<PAGE> 1
OPPORTUNITY VALUE
FUND
GRADISON-MCDONALD
ANNUAL REPORT
MARCH 31, 1995
GRADISON-MCDONALD
This material is intended for
distribution to shareholders of the
Gradison-McDonald Opportunity Value Fund. A COMMON STOCK FUND INVESTING
It may be distributed to other persons IN SMALLER COMPANIES JUDGED
only if it is preceded or accompanied TO BE UNDERVALUED
by a current prospectus of the Gradison-
McDonald Opportunity Value Fund.
McDonald and Company Securities, Inc.
- - Distributor.
<PAGE> 2
GRADISON-MCDONALD
OPPORTUNITY 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 Russell 2000 Small
Stock Index 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 1.75%
for the Fund versus 4.89% for the Russell 2000 Index.
Top performance in the Fund came from the electronics and technology sectors.
The share price of Adaptec, a maker of high performance software for the
PC industry, doubled over the past eleven months. Exar Corporation, who makes
communications and mass storage electronics, and Kent Electronics, an
electronics distributor, also provided stellar returns. Stocks in the healthcare
sector continued to outperform the market during the past year. Medical
equipment manufacturer, Cordis, and hospital operator, Community Health Systems,
posted excellent gains.
The general decline of shares in the retail sector tempered the performance of
the Fund. Despite positive earnings trends for many retailers, the group, as a
whole, has been out of favor with investors. As a result, Michaels Stores, Rex
Stores and Caldor Corporation all posted significant negative returns during the
period.
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 is at 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.
1-800-869-5999 [LOGO]
<PAGE> 3
LETTER TO SHAREHOLDERS (CONTINUED)
The Fund has recently made investments in several insurance and financial
services companies after their prices had declined as a result of the rapidly
rising interest rate environment of 1994. This practice is consistent with the
Fund's strategy of investing in sound companies that have shown steady earnings
gains and that trade at attractive valuations. Other additions to the portfolio
since the semiannual report of September 30, 1994, have been in the areas of
computer products (Western Digital and Quantum Corporation), business services
(Banta and Xtra Corporation) and natural resources (KCS Energy).
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 a recent issue of Smart Money magazine.
DIVIDEND - The Board of Trustees has declared an income dividend for $0.07 per
share and a long-term capital gain distribution of $0.52 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 Opportunity Value Fund
William J. Leugers, Jr. Daniel R. Shick
Executive Vice President and Portfolio Manager Vice President and
Portfolio Manager
<TABLE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT APRIL 30, 1985
TO MARCH 31, 1995
<CAPTION>
OPP S&P 500 Russell
--- ------- -------
<S> <C> <C> <C>
4/30/85 10,000 10,000 10,000
4/30/86 14,186 13,658 13,495
4/30/87 15,226 17,273 14,867
4/30/88 15,264 16,176 13,678
4/30/89 17,053 19,872 15,768
4/30/90 17,932 21,958 15,426
4/30/91 19,894 25,825 16,986
4/30/92 23,595 29,430 19,885
4/30/93 26,324 32,143 23,021
4/30/94 28,891 33,747 26,433
3/31/95 29,396 38,509 27,726
</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 Russell 2000 Small Stock Index is an unmanaged group of
stocks representative of small company stock performance; 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
these indices do not include any securities transaction expenses.
2
<PAGE> 4
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
ELEVEN MONTHS
ENDED YEAR ENDED APRIL 30,
MARCH 31, 1995 ----------------------------------------------
(NOTE 1) 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $18.348 $17.547 $16.462 $14.767 $13.644
------- ------- ------- ------- -------
Income from investment operations:
Net investment income .136 .086 .081 .173 .245
Net realized and unrealized
gains on investments .176 1.585 1.744 2.467 1.198
------- ------- ------- ------- -------
Total income from investment operations .312 1.671 1.825 2.640 1.443
------- ------- ------- ------- -------
Distributions to shareholders:
Dividends from net investment income (1) (.120) (.070) (.100) (.270) (.252)
Distributions from realized capital gains (1) (.440) (.800) (.640) (.675) (.068)
------- ------- ------- ------- -------
Total distributions to shareholders (.560) (.870) (.740) (.945) (.320)
------- ------- ------- ------- -------
Net asset value at end of period $18.100 $18.348 $17.547 $16.462 $14.767
======= ======= ======= ======= =======
Total return 1.75%(2) 9.75% 11.57% 18.60% 10.94%
======= ======= ======= ======= =======
Ratios/Supplemental data:
Net assets at end of period (in millions) $ 84.7 $ 83.3 $ 68.2 $ 47.4 $ 28.7
Ratio of expenses to average net assets 1.37%(3) 1.38% 1.44% 1.49% 1.61%
Ratio of net investment income
to average net assets .84%(3) .47% .61% 1.32% 2.03%
Portfolio turnover rate 31.90% 40.41% 39.00% 64.25% 63.88%
</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
$0.07 per share and a long-term capital gain distribution of $0.52 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 that 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 - 72.24% VALUE
OF SHARES
<S> <C> <C>
BANKS - 7.29%
29,600 Boatmen's Bankshares, Inc. $ 895,400
5,000 First Empire State Corporation 855,000
31,100 Firstar Corporation 917,450
45,000 HUBCO, Inc. 714,375
30,750 Mercantile Bankshares
Corporation 672,656
24,050 Old Kent Financial Corporation 754,569
24,800 Union Planters Corporation 573,500
29,000 West One Bancorp 790,250
-----------
6,173,200
-----------
BUSINESS SERVICES - 5.76%
45,000 ABM Industries, Inc. 1,023,750
27,000 Banta Corporation 891,000
50,000(1) Norstan, Inc. 1,125,000
26,000 PHH Corporation 988,000
18,000 Xtra Corporation 850,500
-----------
4,878,250
-----------
COMPUTER HARDWARE - 7.27%
50,000(1) Adaptec, Inc. 1,637,500
55,000(1) Dallas Semiconductor
Corporation 1,010,625
37,500(1) D.H. Technologies, Inc. 778,125
60,000(1) EXAR Corporation 1,260,000
50,000 Quantum Corporation 743,750
45,000(1) Standard Microsystems
Corporation 731,250
-----------
6,161,250
-----------
COMPUTER SOFTWARE - 3.13%
48,500(1) BancTec Inc. 727,500
11,250(1) Keane Inc. 272,813
29,000(1) Legent Corporation 949,750
51,000 Western Digital Corporation 701,250
-----------
2,651,313
-----------
CONSUMER DURABLES - 4.37%
24,000 Arvin Industries Inc. 510,000
42,000 Culp, Inc. 378,000
28,500 Durakon Industries, Inc. 448,875
27,000(1) Mueller Industries, Inc. 901,125
14,000 Sturm, Ruger & Company, Inc. 446,250
47,000 Wynn's International, Inc. 1,016,375
-----------
3,700,625
-----------
<CAPTION>
NUMBER COMMON STOCKS (CONTINUED) VALUE
OF SHARES
CONSUMER NON-DURABLES - 3.56%
50,000(1) CSS Industries, Inc. $ 887,500
50,000 Comair Holdings, Inc. 862,500
29,000 Galey & Lord, Inc. 351,625
34,000 Oxford Industries, Inc. 654,500
6,000 Raven Industries, Inc. 114,000
7,000(1) Vista Resources, Inc. 149,625
-----------
3,019,750
-----------
ELECTRONICS - 7.42%
100,000(1) Aerovox Incorporated 700,000
61,000(1) Audiovox Corporation 396,500
140,000 Griffon Corporation 1,190,000
55,000(1) Input/Output, Inc. 1,450,625
40,650(1) Kent Electronics Corporation 1,199,175
30,000 Pioneer Standard Electronics, Inc. 532,500
69,000(1) Sterling Electronics Corporation 819,375
-----------
6,288,175
-----------
FINANCIAL SERVICES - 3.64%
47,000 Aames Financial Corporation 599,250
48,000 ADVANTA Corporation 1,584,000
21,000 TCF Financial Corporation 905,625
-----------
3,088,875
-----------
HEALTH CARE - 8.26%
49,000(1) Community Health Systems, Inc. 1,543,500
20,000(1) Cordis Corporation 1,455,000
35,000(1) HEALTHSOUTH Corporation 1,421,875
43,500 Isomedix, Inc. 641,625
70,000(1) NovaCare, Inc. 551,250
55,000(1) Universal Health Services, Inc. 1,388,750
-----------
7,002,000
-----------
HOUSING / BUILDING
MATERIALS - 5.93%
26,000(1) Butler Manufacturing Company 923,000
72,000 Justin Industries, Inc. 693,000
57,000 Oakwood Homes Corporation 1,503,375
95,000(1) Patrick Industries, Inc. 1,128,125
76,500 Republic Gypsum Company 774,563
-----------
5,022,063
-----------
INSURANCE COMPANIES - 7.21%
35,000 American Bankers
Insurance Group, Inc. 993,125
26,000 Equitable of Iowa Companies 880,750
45,000 Fidelity National Financial, Inc. 450,000
34,000 Fremont General Corporation 667,250
63,630 GAINSCO, Inc. 660,161
30,000 PXRE Corporation 720,000
19,800 Torchmark Corporation 821,700
23,300 United Wisconsin Services, Inc. 917,438
-----------
6,110,424
-----------
See accompanying notes to financial statements.
</TABLE>
4
<PAGE> 6
STATEMENT OF NET ASSETS
MARCH 31, 1995
<TABLE>
<CAPTION>
NUMBER COMMON STOCKS (CONTINUED) VALUE
OF SHARES
<S> <C> <C>
NATURAL RESOURCES - 2.31%
54,000(1) Astec Industries, Inc. $ 634,500
22,000 Energen Corporation 503,250
51,000 KCSEnergy, Inc. 822,375
----------
1,960,125
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER COMMON STOCKS (CONTINUED) VALUE
OF SHARES
<S> <C> <C>
RETAIL TRADE - 6.09%
42,000(1) Caldor Corporation $ 897,750
70,000(1) DAKA International, Inc. 1,295,000
47,500 Heilig-Meyers Company 1,039,063
37,000(1) Michaels Stores, Inc. 1,211,750
51,000(1) Rex Stores Corporation 714,000
-----------
5,157,563
-----------
TOTAL COMMON STOCKS
(COST = $47,875,010) $61,213,613
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL COMMERCIAL PAPER - 12.33% MATURITY INTEREST VALUE
AMOUNT RATE (2)
<S> <C> <C> <C> <C>
$ 1,500,000 Du Pont (E.I.) de Nemours & Company 05/09/95 5.98% $ 1,490,532
1,500,000 Goldman Sachs Group (The), L.P. 05/01/95 6.02 1,492,475
1,500,000 Heinz, (H.J.) Company 04/26/95 5.97 1,493,781
1,500,000 Minnesota Mining & Mfg. Company 05/22/95 5.97 1,487,314
1,500,000 Phillip Morris Company 04/21/95 6.00 1,495,000
1,500,000 SmithKline Beecham Corporation 05/12/95 5.98 1,489,784
1,500,000 Southwestern Bell Corporation 04/04/95 5.93 1,499,259
-----------
TOTAL COMMERCIAL PAPER (COST = $10,448,145) 10,448,145
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL DISCOUNT NOTE - 15.45% MATURITY INTEREST VALUE
AMOUNT RATE (2)
<S> <C> <C> <C> <C>
$13,100,000 Federal Home Loan Bank
(Cost = $13,095,451) 04/03/95 6.25% $13,095,451
-----------
TOTAL INVESTMENTS, AT VALUE (NOTE 1) (COST = $71,418,606) - 100.02% 84,757,209
DIVIDEND & INTEREST RECEIVABLE - 0.05% 41,955
RECEIVABLE FOR FUND SHARES SOLD - 0.04% 30,092
ACCRUED INVESTMENT ADVISORY FEE (NOTE 2)- (0.07%) (63,579)
OTHER ACCRUED EXPENSES PAYABLE TO ADVISER (NOTE 2) - (0.03%) (23,477)
PAYABLE FOR FUND SHARES REDEEMED - (0.03%) (25,634)
OTHER ASSETS & LIABILITIES, NET - 0.02% 21,857
-----------
NET ASSETS - APPLICABLE TO 4,681,737 OUTSTANDING SHARES
(NO PAR VALUE - UNLIMITED NUMBER OF SHARES AUTHORIZED)
(NOTE 4) - 100% $84,738,423
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE (NOTE 1) $18.10
===========
</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
STATEMENT OF OPERATIONS
FOR THE ELEVEN MONTHS ENDED MARCH 31, 1995 (NOTE 1)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $1,096,476
Dividends 585,825
----------
Total investment income $1,682,301
EXPENSES:
Investment advisory fees (Note 2) 683,260
Distribution (Note 2) 178,864
Data processing fees (Note 2) 45,784
Personnel costs (Note 2) 32,231
Professional fees 21,978
Registration fees 21,359
Custodian fees 16,667
Postage and mailing 13,607
Trustees' fees (Note 2) 12,839
Printing 12,559
Other 3,882
-----------
TOTAL EXPENSES 1,043,030
-----------
NET INVESTMENT INCOME 639,271
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 2,529,940
Net decrease in unrealized appreciation of investments (1,671,004)
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 858,936
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,498,207
===========
</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 $ 639,271 $ 366,145
Net realized gain on investments 2,529,940 3,707,762
Net increase (decrease) in unrealized
appreciation of investments (1,671,004) 2,561,307
---------- ----------
Net increase in net assets resulting from operations 1,498,207 6,635,214
---------- ----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (573,964) (297,402)
Net realized capital gains (2,002,612) (3,272,841)
---------- ----------
Decrease in net assets from distributions to shareholders (2,576,576) (3,570,243)
---------- ----------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 45,495,191 72,274,054
Net asset value of shares issued in reinvestment of distributions 2,526,554 3,511,822
Payments for shares redeemed (45,501,572) (63,704,815)
---------- ----------
Net increase in net assets from Fund share transactions 2,520,173 12,081,061
---------- ----------
TOTAL INCREASE IN NET ASSETS 1,441,804 15,146,032
NET ASSETS:
Beginning of period 83,296,619 68,150,587
---------- ----------
End of period (including undistributed net investment
income of $139,200 and $72,770, respectively) (Note 1) $84,738,423 $83,296,619
=========== ===========
NUMBER OF FUND SHARES:
Sold 2,552,279 3,951,045
Issued in reinvestment of distributions to shareholders 141,556 197,969
Redeemed (2,551,892) (3,492,999)
---------- ----------
Net increase in shares outstanding 141,943 656,015
Outstanding at beginning of period 4,539,794 3,883,779
---------- ----------
Outstanding at end of period 4,681,737 4,539,794
=========== ===========
</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 Opportunity Value
Fund, the Gradison-McDonald Established 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 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 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 $16,409,219
and $3,070,616, 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 $.56 per
share, of which for tax purposes $.25 is treated as dividend income ($.12 from
net investment income and $.13 from short-term capital gains) and $.31 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 $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, 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. 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 amount in excess of $200 million.
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.
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 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 shareholders 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 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 March 31, 1995, purchases and sales of securities,
excluding short-term securities, amounted to $23,151,776 and $16,266,420,
respectively.
NOTE 4 -- NET ASSETS
At March 31, 1995, net assets of the Fund consisted of:
<TABLE>
<S> <C>
Aggregate paid-in capital $68,901,132
Accumulated undistributed net investment income 139,200
Accumulated undistributed net realized gains 2,359,488
Net unrealized appreciation of investments 13,338,603
-----------
Net assets $84,738,423
===========
</TABLE>
NOTE 5 -- SUBSEQUENT EVENT
The Board of Trustees declared a dividend from net investment income of $0.07
per share and a long-term capital gain distribution of $0.52 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 Opportunity Value Fund
of the Gradison Growth Trust:
We have audited the accompanying statement of net assets of the Gradison-
McDonald Opportunity 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 Opportunity 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 Opportunity 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,
May 25, 1995 /s/ Arthur Andersen LLP
11
