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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.
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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
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Dianna P. Wengler
Vice President and Treasurer
Date: November 5, 2003
By (Signature and Title) /s/ Joseph C. Curry Jr.
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Joseph C. Curry Jr.
President
Date: November 5, 2003