<PAGE> 1
<TABLE>
<CAPTION>
<S> <C>
E S T A B L I S H E D V A L U E
F U N D
G R A D I S O N - M C D O N A L D
S E M I A N N U A L R E P O R T
SEPTEMBER 30, 1995
GRADISON-MCDONALD
This material is intended for distribution
to shareholders of the Gradison-McDonald
Established Value Fund. It may be distri-
buted to other persons only if it is pre-
ceded or accompanied by a current prospec- A COMMON STOCK FUND INVESTING IN LARGE
tus of the Gradison-McDonald Established COMPANIES JUDGED TO BE UNDERVALUED
Value Fund. McDonald & Company Securities,
Inc. Distributor
</TABLE>
<PAGE> 2
G R A D I S O N - M C D O N A L D
E S T A B L I S H E D V A L U E F U N D
L E T T E R TO S H A R E H O L D E R S
October 12, 1995
Dear Shareholder:
The ECONOMY and the MARKET - Following somewhat slower second quarter growth,
the economy is showing some evidence of building momentum. All three components
of consumer spending-durable, nondurable and services-indicate growth from that
sector of the economy. Similarly, housing, goods orders and output, and
employment figures are all firmer now than in the second quarter. Although the
economy is exhibiting signs of picking up, readings on inflation appear to be
rather tame. The outlook for inflation continues to be the focus of the Federal
Reserve. The Fed cut short term interest rates in July to maintain moderate
economic growth. With no action at the subsequent August and September Federal
Open-Market Committee meetings, the Fed is being cautious to avoid
overstimulating the economy and undoing the success of its previous actions.
The stock market continued its advance during the last two quarters as the
economy appears to be coming in for a successful "soft landing". The
exceptional strength in financial markets can be attributed to low inflation, a
favorable interest rate environment, solid corporate earnings and numerous
mergers and acquisitions.
Given the outstanding performance of the stock market this year, it is
important to be reminded of its historical volatility. Looking at the past 69
years, the Standard & Poors 500 Index has provided an average annualized total
return of 10.20%. However, during that period, the index provided a negative
return in 20 of those 69 years. The negative returns averaged -12.34% and
ranged from -43.30% to -0.40%. Though it is important to be cognizant of the
risks of the stock market, the importance of adhering to a sound, long-term
investment strategy should be reinforced. Time in the market has proven more
beneficial to wealth creation than timing the market.
PERFORMANCE Total returns for the Fund and the benchmark S&P 500 Index follow
this letter. The quarterly returns for the first and second fiscal quarters for
the Fund were 8.39% and 7.07%, respectively, versus 9.55% and 7.95% for the S&P
500 Index during the same periods. The Fund employs the use of cash equivalents
in order to reduce net asset value volatility. We believe such a strategy is a
prudent practice under current market conditions. Despite having in excess of
25% in cash equivalents, the Fund garnered 88% and 89%, respectively, of the
S&P 500 Index return over the past two quarters.
The technology sector again provided stellar returns over the last two
quarters. Both Intel Corporation, a semiconductor manufacturer and Sun
Microsystems, a supplier of computer work stations and networking software,
significantly outperformed the market during the period. A favorable interest
rate environment boosted the performance of stocks in the financial group.
Household International, Travelers Incorporated and ITT Corporation all
benefited and posted outstanding returns for the Fund.
1-800-869-5999
<PAGE> 3
LETTER TO SHAREHOLDERS (CONTINUED)
PORTFOLIO - The Fund follows a sell discipline based upon comparative operating
earnings on both a quarterly and trailing 12 month basis. As a result, there
have been few changes to the portfolio recently given the strength of corporate
earnings.
We continue to focus on companies with consistent earnings records selling at
favorable valuations. The Fund exhibited the following portfolio
characteristics as of September 30, 1995:
<TABLE>
<CAPTION>
S&P 500
GRADISON-MCDONALD INDEX
ESTABLISHED VALUE FUND (EQUAL WTD)
<S> <C> <C>
Price/Earnings Ratio 16.46 19.10
Price-to-Book Ratio 2.66 3.20
Return on Equity 16.61% 16.00%
Average Annual 5 Year Earnings Growth 14.75% 7.90%
Beta 1.20 1.00
Dividend Growth Rate 3.62% 1.90%
As always, we remain committed to serving your investment needs.
Sincerely,
Gradison-McDonald Established Value Fund
/s/ William J. Leugers, Jr. /s/ Daniel R. Shick
William J. Leugers, Jr. Daniel R. Shick
Executive Vice President and Portfolio Manager Vice President and Portfolio Manager
</TABLE>
2
<PAGE> 4
<TABLE>
F I N A N C I A L H I G H L I G H T S (For a share outstanding throughout each period) (Unaudited)
<CAPTION>
ELEVEN MONTHS
SIX MONTHS ENDED YEAR ENDED APRIL 30,
ENDED MARCH 31, 1995 ____________________________________________
SEPT. 30, 1995 (NOTE 1) 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $23.381 $22.515 $21.375 $18.366 $17.754 $17.189
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income .213 .376 .256 .286 .386 .511
Net realized and unrealized
gains on investments 3.469 1.520 2.104 3.278 .916 .804
------- ------- ------- ------- ------- -------
Total income from
investment operations 3.682 1.896 2.360 3.564 1.302 1.315
------- ------- ------- ------- ------- -------
Distributions to shareholders:
Dividends from net
investment income (.230) (.370) (.220) (.285) (.420) (.548)
Distributions from realized
capital gains (.540) (.660) (1.000) (.270) (.270) (.202)
------- ------- ------- ------- ------- -------
Total distributions to shareholders (.770) (1.030) (1.220) (.555) (.690) (.750)
======= ======= ======= ======= ======= =======
Net asset value at end of period $26.293 $23.381 $22.515 $21.375 $18.366 $17.754
Total return (1) 16.04% 8.85% 11.30% 19.86% 7.59% 8.04%
======= ======= ======= ======= ======= =======
Ratios/Supplemental data:
Net assets at end of period
(in millions) $ 336.3 $ 277.4 $ 253.3 $ 203.6 $ 175.5 $ 150.5
Ratio of expenses to average net assets 1.18%(2) 1.20%(2) 1.22% 1.28% 1.31% 1.39%
Ratio of net investment income
to average net assets 1.71%(2) 1.87%(2) 1.15% 1.48% 2.12% 3.10%
Portfolio turnover rate 3.64% 24.23% 38.39% 28.08% 67.96% 73.88%
On October 4, 1991, McDonald & Company Securities, Inc. became investment adviser of the Fund as a result of a merger
with Gradison & Company Incorporated.
(1) Total returns represent the actual returns over those periods and have not been annualized.
(2) Annualized.
See accompanying notes to financial statements.
</TABLE>
3
<PAGE> 5
<TABLE>
P O R T F O L I O OF I N V E S T M E N T S S E P T E M B E R 3 0, 1 9 9 5 ( U N A U D I T E D )
<Caption
NUMBER COMMON STOCKS - 70.44% VALUE NUMBER COMMON STOCKS (CONTINUED) VALUE
OF SHARES OF SHARES
<S> <C> <C> <C> <C>
Aerospace/Defense Industrial Products - 5.89%
Companies - 7.39% 120,000 Foster Wheeler Corporation $ 4,245,000
99,756 Lockheed Martin Corporation $ 6,696,122 90,000 Goodrich (B.F.) Company 5,928,750
140,000 Loral Corporation 7,980,000 90,000 Harris Corporation 4,938,750
63,200 Raytheon Company 5,372,000 74,000 Johnson Controls, Inc. 4,680,500
70,000 Textron, Inc. 4,777,500
---------- ----------
24,825,622 19,793,000
---------- ----------
Automotive - 3.83% Natural Resources /
86,000 Cummins Engine Company, Inc. 3,311,000 Forest Products - 5.59%
149,000 Echlin, Inc. 5,326,750 152,000 Asarco, Inc. 4,788,000
136,000 Ford Motor Company 4,233,000 145,000 Coastal Corporation 4,875,625
----------
12,870,750 110,000 International Paper Company 4,620,000
----------
Chemicals - 4.24% 85,000 Temple-Inland, Inc. 4,526,250
----------
255,000 Engelhard Corporation 6,470,625 18,809,875
----------
134,000 Hercules, Inc. 7,772,000 Retail Trade - 4.27%
----------
14,242,625 160,000 American Stores Company 4,540,000
----------
Computing Products - 11.31% 99,000 Mercantile Stores, Inc. 4,455,000
186,000 (1) Compaq Computer Corporation 8,997,750 254,000 Wendy's International, Inc. 5,365,750
----------
126,000 Intel Corporation 7,575,750 14,360,750
----------
62,000 International Business
Machine Corporation 5,851,250 Telephone
148,000 (1) Sun-Microsystems, Inc. 9,324,000 Communications - 4.24%
103,000 Tandy Corporation 6,257,250 140,000 (1) Andrew Corporation 8,540,000
----------
38,006,000 220,000 MCI Communications
----------
Consumer Durables - 3.86% Corporation 5,720,000
----------
140,000 Briggs & Stratton Corporation 5,635,000 14,260,000
----------
177,000 Fleetwood Enterprises, Inc. 3,517,875 Transportation - 7.13%
97,000 Goodyear Tire & Rubber 190,000 Consolidated Freightways, Inc. 4,702,500
(The) Company 3,819,375 75,000 Consolidated Rail Corporation 5,156,250
----------
12,972,250 67,000 (1) Federal Express Corporation 5,561,000
----------
Consumer Non-Durables - 2.34% 156,000 Pittston Services Group 4,231,500
138,400 American Greetings Corporation 4,221,200 170,000 Ryder System, Inc. 4,313,750
238,000 Archer-Daniels-Midland Company 3,659,250
---------- ----------
7,880,450 23,965,000
---------- ----------
Financial Services - 10.35% T O T A L C O M M O N S T O C K S
101,000 Beneficial Corporation 5,277,250 (Cost = $138,454,743) $236,786,447
============
119,000 Household International, Inc. 7,378,000
42,000 ITTCorporation 5,208,000
110,000 Providian Corporation 4,565,000
70,000 Transamerica Corporation 4,987,500
139,000 Travelers, Inc. 7,384,375
----------
34,800,125
----------
See accompanying notes to financial statements.
</TABLE>
4
<PAGE> 6
<TABLE>
P O R T F O L I O O F I N V E S T M E N T S S E P T E M B E R 3 0, 1 9 9 5 ( U N A U D I T E D )
<CAPTION>
PRINCIPAL COMMERCIAL PAPER - 14.83% MATURITY INTEREST VALUE
AMOUNT RATE (2)
<S> <C>
$ 5,000,000 AT&T Corporation 11/22/95 5.66% $ 4,959,908
5,000,000 Emerson Electric Company 10/26/95 5.68 4,981,067
5,000,000 Kentucky Utilities Company 10/13/95 5.70 4,991,292
5,000,000 Limited (The), Inc. 10/10/95 5.72 4,993,644
5,000,000 Northern States Power Company 10/04/95 5.72 4,998,411
5,000,000 Shell Oil Company 10/13/95 5.68 4,991,322
5,000,000 SmithKline Beecham Corporation 10/06/95 5.68 4,996,844
5,000,000 Toys "R" Us, Inc. 11/09/95 5.71 4,969,864
5,000,000 Weyerhaeuser Company 10/23/95 5.72 4,983,317
5,000,000 Xerox Credit Corporation 10/12/95 5.70 4,992,083
------------
TOTAL COMMERCIAL PAPER (Cost = $49,857,752) $ 49,857,752
------------
PRINCIPAL DISCOUNT NOTE - 14.73% MATURITY INTEREST VALUE
AMOUNT RATE (2)
$49,500,000 Federal Home Loan Bank
(Cost = $49,500,000) 10/02/95 6.30% $ 49,500,000
-----------
TOTAL INVESTMENTS, at value (Note 1)(Cost = $237,812,495)-100% $ 336,144,199
===========
<FN>
(1) Non-income producing.
(2) For commercial paper and discount notes, the rate is the discount rate at the time of purchase by the Fund.
See accompanying notes to financial statements.
</TABLE>
5
<PAGE> 7
<TABLE>
S T A T E M E N T OF A S S E T S A N D L I A B I L I T I E S S E P T E M B E R 3 0, 1 9 9 5 ( U N A U D I T E D )
<CAPTION>
ASSETS
<S> <C>
Investments in securities, at value (Note 1) (Cost $237,812,495) $336,144,199
Cash 101,908
Dividends receivable 343,295
Receivable for Fund shares purchased 50,010
Prepaid expenses and other assets 29,680
----------
Total Assets 336,669,092
----------
LIABILITIES
Accrued investment advisory fee (Note 2) 152,369
Other liabilities payable to adviser (Note 2) 177,945
Other accrued expenses and liabilities 25,267
----------
Total Liabilities 355,581
----------
NET ASSETS $336,313,511
============
Net assets consist of:
Aggregate paid-in capital 231,126,339
Accumulated undistributed net investment income 425,540
Accumulated undistributed net realized gains 6,429,928
Net unrealized appreciation of investments 98,331,704
------------
Net Assets $336,313,511
============
Shares of capital stock outstanding
(no par value - unlimited number of shares authorized) 12,791,194
============
Net asset value and redemption price per share (Note 1) $26.29
============
See accompanying notes to financial statements.
</TABLE>
6
<PAGE> 8
<TABLE>
S T A T E M E N T O F O P E R A T I O N S F O R T H E S I X M O N T H S E N D E D
S E P T E M B E R 3 0, 1 9 9 5 ( U N A U D I T E D )
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Dividends $ 1,946,364
Interest 2,527,553
----------
Total investment income $ 4,473,917
EXPENSES:
Investment advisory fees (Note 2) 968,625
Distribution (Note 2) 646,750
Transfer agency fees (Note 2) 101,337
Accounting services fees (Note 2) 37,905
Custodian fees 11,365
Registration fees 11,097
Professional fees 8,985
Printing 7,744
Postage and mailing 7,476
Trustees' fees (Note 2) 5,803
Other 19,383
----------
Total expenses 1,826,470
----------
NET INVESTMENT INCOME 2,647,447
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 6,392,663
Net increase in unrealized appreciation of investments 36,283,007
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 42,675,670
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 45,323,117
============
See accompanying notes to financial statements.
</TABLE>
7
<PAGE> 9
<TABLE>
S T A T E M E N T S O F C H A N G E S I N N E T A S S E T S ( U N A U D I T E D )
<CAPTION>
ELEVEN MONTHS
SIX MONTHS ENDED
ENDED MARCH 31, 1995
SEPT. 30, 1995 (NOTE 1)
<S> <C>
FROM OPERATIONS:
Net investment income $ 2,647,447 $ 4,489,701
Net realized gain on investments 6,392,663 7,099,956
Net increase in unrealized
appreciation of investments 36,283,007 11,638,554
---------- ----------
Net increase in net assets resulting from operations 45,323,117 23,228,211
---------- ----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (2,818,129) (4,392,688)
Net realized capital gains (6,512,671) (7,525,690)
---------- ----------
Decrease in net assets from distributions to shareholders (9,330,800) (11,918,378)
---------- ----------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 114,861,071 163,689,905
Net asset value of shares issued in reinvestment of distributions 9,242,553 11,790,560
Payments for shares redeemed (101,152,137) (162,712,174)
----------- -----------
Net increase in net assets from Fund share transactions 22,951,487 12,768,291
----------- -----------
TOTAL INCREASE IN NET ASSETS 58,943,804 24,078,124
NET ASSETS:
Beginning of period 277,369,707 253,291,583
----------- -----------
End of period (including undistributed net investment
income of $425,540 and $596,222, respectively) (Note 1) $336,313,511 $277,369,707
=========== ===========
NUMBER OF FUND SHARES:
Sold 4,605,117 7,449,070
Issued in reinvestment of distributions to shareholders 382,396 541,606
Redeemed (4,059,133) (7,377,921)
----------- -----------
Net increase in shares outstanding 928,380 612,755
Outstanding at beginning of period 11,862,814 11,250,059
----------- -----------
Outstanding at end of period 12,791,194 11,862,814
=========== ===========
See accompanying notes to financial statements.
</TABLE>
8
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED)
Note 1 - SIGNIFICANT ACCOUNTING POLICIES
Gradison Growth Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management investment
company. The Trust was created under Ohio law on-May 31, 1983; it commenced
investment operations and the public offering of its shares on August 16, 1983.
The Trust consists of four series, the Gradison-McDonald Established Value
Fund, the Gradison-McDonald Opportunity Value Fund, the Gradison-McDonald
Growth &Income Fund and the Gradison-McDonald International Fund (collectively,
the "Funds"); each of which in effect represents a separate fund with its own
investment policies. This Semiannual Report to Shareholders pertains only to
the Gradison-McDonald Established Value Fund (the "Fund").
The Fund changed its fiscal year end to March 31, effective with the September
30, 1994 Semiannual Report.
The following is a summary of the Fund's significant accounting policies:
Securities valuation - Portfolio securities listed or traded on the New York or
American Stock Exchanges are valued at the last sale price on that exchange, or
if there were no sales that day, the securities are valued at the closing bid
price. All other portfolio securities for which over-the-counter market
quotations are readily available are valued at the latest bid price. Commercial
paper and discount notes are valued using the amortized cost method which
approximates market value. This involves initially valuing a security at its
original cost and thereafter assuming a constant amortization to maturity of
any discount or premium. Portfolio securities for which market quotations are
not readily available are valued at their fair value as determined in good
faith under procedures adopted by the Board of Trustees.
Repurchase agreements, which are collateralized by U.S. Government obligations,
are valued at cost which, together with accrued interest, approximates market.
Collateral for repurchase agreements is held in safekeeping in the
customer-only account of the Fund's custodian. At the time the Fund enters into
a repurchase agreement, the seller agrees that the value of the underlying
security, including accrued interest, will be equal to or exceed the face
amount of the repurchase agreement. In the event of a bankruptcy or other
default of the seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying security and losses. These losses would
not exceed an amount equal to the difference between the liquidating value of
the underlying security and the face amount of the repurchase agreement and
accrued interest. To minimize the possibility of loss, the Fund enters into
repurchase agreements only with selected domestic banks and securities dealers
which the Fund's investment adviser believes present minimal credit risk. There
were no repurchase agreements held in the portfolio at September 30, 1995.
Securities transactions and investment income - Securities transactions are
accounted for on the trade date (the date the order to buy or sell is
executed), and dividend income is recorded on the ex-dividend date. Interest
income is accrued as earned. Gains and losses on sales of investments are
calculated on the identified cost basis for financial reporting and tax
purposes.
Taxes - It is the Fund's policy to comply with the provisions of the Internal
Revenue Code available to regulated investment companies. As provided therein,
in any fiscal year in which the Fund so qualifies, and distributes at least 90%
of its taxable net income, the Fund will be relieved of federal income tax on
the income distributed. Accordingly, no provision for income taxes has been
made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends
in each calendar year, at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains, if any (earned
during the twelve months ended October 31), plus undistributed amounts from
prior years.
The tax basis of investments is equal to the cost as shown on the Statement of
Assets and Liabilities.
9
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED)
For both financial reporting and tax purposes, gross unrealized appreciation
and gross unrealized depreciation of securities at September 30, 1995 was
$99,587,149 and $1,255,445, respectively.
Fund share valuation and distributions to shareholders - The net asset value
per share is computed by dividing the net asset value of the Fund (total assets
less total liabilities) by the number of shares outstanding. The redemption
price per share is equal to the net asset value per share.
Distributions to shareholders are recorded on the ex-dividend date. During the
period ended September 30, 1995, the Fund made total distributions of $.77 per
share, of which $.23 is treated as dividend income and $.54 is treated as
long-term capital gain.
Expenses - Common expenses incurred by the Trust are allocated to the Fund
based on the ratio of the net assets of the Fund to the combined net assets of
the Trust. In all other respects, expenses are charged to the Fund as incurred
on a specific identification basis.
Reclassification of capital accounts - The Fund has adopted Statement of
Position 93-2 "Determination, Disclosure, and Financial Statement Presentation
of Income, Capital Gain, and Return of Capital Distributions by Investment
Companies" ("SOP"). The purpose of this SOP is to report the undistributed
net investment income and accumulated net realized capital gain (loss) accounts
in such a manner as to approximate amounts available for future distributions
(or to offset future realized capital gains) and to achieve uniformity in the
presentation of distributions by investment companies.
During the prior fiscal year, the Fund reclassified $375,314 from accumulated
undistributed net investment income to accumulated undistributed net realized
gains in compliance with this SOP. This reclassification, which has no impact
on the net asset value of the Fund, is primarily attributable to certain
differences in the computation of net investment income and capital gains under
federal tax rules and generally accepted accounting principles. Additional
adjustments may be necessary in subsequent reporting periods.
NOTE 2 - TRANSACTIONS WITH AFFILIATES
The Trust's investments are managed, subject to the general supervision and
control of the Trust's Board of Trustees, by McDonald & Company Securities,
Inc. ("McDonald"), a registered investment adviser and securities dealer,
pursuant to the terms of an Investment Advisory Agreement ("Agreement"). Under
the terms of the Agreement, effective June 1, 1995, the Fund pays McDonald a
fee computed and accrued daily and paid monthly based upon the Fund's daily net
assets at the annual rate of .65% on the first $100 million, .55% on the next
$100 million and .45% on any amounts in excess of $200 million. McDonald is to
reimburse the Fund for the amount by which the Fund's aggregate expenses for a
fiscal year, including the advisory fee but excluding interest, taxes and
extraordinary expenses, exceed limits set by state securities regulations. No
such reimbursement was required for the period ended September 30, 1995. Prior
to June 1, 1995, the Fund paid McDonald an investment advisory fee at an annual
rate of .90% on the first $100 million, .80% on the next $100 million and .70%
on any amounts in excess of $200 million.
The Agreement provides that McDonald bear the costs of salaries and related
expenses of executive officers of the Fund who are necessary for the management
and operations of the Fund. In addition, McDonald bears the costs of preparing,
printing and mailing sales literature and other advertising materials and
compensates the Trust's trustees who are affiliated with McDonald. All expenses
not specifically assumed by McDonald are borne by the Fund.
10
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED)
Under the terms of a Transfer Agency, Accounting Services and Administrative
Services Agreement, effective June 1, 1995, McDonald provides transfer agent,
dividend disbursing, accounting services and administrative services to the
Fund. The Fund pays McDonald a monthly fee for transfer agency and
administrative services at an annual rate of $18.25 per shareholder non-zero
balance account, plus out-of-pocket costs for statement paper, statement and
reply envelopes and reply postage. The Fund pays McDonald a monthly fee for
accounting services based on the Fund's average daily net assets at an annual
rate of .03% on the first $100 million, .02% on the next $100 million, and .01%
on any amount in excess of $200 million, with a minimum annual fee of $40,000.
Prior to June 1, 1995, the Fund paid McDonald a monthly fee at an annual rate
of $7.36 per shareholder non-zero balance account for data processing services
provided to the Fund plus the cost of shareholder statement printing. Prior to
June 1, 1995, the Fund also reimbursed McDonald for the cost of furnishing
personnel to perform shareholder and certain other services.
In accordance with the terms of a Distribution Service Plan adopted under Rule
12b-1 of the Investment Company Act of 1940, the Fund pays McDonald a fee for
its assistance in distribution of shares of the Fund. Effective June 1, 1995,
in connection with a reduction of the investment advisory fee by .25%, the
Distribution Service Plan was amended to increase the total fee by .25% to
.50%, the components of which are set forth in the remainder of this paragraph.
The Fund pays McDonald a service fee for personal services to shareholders,
including shareholder liaison services such as responding to shareholder
inquiries and providing information to customers about their Fund accounts.
This fee is computed and paid at an annual rate of .25% of the Fund's average
daily net assets. The Fund also pays McDonald a fee for its assistance in
selling shares of the Fund, including advising shareholders regarding purchase,
sale and retention of Fund shares. This fee is computed and paid at an annual
rate of .25% of the Fund's average daily net assets.
The officers of the Trust are also officers of McDonald.
Each trustee of the Trust who is not affiliated with McDonald receives fees
from the Trust for services as a trustee. The amounts of such fees for each
trustee are as follows: (a) an annual fee of $5,000 payable in quarterly
installments for service during each fiscal quarter and (b) $500 for each Board
of Trustees or committee meeting attended.
NOTE 3 - SUMMARY OF PURCHASES AND SALES OF INVESTMENTS
For the period ended September 30, 1995, the cost of purchases and proceeds
from the sale of securities, excluding short-term securities, amounted to
$8,128,620 and $21,965,355, respectively.
11
<PAGE> 13
OPPORTUNITY VALUE
FUND
GRADISON-MCDONALD
SEMIANNUAL REPORT
SEPTEMBER 30, 1995
A COMMON STOCK FUND INVESTING IN SMALLER
COMPANIES JUDGED TO BE UNDERVALUED
GRADISON-MCDONALD
This material is intended for distribution to shareholders of the
Gradison-McDonald Opportunity Value Fund. It may be distributed to other
persons only if it is preceded or accompanied by a current prospectus of the
Gradison-McDonald Opportunity Value Fund. McDonald & Company Securities,
Inc. -- Distributor
<PAGE> 14
GRADISON-MCDONALD
OPPORTUNITY VALUE FUND
LETTER TO SHAREHOLDERS
October 12, 1995
Dear Shareholder:
The ECONOMY and the MARKET - Following somewhat slower second quarter growth,
the economy is showing some evidence of building momentum. All three components
of consumer spending -- durable, nondurable and services -- indicate growth
from that sector of the economy. Similarly, housing, goods orders and output,
and employment figures are all firmer now than in the second quarter. Although
the economy is exhibiting signs of picking up, readings on inflation appear to
be rather tame. The outlook for inflation continues to be the focus of the
Federal Reserve. The Fed cut short term interest rates in July to maintain
moderate economic growth. With no action at the subsequent August and September
Federal Open Market Committee meetings, the Fed is being cautious to avoid
overstimulating the economy and undoing the success of its previous actions.
The stock market continued its advance during the last two quarters as the
economy appears to be coming in for a successful "soft landing". The
exceptional strength in financial markets can be attributed to low inflation, a
favorable interest rate environment, solid corporate earnings and numerous
mergers and acquisitions.
Given the outstanding performance of the stock market this year, it is
important to be reminded of its historical volatility. Looking at the past 69
years, the Standard & Poors 500 Index has provided an average annualized total
return of 10.20%. However, during that period, the index provided a negative
return in 20 of those 69 years. The negative returns averaged -12.34% and
ranged from -43.30 to -0.40%. Though it is important to be cognizant of the
risks of the stock market, the importance of adhering to a sound, long-term
investment strategy should be reinforced. Time in the market has proven more
beneficial to wealth creation than timing the market.
PERFORMANCE - Total returns for the Fund and the benchmark Russell 2000 Small
Stock Index follow this letter. The quarterly returns for the first and second
fiscal quarters for the Fund were 8.76% and 9.23%, respectively, versus 9.37%
and 9.81% for the Russell 2000 Index during the same periods. The Fund employs
the use of cash equivalents in order to reduce net asset value volatility. We
believe such a strategy is a prudent practice under current market conditions.
Despite having in excess of 25% in cash equivalents, the Fund garnered 93% and
94%, respectively, of the Russell 2000 Index return over the past two quarters.
The most significant outperforming assets in the Fund were from the banking and
financial services groups. Aames Financial, a mortgage broker, has more than
doubled since our March 31, 1995 Annual Report. Likewise, the returns of
Advanta Corporation, a financial services company, and TCF Financial, a thrift
holding company, have outpaced the broad market. A favorable interest rate
environment aided the stocks in that sector. Other notable performers in the
Fund were Zion Bancorporation, Daka International, a restaurant operator and
franchiser, and Banta Corporation, a print and graphic service company. The
technology group also continued to provide excellent returns for the Fund.
1-800-869-5999
<PAGE> 15
LETTER TO SHAREHOLDERS (CONTINUED)
PORTFOLIO - Since the annual report, eight stocks have been purchased for the
Fund. Among the additions are Protective Life Corporation, a life insurer,
Integrated Circuit, a designer of electronic parts for the PC industry, Lennar
Corporation, a homebuilder, and Agco Corporation, a maker of agriculture
equipment.
The Fund adheres to a sell discipline based upon comparative operating earnings
on both a quarterly and trailing 12 month basis. Pursuant to that discipline,
the Fund sold its holdings of retailers Michaels Stores and Caldor Corporation
as well as apparel makers Galey & Lord and Oxford Industries during the period.
These companies were unable to deliver earnings growth as a result of their
highly competitive industries.
We continue to focus on companies with consistent earnings records selling at
favorable valuations. The Fund exhibited the following portfolio
characteristics as of September 30, 1995:
<TABLE>
<CAPTION>
S&P 500
GRADISON-MCDONALD INDEX
OPPORTUNITY VALUE FUND (EQUAL WTD)
<S> <C> <C>
Price/Earnings Ratio 17.29 19.10
Price-to-Book Ratio 2.63 3.20
Return on Equity 17.40% 16.00%
Average Annual 5 Year Earnings Growth 20.49% 7.90%
Beta 1.15 1.00
Dividend Growth Rate 4.47% 1.90%
</TABLE>
As always, we remain committed to serving your investment needs.
Sincerely,
Gradison-McDonald Opportunity Value Fund
/S/ William J. Leugers, Jr. /S/ Daniel R. Shick
William J. Leugers, Jr. Daniel R. Shick
Executive Vice President and Vice President and
Portfolio Manager Portfolio Manager
2
<PAGE> 16
FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period)
(Unaudited)
<TABLE>
<CAPTION>
ELEVEN MONTHS
SIX MONTHS ENDED YEAR ENDED APRIL 30,
ENDED MARCH 31, 1995
SEPT. 30, 1995 (NOTE 1) 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $18.100 $18.348 $17.547 $16.462 $14.767 $13.644
Income from investment operations: ------- ------- ------- ------- ------- -------
Net investment income .092 .136 .086 .081 .173 .245
Net realized and unrealized
gains on investments 3.228 .176 1.585 1.744 2.467 1.198
Total income from ------- ------- ------- ------- ------- -------
investment operations 3.320 .312 1.671 1.825 2.640 1.443
------- ------- ------- ------- ------- -------
Distributions to shareholders:
Dividends from net
investment income (.070) (.120) (.070) (.100) (.270) (.252)
Distributions from realized
capital gains (.520) (.440) (.800) (.640) (.675) (.068)
------- ------- ------- ------- ------- -------
Total distributions to shareholders (.590) (.560) (.870) (.740) (.945) (.320)
------- ------- ------- ------- ------- -------
Net asset value at end of period $20.830 $18.100 $18.348 $17.547 $16.462 $14.767
------- ------- ------- ------- ------- -------
Total return (1) 18.80% 1.75% 9.75% 11.57% 18.60% 10.94%
Ratios/Supplemental data: ======= ======= ======= ======= ======= =======
Net assets at end of period
(in millions) $ 95.6 $ 84.7 $ 83.3 $ 68.2 $ 47.4 $ 28.7
Ratio of expenses to average net assets 1.41%(2) 1.37%(2) 1.38% 1.44% 1.49% 1.61%
Ratio of net investment income
to average net assets .94%(2) .84%(2) .47% .61% 1.32% 2.03%
Portfolio turnover rate 10.34% 31.90% 40.41% 39.00% 64.25% 63.88%
On October 4, 1991, McDonald & Company Securities, Inc. became investment adviser of the Fund as a result of a merger with Gradison
& Company Incorporated.
<FN>
(1) Total returns represent the actual returns over those periods and have not been annualized.
(2) Annualized.
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 17
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER COMMON STOCKS - 70.74% VALUE
OF SHARES
<S> <C> <C>
BANKS - 7.55%
29,600 Boatmen's Bankshares $1,095,200
5,000 First Empire State Corporation 950,000
31,100 Firstar Corporation 1,154,588
45,000 HUBCO, Inc. 871,875
30,750 Mercantile Bankshares
Corporation 834,094
25,252 Old Kent Financial Corporation 956,420
24,800 Union Planters Corporation 737,800
10,000 Zions Bancorporation 607,500
_________
7,207,477
_________
BUSINESS SERVICES - 6.27%
45,000 ABM Industries, Inc. 1,192,500
27,000 Banta Corporation 1,134,000
25,000 (1) Interpool, Inc. 431,250
50,000 (1) Norstan, Inc. 1,262,500
26,000 PHH Corporation 1,170,000
18,000 Xtra Corporation 798,750
_________
5,989,000
_________
COMPUTER HARDWARE - 8.82%
45,000 (1) Adaptec, Inc. 1,856,250
55,000 Dallas Semiconductor
Corporation 1,127,500
37,500 (1) D.H. Technologies, Inc. 1,134,375
60,000 (1) EXAR Corporation 2,100,000
79,000 (1) Integrated Circuit Systems, Inc. 1,115,875
50,000 (1) Quantum Corporation 1,087,500
_________
8,421,500
_________
COMPUTER SOFTWARE - 1.19%
11,250 (1) Keane, Inc. 324,844
51,000 (1) Western Digital Corporation 809,625
_________
1,134,469
_________
CONSUMER DURABLES - 6.06%
23,000 Agco Corporation 1,046,500
42,000 Culp, Inc. 430,500
27,000 (1) Mueller Industries, Inc. 1,400,625
45,000 Titan Wheel International
Corporation 770,625
31,900 Varlen Corporation 861,300
47,000 Wynn's International, Inc. 1,280,750
_________
5,790,300
_________
</TABLE>
<TABLE>
<CAPTION>
NUMBER COMMON STOCKS - (CONTINUED) VALUE
OF SHARES
<S> <C> <C>
CONSUMER NON-DURABLES - 3.37%
50,000 (1) CSS Industries, Inc. $1,150,000
35,000 (1) Chic by H.I.S., Inc. 280,000
67,500 Comair Holdings, Inc. 1,788,750
_________
3,218,750
_________
ELECTRONICS - 6.24%
55,000 (1) Input/Output, Inc. 2,110,625
40,650 (1) Kent Electronics Corporation 1,783,519
45,000 Pioneer Standard Electronics, Inc. 776,250
69,000 (1) Sterling Electronics Corporation 1,285,125
_________
5,955,519
_________
FINANCIAL SERVICES - 4.95%
47,000 Aames Financial Corporation 1,357,125
48,000 Advanta Corporation 2,148,000
21,000 TCF Financial Corporation 1,223,250
_________
4,728,375
_________
HEALTH CARE - 7.50%
49,000 (1) Community Health Systems, Inc. 1,978,375
20,000 (1) Cordis Corporation 1,685,000
70,000 (1) HealthSouth Corporation 1,785,000
50,000 (1) Universal Health Services, Inc. 1,712,500
_________
7,160,875
_________
HOUSING / BUILDING
MATERIALS - 6.48%
39,000 Butler Manufacturing Company 1,072,500
43,000 Lennar Corporation 935,250
57,000 Oakwood Homes Corporation 2,009,250
95,000 Patrick Industries, Inc. 1,258,750
76,500 Republic Gypsum Company 908,438
_________
6,184,188
_________
INSURANCE COMPANIES - 5.80%
35,000 American Bankers
Insurance Group, Inc. 1,295,000
26,000 Equitable of Iowa Companies 962,000
37,400 Fremont General Corporation 1,033,175
66,812 GAINSCO, Inc. 597,125
29,000 Protective Life Corporation 848,250
30,000 PXRE Corporation 802,500
_________
5,538,050
_________
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 18
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER COMMON STOCKS (CONTINUED) VALUE
OF SHARES
<S> <C> <C>
NATURAL RESOURCES - 1.12%
54,000 (1) Astec Industries, Inc. $ 594,000
22,000 Energen Corporation 478,500
__________
1,072,500
__________
</TABLE>
<TABLE>
<CAPTION>
NUMBER COMMON STOCKS (CONTINUED) VALUE
OF SHARES
<S> <C> <C>
RETAIL TRADE - 5.39%
70,000 (1) DAKA International, Inc. $ 2,283,750
47,500 Heilig-Meyers Company 1,104,375
51,000 (1) Rex Stores Corporation 956,250
43,000 (1) Waban, Inc. 811,625
__________
5,156,000
__________
TOTAL COMMON STOCKS
(Cost = $39,234,482) $67,557,003
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL COMMERCIAL PAPER - 15.96% MATURITY INTEREST VALUE
AMOUNT RATE (2)
<S> <C> <C> <C> <C>
$ 1,500,000 AT&T Corporation 11/22/95 5.66% $ 1,487,973
1,500,000 Emerson Electric Company 10/26/95 5.68 1,494,320
1,500,000 Kentucky Utilities Company 10/13/95 5.70 1,497,388
1,500,000 Limited (The), Inc. 10/10/95 5.72 1,498,093
1,500,000 Northern States Power Company 10/04/95 5.72 1,783,433
1,500,000 Shell Oil Company 10/13/95 5.68 1,497,397
1,500,000 SmithKline Beecham Corp 10/06/95 5.68 1,499,053
1,500,000 Toys "R" Us, Inc. 11/09/95 5.71 1,490,959
1,500,000 Weyerhaeuser Company 10/23/95 5.72 1,494,995
1,500,000 Xerox Credit Corporation 10/12/95 5.70 1,497,625
___________
TOTAL COMMERCIAL PAPER (Cost = $15,241,236) $15,241,236
___________
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL DISCOUNT NOTE - 13.30% MATURITY INTEREST VALUE
AMOUNT RATE (2)
<S> <C> <C> <C> <C>
$12,700,000 Federal Home Loan Bank
(Cost = $12,700,000) 10/02/95 6.30% $12,700,000
___________
TOTAL INVESTMENTS, at value (Note 1) (Cost = $67,175,718) - 100% $95,498,239
___________
<FN>
(1) Non-income producing.
(2) For commercial paper and discount notes, the rate is the discount rate at the time of purchase by the Fund.
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 19
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments in securities, at value (Note 1) (Cost $67,175,718) $95,498,239
Cash 110,320
Dividends receivable 47,636
Prepaid expenses and other assets 35,005
__________
TOTAL ASSETS 95,691,200
----------
LIABILITIES
Accrued investment advisory fee (Note 2) 51,552
Other liabilities payable to adviser (Note 2) 53,762
Other accrued expenses 11,125
__________
TOTAL LIABILITIES 116,439
__________
NET ASSETS $95,574,761
___________
___________
Net assets consist of:
Aggregate paid-in capital 67,245,910
Accumulated undistributed net investment income 235,804
Accumulated overdistributed net realized gains (229,474)
Net unrealized appreciation of investments 28,322,521
___________
Net Assets $95,574,761
___________
___________
Shares of capital stock outstanding
(no par value - unlimited number of shares authorized) 4,588,321
___________
___________
Net asset value and redemption price per share (Note 1) $20.83
______
______
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 20
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 1995 (UNAUDITED)
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 699,650
Dividends 339,438
Total investment income ------- $ 1,039,088
EXPENSES:
Investment advisory fees (Note 2) 323,012
Distribution (Note 2) 183,919
Transfer agency fees (Note 2) 52,568
Accounting services fees (Note 2) 13,443
Registration fees 9,307
Professional fees 9,291
Custodian fees 8,389
Trustees' fees (Note 2) 5,744
Printing 4,885
Postage and mailing 2,805
Other 10,003
Total expenses ------ 623,366
-------
NET INVESTMENT INCOME 415,722
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (218,371)
Net increase in unrealized appreciation of investments 14,983,918
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 14,765,547
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $15,181,269
-----------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 21
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
ELEVEN MONTHS
SIX MONTHS ENDED
ENDED MARCH 31, 1995
SEPT. 30, 1995 (NOTE 1)
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 415,722 $ 639,271
Net realized gain (loss) on investments (218,371) 2,529,940
Net increase (decrease) in unrealized
appreciation of investments 14,983,918 (1,671,004)
----------- -----------
Net increase in net assets resulting from operations 15,181,269 1,498,207
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (319,118) (573,964)
Net realized capital gains (2,370,591) (2,002,612)
----------- -----------
Decrease in net assets from distributions to shareholders (2,689,709) (2,576,576)
----------- -----------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 25,591,171 45,495,191
Net asset value of shares issued in reinvestment of
distributions 2,647,771 2,526,554
Payments for shares redeemed (29,894,164) (45,501,572)
Net increase (decrease) in net assets from ----------- -----------
Fund share transactions (1,655,222) 2,520,173
----------- -----------
TOTAL INCREASE IN NET ASSETS 10,836,338 1,441,804
NET ASSETS:
Beginning of period 84,738,423 83,296,619
End of period (including undistributed net investment ----------- -----------
income of $235,804 and $139,200, respectively) (Note 1) $95,574,761 $84,738,423
=========== ===========
NUMBER OF FUND SHARES:
Sold 1,317,917 2,552,279
Issued in reinvestment of distributions to shareholders 144,845 141,556
Redeemed (1,556,178) (2,551,892)
----------- -----------
Net increase (decrease) in shares outstanding (93,416) 141,943
Outstanding at beginning of period 4,681,737 4,539,794
----------- -----------
Outstanding at end of period 4,588,321 4,681,737
=========== ===========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Gradison Growth Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management investment
company. The Trust was created under Ohio law on May 31, 1983; it commenced
investment operations and the public offering of its shares on August 16, 1983.
The Trust consists of four series, the Gradison-McDonald Opportunity Value
Fund, the Gradison-McDonald Established Value Fund, the Gradison-McDonald
Growth & Income Fund, and the Gradison-McDonald International Fund
(collectively, the "Funds"); each of which in effect represents a separate
fund with its own investment policies. This Semiannual Report to Shareholders
pertains only to the Gradison-McDonald Opportunity Value Fund (the "Fund").
The Fund changed its fiscal year end to March 31, effective with the September
30, 1994 Semiannual Report.
The following is a summary of the Fund's significant accounting policies:
SECURITIES VALUATION - Portfolio securities listed or traded on the New York or
American Stock Exchanges are valued at the last sale price on that exchange, or
if there were no sales that day, the securities are valued at the closing bid
price. All other portfolio securities for which over-the-counter market
quotations are readily available are valued at the latest bid price. Commercial
paper and discount notes are valued using the amortized cost method which
approximates market value. This involves initially valuing a security at its
original cost and thereafter assuming a constant amortization to maturity of any
discount or premium. Portfolio securities for which market quotations are not
readily available are valued at their fair value as determined in good faith
under procedures adopted by the Board of Trustees.
Repurchase agreements, which are collateralized by U.S. Government obligations,
are valued at cost which, together with accrued interest, approximates market.
Collateral for repurchase agreements is held in safekeeping in the customer-only
account of the Fund-s custodian. At the time the Fund enters into a repurchase
agreement, the seller agrees that the value of the underlying security,
including accrued interest, will be equal to or exceed the face amount of the
repurchase agreement. In the event of a bankruptcy or other default of the
seller of a repurchase agreement, the Fund could experience both delays in
liquidating the underlying security and losses. These losses would not exceed an
amount equal to the difference between the liquidating value of the underlying
security and the face amount of the repurchase agreement and accrued interest.
To minimize the possibility of loss, the Fund enters into repurchase agreements
only with selected domestic banks and securities dealers which the Fund's
investment adviser believes present minimal credit risk. There were no
repurchase agreements held in the portfolio at September 30, 1995.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME - Securities transactions are
accounted for on the trade date (the date the order to buy or sell is executed),
and dividend income is recorded on the ex-dividend date. Interest income is
accrued as earned. Gains and losses on sales of investments are calculated on
the identified cost basis for financial reporting and tax purposes.
TAXES - It is the Fund's policy to comply with the provisions of the Internal
Revenue Code available to regulated investment companies. As provided therein,
in any fiscal year in which the Fund so qualifies, and distributes at least 90%
of its taxable net income, the Fund will be relieved of federal income tax on
the income distributed. Accordingly, no provision for income taxes has been
made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends in
each calendar year, at least 98% of its net investment income (earned during the
calendar year) and 98% of its net realized capital gains, if any (earned during
the twelve months ended October 31), plus undistributed amounts from prior
years.
The tax basis of investments is equal to the cost as shown on the Statement of
Assets and Liabilities.
9
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED)
For both financial reporting and tax purposes, gross unrealized appreciation
and gross unrealized depreciation of securities at September 30, 1995 was
$28,479,313 and $156,792, respectively.
FUND SHARE VALUATION AND DISTRIBUTIONS TO SHAREHOLDERS - The net asset value
per share is computed by dividing the net asset value of the Fund (total assets
less total liabilities) by the number of shares outstanding. The redemption
price per share is equal to the net asset value per share.
Distributions to shareholders are recorded on the ex-dividend date. During the
period ended September 30, 1995, the Fund made total distributions of $.59 per
share, of which $.07 is treated as dividend income and $.52 is treated as
long-term capital gain.
EXPENSES - Common expenses incurred by the Trust are allocated to the Fund
based on the ratio of the net assets of the Fund to the combined net assets of
the Trust. In all other respects, expenses are charged to the Fund as incurred
on a specific identification basis.
RECLASSIFICATION OF CAPITAL ACCOUNTS - The Fund has adopted Statement of
Position 93-2 "Determination, Disclosure, and Financial Statement Presentation
of Income, Capital Gain, and Return of Capital Distributions by Investment
Companies" ("SOP"). The purpose of this SOP is to report the undistributed net
investment income and accumulated net realized capital gain (loss) accounts in
such a manner as to approximate amounts available for future distributions (or
to offset future realized capital gains) and to achieve uniformity in the
presentation of distributions by investment companies.
During the prior fiscal year, the Fund reclassified $1,123 to accumulated
undistributed net investment income from accumulated undistributed net realized
gains in compliance with this SOP. This reclassification, which has no impact
on the net asset value of the Fund, is primarily attributable to certain
differences in the computation of net investment income and capital gains under
federal tax rules and generally accepted accounting principles. Additional
adjustments may be necessary in subsequent reporting periods.
NOTE 2 - TRANSACTIONS WITH AFFILIATES
The Trust's investments are managed, subject to the general supervision and
control of the Trust's Board of Trustees, by McDonald & Company Securities,
Inc. ("McDonald"), a registered investment adviser and securities dealer,
pursuant to the terms of an Investment Advisory Agreement ("Agreement"). Under
the terms of the Agreement, effective June 1, 1995, the Fund pays McDonald a
fee computed and accrued daily and paid monthly based upon the Fund's daily net
assets at the annual rate of .65% on the first $100 million, .55% on the next
$100 million and .45% on any amounts in excess of $200 million. McDonald is to
reimburse the Fund for the amount by which the Fund's aggregate expenses for a
fiscal year, including the advisory fee but excluding interest, taxes and
extraordinary expenses, exceed limits set by state securities regulations. No
such reimbursement was required for the period ended September 30, 1995. Prior
to June 1, 1995, the Fund paid McDonald an investment advisory fee at an annual
rate of .90% on the first $100 million, .80% on the next $100 million and .70%
on any amounts in excess of $200 million.
The Agreement provides that McDonald bear the costs of salaries and related
expenses of executive officers of the Fund who are necessary for the management
and operations of the Fund. In addition, McDonald bears the costs of preparing,
printing and mailing sales literature and other advertising materials and
compensates the Trust's trustees who are affiliated with McDonald. All expenses
not specifically assumed by McDonald are borne by the Fund.
10
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED)
Under the terms of a Transfer Agency, Accounting Services and Administrative
Services Agreement, effective June 1, 1995, McDonald provides transfer agent,
dividend disbursing, accounting services and administrative services to the
Fund. The Fund pays McDonald a monthly fee for transfer agency and
administrative services at an annual rate of $18.25 per shareholder non-zero
balance account, plus out-of-pocket costs for statement paper, statement and
reply envelopes and reply postage. The Fund pays McDonald a monthly fee for
accounting services based on the Fund's average daily net assets at an annual
rate of .03% on the first $100 million, .02% on the next $100 million, and .01%
on any amount in excess of $200 million, with a minimum annual fee of $40,000.
Prior to June 1, 1995, the Fund paid McDonald a monthly fee at an annual rate
of $7.36 per shareholder non-zero balance account for data processing services
provided to the Fund plus the cost of shareholder statement printing. Prior to
June 1, 1995, the Fund also reimbursed McDonald for the cost of furnishing
personnel to perform shareholder and certain other services.
In accordance with the terms of a Distribution Service Plan adopted under Rule
12b-1 of the Investment Company Act of 1940, the Fund pays McDonald a fee for
its assistance in distribution of shares of the Fund. Effective June 1, 1995,
in connection with a reduction of the investment advisory fee by .25%, the
Distribution Service Plan was amended to increase the total fee by .25% to
.50%, the components of which are set forth in the remainder of this paragraph.
The Fund pays McDonald a service fee for personal services to shareholders,
including shareholder liaison services such as responding to shareholder
inquiries and providing information to customers about their Fund accounts.
This fee is computed and paid at an annual rate of .25% of the Fund's average
daily net assets. The Fund also pays McDonald a fee for its assistance in
selling shares of the Fund including advising shareholders regarding purchase,
sale and retention of Fund shares. This fee is computed and paid at an annual
rate of .25% of the Fund's average daily net assets.
The officers of the Trust are also officers of McDonald.
Each trustee of the Trust who is not affiliated with Gradison receives fees
from the Trust for services as a trustee. The amounts of such fees for each
trustee are as follows: (a) an annual fee of $5,000 payable in quarterly
installments for service during each fiscal quarter and (b) $500 for each Board
of Trustees, or committee meeting attended.
NOTE 3 - SUMMARY OF PURCHASES AND SALES OF INVESTMENTS
For the period ended September 30, 1995, the cost of purchases and proceeds
from the sale of securities, excluding short-term securities, amounted to
$6,661,667 and $15,083,824, respectively.
11
<PAGE> 25
GROWTH & INCOME
FUND
GRADISON-MCDONALD
SEMIANNUAL REPORT
SEPTEMBER 30, 1995
A COMMON STOCK FUND SEEKING LONG-TERM GROWTH
OF CAPITAL, CURRENT INCOME, AND GROWTH OF INCOME
GRADISON-MCDONALD
This material is intended for distribution to shareholders of the
Gradison-McDonald Growth & Income Fund. It may be distributed to other persons
only if it is preceded or accompanied by a current prospectus of the
Gradison-McDonald Growth & Income Fund.
McDonald & Company Securities, Inc.-Distributor
<PAGE> 26
GRADISON-MCDONALD
GROWTH & INCOME FUND
LETTER TO SHAREHOLDERS
November 24, 1995
Dear Shareholder:
The Gradison-McDonald Growth & Income Fund has entered its eighth month of
operation. During this period, the stock market, as measured by the Standard &
Poor's 500 (S&P 500) Index, has risen to record levels.
PORTFOLIO We continue to commit new monies into common stocks in a deliberate
manner, applying a strategy of dollar-cost averaging. At the end of June, 1995
your Fund's assets totaled $4.5 million and were 90% invested in stock. Since
then, nearly two million dollars has been added to the Fund. At the end of
September, 1995 your Fund was 94% invested in common stock.
Your Fund invests primarily in the common stock of high quality, well-known
companies with histories of growing profits and dividends. It is our view
companies with these characteristics are usually good candidates for capital
appreciation and income growth.
The Fund's holdings exhibited the following value and growth characteristics at
September 30, 1995:
<TABLE>
GRADISON-MCDONALD S&P 500
GROWTH & INCOME FUND INDEX
<S> <C> <C>
Price/earnings ratio* 17.4x 17.0x
Yield 2.9% 2.4%
Return on equity 19.9% 14.2%
Average annual five year earnings growth 9.0% 5.0%
Annual five year dividend growth rate 9.7% 2.8%
Beta 1.00 1.00
<FN>
*based on trailing 12 month earnings
</TABLE>
INVESTMENT PERFORMANCE The S&P 500 achieved an unannualized total return of
7.95% in the third quarter of this year, led in part by the rising prices of
technology stocks. Your Fund had a total return of 5.99% for the same period,
reflecting the more conservative nature of its diversification. While it is
still early in your Fund's operation to have meaningful and comparable
performance data, since its inception (February 28, 1995), through September
30, 1995, your Fund has achieved an unannualized total return of 12.42% while
the S&P 500's total return for the same period was 21.74% .(1) Compared to the
S&P 500, the Fund had a smaller position in technology stocks, uninvested cash,
and had expenses; the S&P 500 has no expenses. These were the primary reasons
that the Fund did not perform as well as the S&P 500 during this period.
1-800-869-5999
<PAGE> 27
LETTER TO SHAREHOLDERS (CONTINUED)
DIVIDENDS On August 28th your Fund paid its first dividend, amounting to
$0.06 per share. The Board of Trustees has also declared an income dividend of
$0.095 per share, of which $0.060 per share is attributable to net investment
income and $0.035 per share to short-term capital gains. This distribution will
be payable on November 24 to shareholders of record November 22.
MARKET OUTLOOK The strong advance of the U.S. stock market in the first nine
months of this year is evidenced by the fact that most of the major stock
indexes were ahead by more than 20%. The stock market was led higher by the
strong profit growth of technology stocks in such industries as
semi-conductors, electronics, computer hardware and software manufacturers.
Other areas of strength were financial service providers, pharmaceutical
manufacturers, and consumer goods. Our economy has been expanding for over four
years. Although its growth is slowing, it appears to be in line with the
expectations of the Federal Reserve Board. The moderating growth has kept
inflation below an annual rate of 3%. In July, the Federal Reserve Board
lowered short-term rates a quarter percent. Any need for additional interest
rate cuts appears to have been momentarily abated. Our expectations are for
moderate earnings and stock price increases in the fourth quarter as investors
migrate from technology to more defensive areas such as utilities, consumer
staples and health care.
Thank you for investing with the Gradison-McDonald Growth & Income Fund. We will
continue to do our best to serve you and your investing needs.
Sincerely,
Gradison Growth Trust
Gradison-McDonald Growth &Income Fund
/s/ Julian C. Ball
Julian C. Ball, CFA
Executive Vice President and Portfolio Manager
(1) This represents historical performance. The investment return and value of
an investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than the original cost. Total return
includes changes in share value and reinvestment of all distributions. From the
inception of the Fund, the investment advisor has waived certain fees owed by
the Fund and paid certain Fund expenses, which had the effect of increasing the
Fund's return. Without consideration of such waiver and reimbursement, the
return of the Fund for the third quarter would have been 5.84% and the
unannualized return from its inception through September 30, 1995 would have
been 11.26%.
2
<PAGE> 28
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS FOR THE PERIOD
ENDED FEBRUARY 28, 1995*
SEPT. 30, 1995 TO MARCH 31, 1995
<S> <C> <C>
Net asset value at beginning of period $15.189 $15.000
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .088 .030
Net realized and unrealized
gains on investments 1.588 .159
------- -------
Total income from investment operations 1.676 .189
------- -------
Distributions to shareholders (.060) -
Net asset value at end of period $16.805 $15.189
======= =======
Total return (1) 11.01% 1.27%
======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in millions) $6.4 $1.2
RATIOS NET OF EXPENSES WAIVED AND REIMBURSED BY THE ADVISER (2) (3):
Ratio of expenses to average net assets 1.50% 0.00%
Ratio of net investment income to average net assets 1.95% 4.09%
RATIOS ASSUMING NO ADVISER WAIVER OR REIMBURSEMENT OF EXPENSES (2) (3):
Ratio of expenses to average net assets 4.01% 13.88%
Ratio of net investment income to average net assets (.56%) (9.79%)
Portfolio turnover rate 2.97% 3.62%
<FN>
(1) Total return represents the actual return over the period and has not been annualized.
(2) The adviser absorbed expenses of the Fund through waiver of fees and reimbursement of certain expenses (Note 2).
(3) Annualized.
* Date of public offering
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 29
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCKS - 100.00%
NUMBER VALUE
OF SHARES
<S> <C>
BANK SERVICES - 6.63%
5,000 Huntington Bankshares, Incorporated $ 112,500
2,000 Morgan, (J.P.) & Company,
Incorporated 154,750
4,000 Norwest Corporation 131,000
---------
398,250
---------
CONSUMER DURABLES - 3.46%
4,000 Shaw Industries Corp. 59,000
2,000 TRW Inc. 148,750
---------
207,750
---------
CONSUMER NON-DURABLES - 12.44%
2,000 CPC International, Inc. 132,000
4,000 Heinz, (H.J.) Company 183,000
4,000 Newell Company 99,000
2,000 Pepsico, Inc. 102,000
3,000 Procter & Gamble Company 231,000
---------
747,000
---------
ENERGY - 9.35%
3,000 Chevron Corporation 145,875
3,000 Exxon Corporation 216,750
2,000 Mobil Corporation 199,250
---------
561,875
---------
FINANCIAL SERVICES - 6.51%
3,000 American Express Company 133,125
4,000 American General Corporation 149,500
2,000 Cincinnati Financial Corporation 108,250
---------
390,875
---------
HEALTHCARE & PHARMACEUTICALS - 11.40%
2,000 American Home Products Corporation 169,750
2,000 Bristol-Myers Squibb Company 145,750
3,000 Merck & Co., Inc. 168,000
3,000 U.S. Healthcare, Inc. 106,125
1,000 Warner-Lambert Company 95,250
---------
684,875
---------
- --------------------------------------------------------
<CAPTION>
NUMBER VALUE
OF SHARES
<S> <C>
INDUSTRIAL PRODUCTS - 6.24%
3,000 General Electric Company $ 191,250
3,000 Pall Corporation 69,750
4,000 WMX Technologies, Inc. 114,000
---------
375,000
---------
NATURAL RESOURCES - 6.91%
2,000 Avery-Dennison Corporation 84,000
3,000 Du Pont (E.I.) de Nemours
& Company 206,250
5,000 Schulman, (A.) Inc. 125,000
---------
415,250
---------
RETAIL TRADE & SERVICES - 11.18%
4,000 Dun & Bradstreet Corporation 231,500
2,000 Limited, Inc. 38,000
4,000 May Department Stores Co. 175,000
3,000 McDonald's Corporation 114,750
4,000 Walgreen Co. 112,000
---------
671,250
---------
TECHNOLOGY - 16.31%
2,000 Automated Data Processing, Inc. 136,250
4,500 Minnesota Mining &
Manufacturing Company 254,250
3,000 Motorola Inc. 229,125
5,000 Pitney-Bowes, Inc. 210,000
6,000 Premier Industrial Corporation 150,000
---------
979,625
---------
UTILITIES- 9.57%
3,000 Ameritech Corporation 156,375
5,000 Central & South West Corporation 127,500
2,000 Duke Power Company 86,750
1,000 GTE Corporation 39,250
3,000 SBC Communications, Inc. 165,000
---------
574,875
---------
TOTAL COMMON STOCKS
(Cost = $5,608,454) $6,006,625
----------
- --------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 30
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
<S> <C>
ASSETS
Investments in securities, at value (Note 1) (Cost $5,608,454) $6,006,625
Cash 402,902
Prepaid expenses and other assets 37,230
Dividends receivable 11,442
Organization expenses, net (Note 1) 5,676
----------
TOTAL ASSETS 6,463,875
----------
LIABILITIES
Accrued investment advisory fee (Note 2) 13,576
Other liabilities payable to adviser (Note 2) 34,578
----------
TOTAL LIABILITIES 48,154
----------
NET ASSETS $6,415,721
==========
Net assets consist of:
Aggregate paid-in capital 5,978,392
Accumulated undistributed net investment income 22,255
Accumulated undistributed net realized gains 16,903
Net unrealized appreciation of investments 398,171
----------
Net Assets $6,415,721
==========
Shares of capital stock outstanding
(no par value - unlimited number of shares authorized) 381,778
==========
Net asset value and redemption price per share (Note 1) $16.80
======
- ------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 31
STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, 1995
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 51,893
Interest 20,190
--------
Total investment income $ 72,083
Expenses:
Accounting services fees (Note 2) 20,000
Registration fees 16,780
Investment advisory fees (Note 2) 13,576
Distribution (Note 2) 10,443
Custodian fees 7,323
Professional fees 5,502
Trustee fees (Note 2) 5,112
Transfer agency fees (Note 2) 4,135
Amortization of organization expenses (Note 1) 630
Printing 234
--------
Total expenses 83,735
Less fees waived and expenses reimbursed by the adviser (Note 2) (52,404)
--------
Net expenses 31,331
--------
NET INVESTMENT INCOME 40,752
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 16,493
Net increase in unrealized appreciation of investments 390,959
---------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 407,452
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $448,204
========
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 32
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS FOR THE PERIOD
ENDED FEBRUARY 28, 1995*
SEPTEMBER 30, 1995 TO MARCH 31, 1995
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 40,752 $ 2,404
Net realized gain on investment 16,493 410
Net increase in unrealized appreciation of investments 390,959 7,212
---------- ----------
Net increase in net assets resulting from operations 448,204 10,026
---------- ----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (20,901) -
---------- ----------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 5,387,129 1,198,480
Net asset value of shares issued as distributions 19,812 -
Payments for shares redeemed (626,529) (500)
---------- ----------
Net increase in net assets from Fund share transactions 4,780,412 1,197,980
---------- ----------
TOTAL INCREASE IN NET ASSETS 5,207,715 1,208,006
NET ASSETS:
Beginning of period 1,208,006 -
---------- ----------
End of period (including undistributed net investment
income of $22,255 and $2,404, respectively) (Note 1) $6,415,721 $1,208,006
========== ==========
NUMBER OF FUND SHARES:
Sold 339,132 79,564
Issued as distributions to shareholders 1,236 -
Redeemed (38,121) (33)
---------- ----------
Net increase in shares outstanding 302,247 79,531
Outstanding at beginning of period 79,531 -
---------- ----------
Outstanding at end of period 381,778 79,531
========== ==========
- --------------------------------------------------------------------------------------------------------------------------
<FN>
*DATE OF PUBLIC OFFERING.
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED)
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Gradison Growth Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The
Trust was created under Ohio law on May 31, 1983; it commenced investment
operations and the public offering of its shares on August 16, 1983. The Trust
consists of four diversified series, the Gradison-McDonald Growth &Income Fund,
the Gradison-McDonald Established Value Fund, the Gradison-McDonald Opportunity
Value Fund and the Gradison-McDonald International Fund (collectively, the
"Funds"); each of which in effect represents a separate fund with its own
investment policies. This Semiannual Report to Shareholders pertains only to
the Gradison-McDonald Growth & Income Fund (the "Fund"), the public offering
of shares of which commenced on February 28, 1995.
The following is a summary of the Fund's significant accounting policies:
SECURITIES VALUATION -- Portfolio securities listed or traded on the New York
or American Stock Exchanges are valued at the last sale price on that exchange,
or if there were no sales that day, the securities are valued at the closing
bid price. All other portfolio securities for which over-the-counter market
quotations are readily available are valued at the latest bid price. Commercial
paper and discount notes are valued using the amortized cost method which
approximates market value. This involves initially valuing a security at its
original cost and thereafter assuming a constant amortization to maturity of
any discount or premium. Portfolio securities for which market quotations are
not readily available are valued at their fair value as determined in good
faith under procedures adopted by the Board of Trustees.
Repurchase agreements, which are collateralized by U.S. Government obligations,
are valued at cost which, together with accrued interest, approximates market.
Collateral for repurchase agreements is held in safekeeping in the
customer-only account of the Fund's custodian. At the time the Fund enters into
a repurchase agreement, the seller agrees that the value of the underlying
security, including accrued interest, will be equal to or exceed the face
amount of the repurchase agreement. In the event of a bankruptcy or other
default of the seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying security and losses. These losses would
not exceed an amount equal to the difference between the liquidating value of
the underlying security and the face amount of the repurchase agreement and
accrued interest. To minimize the possibility of loss, the Fund enters into
repurchase agreements only with selected domestic banks and securities dealers
which the Fund's in vestment adviser believes present minimal credit risk.
There were no repurchase agreements held in the portfolio at September 30,
1995.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on the trade date (the date the order to buy or sell is
executed), and dividend income is recorded on the ex-dividend date. Interest
income is accrued as earned. Gains and losses on sales of investments are
calculated on the identified cost basis for financial reporting and tax
purposes.
TAXES -- It is the Fund's policy to comply with the provisions of the Internal
Revenue Code available to regulatedinvestment companies. As provided therein,
in any fiscal year in which the Fund so qualifies, and distributes at least 90%
of its taxable net income, the Fund will be relieved of federal income tax on
the income distributed. Accordingly, no provision for income taxes has been
made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends
in each calendar year, at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains, if any (earned
during the twelve months ended October 31), plus undistributed amounts from
prior years.
8
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED)
The tax basis of investments is equal to the cost as shown on the Statement of
Assets and Liabilities.
For both financial reporting and tax purposes, gross unrealized appreciation
and gross unrealized depreciation of securities at September 30, 1995 was
$433,784 and $35,613, respectively.
FUND SHARE VALUATION AND DISTRIBUTIONS TO SHAREHOLDERS -- The net asset value
per share is computed by dividing the net asset value of the Fund (total assets
less total liabilities) by the number of shares outstanding. The redemption
price per share is equal to the net asset value per share.
Distributions to shareholders are recorded on the ex-dividend date. During the
period ended September 30, 1995, the Fund made total distributions of $.06 per
share, all of which is treated as dividend income.
EXPENSES -- Common expenses incurred by the Trust are allocated to the Fund
based on the ratio of the net assets of the Fund to the combined net assets of
the Trust. In all other respects, expenses are charged to the Fund as incurred
on a specific identification basis.
ORGANIZATION EXPENSES -- Expenses of organization have been capitalized and are
being amortized on a straight-line basis over 60 months commencing upon the
public offering of the Fund's shares.
NOTE 2 -- TRANSACTIONS WITH AFFILIATES
The Trust's investments are managed, subject to the general supervision and
control of the Trust's Board of Trustees, by McDonald & Company Securities,
Inc. ("McDonald"), a registered investment adviser and securities dealer,
pursuant to the terms of an Investment Advisory Agreement ("Agreement"). Under
the terms of the Agreement, the Fund pays McDonald a fee computed and accrued
daily and paid monthly based upon the Fund's daily net assets at the annual
rate of .65% on the first $100 million, .55% on the next $100 million and .45%
on any amounts in excess of $200 million. McDonald is to reimburse the Fund for
the amount by which the Fund's aggregate expenses for a fiscal year, including
the advisory fee but excluding interest, taxes and extraordinary expenses,
exceed limits set by state securities regulations.
The Agreement provides that McDonald bear the costs of salaries and related
expenses of executive officers of the Fund who are necessary for the management
and operations of the Fund. In addition, McDonald bears the costs of preparing,
printing and mailing sales literature and other advertising materials and
compensates the Trust's trustees who are affiliated with McDonald. All expenses
not specifically assumed by McDonald are borne by the Fund.
Under the terms of a Transfer Agency, Accounting Services and Administrative
Services Agreement, McDonald provides transfer agent, dividend disbursing,
accounting services and administrative services to the Fund. The Fund pays
McDonald a monthly fee for transfer agency and administrative services at an
annual rate of $18.25 per shareholder non-zero balance account, plus
out-of-pocket costs for statement paper, statement and reply envelopes and
reply postage. The Fund pays McDonald a monthly fee for accounting services
based on the Fund's average daily net assets at an annual rate of .03% on the
first $100 million, .02% on the next $100 million and .01% on any amount in
excess of $200 million, with a minimum annual fee of $40,000.
9
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED)
Under the terms of an Expense Reimbursement Agreement, McDonald has agreed to
forego fees owed to it under the Advisory Agreement or any other agreement with
the Trust and to reimburse the Fund if, and to the extent that, expenses
(excluding brokerage commissions, taxes, interest and extraordinary items)
borne by the Fund in any fiscal year exceed 2.00% of the average net assets of
the Fund. This agreement is in effect until August 1, 1996 and is subject to
termination by either party upon written notice subsequent to that date. In
addition, McDonald may, at its discretion, agree to waive fees and/or reimburse
the Fund for other expenses in order to limit the Fund's expenses to a
specified percentage of average net assets lower than 2.00%. For the period
ended September 30, 1995, McDonald waived advisory fees of $13,576, transfer
agency fees of $4,135, accounting services fees of $20,000, distribution
expenses of $10,443 and reimbursed the Fund $4,250 for other operating
expenses.
In accordance with the terms of a Distribution Service Plan adopted under Rule
12b-1 of the Investment Company Act of 1940, the Fund pays McDonald a service
fee for personal services to shareholders including shareholder liaison
services such as responding to shareholder inquiries and providing information
to customers about their Fund accounts. This fee is computed and paid at an
annual rate of .25% of the Fund's average daily net assets. The Fund also pays
McDonald a fee for its assistance in selling shares of the Fund including
advising shareholders regarding purchase, sale and retention of Fund shares.
This fee is computed and paid at an annual rate of .25% of the Fund's average
daily net assets.
The officers of the Trust are also officers of McDonald.
Each trustee of the Trust who is not affiliated with McDonald receives fees
from the Trust for services as a trustee. The amounts of such fees for each
trustee are as follows: (a) an annual fee of $5,000 payable in quarterly
installments and (b) $500 for each Board of Trustees or committee meeting
attended.
NOTE 3 -- SUMMARY OF PURCHASES AND SALES OF INVESTMENTS
For the period ended September 30, 1995, the cost of purchases and proceeds
from the sale of securities, excluding short-term securities, amounted to
$4,952,626 and $103,078, respectively.
NOTE 4 -- SUBSEQUENT EVENT
The Board of Trustees declared an income dividend of $0.095 per share, of which
$0.035 is attributable to short-term capital gains, payable on November 24,
1995 to shareholders of record on November 22, 1995.
10
<PAGE> 36
GRADISON-McDONALD FAMILY OF FUNDS
Increasingly, MUTUAL FUNDS are the preferred vehicle for starting and building
an investment program. And today, Gradison-McDonald is a preferred name in
mutual funds for a GROWING number of investors. Gradison-McDonald offers a full
line of mutual fund products.
GOVERNMENT INCOME FUND
An income fund which invests in intermediate to long-term U.S. Government
securities.
INTERMEDIATE MUNICIPAL INCOME FUND
An income fund which seeks to provide income exempt from regular Federal income
tax through investment in a municipal bond portfolio with a three to ten year
average maturity.*
OHIO TAX-FREE INCOME FUND
An income fund which seeks to provide income exempt from regular Federal income
tax and Ohio state personal income tax.*
ESTABLISHED VALUE FUND
A common stock fund that seeks long-term capital growth by investing in
companies that are included in the Standard & Poor's 500 Index and other large
companies.
OPPORTUNITY VALUE FUND
A common stock fund that seeks long-term capital growth by investing in
companies that are generally smaller in size than those included in the
Standard & Poor's 500 Index.
INTERNATIONAL FUND
A common stock fund that seeks capital growth by investing in common stocks of
non-United States companies.
MONEY MARKET FUNDS
Gradison-McDonald offers a full range of taxable and tax-free money market
funds.
Prospectuses are available upon request by calling (800) 869-5999 and should be
read carefully before you invest or send money. An investment in the money
market funds is neither insured nor guaranteed by the U.S. Government and there
can be no assurance that they will be able to maintain a stable $1.00 share
price. The value of an investment in other funds will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The returns of all funds will fluctuate.
*Investment income may be subject to the federal alternative minimum tax.
Capital gains, if any, are taxable. Investment income of the Intermediate
Municipal Income Fund may be subject to state and local taxes.
11
<PAGE> 37
INTERNATIONAL
FUND
GRADISON - MCDONALD
SEMIANNUAL REPORT
SEPTEMBER 30, 1995
GRADISON - MCDONALD
THIS MATERIAL IS INTENDED FOR DISTRIBUTION TO SHAREHOLDERS OF THE GRADISON -
MCDONALD INTERNATIONAL FUND. IT MAY BE DISTRIBUTED TO OTHER PERSONS ONLY IF IT
IS PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS OF THE GRADISON-
MCDONALD INTERNATIONAL FUND. MCDONALD & COMPANY SECURITIES, INC.-DISTRIBUTOR
A COMMON STOCK FUND INVESTING
IN NON-UNITED STATES COMPANIES
<PAGE> 38
GRADISON - MCDONALD
INTERNATIONAL FUND
LETTER TO SHAREHOLDERS
November 1, 1995
Dear Shareholder:
On May 31, 1995, we commenced operations in the Gradison-McDonald International
Fund. We began purchases of international securities on September 14th. You
will recall that we chose Blairlogie Capital Management ("Blairlogie") of
Edinburgh, Scotland to be our subadvisor on this fund. Blairlogie specializes
in managing international stock portfolios and offers a strategy which includes
investments in both developed and emerging stock markets, called the hybrid
strategy.
PORTFOLIO Your Fund invests approximately 70% of its assets in companies
based in developed foreign countries and approximately 30% in companies based
in emerging market countries. Blairlogie believes this allocation offers the
most favorable risk/reward ratio to the Fund's investors. As of September 30th,
the top five countries represents 54.6% of the Fund's net assets as listed
below:
<TABLE>
<CAPTION>
PERCENT OF
COUNTRY NET ASSETS
<S> <C>
Japan 28.1%
UK 10.7%
France 5.9%
Malaysia 5.0%
Brazil 4.9%
------------------------------------------
</TABLE>
INVESTMENT PERFORMANCE It is too early in your Fund's operation to have
meaningful performance data. Nonetheless, your Fund's non-annualized
performance for the period from its inception (May 31, 1995) through September
30, 1995, was -.13%. The non-annualized performance of the hybrid index for the
same period was 1.63%. Since the Fund's inception, its investment adviser has
been waiving receipt of certain fees otherwise due to be paid by the Fund and
paying certain Fund expenses. Without consideration of such waiver and
reimbursement, the Fund's non-annualized performance for the period from its
inception would have been -.60%. Performance figures are historical. The
investment return and value of an investment in the Fund will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than the
original cost. Past performance is no assurance of future performance. The
hybrid index is composed of investing 70% in the developed markets represented
in the Morgan Stanley Capital International ("MSCI") EAFE Index, and 30% in the
emerging markets of the MSCI Emerging Markets Free Index. The Fund's lower
return during this period is largely attributable to it being in a start-up
phase. Also, it is important to remember, when comparing the performance of any
fund against an index, that transaction costs are not reflected in indices.
1-800-869-5999
<PAGE> 39
LETTER TO SHAREHOLDERS (CONTINUED)
REVIEW AND OUTLOOK Global equity markets generally enjoyed a favorable
quarter as interest rate cuts by the central banks of the United States, Japan
and Germany inspired expectations of economic growth and higher stock prices.
In developed markets, Japan was the top performer, up 21%, reflecting a more
proactive stance on the part of the government toward economic stimulus.
European markets performed respectably (up 4-8%) across the board as exports
improved but consumer demand remained sluggish. After a sharp rise in July, the
emerging markets settled into a trading range, but were punctuated by good
performance by Brazil (+14%) and Mexico (+6%) as well as a sharp decline in
Turkey (-21%).
The past quarter is illustrative of how diverse the performance of the various
segments of your International Fund can be. However, we believe that the
secular outlook for international investing is quite positive based on a
combination of strong economic growth, superior return potential and a growing
acceptance of free market economies.
We appreciate your participation in the Gradison-McDonald International Fund.
We will do our best to serve your investing needs.
Sincerely,
Gradison Growth Trust
Gradison - McDonald International Fund
/s/ Bradley E. Turner
Bradley E. Turner
President
2
<PAGE> 40
FINANCIAL HIGHLIGHTS (SHARE OUTSTANDING THROUGHOUT THE PERIOD)
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 31, 1995* THROUGH
(September 30, 1995)
<S> <C>
Net asset value at beginning of period $15.000
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .118
Net realized and unrealized
gain (loss) on investments (.134)
-------
Total income from investment operations (.016)
-------
Distributions to shareholders -
-------
Net asset value at end of period $14.984
=======
Total return (1) (.13%)
=======
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in millions) $10.2
RATIOS NET OF EXPENSES WAIVED AND REIMBURSED BY
THE ADVISER (2) (3):
Ratio of expenses to average net assets 0.92%
Ratio of net investment income to average
net assets 4.81%
RATIOS ASSUMING NO ADVISER WAIVER OR REIMBURSEMENT
OF EXPENSES (2) (3):
Ratio of expenses to average net assets 3.80%
Ratio of net investment income to average net assets 1.93%
Portfolio turnover rate 0.00%
- ------------------------------------------------------------------------------
<FN>
(1) Total return represents the actual return over the period and has not been
annualized.
(2) The adviser absorbed expenses of the Fund through waiver of fees and
reimbursement of certain expenses (Note 2).
(3) Annualized.
* Date of public offering
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 41
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995 (UNAUDITED)
PREFERRED STOCKS - 3.59%
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES
<S> <C> <C>
BRAZIL - 3.59%
11,000 Aracruz Celulose SA $ 22,737
2,650,000 Banco Bradesco SA 25,442
100,000 Brasmotor SA 25,392
390,000 Companhia Vale Do Rio Doce 65,269
330,000 Elerobras Centrais Eletricas 101,107
1,600,000 (1)Paranapanema 24,175
450,000 Petroleo Brasileiro SA (Petrobras) 46,980
23,600,000 Usinas Siderugicas de Minas Gerais 26,001
--------
TOTAL PREFERRED STOCKS
(COST = $356,584) $337,103
========
<CAPTION>
COMMON STOCKS - 96.41%
NUMBER VALUE
OF SHARES
<S> <C> <C>
ARGENTINA - 0.95%
2,750 Astra Cia Argentina de Petroleo SA $ 4,703
1,050 Banco de Galicia y Buenos Aires SA 4,726
650 Banco Frances del Rio de la Plata SA 4,648
1,400 Central Puerto SA 4,551
1,500 Compania Naviera Perez
Companc SA ADR 13,142
600 (1)IRSA(Inversiones y
Representaciones SA) GDR 14,400
750 Molinos Rio de la Plata SA 4,538
700 Telefonica de Argentina ADR 16,713
1,200 YPF Sociedad Anonima ADR 21,600
--------
89,021
--------
AUSTRALIA - 0.75%
1,800 Amcor Limited 13,477
1,000 Broken Hill Proprietary Co. Ltd. 13,767
2,800 Comalco Limited 13,843
2,200 Western Mining Corp Holding 14,380
3,600 Westpac Banking Corp. 14,564
--------
70,031
--------
<CAPTION>
NUMBER VALUE
OF SHARES
<S> <C> <C>
BELGIUM - 1.36%
166 Electrabel SA $ 36,516
90 Generale de Banque SA 28,327
595 G.I.B. Holdings Ltd. 25,241
145 Glaverbel SA 18,751
36 Solvay SA 19,244
--------
128,079
--------
BRAZIL - 1.75%
850,000 Companhia Paulista de Forca e Luz 49,053
1,200,000 Lojas Americanas SA, 26,189
1,900 Telebras SA ADR 89,311
--------
164,553
--------
CHILE - 1.97%
700 Compania Telecomunicacion
Chile ADR 48,388
1,400 Empresa Nacional de
Electridad SA ADS 28,175
700 Enersis SA ADR 17,675
2,000 Madeco SA ADR 47,000
1,000 Quimica y Minera Chile SA ADR 43,750
--------
184,988
--------
COLUMBIA - 1.23%
2,900 Banco Industrial Columbiano ADS 39,513
2,600 Banco Ganadero SA ADR 39,086
2,250 Cementos Diamante ADR 37,091
--------
115,690
--------
FINLAND - 1.29%
4,169 Enso-Gutzeit Oy 35,424
4,929 Finnair Oy 38,758
200 Nokia (AB) Oy 14,083
1,000 Valmet Corp. 32,627
--------
120,892
--------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 42
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995 (UNAUDITED)
Common Stocks (Continued)
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES
<S> <C> <C>
FRANCE - 6.42%
498 Alcatel Alsthom $ 41,999
958 AXA 50,669
99 Carrefour 58,269
444 (1)Club Mediterranee 43,133
929 Compagnie Francaise
de Petroleum Total 56,382
655 Credit Local De France 52,839
428 Eaux (Compagnie Generale) 41,230
280 Groupe Danone 45,392
845 Lafarge Coppee SA 55,724
400 (1)Peugeot SA 54,825
312 Roussel-Uclaf 48,546
102 Salomon SA 53,990
--------
602,998
--------
GERMANY - 3.72%
17 Allianz AG Holding 30,776
121 Bayer AG 30,953
31 Bayerische Motoren Werke AG 17,058
157 Commerzbank AG 35,859
73 Karstadt AG 32,474
147 Mannesmann AG 48,451
8 Muenchener Rueckversicherungs-
Gesellschaft 16,360
102 Siemens AG 51,704
1,167 Veba AG 46,509
108 Volkswagen AG 35,179
--------
345,323
--------
HONG KONG - 3.61%
6,000 Cheung Kong (Holdings) Ltd. 32,671
6,300 Hang Seng Bank 51,946
18,000 Hong Kong
Telecommunications Ltd. 32,710
10,000 Hutchison Whampoa Ltd. 54,193
8,000 Sun Hung Kai Properties Ltd. 64,929
6,500 Swire Pacific Ltd. 51,493
11,000 Wharf (Holdings) Ltd. 34,288
5,000 Wing Hang Bank Ltd. 16,911
--------
339,141
--------
<CAPTION>
NUMBER VALUE
OF SHARES
<S> <C> <C>
INDONESIA - 1.47%
17,500 Astra International $ 34,729
10,000 Bank Internasional Indonesias 34,398
22,500 Indah Kiat Paper & Pulp Corp. 27,039
3,500 Indofood Sukses Makmur 16,863
9,000 Semen Gresik 25,402
--------
138,431
--------
INDIA - 3.27%
1,250 Bajaj Auto Ltd. GDR 38,281
1,400 East India Hotels GDR 26,950
1,000 Grasim Industries GDS 22,125
1,150 Hindalco Industries GDR 39,675
2,100 Indian Rayon & Industries GDR 28,875
2,400 Larsen & Toubro Ltd. GDS 49,500
900 Raymond Ltd. GDR 14,625
2,250 Reliance Industries Ltd. GDS 41,344
2,000 Tata Engineering & Locomotive
Co. Ltd. GDR 46,000
--------
307,375
--------
IRELAND - 1.06%
3,000 Allied Irish Bank PLC 14,906
3,200 Bank of Ireland 20,095
4,350 CRH PLC 29,851
2,000 Kerry Group PLC 15,116
6,600 Smurfit (Jefferson) Group 19,655
--------
99,623
--------
ITALY - 1.52%
24,325 Credito Italiano SpA 28,897
3,950 (1)Fiat SpA 14,816
3,790 Rinascente (La) 22,571
2,975 SAI (Societa Assicuratrice
Industriale) SpA 13,487
5,390 Sasib SpA 14,058
11,400 STET-Societa Finanziaria Telefonic 34,689
2,210 Unicem (Union Cem March Emil) 14,273
--------
142,791
--------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 43
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995 (UNAUDITED)
COMMON STOCKS (CONTINUED)
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES
<S> <C> <C>
JAPAN - 30.41%
13,000 Daiwa Securities Co. Ltd. $ 164,726
16,000 Fujisawa Pharmaceutical Company 158,948
16,000 Hitachi Ltd. 175,167
14,000 Matsushita Electric Works 146,176
30,000 (1)Mazda Motor Corp. 109,480
30,000 Mitsubishi Chemical Corp. 145,973
59,000 (1)Mitsui Engineering & Shipbuilding 142,344
13,000 Mitsui Fudosan Co. Ltd. 156,819
16 Nippon Telephone & Telegraph Corp. 138,350
68,000 (1)NKK Corporation 182,669
18,000 Obayashi Corp. 142,323
2,500 Sony Corp. 130,260
9,000 Sumitomo Bank 175,167
20,000 Sumitomo Metal Mining 163,408
10,000 Sumitomo Trust & Banking 137,863
10,000 Takashimaya Co. 146,987
3,000 TDK Corp 155,096
8,000 Tokyo Steel Manufactoring 154,893
19,000 Tokyu Corporation 128,659
---------
2,855,308
---------
MALAYSIA - 5.46%
22,000 Land & General Berhad 57,837
12,000 Malayan Banking Berhad 97,032
16,000 Metacorp Berhad 43,975
21,000 R J Reynolds Berhad 44,333
25,000 Road Builder Holdings Berhad 79,665
14,000 Sungei Way Holdings Berhad 47,679
18,000 Technology Resources
Industries Berhad 46,962
5,000 Telekom Malaysia Berhad 37,642
9,000 United Engineers Ltd. 57,717
---------
512,842
---------
NETHERLANDS - 3.10%
566 ABN-AMRO Holdings NV 23,522
973 Ahold (Koninklijke) NV 36,711
288 Akzo Nobel NV 34,732
2,830 Elsevier NV 36,421
590 Fortis Amev NV 34,558
1,008 Koninklijke PTT Nederland NV 35,753
785 Philips Electronics NV 38,439
472 Polygram NV 30,817
152 VNU (Verenigde Nederlandse
Uitgeversbedrijven Verenigd Bezit) 20,230
---------
291,183
---------
<CAPTION>
NUMBER VALUE
OF SHARES
<S> <C> <C>
NORWAY - 1.63%
16,572 Den Norske Bank AS $ 45,828
630 Hafslund Nycomed Class B 16,415
540 Kvaerner AS 22,961
676 Orkla AS 30,256
2,928 Saga Petroleum A.S. 37,911
---------
153,371
---------
PERU - 0.96%
23,830 Banco de Credito del Peru 44,541
24,300 Compania Peruana Telefonica
B Shares 45,744
---------
90,285
---------
POLAND - 1.00%
1,700 (1)Agros Holdings S.A. 19,430
1,200 (1)Bank Rozwoju Eksportu S.A. 20,967
1,300 (1)Debica S.A. 18,706
5,000 Elektrim Spolka Akeyina S.A. 18,501
3,900 Polifarb-Cieszyn S.A. 16,515
---------
94,119
---------
SINGAPORE - 1.99%
3,000 Cerebos Pacific Ltd. 17,945
8,000 City Developments Ltd. 49,543
13,000 DBS Land Ltd. 38,607
3,000 Overseas Union Bank Ltd. 19,212
2,000 Singapore Airlines Ltd. 18,579
5,000 United Overseas Bank Ltd. 43,280
---------
187,166
---------
SOUTH AFRICA - 1.58%
6,300 Amalgamated Banks of South Africa 27,176
230 Anglo American Gold
Investment Co. Ltd. 20,787
2,200 Barlow Ltd. 24,855
1,100 De Beers Centenary AG 29,750
7,800 Iscor 8,438
3,600 (1)Smith (C.G.) Ltd. 22,579
470 South African Breweries Ltd. 14,803
---------
148,388
---------
SOUTH KOREA - 1.60%
6,800 Korea Fund, Inc. (closed-end
mutual fund) 150,450
---------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 44
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995 (UNAUDITED)
COMMON STOCKS (CONTINUED)
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES
<S> <C> <C>
SPAIN - 2.58%
720 Argentaria (Corporacion Bancaria
de Espana SA) $ 25,718
2,850 Aumar (Autopistas del Mare
Nostrum SA) 34,242
300 Banco Popular Espanol SA 46,808
3,156 Iberdrola SA 23,929
756 Empresa Nacional de Electridad SA 38,910
645 Repsol SA 20,342
1,770 Telefonica De Espana 24,427
2,600 (1)Uralita SA 27,755
---------
242,131
---------
THAILAND - 1.01%
2,100 Bangkok Bank Co. Ltd. 23,612
8,100 Industrial Finance Corp. of Thailand 24,868
2,300 Property Perfect Co. Ltd. 22,926
2,700 Thai Farmers Bank Ltd. 23,469
---------
94,875
---------
TURKEY - 1.94%
47,000 Adana Cimento Sanayii 26,320
121,900 Akal Tekstil Sanayii 13,897
65,000 Akbank T.A.S. 16,575
120,000 Arcelik A.S. 18,480
50,000 Bagfas Bandirma Gubre
Fabrikalari A.S. 20,500
60,000 Brisa Bridgestone Sabanci Lastik 16,800
31,000 Erciyas Biracilik Ve Malt Sanayii 18,910
26,000 Migros Turk T.A.S. 27,560
62,000 Netas Telekomunik 23,560
---------
182,602
---------
<CAPTION>
NUMBER VALUE
OF SHARES
<S> <C> <C>
UNITED KINGDOM - 11.63%
6,640 Abbey National plc $ 56,854
9,675 BAA plc 76,257
5,950 Boots Company plc 53,206
8,350 British Petroleum Co. plc 62,642
11,365 British Sky Broadcasting Group plc 68,532
8,700 British Telecommunications plc 54,389
12,535 BTR plc 64,676
7,950 Guinness plc 65,051
3,725 HSBC Holdings plc 52,824
5,060 Lloyds Bank plc 55,098
20,300 Pilkington plc 63,615
4,615 RTZ Corporation plc 67,563
7,035 Seeboard plc 54,335
14,840 Tesco plc 73,280
10,930 Wolseley plc 63,487
8,840 Zeneca Group plc 159,918
---------
1,091,727
---------
VENEZUELA - 1.15%
5,300 Corimon C.A. ADR 29,150
8,500 Mavesa SA 144A ADR 30,031
24,000 Siderurgica Venezolana ADR 48,888
---------
108,069
---------
TOTAL COMMON STOCKS
(COST = $9,158,733) $9,051,452
=========
TOTAL INVESTMENTS,
AT VALUE (NOTE 1)
(COST = $9,515,317) - 100.00% $9,388,555
=========
</TABLE>
(1) Non-income producing.
The following abbreviations are used in this portfolio.
ADR - American Depository Receipts
ADS - American Depository Shares
GDR - Global Depository Receipts
GDS - Global Depository Shares.
144A - These securites are exempt from registration under rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to qualified
institutional buyers, in transactions exempt from registration. See Note 1 of
the Notes to Financial Statements for valuation policy. Rule 144A securities
amounted to $30,031 as of September 30, 1995.
See accompanying notes to financial statements.
7
<PAGE> 45
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
<S> <C>
ASSETS
Investments in securities, at value (Note 1) (Cost $9,515,317) $ 9,388,555
Cash 1,639,594
Foreign currency holdings, at value (Note 1) (Cost $50,338) 50,394
Organization expenses, net (Note 1) 23,902
Dividends receivable 17,674
Receivable for Fund shares purchased 17,500
Futures margin balance (Note 1) 802
Other assets 8,214
-----------
TOTAL ASSETS 11,146,635
-----------
LIABILITIES
Payable for securities purchased 949,067
Other accrued expenses and liabilities 38,311
-----------
TOTAL LIABILITIES 987,378
-----------
NET ASSETS $10,159,257
===========
Net assets consist of:
Aggregate paid-in capital $10,241,118
Accumulated undistributed net investment income 79,724
Net realized loss (13,321)
Net unrealized depreciation of investments (126,762)
Net unrealized depreciation on foreign currency translation (21,502)
-----------
Net Assets $10,159,257
===========
Shares of capital stock outstanding
(no par value - unlimited number of shares authorized) 677,967
==========
Net asset value and redemption price per share (Note 1) $14.98
======
- ------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 46
STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD MAY 31, 1995*
TO SEPTEMBER 30, 1995
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 77,464
Dividends, net of foreign withholding
taxes of $1,536 17,557
--------
Total investment income $ 95,021
EXPENSES:
Accounting services fees (Note 2) 20,000
Investment advisory fees (Note 2) 16,591
Registration fees 10,290
Distribution (Note 2) 8,296
Transfer agency fees (Note 2) 2,761
Trustees' fees (Note 2) 2,187
Amortization of organization expenses (Note 1) 1,593
Custodian fees 888
Legal fees 400
--------
TOTAL EXPENSES 63,006
LESS FEES WAIVED AND EXPENSES REIMBURSED
BY THE ADVISER (NOTE 2) (47,709)
--------
NET EXPENSES 15,297
--------
NET INVESTMENT INCOME 79,724
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investments and foreign
currency transactions (11,401)
Net realized loss on futures transactions (1,920)
Net increase in unrealized depreciation
of investments (126,762)
Net increase in unrealized depreciation on
foreign currency translation (21,502)
--------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (161,585)
--------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ($81,861)
--------
</TABLE>
- -------------------------------------------------------------------------------
*Date of public offering.
See accompanying notes to financial statements.
9
<PAGE> 47
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 31,1995* TO
SEPTEMBER 30, 1995
<S> <C>
FROM OPERATIONS:
Net investment income $ 79,724
Net realized loss on investments and foreign currency
transactions (11,401)
Net realized loss on futures transactions (1,920)
Net increase in unrealized depreciation of investments (126,762)
Net increase in unrealized depreciation on foreign
currency translation (21,502)
-----------
Net decrease in net assets resulting from operations (81,861)
-----------
FROM DISTRIBUTIONS TO SHAREHOLDERS --
-----------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 10,693,502
Payments for shares redeemed (452,384)
-----------
Net increase in net assets from Fund share transactions 10,241,118
-----------
TOTAL INCREASE IN NET ASSETS 10,159,257
NET ASSETS:
Beginning of period --
-----------
End of period (including undistributed net investment
income of $79,724) $10,159,257
===========
NUMBER OF FUND SHARES:
Sold 708,138
Redeemed (30,171)
-----------
Net increase in shares outstanding 677,967
Outstanding at beginning of period --
-----------
Outstanding at end of period 677,967
===========
</TABLE>
- --------------------------------------------------------------------------------
*Date of public offering.
See accompanying notes to financial statements.
10
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED)
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Gradison Growth Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The
Trust was created under Ohio law on May 31, 1983; it commenced investment
operations and the public offering of its shares on August 16, 1983. The Trust
consists of four diversified series, the Gradison-McDonald International Fund,
the Gradison-McDonald Established Value Fund, the Gradison-McDonald Opportunity
Value Fund and the Gradison-McDonald Growth & Income Fund (collectively, the
"Funds"); each of which in effect represents a separate fund with its own
investment policies. This Semiannual Report to Shareholders pertains only to
the Gradison-McDonald International Fund (the "Fund"), the public offering of
shares of which commenced on May 31, 1995.
The following is a summary of the Fund's significant accounting policies:
SECURITIES VALUATION -- Listed equity securities are valued at the last sale
price reported on national securities exchanges, or if there were no sales that
day, the security is valued at the closing bid price. Unlisted securities and
short-term obligations (and private placement securities) are generally valued
at the prices provided by an independent pricing service. Portfolio securities
and other assets for which market quotations are not readily available are
valued at their fair value as determined by management of the Fund and
approved in good faith by the Board of Trustees. Short-term securities with
remaining maturities of sixty days or less may be stated at amortized cost,
which approximates value.
FOREIGN CURRENCY TRANSLATION -- The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in foreign
currencies ("FC") are translated into U.S. dollars based on the rate of
exchange of such currencies against U.S. dollars on the date of valuation.
Purchases and sales of securities, income and expenses are translated at the
rate of exchange quoted on the respective date that such transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are adjusted when reported by the custodian bank. The Fund does not
isolate that portion of the results of operations resulting from changes in
foreign exchange rates on investments from the fluctuations arising from
changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of FCs, currency gains or losses
realized between the trade and settlement dates on securities transactions, the
difference between the amounts of dividends, interest, and foreign withholding
taxes recorded on the Fund's books, and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized foreign exchange gains and
losses arise from changes in the value of assets and liabilities other than
investments in securities at fiscal year end, resulting from changes in the
exchange rate.
FUTURES CONTRACTS -- Initial margin deposits made upon entering into futures
contracts are recognized as assets due from the broker (the Fund's agent in
acquiring the futures position). During the period the futures contract is
open, changes in the value of the contract are recognized as unrealized gains
or losses by "marking to market" on a daily basis to reflect the market value
of the contract at the end of each day's trading.
Variation margin payments are received or made, depending upon whether
unrealized gains or losses are incurred. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the proceeds
from (or cost of) the closing transaction and the Fund's basis in the contract.
Open future contracts at September 30, 1995 were as follows:
<TABLE>
<CAPTION>
UNREALIZED
MARKET APPRECIATION
TYPE EXPIRATION COST VALUE (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
Long Australian All Ordinaries Index 12/95 $80,485 $80,787 $302
====
- -----------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 49
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED)
SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on the trade date (the date the order to buy or sell is
executed), and dividend income is recorded on the ex-dividend date. Interest
income is accrued as earned. Gains and losses on sales of investments are
calculated on the identified cost basis for financial reporting and tax
purposes.
TAXES -- It is the Fund's policy to comply with the provisions of the Internal
Revenue Code available to regulatedinvestment companies. As provided therein,
in any fiscal year in which the Fund so qualifies, and distributes at least 90%
of its taxable net income, the Fund will be relieved of federal income tax on
the income distributed. Accordingly, no provision for income taxes has been
made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends
in each calendar year, at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains, if any (earned
during the twelve months ended October 31), plus undistributed amounts from
prior years.
The tax basis of investments is equal to the cost as shown on the Statement of
Assets and Liabilities.
For both financial reporting and tax purposes, gross unrealized appreciation
and gross unrealized depreciation of securities at September 30, 1995 was
$114,655 and $241,417, respectively.
FUND SHARE VALUATION AND DISTRIBUTIONS TO SHAREHOLDERS -- The net asset value
per share is computed by dividing the net asset value of the Fund (total assets
less total liabilities) by the number of shares outstanding. The redemption
price per share is equal to the net asset value per share.
Distributions to shareholders are recorded on the ex-dividend date. During the
period ended September 30, 1995, the Fund made no distributions.
EXPENSES -- Common expenses incurred by the Trust are allocated to the Fund
based on the ratio of the net assets of the Fund to the combined net assets of
the Trust. In all other respects, expenses are charged to the Fund as incurred
on a specific identification basis.
ORGANIZATION EXPENSES -- Expenses of organization have been capitalized and are
being amortized on a straight-line basis over 60 months commencing upon the
public offering of the Fund's shares.
NOTE 2 -- TRANSACTIONS WITH AFFILIATES
The Trust's investments are managed, subject to the general supervision and
control of the Trust's Board of Trustees,by McDonald & Company Securities, Inc.
("McDonald"), a registered investment adviser and securities dealer, pursuant
to the terms of an Investment Advisory Agreement ("Agreement"). Under the terms
of the Agreement, the Fund pays McDonald a fee computed and accrued daily and
paid monthly based upon the Fund's daily net assets at the annual rate of 1.00%
of the first $100 million of the Fund's average daily net assets, .90% of the
next $150 million, .80% of the next $250 million and .75% of net assets in
excess of $500 million for acting as its investment adviser. McDonald has
engaged Blairlogie Capital Management ("Blairlogie") as Portfolio Manager for
the Fund pursuant to a Portfolio Management Agreement, and McDonald compensates
Blairlogie from its advisory fee at the rate of .80% of the first $25 million
of average daily net assets, .70% of the next $25 million, .60% of the next $50
million, .50% of the next $150 million, and .40% of assets in excess of $250
million. McDonald is to reimburse the Fund for the amount by which the Fund's
aggregate expenses for a fiscal year, including the advisory fee but excluding
interest, taxes a nd extraordinary expenses, exceed limits set by state
securities regulations.
12
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED)
The Agreement provides that McDonald bear the costs of salaries and related
expenses of executive officers of the Fund who are necessary for the management
and operations of the Fund. In addition, McDonald bears the costs of preparing,
printing and mailing sales literature and other advertising materials and
compensates the Trust's trustees who are affiliated with McDonald. All expenses
not specifically assumed by McDonald are borne by the Fund.
Under the terms of a Transfer Agency, Accounting Services and Administrative
Services Agreement, McDonald provides transfer agent, dividend disbursing,
accounting services and administrative services to the Fund. The Fund pays
McDonald a monthly fee for transfer agency and administrative services at an
annual rate of $19.25 per shareholder non-zero balance account, plus
out-of-pocket costs for statement paper, statement and reply envelopes and
reply postage. The Fund pays McDonald a monthly fee for accounting services
based on the Fund's average daily net assets at an annual rate of .045% on the
first $100 million, .03% on the next $100 million and .015% on any amount in
excess of $200 million, with a minimum annual fee of $60,000.
Under the terms of an Expense Reimbursement Agreement, McDonald has agreed to
forego fees owed to it under the Advisory Agreement or any other agreement with
the Trust and to reimburse the Fund if, and to the extent that, expenses
(excluding brokerage commissions, taxes, interest and extraordinary items)
borne by the Fund in any fiscal year exceed 2.00% of the average net assets of
the Fund. This agreement is in effect until August 1, 1996 and is subject to
termination by either party upon written not ice subsequent to that date. In
addition, McDonald may, at its discretion, agree to waive fees and/or reimburse
the Fund for other expenses in order to limit the Fund's expenses to a
specified percentage of average net assets lower than 2.00%. For the period
ended September 30, 1995, McDonald waived advisory fees of $12,857, transfer
agency fees of $2,761, accounting services fees of $20,000, distribution
expenses of $8,296 and reimbursed the Fund $3,795 for other operating expenses.
In accordance with the terms of a Distribution Service Plan adopted under Rule
12b-1 of the Investment Company Act of 1940, the Fund pays McDonald a service
fee for personal services to shareholders including shareholder liaison
services such as responding to shareholder inquiries and providing information
to customers about their Fund accounts. This fee is computed and paid at an
annual rate of .25% of the Fund's average daily net assets. The Fund also pays
McDonald a fee for its assistance in selling shares of the Fund including
advising shareholders regarding purchase, sale and retention of Fund shares.
This fee is computed and paid at an annual rate of .25% of the Fund's average
daily net assets.
The officers of the Trust are also officers of McDonald.
Each trustee of the Trust who is not affiliated with McDonald receives fees
from the Trust for services as a trustee. The amounts of such fees for each
trustee are as follows: (a) an annual fee of $5,000 payable in quarterly
installments and (b) $500 fo r each Board of Trustees or committee meeting
attended.
13
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED)
NOTE 3 -- SUMMARY OF PURCHASES AND SALES OF INVESTMENTS
For the period ended September 30, 1995, cost of purchases, excluding
short-term securities, amounted to $9,515,317. There were no sales of
securities for the period ended September 30, 1995.
NOTE 4 -- PORTFOLIO COMPOSITION
The Fund invests in equity securities of non-U.S. issuers. Although the Fund
maintains a diversified investment portfolio, the political or economic
developments within a particular country or region may have an adverse effect
on the ability of domiciled issuers to meet their obligations. Additionally,
political or economic developments may have an effect on the liquidity and
volatility of portfolio securities and currency holdings.
At September 30, 1995 the Portfolio was diversified within the following
industries:
<TABLE>
<S> <C> <C> <C>
Automotive 3.73% Industrial Components 0.20%
Banking 13.15 Insurance 1.55
Beverages and Tobacco 1.32 Investment Companies 1.60
Building Materials 3.29 Machinery and Engineering 3.39
Broadcasting and Publishing 1.33 Materials and Commodities 1.06
Chemicals 5.23 Merchandising 5.35
Consumer Goods 0.90 Metals and Mining 4.48
Construction and Housing 3.34 Public Services 1.17
Diversified Companies 3.48 Real Estate 4.05
Electronics 6.27 Steel 5.18
Energy 3.01 Telecommunications 7.31
Financial Services 3.22 Textiles and Apparel 0.30
Food and Household Products 1.79 Tourism 0.75
Forest Products and Paper 1.88 Transportation 2.79
Health and Personal Care 2.39 Utilities 4.22
Household Appliances and Durables 2.07 Wholesale Trade 0.20
------
100.00%
======
- ----------------------------------------------- --------------------------------------
</TABLE>
14
<PAGE> 52
GRADISON-MCDONALD FAMILY OF FUNDS
Increasingly, MUTUAL FUNDS are the preferred vehicle for starting and building
an investment program. And today, GRADISON-MCDONALD is a preferred name in
mutual funds for a GROWING number of investors. Gradison-McDonald offers a full
line of mutual fund products.
GOVERNMENT INCOME FUND
An income fund which invests in intermediate to long-term U.S. Government
securities.
INTERMEDIATE MUNICIPAL INCOME FUND
An income fund which seeks to provide income exempt from regular Federal income
tax through investment in a municipal bond portfolio with a three to ten year
average maturity.*
OHIO TAX-FREE INCOME FUND
An income fund which seeks to provide income exempt from regular Federal income
tax and Ohio state personal income tax.*
GROWTH & INCOME FUND
A common stock fund that seeks long-term capital growth, current income and
growth of income.
ESTABLISHED VALUE FUND
A common stock fund that seeks long-term capital growth by investing in
companies that are included in the Standard & Poor's 500 Index and other large
companies.
OPPORTUNITY VALUE FUND
A common stock fund that seeks long-term capital growth by investing in
companies that are generally smaller in size than those included in the
Standard & Poor's 500 Index.
MONEY MARKET FUNDS
Gradison-McDonald offers a full range of taxable and tax-free money market
funds.
Prospectuses are available upon request by calling (800) 869-5999 and should be
read carefully before you invest or send money. An investment in the money
market funds is neither insured nor guaranteed by the U.S. Government and there
can be no assurance that they will be able to maintain a stable $1.00 share
price. The value of an investment in other funds will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. The returns of all funds will fluctuate.
*Investment income may be subject to the federal alternative minimum tax.
Capital gains, if any, are taxable. Investment income of the Intermediate
Municipal Income Fund may be subject to state and local taxes.
15
