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