulations of the federal government, state governments and other regulatory agencies as they apply to the Company; 4. Disclose promptly to the Ethics Compliance Officer any violations of this Code of Ethics of which the Covered Person may become aware; and 5. Not retaliate against any other Covered Person or any employee of the Company or their affiliated persons for reports of potential violations that are made in good faith. III. Conflicts of Interest A conflict of interest occurs when a Covered Person's private interest interferes in any way--or even appears to interfere--with the interests of the Company as a whole or with his or her service to the Company. For example, a conflict of interest would arise if a Covered Person, or a member of his or her family, receives improper personal benefits as a result of his or her position with the Company. Certain conflicts of interest arise out of the relationships between Covered Persons and the Company and already are subject to conflict of interest provisions in the Investment Company Act and the Investment Advisers Act of 1940, as amended (the "Investment Advisers Act"). For example, Covered Persons may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Company because of their status as "affiliated persons" of the Company. The Company's and the investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts may arise from, or as a result of, the contractual relationship between the Company and its investment adviser and/or administrator of which the Covered Persons are also officers or employees. As a result, this Code recognizes that the Covered Persons will, in the normal course of their duties (whether formally for the Company or for the adviser and/or administrator, or for both), be involved in establishing policies and implementing decisions that will have different effects on the adviser and/or administrator and the Company. The participation of the Covered Persons in such activities is inherent in the contractual relationship between the Company and its investment adviser and/or administrator and is consistent with the performance by the Covered Persons of their duties as officers of the Company. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Persons should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Person should not be placed improperly before the interest of the Company. 2 Each Covered Person must: . not use his or her personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Company whereby the Covered Person would benefit personally to the detriment of the Company; and . not cause the Company to take action, or fail to take action, for the individual personal benefit of the Covered Person rather than for the benefit of the Company. There are some conflict of interest situations that should be discussed with the Ethics Compliance Officer if material. Examples of these include: . any ownership interest in, or any consulting or employment relationship with, any of the Company's service providers, other than its investment adviser, principal underwriter, administrator or any affiliated person thereof; and . a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Company for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Person's employment, such as compensation or equity ownership. IV. Accurate, Complete, Timely and Understandable Information The Covered Persons are responsible for ensuring that the Company's shareholders and the public receive financial and other information that is accurate, complete, timely and understandable. Covered Persons are obligated to comply with all laws and regulations governing the public disclosure of Company information. All public statements, whether oral or written, must be understandable and accurate, with no material omissions. The books and records of the Company must be kept accurate and current to ensure that the public receives information that is full, fair, accurate, complete and timely. The Covered Persons must ensure that transactions are completely and accurately recorded on the Company's books and records in accordance with generally accepted accounting principles. Economic evaluations must fairly represent all information relevant to the evaluation being made. No secret or unrecorded cash funds or other assets may be established or maintained for any purpose. Each Covered Person shall also comply with the Company's disclosure controls and procedures and the Company's internal controls and procedures for financial reporting. V. Waivers The Audit Committee may grant a waiver from one or more provisions of this Code of Ethics upon the request of a Covered Person and after a review of the relevant facts and circumstances. The decision by the Audit Committee whether to grant a waiver from this Code of Ethics shall be final. 3 "Waiver" shall mean the approval of a material departure from a provision of this Code of Ethics. If an executive officer becomes aware of a material departure from a provision of this Code of Ethics by any Covered Person, he or she shall immediately report such violation to the Ethics Compliance Officer or the Audit Committee, as appropriate. The Ethics Compliance Officer shall promptly report the violation to the Audit Committee. If the Audit Committee fails to take action with respect to the violation within ten business days, the Company shall be deemed to have made an "implicit waiver" from this Code of Ethics. If a waiver from one or more provisions of Section II of this Code of Ethics is granted by the Audit Committee to any Covered Person, including an implicit waiver, the Audit Committee shall direct the Company to (a) post a notice and description of the waiver on the Company's website within five business days following the waiver, including the name of the person to whom the Company granted the waiver and the date of the waiver, maintain such notice on the website for at least 12 months, and retain such notice for a period of at least 6 years following the end of the fiscal year in which the waiver occurred; or (b) include a description of the waiver in its next report on Form N-CSR. If the waiver will be disclosed via the Company's website, the Company must have first disclosed in its most recent Form N-CSR that it intends to disclose these events on its website and its website address. VI. Amendments This Code of Ethics may be amended by the Audit Committee as it deems appropriate. If a provision of the Code of Ethics that applies to any Covered Person and that relates to one or more provisions of Section II of this Code is amended, the Audit Committee shall direct the Company to (a) post a notice and description of the amendment on the Company's website within 5 business days following the amendment, maintain such notice on the website for at least 12 months, and retain such notice for a period of at least 6 years following the end of the fiscal year in which the amendment occurred; or (b) include a description of the amendment in its next report on Form N-CSR. If the amendment will be disclosed via the Company's website, the rules applicable to website postings of waivers, discussed in Section V above, apply. Technical, administrative or other non-substantive amendments to the Code of Ethics need not be disclosed. VII. Violations If the Audit Committee becomes aware of an actual or potential violation of this Code of Ethics, it shall direct an investigation into the facts and circumstances surrounding the violation. If a violation is found, the Audit Committee may impose on the Covered Person found to be in violation of this Code of Ethics any of a wide range of consequences as it deems appropriate, including warnings or letters of reprimand for less significant, first-time offenses, fines, reduced professional duties, suspension without pay and, in the most serious cases, termination. 4 VIII. Disclosure The Audit Committee shall direct the Company to make this Code of Ethics publicly available through one of the following three methods: (1) filing the Code as an exhibit to the Company's annual report on Form N-CSR; (2) posting the text of the Code on the Company's website, provided that the Company has first disclosed its Internet address and intent to provide disclosure in this manner in its most report on Form N-CSR and provided further that the text of the Code remains on the website for as long as the Company remains subject to the SEC's rules promulgated under Section 406 of the Sarbanes-Oxley Act of 2002; or (3) providing an undertaking in its most recent report on Form N-CSR to provide a copy of the Code of Ethics to any person without charge upon request. IX. Acknowledgement Each Covered Person shall, in the form attached hereto as Appendix A, acknowledge receipt of and compliance with the Code of Ethics upon adoption of this Code of Ethics or when initially hired, whichever occurs later. Each Covered Person shall annually, in the form attached hereto as Appendix B, acknowledge receipt of and compliance with this Code of Ethics. X. Confidentiality All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Board, its counsel, the Company, its counsel, the investment adviser, and its counsel. XI. Internal Use The Code is intended solely for the internal use by the Company and does not constitute an admission, by or on behalf of any Company, as to any fact, circumstance, or legal conclusion. 5 EX-99.CERT 4 dex99cert.txt CERTIFICATIONS PURSUANT TO SECTION 302 EX99.CERT Exhibit (a)(2) Certifications I, Joseph C. Curry Jr., certify that: 1. I have reviewed this report on Form N-CSR of Hilliard-Lyons Government Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statement and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act) for the registrant and have: a) designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 5, 2003 /s/ Joseph C. Curry, Jr. ----------------------------- Joseph C. Curry, Jr. President (Principal Executive Officer) EX99.CERT Exhibit (a)(2) Certifications I, Dianna P. Wengler, certify that: 1. I have reviewed this report on Form N-CSR of Hilliard-Lyons Government Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act) for the registrant and have: a) designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 5, 2003 /s/ Dianna P. Wengler ---------------------------- Dianna P. Wengler Vice President and Treasurer (Principal Financial Officer) EX-99.906CERT 5 dex99906cert.txt CERTIFICATIONS PURSUANT TO SECTION 906 EX.99.906 CERT Exhibit (b) CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT Pursuant to 18 U.S.C. Section 1350, the undersigned officer of the Hilliard-Lyons Government Fund, Inc. (the "Company") does hereby certify, to such officer's knowledge, that the Company's report on Form N-CSR for the period ended August 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) and 15(d), as applicable of the Securities Exchange Act of 1934, as amended and that the information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of the Company. Date: November 5, 2003 /s/ Joseph C. Curry Jr. --------------------------------- Joseph C. Curry Jr. President (Principal Executive Officer) A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. This certification shall not be deemed as filed by the Company for purposes of the Securities Exchange Act of 1934. EX.99.906.CERT Exhibit (b) CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT Pursuant to 18 U.S.C. Section 1350, the undersigned officer of the Hilliard-Lyons Government Fund, Inc. (the "Company") does hereby certify, to such officer's knowledge, that the Company's report on Form N-CSR for the period ended August 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) and 15(d), as applicable of the Securities Exchange Act of 1934, as amended and that the information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of the Company. Date: November 5, 2003 /s/ Dianna P. Wengler ------------------------------------ Dianna P. Wengler Vice President and Treasurer (Principal Financial Officer) A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. This certification shall not be deemed as filed by the Company for purposes of the Securities Exchange Act of 1934. -----END PRIVACY-ENHANCED MESSAGE-----