<PAGE> 1
ESTABLISHED VALUE
FUND
GRADISON-MCDONALD
ANNUAL REPORT
MARCH 31, 1995
GRADISON-MCDONALD
This material is intended for
distribution to shareholders of the
Gradison-McDonald Established Value Fund. A COMMON STOCK FUND INVESTING IN
It may be distributed to other persons LARGE COMPANIES JUDGED TO BE
only if it is preceded or accompanied UNDERVALUED
by a current prospectus of the Gradison-
McDonald Established Value Fund.
McDonald & Company Securities, Inc.
- - Distributor.
<PAGE> 2
GRADISON-MCDONALD
ESTABLISHED VALUE FUND
LETTER TO SHAREHOLDERS
April 28, 1995
Dear Shareholder:
Enclosed for your review are the audited financial statements for the Fund's
fiscal year ended March 31, 1995.
THE ECONOMY AND THE MARKET - The statistics over the past few months generally
point to slowing, more sustainable economic growth. A drop in new housing
starts, the decline in real consumer durable spending and the softening of the
manufacturing sector are some signs of a slowing economy. However, the data in
certain areas is a cause for inflationary concern. Crude oil prices as well as
intermediate producer prices have risen considerably during the first quarter.
This, coupled with the weakness of the dollar, could materialize into increased
consumer prices down the road. The Federal Reserve has expressed its intent to
contain inflation in order to moderate economic growth to a 2.5% to 3% level.
Investors seemed to be convinced of the "soft landing" scenario for the economy
as they pushed the major market indices to record levels in the first quarter.
The current rally in the broad market began at the end of 1994 partially
influenced by hopes that most of the monetary tightening was behind us. That
still remains an important question. Merger and acquisition activity, strong
corporate earnings reports and share repurchases have also fueled the market's
ascent. This sharp rise in the market has caused many stocks to become quite
expensive by most measures. We continue to focus on companies with consistent
earnings records selling at favorable valuations.
PERFORMANCE - Total returns for the Fund and the benchmark S&P 500 follow this
letter. The non-annualized 11 month total returns from the prior fiscal year end
of April 30, 1994 through March 31, 1995, were 8.85% for the Fund versus 14.11%
for the S&P 500 Index. The shortfall in the Fund's return can be attributable to
its employment of cash as a method of volatility control.
Leadership in performance continues to come from the technology sector. The
single best performing asset in the Fund over the past eleven months has been
Andrew Corporation, a maker of telecommunications equipment. Similarly, the
returns of International Business Machines, Intel Corporation and Sun
Microsystems have significantly outpaced those of the broad market during the
period. Shares from the transportation group, Pittston Services Group and
Consolidated Freightways, also posted outstanding returns for the Fund.
PORTFOLIO - In an effort to maximize returns and limit net asset value
volatility, the mix of equity and cash in the portfolio is adjusted in
accordance with market valuations. When stock market valuations are low, the
Fund maintains higher levels of equity exposure. Conversely, at higher market
valuations, equity exposure is targeted at a lower level. The Fund is currently
near its most defensive equity/cash mix.
Since the semiannual report of September 30, 1994, six stocks have been
purchased for the Fund. Among the additions are Providian Corporation, an
insurance and financial services provider, MCI Communications, an international
telecommunications provider, and Consolidated Freightways, a transport and
logistics specialist. Among others, shares of Bell Atlantic, Mead Corporation
and Sun Company have been sold since the semiannual report.
1-800-869-5999 [LOGO]
<PAGE> 3
LETTER TO SHAREHOLDERS (CONTINUED)
The Fund continues to be built around holdings with valuations discounted from
market price/earnings and price-to-book multiples. The Fund was mentioned
favorably in recent issues of The Rukeyser 100 and Kiplinger's Personal Finance
Magazine.
DIVIDEND - The Board of Trustees has declared an income dividend of $0.12 per
share and a long-term capital gain distribution of $0.54 per share payable on
May 26 to shareholders of record May 25.
As always, we remain committed to serving your investment needs.
Sincerely,
Gradison-McDonald Established Value Fund
William J. Leugers, Jr. Daniel R. Shick
Executive Vice President and Portfolio Manager Vice President and
Portfolio Manager
<TABLE>
APRIL 30, 1985
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT TO MARCH 31, 1995
<CAPTION>
EST S&P 500
--- -------
<S> <C> <C>
4/30/85 10,000 10,000
4/30/86 13,198 13,658
4/30/87 17,139 17,273
4/30/88 17,762 16,176
4/30/89 20,824 19,872
4/30/90 21,055 21,958
4/30/91 22,749 25,825
4/30/92 24,476 29,430
4/30/93 29,338 32,143
4/30/94 32,653 33,747
3/31/95 35,541 38,509
</TABLE>
Past performance is not predictive of future performance. The investment return
and value of an investor's shares, when redeemed, may be worth more or less than
the original cost. The Standard & Poor's (S&P) 500 Composite Stock Price Index
is an unmanaged group of common stocks widely recognized as an index of market
performance the investment returns of which do not include any securities
transaction expenses.
2
<PAGE> 4
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
ELEVEN MONTHS
ENDED
MARCH 31, 1995 YEAR ENDED APRIL 30,
-----------------------------------------------
(NOTE 1) 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $22.515 $21.375 $18.366 $17.754 $17.189
------- ------- ------- ------- -------
Income from investment operations:
Net investment income .376 .256 .286 .386 .511
Net realized and unrealized
gains on investments 1.520 2.104 3.278 .916 .804
------- ------- ------- ------- -------
Total income from investment operations 1.896 2.360 3.564 1.302 1.315
------- ------- ------- ------- -------
Distributions to shareholders:
Dividends from net investment income (1) (.370) (.220) (.285) (.420) (.548)
Distributions from realized capital gains (1) (.660) (1.000) (.270) (.270) (.202)
------- ------- ------- ------- -------
Total distributions to shareholders (1.030) (1.220) (.555) (.690) (.750)
------- ------- ------- ------- -------
Net asset value at end of period $23.381 $22.515 $21.375 $18.366 $17.754
======= ======= ======= ======= =======
Total return 8.85%(2) 11.30% 19.86% 7.59% 8.04%
======= ======= ======= ======= =======
Ratios/Supplemental data:
Net assets at end of period (in millions) $ 277.4 $ 253.3 $ 203.6 $ 175.5 $ 150.5
Ratio of expenses to average net assets 1.20%(3) 1.22% 1.28% 1.31% 1.39%
Ratio of net investment income
to average net assets 1.87%(3) 1.15% 1.48% 2.12% 3.10%
Portfolio turnover rate 24.23% 38.39% 28.08% 67.96% 73.88%
</TABLE>
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) The Board of Trustees declared a dividend from net investment income of
$0.12 per share and a long-term capital gain distribution of $0.54 per share
payable on May 26, 1995 to shareholders of record on May 25, 1995.
(2) Total return for the eleven months ended March 31, 1995 represents the
actual return over the period and has not been annualized.
(3) Annualized.
See accompanying notes to financial statements.
3
<PAGE> 5
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS
MARCH 31, 1995
NUMBER COMMON STOCKS - 74.97% VALUE
OF SHARES
AEROSPACE/DEFENSE
COMPANIES - 7.29%
<S> <C> <C>
99,756 Lockheed Martin Corporation $ 5,274,599
150,000 Loral Corporation 6,375,000
63,200 Raytheon Company 4,605,700
70,000 Textron, Inc. 3,963,750
------------
20,219,049
------------
AUTOMOTIVE - 6.08%
86,000 Chrysler Corporation 3,601,250
86,000 Cummins Engine Company, Inc. 3,848,500
149,000 Echlin, Inc. 5,736,500
136,000 Ford Motor Company 3,672,000
------------
16,858,250
------------
CHEMICALS - 4.49%
193,500 Engelhard Corporation 5,732,438
144,000 Hercules, Inc. 6,714,000
------------
12,446,438
------------
COMPUTING PRODUCTS - 10.20%
186,000(1) Compaq Computer Corporation 6,417,000
80,000 Intel Corporation 6,780,000
62,000 International Business
Machines Corporation 5,076,250
148,000(1) Sun Microsystems, Inc. 5,106,000
103,000 Tandy Corporation 4,918,250
------------
28,297,500
------------
CONSUMER DURABLES - 7.20%
140,000 Briggs & Stratton Corporation 5,162,500
177,000 Fleetwood Enterprises, Inc. 4,181,625
97,000 Goodyear Tire & Rubber
(The) Company 3,564,750
130,000 Pulte Corporation 3,055,000
73,000 Whirlpool Corporation 3,996,750
------------
19,960,625
------------
FINANCIAL SERVICES - 9.61%
101,000 Beneficial Corporation 3,964,250
119,000 Household International, Inc. 5,176,500
42,000 ITT Corporation 4,310,250
110,000 Providian Corporation 3,863,750
70,000 Transamerica Corporation 3,963,750
139,000 Travelers, Inc. 5,368,875
------------
26,647,375
------------
<CAPTION>
NUMBER COMMON STOCKS (CONTINUED) VALUE
OF SHARES
INDUSTRIAL PRODUCTS - 5.82%
120,000 Foster Wheeler Corporation $ 4,065,000
90,000 Goodrich (B.F.) Company 3,993,750
90,000 Harris Corporation 4,308,750
74,000 Johnson Controls, Inc. 3,764,750
------------
16,132,250
------------
NATURAL RESOURCES /
FOREST PRODUCTS - 5.88%
118,000 Ashland Oil, Inc. 4,203,750
145,000 Coastal Corporation 4,168,750
55,000 International Paper Company 4,131,875
85,000 Temple-Inland, Inc. 3,814,375
------------
16,318,750
------------
RETAIL TRADE - 6.05%
138,400 American Greetings Corporation 4,117,400
160,000 American Stores Company 4,100,000
99,000 Mercantile Stores, Inc. 4,417,875
254,000 Wendy's International, Inc. 4,159,250
------------
16,794,525
------------
TELEPHONE
COMMUNICATIONS - 4.36%
187,500(1) Andrew Corporation 7,593,750
220,000 MCI Communications
Corporation 4,510,000
------------
12,103,750
------------
TRANSPORTATION - 7.99%
190,000 Consolidated Freightways, Inc. 5,058,750
75,000 Consolidated Rail Corporation 4,209,375
67,000(1) Federal Express Corporation 4,530,875
156,000 Pittston Services Group 4,290,000
170,000 Ryder System, Inc. 4,080,000
------------
22,169,000
------------
TOTAL COMMON STOCKS
(COST = $145,898,815) $207,947,512
------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 6
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS
MARCH 31, 1995
PRINCIPAL COMMERCIAL PAPER - 12.56% MATURITY INTEREST VALUE
AMOUNT RATE (2)
<S> <C> <C> <C> <C>
$ 5,000,000 Du Pont (E.I.) de Nemours & Company 05/09/95 5.98% $ 4,968,439
5,000,000 Goldman Sachs Group (The), L.P. 05/01/95 6.02 4,974,917
5,000,000 Heinz, (H.J.) Company 04/26/95 5.97 4,979,271
5,000,000 Minnesota Mining & Mfg. Company 05/22/95 5.97 4,957,713
5,000,000 Phillip Morris Company 04/21/95 6.00 4,983,333
5,000,000 SmithKline Beecham Corporation 05/12/95 5.98 4,965,947
5,000,000 Southwestern Bell Corporation 04/04/95 5.93 4,997,529
------------
TOTAL COMMERCIAL PAPER (COST = $34,827,149) 34,827,149
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL DISCOUNT NOTE - 13.73% MATURITY INTEREST VALUE
AMOUNT RATE (2)
<S> <C> <C> <C> <C>
$38,100,000 Federal Home Loan Bank
(Cost = $38,086,771) 04/01/95 6.25% $ 38,086,771
------------
TOTAL INVESTMENTS, AT VALUE (NOTE 1)
(COST = $218,812,735) - 101.26% 280,861,432
DIVIDEND & INTEREST RECEIVABLE - 0.14% 398,433
RECEIVABLE FOR FUND SHARES SOLD - 0.08% 212,811
PAYABLE FOR FUND SHARES REDEEMED - (1.41%) (3,898,037)
ACCRUED INVESTMENT ADVISORY FEE (NOTE 2) - (0.07%) (188,508)
OTHER ACCRUED EXPENSES PAYABLE TO ADVISER (NOTE 2) - (0.02%) (71,289)
OTHER ASSETS & LIABILITIES, NET - 0.02% 54,865
------------
NET ASSETS - APPLICABLE TO 11,862,814 OUTSTANDING SHARES
(NO PAR VALUE - UNLIMITED NUMBER OF SHARES AUTHORIZED)(NOTE 4) - 100% $277,369,707
============
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE (NOTE 1) $23.38
======
</TABLE>
(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.
5
<PAGE> 7
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
FOR THE ELEVEN MONTHS ENDED MARCH 31, 1995 (NOTE 1)
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 3,937,169
Interest 3,418,779
------------
Total investment income $ 7,355,948
EXPENSES:
Investment advisory fees (Note 2) 1,951,674
Distribution (Note 2) 558,790
Personnel costs (Note 2) 97,764
Data processing fees (Note 2) 93,708
Postage and mailing 30,017
Printing 24,433
Professional fees 22,904
Custodian fees 19,629
Registration fees 19,513
Trustees' fees (Note 2) 13,030
Other 34,785
--------
TOTAL EXPENSES 2,866,247
------------
NET INVESTMENT INCOME 4,489,701
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 7,099,956
Net increase in unrealized appreciation of investments 11,638,554
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 18,738,510
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 23,228,211
=============
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 8
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Eleven Months
Ended Year Ended
March 31, 1995 April 30, 1994
(Note 1)
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 4,489,701 $ 2,713,987
Net realized gain on investments 7,099,956 12,281,145
Net increase in unrealized
appreciation of investments 11,638,554 8,215,133
-------------- --------------
Net increase in net assets resulting from operations 23,228,211 23,210,265
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (4,392,688) (2,238,638)
Net realized capital gains (7,525,690) (10,051,216)
-------------- --------------
Decrease in net assets from distributions to shareholders (11,918,378) (12,289,854)
-------------- --------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 163,689,905 201,048,434
Net asset value of shares issued in reinvestment of distributions 11,790,560 12,147,143
Payments for shares redeemed (162,712,174) (174,425,568)
-------------- --------------
Net increase in net assets from Fund share transactions 12,768,291 38,770,009
-------------- --------------
TOTAL INCREASE IN NET ASSETS 24,078,124 49,690,420
NET ASSETS:
Beginning of period 253,291,583 203,601,163
-------------- --------------
End of period (including undistributed net investment
income of $596,222 and $499,209, respectively) (Note 1) $ 277,369,707 $ 253,291,583
============== ==============
NUMBER OF FUND SHARES:
Sold 7,449,070 8,868,177
Issued in reinvestment of distributions to shareholders 541,606 554,490
Redeemed (7,377,921) (7,697,837)
-------------- --------------
Net increase in shares outstanding 612,755 1,724,830
Outstanding at beginning of period 11,250,059 9,525,229
-------------- --------------
Outstanding at end of period 11,862,814 11,250,059
============== ==============
</TABLE>
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 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 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.
The tax basis of investments is equal to the cost as shown on the Statement of
Net Assets.
8
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
For both financial reporting and tax purposes, gross unrealized appreciation and
gross unrealized depreciation of securities at March 31, 1995 was $64,003,240
and $1,954,543, 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 total distributions of $1.03 per
share, of which $.37 is treated as dividend income and $.66 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 -- During the prior fiscal year, the Fund
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 current fiscal year, the Fund has 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, 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 .90% on the
first $100 million, .80% on the next $100 million and .70% 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 March 31, 1995.
Under the terms of the Agreement, the Fund reimburses McDonald for the cost of
furnishing personnel to perform shareholder and certain other services for the
Fund. The Agreement also provides that McDonald bear the cost 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 Fund's trustees who are affiliated with McDonald.
All expenses not specifically assumed by McDonald are borne by the Fund.
Effective June 1, 1995, the Fund will pay McDonald an investment advisory fee at
an 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.
9
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
Under the terms of a Data Processing Agreement between the Trust and McDonald,
the Fund pays 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.
Effective June 1, 1995, the Fund and McDonald have executed a Transfer Agency,
Accounting Services and Administrative Services Agreement ("Services
Agreement"). Under the terms of the Services Agreement, McDonald will provide
transfer agent, dividend disbursing, accounting services and administrative
services to the Fund. The Fund will pay 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 will pay 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. The Services Agreement replaces the Data Processing Agreement
and the fund's reimbursement of McDonald's 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. This fee is computed and
paid at an annual rate of .25% of average daily net assets and may be more or
less than actual expenses incurred by McDonald for rendering distribution
services.
Effective June 1, 1995, the Distribution Service Plan was amended to increase
the total fee to .50%. The Fund will pay 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 .25% of the
Fund's average daily net assets. The Fund will also pay 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 will be 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 March 31, 1995, purchases and sales of securities,
excluding short-term securities, amounted to $54,964,366 and $38,295,010,
respectively.
NOTE 4 -- NET ASSETS
<TABLE>
At March 31, 1995, net assets of the Fund consisted of:
<S> <C>
Aggregate paid-in capital $208,174,852
Accumulated undistributed net investment income 596,222
Accumulated undistributed net realized gains 6,549,936
Net unrealized appreciation of investments 62,048,697
------------
Net assets $277,369,707
============
</TABLE>
NOTE 5 -- SUBSEQUENT EVENT
The Board of Trustees declared a dividend from net investment income of $0.12
per share and a long-term capital gain distribution of $0.54 per share payable
on May 26, 1995 to shareholders of record on May 25, 1995.
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 Established Value Fund
of the Gradison Growth Trust:
We have audited the accompanying statement of net assets of the
Gradison-McDonald Established Value Fund of the Gradison Growth Trust (an Ohio
business trust), as of March 31, 1995, and the related statement of operations
for the period then ended, the statements of changes in net assets for the
periods indicated thereon, and the financial highlights for each of the three
periods in the period then ended. 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 audits. The financial highlights for each of the two years in the
period ended April 30, 1992, of the Gradison-McDonald Established Value Fund of
the Gradison Growth Trust, were audited by other auditors whose report dated May
22, 1992, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Gradison-McDonald Established Value Fund of the Gradison Growth Trust as of
March 31, 1995, the results of its operations for the period then ended, the
changes in its net assets for the periods indicated thereon, and the financial
highlights for each of the three periods in the period then ended, in conformity
with generally accepted accounting principles.
Cincinnati, Ohio, /s/ Arthur Andersen LLP
May 25, 1995
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