<PAGE> 1
GROWTH & INCOME
FUND
GRADISON-MCDONALD
ANNUAL REPORT
MARCH 31, 1995
GRADISON-MCDONALD
This material is intended for
distribution to shareholders of
the Gradison-McDonald Growth &
Income Fund. It may be distributed A COMMON STOCK FUND SEEKING
to other persons only if it is LONG-TERM GROWTH OF CAPITAL,
preceded or accompanied by a current CURRENT INCOME, AND GROWTH
prospectus of the Gradison-McDonald OF INCOME
Growth & Income Fund. McDonald &
Company Securities Inc.- Distributor.
<PAGE> 2
GRADISON-MCDONALD
GROWTH & INCOME FUND
LETTER TO SHAREHOLDERS
May 1, 1995
Dear Shareholder:
On February 28, 1995 we commenced operations in the Gradison-McDonald Growth &
Income Fund. Our fiscal year ends on March 31, and so, after one month of
operation, we are pleased to present our results.
PORTFOLIO - Your Fund invests primarily in the common stock of high quality,
well-known companies with histories of growing profits and dividends. Over time,
companies with these characteristics are usually good candidates for capital
appreciation and income growth.
We are investing in common stocks in a deliberate manner, applying a strategy of
dollar-cost averaging until your Fund is fully invested, at which time stock
holdings will represent approximately 95% of total assets. We expect to have the
Fund substantially invested by the end of the second quarter of this year.
The median market capitalization of the companies owned in the portfolio was
$6.5 billion as of March 31, 1995. The Fund exhibited the following portfolio
characteristics as of the same date:
<TABLE>
<CAPTION>
GRADISON-MCDONALD S&P 500
GROWTH & INCOME FUND INDEX
---------------------------------------------------------------------------------
<S> <C> <C>
Price/earnings ratio* 17.0x 21.3x
Yield 3.2% 2.7%
Return on equity (previous 12 months) 20.7% 14.8%
Average annual five years earnings growth 10.4% 5.7%
Beta 0.99 1.00
---------------------------------------------------------------------------------
</TABLE>
*based on trailing 12 month earnings
INVESTMENT PERFORMANCE - It is too early in your Fund's operation to have
meaningful and comparable performance data for the month ending March 31, 1995.
Nonetheless, for the month of March your Fund had a total return of 1.3%
compared to the S&P 500 Index's 2.9% return. The Fund's lower return during this
period resulted primarily from the large cash position which it maintained
during its start-up phase as it invested its assets. It is important to
understand that transaction costs are not reflected in the total return of the
S&P 500 Index.
DIVIDENDS - The first dividend will be paid in August.
1-800-869-5999 [LOGO]
<PAGE> 3
LETTER TO SHAREHOLDERS (CONTINUED)
MARKET OUTLOOK - At the end of March the Standard & Poor's 500 Index broke
through the 500 level, finishing the month at an all-time high of 500.71. The
strong advance of the U.S. stock market in the first three months of this year
reflected investors' optimism on both the economic and interest rate outlooks.
The economy remains on course, still growing but at a slower pace. The moderate
economic growth has kept inflation near an annual rate of 3%. Thus far the
Federal Reserve Board's efforts to slow the economy's growth has been successful
and it is uncertain whether there will be a need for additional interest rate
hikes. Higher stock prices have resulted from better than expected corporate
earnings, higher dividend payouts, and announced plans for stock repurchases.
Investors have been willing to pay more for stocks of highly capitalized
multinational companies that have benefited from the recovering economies
overseas. These trends bode well for our common stock holdings.
We appreciate your participation in the Gradison-McDonald Growth & Income Fund.
We will do our best to serve your investing needs.
Sincerely,
Gradison Growth Trust
Gradison-McDonald Growth & Income Fund
Julian C. Ball, CFA
Executive Vice President and Portfolio Manager
<PAGE> 4
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period February 28, 1995* through March
31, 1995)
<TABLE>
<S> <C>
Net asset value at beginning of period $15.000
-------
Income from investment operations:
Net investment income .030
Net realized and unrealized
gains on investments .159
-------
Total income from investment operations .189
-------
Distributions to shareholders -
-------
Net asset value at end of period $15.189
=======
Total return 1.27%(1)
=======
Ratios/Supplemental data:
Net assets at end of period (in millions) $1.2
Ratios net of expenses waived and reimbursed by the adviser (2) (3):
Ratio of expenses to average net assets 0.00%
Ratio of net investment income to average net assets 4.09%
Ratios assuming no adviser waiver or reimbursement of expenses (2) (3):
Ratio of expenses to average net assets 13.88%
Ratio of net investment income to average net assets (9.79%)
Portfolio turnover rate 3.62%
</TABLE>
(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
See accompanying notes to financial statements.
3
<PAGE> 5
PORTFOLIO OF INVESTMENTS MARCH 31, 1995
<TABLE>
<CAPTION>
NUMBER COMMON STOCKS - 57.69% VALUE
OF SHARES
<S> <C> <C>
BANKS - 4.06%
500 Huntington Bankshares, Incorporated $ 9,063
300 Morgan, (J.P.) & Company,
Incorporated 18,300
1,000 Norwest Corporation 25,375
--------
52,738
--------
BUSINESS SERVICES - 6.76%
200 Automatic Data Processing, Inc. 12,600
200 Eastman Kodak Company 10,625
600 Motorola Inc. 32,775
500 Pitney-Bowes, Inc. 18,000
500 WMX Technologies, Inc. 13,750
--------
87,750
--------
CHEMICALS - 3.03%
500 Du Pont (E.I.) de Nemours
& Company 30,250
300 Schulman, (A.) Inc. 9,150
--------
39,400
--------
CONSUMER DURABLES - 2.08%
1,000 Shaw Industries 13,250
200 TRW Inc. 13,775
--------
27,025
--------
CONSUMER NON-DURABLES - 8.75%
300 CPC International, Inc. 16,238
700 Heinz, (H.J.) Company 26,950
500 Pepsico, Inc. 19,500
500 Pioneer Hi-Bred International, Inc. 17,875
500 Procter & Gamble Company 33,125
--------
113,688
--------
FINANCIAL SERVICES - 3.51%
100 American Express Company 3,488
500 American General Corporation 16,125
500 Cincinnati Financial Corporation 26,000
--------
45,613
--------
INDUSTRIAL PRODUCTS - 6.40%
500 General Electric Company 27,063
500 Minnesota Mining &
Manufacturing Company 29,063
500 Pall Corporation 10,500
700 Premier Industrial Group Corporation 16,538
--------
83,164
--------
NATURAL RESOURCES - 6.55%
500 Chevron Corporation 24,000
500 Exxon Corporation 33,375
300 Mobil Corporation 27,788
--------
85,163
--------
PHARMACEUTICALS - 6.64%
200 American Home Products Corporation 14,250
500 Bristol-Myers Squibb Company 31,500
400 Merck & Co., Inc. 17,050
300 Warner-Lambert Company 23,475
--------
86,275
--------
RETAIL TRADE - 3.09%
1,000 Limited, Inc. 23,125
500 McDonald's Corporation 17,063
--------
40,188
--------
UTILITIES- 6.82%
500 Ameritech Corporation 20,625
500 Central & South West Corporation 12,125
500 Duke Power Company 19,250
500 GTE Corporation 16,625
500 U.S. WEST, Inc. 20,000
--------
88,625
--------
TOTAL COMMON STOCKS
(COST = $742,417) $749,629
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL DISCOUNT NOTES - 42.31% MATURITY INTEREST VALUE
AMOUNT RATE (1)
<S> <C> <C> <C> <C>
$250,000 Federal Home Loan Bank 04/03/95 6.25% $ 249,836
300,000 Federal Farm Credit Bank 04/05/95 5.92 299,896
---------
TOTAL DISCOUNT NOTES (COST = $549,732) 549,732
---------
TOTAL INVESTMENTS, AT VALUE (NOTE 1)
(COST = $1,292,149) - 100% $1,299,361
==========
</TABLE>
(1) For discount notes, the rate is the discount rate at the time of purchase by
the Fund.
See accompanying notes to financial statements.
4
<PAGE> 6
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1995
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (Note 1) (Cost $1,292,149) $1,299,361
Cash 43,172
Receivable for Fund shares purchased 54,291
Prepaid registration fees 16,933
Organization expenses, net (Note 1) 6,201
Dividends and interest receivable 712
----------
TOTAL ASSETS 1,420,670
----------
LIABILITIES
Payable for securities purchased 189,530
Other liabilities payable to adviser (Note 2) 23,134
----------
TOTAL LIABILITIES 212,664
----------
NET ASSETS $1,208,006
==========
Net assets consist of:
Aggregate paid-in capital 1,197,980
Accumulated undistributed net investment income 2,404
Accumulated undistributed net realized gains 410
Net unrealized appreciation of investments 7,212
----------
Net Assets $1,208,006
==========
Shares of capital stock outstanding
(no par value - unlimited number of shares authorized) 79,531
==========
Net asset value and redemption price per share (Note 1) $15.19
==========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 7
STATEMENT OF OPERATIONS
FOR THE PERIOD FEBRUARY 28, 1995* TO MARCH 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $1,722
Dividends 682
------
Total investment income $2,404
EXPENSES:
Registration fees 3,818
Transfer agency and accounting services fees (Note 2) 3,558
Investment advisory fees (Note 2) 382
Distribution (Note 2) 294
Amortization of organization expenses (Note 1) 105
-------
Total expenses 8,157
Less fees waived and expenses reimbursed by the adviser (Note 2) (8,157)
-------
Net expenses 0
-------
NET INVESTMENT INCOME 2,404
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 410
Net increase in unrealized appreciation of investments 7,212
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 7,622
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $10,026
=======
</TABLE>
*Date of public offering.
See accompanying notes to financial statements.
6
<PAGE> 8
STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD FEBRUARY 28,1995* TO MARCH 31,
1995
<TABLE>
<S> <C>
FROM OPERATIONS:
Net investment income $ 2,404
Net realized gain on investments 410
Net increase in unrealized appreciation of investments 7,212
----------
Net increase in net assets resulting from operations 10,026
----------
FROM DISTRIBUTIONS TO SHAREHOLDERS -
----------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 1,198,480
Payments for shares redeemed (500)
----------
Net increase in net assets from Fund share transactions 1,197,980
----------
TOTAL INCREASE IN NET ASSETS 1,208,006
----------
NET ASSETS:
Beginning of period -
----------
End of period (including undistributed net investment income of $2,404) $1,208,006
==========
NUMBER OF FUND SHARES:
Sold 79,564
Redeemed (33)
----------
Net increase in shares outstanding 79,531
Outstanding at beginning of period -
----------
Outstanding at end of period 79,531
==========
</TABLE>
*Date of public offering.
See accompanying notes to financial statements.
7
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1995
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 three series, 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 Annual 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
investment adviser believes present minimal credit risk. There were no
repurchase agreements held in the portfolio at March 31, 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.
8
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1995
The tax basis of investments is equal to the cost as shown on the Portfolio of
Investments.
For both financial reporting and tax purposes, gross unrealized appreciation and
gross unrealized depreciation of securities at March 31, 1995 was $12,402 and
$5,190, 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 March 31, 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 .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> 11
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1995
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, 1995 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 March
31, 1995, McDonald waived advisory fees of $382, transfer agency and accounting
services fees of $3,558, distribution expenses of $294, and reimbursed the Fund
$3,923 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 March 31, 1995, purchases and sales of securities,
excluding short-term securities, amounted to $755,932 and $13,520, respectively.
10
<PAGE> 12
ARTHUR
ANDERSEN
ARTHUR ANDERSEN & CO. SC
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of the
Gradison-McDonald Growth and Income Fund
of the Gradison Growth Trust:
We have audited the accompanying statement of assets and liabilities of the
Gradison-McDonald Growth and Income Fund of the Gradison Growth Trust (an Ohio
business trust), including the portfolio of investments, as of March 31, 1995,
and the related statement of operations, the statement of changes in net assets
and the financial highlights for the period indicated thereon. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of March 31, 1995, by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Gradison-McDonald Growth and Income Fund of the Gradison Growth Trust as of
March 31, 1995, the results of its operations, the changes in its net assets and
the financial highlights for the period indicated thereon, in conformity with
generally accepted accounting principles.
Cincinnati, Ohio,
May 25, 1995 /s/ Arthur Andersen LLP
11
