<PAGE> 1
ESTABLISHED VALUE
FUND
GRADISON-McDONALD
ANNUAL REPORT
MARCH 31, 1996
GRADISON-McDONALD
This material is intended for distribution to shareholders of the
Gradison-McDonald Established Value Fund. It may be distributed to other persons
only if it is preceded or accompanied by a current prospectus of the
Gradison-McDonald Established Value Fund. McDonald & Company Securities, Inc.-
Distributor
A COMMON STOCK FUND INVESTING IN LARGE
COMPANIES JUDGED TO BE UNDERVALUED
<PAGE> 2
GRADISON-McDONALD
ESTABLISHED VALUE FUND
LETTER TO SHAREHOLDERS May 16, 1996
Dear Shareholder:
We are pleased to provide you with the audited annual report for the Fund's
fiscal year ended March 31, 1996.
THE ECONOMY AND THE MARKET - It has been difficult to evaluate the level of
strength or weakness of the economy so far this year. Severe weather and the
earlier government shutdown distorted the economic statistics from the first
several months. It appeared that the economy remained in a slow growth mode
following the fourth quarter of 1995. However, more recent data, including
strong employment figures, rising commodity and oil prices, and increased
consumer spending, have hinted at economic strength and have sparked some fear
of inflation. The result has been a sharp rise in interest rates. Despite the
near term reaction by the bond market, it appears unlikely that the Federal
Reserve will take action until there is clear and convincing evidence that
inflation is accelerating.
The uncertainty surrounding the economy has led to volatility in the stock
market. The major stock market indices have been subject to severe daily price
swings as investors digest various economic figures.
The stock market experienced its best performance in the last 37 years during
1995. Low inflation, a favorable interest rate environment and strong corporate
earnings helped push the market to record levels. The performance of the
financial markets over the past year will be a difficult act to follow. It
remains to be seen what events will shape the markets in 1996. The past year
should remind investors that adhering to a sound, long-term investment strategy
remains prudent.
PERFORMANCE - Total returns for the Fund and the benchmark S&P 500 Index follow
this letter. The return for the Fund during the third quarter was 1.23% versus
6.02% for the S&P 500 Index. The underperformance by the Fund can be attributed
to the weakness in the technology sector. Following three consecutive quarters
of significant outperformance, the prices of technology related stocks declined
considerably during the final calendar quarter of 1995. Investors, betting on a
stronger economy, began to purchase more cyclical securities during the fourth
fiscal quarter, pushing the price of those securities higher. The retail and
aerospace groups also experienced favorable price action during the quarter. As
a result, the fund outperformed the S&P 500 Index during the fourth fiscal
quarter with a return of 6.27% versus 5.37% for the benchmark.
During the last year, our aerospace and technology companies accounted for much
of the performance with Loral, Lockheed Martin, Raytheon and Sun Microsystems
leading the way.
Finally, cash remains at approximately 30% which hopefully will serve to lower
the volatility risk but may dampen the returns in periods like the last year.
1-800-869-5999 [Phone Logo]
<PAGE> 3
LETTER TO SHAREHOLDERS (CONTINUED)
PORTFOLIO - The Fund's net assets increased to $366 million as of the fiscal
year ended March 31, 1996. This represents an increase of $89 million compared
to net assets of $277 million as of March 31, 1995.
Since our semiannual report of September 30, 1995, the Fund has purchased shares
of insurance companies Safeco Corporation and St. Paul Companies. Among other
additions to the Fund are Snap-On Incorporated, a manufacturer of hand power
tools, and Northrop Grumman Corporation, an aerospace and electronics maker. The
Fund's holdings in Ford Motor Company, Briggs and Stratton Corporation, Ryder
Systems, and Beneficial Corporation were sold during the same period.
As always, we remain committed to serving your investment needs.
Sincerely,
Gradison-McDonald Established Value Fund
William J. Leugers, Jr.
Executive Vice President and Portfolio Manager
Daniel R. Shick
Senior Vice President and Portfolio Manager
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT MAY 3, 1986 TO
MARCH 31, 1996
TOTAL RETURN PERIODS ENDED MARCH 31, 1996
Average Annual
10 Years 5 Years 3 Years 1 Year
Established 12.23% 14.15% 14.23% 24.84%
S & P 500 13.95 14.66 15.70 31.11
<TABLE>
<CAPTION>
Gradison-
McDonald
Measurement Established
Period Value Fund S&P 500
- ---------------------------------------------
<S> <C> <C>
5-1-86 10,000.00 10,000.00
4-30-87 12,985.97 12,627.02
4-30-88 13,457.25 11,825.78
4-30-89 15,777.06 14,505.61
4-30-90 15,952.23 16,043.59
4-30-91 17,235.35 18,868.43
4-30-92 18,543.78 21,512.99
4-30-93 22,227.82 23,496.46
4-30-94 24,738.74 24,745.10
3-31-95 26,926.88 28,230.60
3-31-96 33,615.48 37,294.81
</TABLE>
Past performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that 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
FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period)
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED YEAR ENDED APRIL 30,
ENDED MARCH 31, 1995 --------------------------------------
MARCH 31, 1996 (NOTE 1) 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 23.381 $ 22.515 $ 21.375 $ 18.366 $ 17.754
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .436 .376 .256 .286 .386
Net realized and unrealized
gains on investments 5.190 1.520 2.104 3.278 .916
-------- -------- -------- -------- --------
Total income from investment operations 5.626 1.896 2.360 3.564 1.302
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (1) (.430) (.370) (.220) (.285) (.420)
Distributions from realized capital gains (1) (1.010) (.660) (1.000) (.270) (.270)
-------- -------- -------- -------- --------
Total distributions to shareholders (1.440) (1.030) (1.220) (.555) (.690)
-------- -------- -------- -------- --------
Net asset value at end of period $ 27.567 $ 23.381 $ 22.515 $ 21.375 $ 18.366
======== ======== ======== ======== ========
Total return 24.84% 8.85%(2) 11.30% 19.86% 7.59%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in millions) $ 366.4 $ 277.4 $ 253.3 $ 203.6 $ 175.5
Ratio of expenses to average net assets 1.15% 1.20%(3) 1.22% 1.28% 1.31%
Ratio of net investment income
to average net assets 1.70% 1.87%(3) 1.15% 1.48% 2.12%
Portfolio turnover rate 18.48% 24.23% 38.39% 28.08% 67.96%
</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
$0.13 per share and a long-term capital gain distribution of $0.60 per
share payable on May 31, 1996 to shareholders of record on May 30,
1996.
(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
PORTFOLIO OF INVESTMENTS MARCH 31, 1996
<TABLE>
<CAPTION>
NUMBER COMMON STOCKS - 74.03% VALUE
OF SHARES
AEROSPACE/DEFENSE COMPANIES - 10.56%
<S> <C> <C>
99,756 Lockheed Martin Corporation $ 7,568,987
280,000 Loral Corporation 13,720,000
80,000 Northrop Grumman Corporation 5,090,000
126,400 Raytheon Company 6,478,000
70,000 Textron, Inc. 5,600,000
----------
38,456,987
----------
AUTOMOTIVE - 2.73%
86,000 Cummins Engine Company, Inc. 3,472,250
149,000 Echlin, Inc. 5,401,250
42,000 ITT Industries, Inc. 1,071,000
----------
9,944,500
----------
CHEMICALS - 3.92%
255,000 Engelhard Corporation 5,960,625
134,000 Hercules, Inc. 8,308,000
----------
14,268,625
----------
COMPUTING PRODUCTS - 10.02%
186,000(1) Compaq Computer Corporation 7,184,250
126,000 Intel Corporation 7,150,500
62,000 International Business
Machines Corporation 6,889,750
240,000(1) Sun Microsystems, Inc. 10,500,000
103,000 Tandy Corporation 4,763,750
----------
36,488,250
----------
CONSUMER DURABLES - 2.78%
97,000 Goodyear Tire & Rubber
(The) Company 4,947,000
111,000 Snap-on, Inc. 5,189,250
----------
10,136,250
----------
CONSUMER NON-DURABLES - 2.25%
138,400 American Greetings Corporation 3,823,300
238,000 Archer-Daniels-Midland Company 4,373,250
----------
8,196,550
----------
FINANCIAL SERVICES - 6.16%
119,000 Household International, Inc. 8,002,750
70,000 Transamerica Corporation 5,241,250
139,000 Travelers, Inc. 9,174,000
----------
22,418,000
----------
INDUSTRIAL PRODUCTS - 7.81%
120,000 Foster Wheeler Corporation 5,325,000
90,000 Goodrich (B.F.) Company 7,155,000
90,000 Harris Corporation 5,568,750
74,000 Johnson Controls, Inc. 5,522,250
105,000 Timken Company 4,843,125
----------
28,414,125
----------
INSURANCE - 4.65%
42,000 ITT Hartford Group, Inc. 2,058,000
110,000 Providian Corporation 4,908,750
143,000 SAFECO Corporation 4,790,500
93,000 St. Paul Companies, Inc. 5,161,500
----------
16,918,750
----------
NATURAL RESOURCES /FOREST PRODUCTS - 7.66%
152,000 Asarco, Inc. 5,320,000
145,000 Coastal Corporation 5,727,500
150,000 Cyprus Amax Minerals Company 4,237,500
110,000 International Paper Company 4,331,250
100,000 Potlatch Corp. 4,275,000
85,000 Temple-Inland, Inc. 3,984,375
----------
27,875,625
----------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 6
PORTFOLIO OF INVESTMENTS MARCH 31, 1996
<TABLE>
<CAPTION>
NUMBER COMMON STOCKS (CONTINUED) VALUE
OF SHARES
RETAIL TRADE & SERVICES - 5.79%
<S> <C> <C>
160,000 American Stores Company $5,280,000
75,000 Dillard Department
Stores, Inc. 2,596,875
42,000(1) ITT Corporation 2,520,000
99,000 Mercantile Stores, Inc. 6,076,125
254,000 Wendy's International, Inc. 4,603,750
----------
21,076,750
----------
TELEPHONE COMMUNICATIONS - 4.03%
210,000 (1) Andrew Corporation 8,032,500
220,000 MCICommunications
Corporation 6,655,000
----------
14,687,500
----------
TRANSPORTATION - 5.67%
190,000 Consolidated Freightways, Inc. $ 4,868,750
75,000 Consolidated Rail Corporation 5,371,875
67,000(1) Federal Express Corporation 4,681,625
156,000 Pittston Brink's Group 4,173,000
78,000 Pittston Burlington Group 1,530,750
------------
20,626,000
------------
TOTAL COMMON STOCKS
(COST = $155,568,960) $269,507,912
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL COMMERCIAL PAPER - 18.42% MATURITY INTEREST VALUE
AMOUNT RATE (2)
<S> <C> <C> <C> <C>
$ 5,000,000 Air Products & Chemicals, Inc. 4/12/96 5.12% $ 4,992,178
6,000,000 Ameritech Corporation 4/29/96 5.14 5,976,013
5,000,000 AT&T Capital Corporation 4/30/96 5.13 4,979,338
6,000,000 Dun & Bradstreet Corporation 5/07/96 5.30 5,968,200
6,000,000 Dupont (E.I.) de Nemours & Company 5/06/96 5.19 5,969,725
6,000,000 Heinz (H.J.) Company 5/03/96 5.15 5,972,533
6,300,000 Motorola Credit Corporation 4/23/96 5.30 6,279,595
5,000,000 Pitney Bowes Credit Corporation 4/04/96 5.11 4,997,871
6,000,000 PPGIndustries, Inc. 5/13/96 5.23 5,963,390
5,000,000 Toys "R" Us, Inc. 4/08/96 5.20 4,994,944
6,000,000 United Parcel Service of America, Inc. 5/01/96 5.17 5,974,150
5,000,000 Weyerhaeuser Company 5/14/96 5.27 4,968,526
------------
TOTAL COMMERCIAL PAPER (COST = $67,036,463) $ 67,036,463
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL REPURCHASE AGREEMENT - 7.55% MATURITY INTEREST VALUE
AMOUNT RATE (2)
<S> <C> <C> <C> <C>
$27,500,000 First Chicago Capital Markets
dated 3/29/96, collateral; U.S. Treasury Bills, due 9/19/96
with a market value of $28,060,796; repurchase proceeds: $27,512,031
(COST = $27,500,000) 4/01/96 5.32% $ 27,500,000
------------
TOTAL INVESTMENTS, AT VALUE (NOTE 1) (COST = $250,105,423) - 100% $364,044,375
============
</TABLE>
(1) Non-income producing.
(2) For commercial paper, the rate is the discount rate at the time of
purchase by the Fund. For repurchase agreements, the rate shown
reflects the actual rate of return to the Fund.
See accompanying notes to financial statements.
5
<PAGE> 7
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MARCH 31, 1996
ASSETS
<S> <C>
Investments in securities, at value (Note 1) (Cost $250,105,423) $364,044,375
Receivable for Fund shares sold 2,303,021
Dividends and interest receivable 307,231
Cash 205,598
Prepaid expenses and other assets 23,237
------------
TOTAL ASSETS 366,883,462
------------
LIABILITIES
Accrued investment advisory fee (Note 2) 163,768
Other liabilities payable to adviser (Note 2) 175,279
Payable for Fund shares redeemed 108,038
Other accrued expenses and liabilities 19,549
------------
TOTAL LIABILITIES 466,634
------------
NET ASSETS $366,416,828
============
Net assets consist of:
Aggregate paid-in capital 244,189,659
Accumulated undistributed net investment income 745,359
Accumulated undistributed net realized gains 7,542,858
Net unrealized appreciation of investments 113,938,952
------------
Net Assets $366,416,828
============
Shares of capital stock outstanding
(no par value - unlimited number of shares authorized) 13,291,936
============
Net asset value and redemption price per share (Note 1) $ 27.57
============
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 8
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1996
INVESTMENT INCOME:
<S> <C> <C>
Dividends $ 4,013,844
Interest 5,311,252
-----------
Total investment income $ 9,325,096
EXPENSES:
Investment advisory fees (Note 2) 1,890,225
Distribution (Note 2) 1,460,779
Transfer agency fees (Note 2) 242,289
Accounting services fees (Note 2) 52,703
Registration fees 29,649
Printing 20,578
Professional fees 19,081
Custodian fees 15,617
Trustees' fees (Note 2) 9,114
Postage and mailing 2,414
Other 29,185
-----------
TOTAL EXPENSES 3,771,634
-----------
NET INVESTMENT INCOME 5,553,462
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 13,508,988
Net increase in unrealized appreciation of investments 51,890,255
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 65,399,243
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $70,952,705
===========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 9
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED
ENDED MARCH 31, 1995
MARCH 31, 1996 (NOTE 1)
FROM OPERATIONS:
<S> <C> <C>
Net investment income $ 5,553,462 $ 4,489,701
Net realized gain on investments 13,508,988 7,099,956
Net increase in unrealized
appreciation of investments 51,890,255 11,638,554
------------ ------------
Net increase in net assets resulting from operations 70,952,705 23,228,211
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (5,404,325) (4,392,688)
Net realized capital gains (12,516,066) (7,525,690)
------------ ------------
Decrease in net assets from distributions to shareholders (17,920,391) (11,918,378)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 204,134,880 163,689,905
Net asset value of shares issued in reinvestment of distributions 17,748,840 11,790,560
Payments for shares redeemed (185,868,913) (162,712,174)
------------ ------------
Net increase in net assets from Fund share transactions 36,014,807 12,768,291
------------ ------------
TOTAL INCREASE IN NET ASSETS 89,047,121 24,078,124
NET ASSETS:
Beginning of period 277,369,707 253,291,583
------------ ------------
End of period (including undistributed net investment
income of $745,359 and $596,222, respectively) (Note 1) $366,416,828 $277,369,707
============ ============
NUMBER OF FUND SHARES:
Sold 7,979,631 7,449,070
Issued in reinvestment of distributions to shareholders 709,780 541,606
Redeemed (7,260,289) (7,377,921)
------------ ------------
Net increase in shares outstanding 1,429,122 612,755
Outstanding at beginning of period 11,862,814 11,250,059
------------ ------------
Outstanding at end of period 13,291,936 11,862,814
============ ============
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996
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 Annual Report to Shareholders pertains only to the
Gradison-McDonald Established Value Fund (the "Fund"). The Fund's investment
objective is to seek long-term capital growth by investing primarily in common
stocks.
The Fund changed its fiscal year end to March 31, effective with the September
30, 1994 Semiannual Report.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amount of income and expenses for the
period. Actual results could differ from those estimates.
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. Refer to the Fund's
Portfolio of Investments for the face amount of repurchase agreements and
repurchase proceeds as of March 31, 1996.
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.
9
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996
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. For both financial reporting and tax purposes, gross
unrealized appreciation and gross unrealized depreciation of securities at March
31, 1996 was $114,472,602 and $533,650, 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
year ended March 31, 1996, the Fund made total distributions of $1.44 per share,
of which $.43 was treated as dividend income, $.06 was treated as short-term
capital gain, and $.95 was 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.
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 year ended March 31, 1996. 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 bears 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 MARCH 31, 1996
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 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 shareholders 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 year ended March 31, 1996, the cost of purchases and proceeds from the
sale of securities, excluding short-term securities, amounted to $43,503,220 and
$47,342,065, respectively.
11
<PAGE> 13
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 assets and liabilities of the
Gradison-McDonald Established Value Fund of the Gradison Growth Trust (an Ohio
business trust), including the portfolio of investments, as of March 31, 1996,
and the related statement of operations for the year then ended, the statements
of changes in net assets for the periods indicated thereon, and the financial
highlights for each of the four 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 the year ended April 30, 1992, of the Gradison-McDonald
Established Value Fund of the Gradison Growth Trust, was 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, 1996, 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, 1996, the results of its operations for the year then ended, the
changes in its net assets for the periods indicated thereon, and the financial
highlights for each of the four periods in the period then ended, in conformity
with generally accepted accounting principles.
Cincinnati, Ohio,
May 30, 1996
12
<PAGE> 14
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.
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. 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
return and principal 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.
13
<PAGE> 15
This page intentionally left blank.
14
<PAGE> 16
This page intentionally left blank.
15
<PAGE> 17
GROWTH & INCOME
FUND
GRADISON-McDONALD
ANNUAL REPORT
MARCH 31, 1996
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
A COMMON STOCK FUND SEEKING LONG-TERM GROWTH
OF CAPITAL, CURRENT INCOME, AND GROWTH OF INCOME
<PAGE> 18
GRADISON-McDONALD
GROWTH & INCOME FUND
LETTER TO SHAREHOLDERS
May 14, 1996
Dear Shareholder:
At March 31, 1996, the Gradison-McDonald Growth & Income Fund completed its
thirteenth month of operation.
PORTFOLIO - During the fiscal year, investments have been made in our Fund at
levels averaging eight hundred thousand dollars a month. At March 31, 1996, our
Fund approached a balance of twelve million dollars. New monies have been
applied to common stock purchases employing a strategy of dollar-cost averaging.
Since June, 1995 over 90% of our Fund's assets have been invested in common
stock. At March 31, 1996, assets totaling 96% of the Fund were committed to
common stocks.
Throughout this year of rising stock prices, we have adhered to our focus and
primary objective and have resisted the temptation to deviate from our stated
investment policies. Indeed, as shown in the table below, your Fund's assets are
invested primarily in the common stock of high quality, well-known companies
with histories of growing profits and dividends. It is our view that 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
March 31, 1996:
<TABLE>
<CAPTION>
GRADISON-MCDONALD S&P 500
GROWTH & INCOME FUND INDEX
<S> <C> <C>
Yield 2.7% 2.2%
Price/earnings ratio* 19.5x 21.3x
Return on equity 21.7% 15.4%
Average annual five years earnings growth 11.8% 9.5%
Annual five year dividend growth rate 9.4% 2.8%
Beta 1.04 1.00
<FN>
*based on trailing 12 month earnings
</TABLE>
1-800-869-5999 [Phone Logo]
<PAGE> 19
LETTER TO SHAREHOLDERS (CONTINUED)
INVESTMENT PERFORMANCE - For the year ending March 31, 1996 your Fund achieved a
total return of 23.1%. This compares to the 32.1% total return achieved by the
S&P 500 for the same time period. The main reason for the lower investment
performance by your Fund is the more conservative nature of its diversification.
Compared to the S&P 500, the Fund had smaller positions in technology and
cyclical stocks which were top performing sectors for the year. Your Fund's
greater exposure to defensive positions and the accompanying growth of new
investors' substantial investments inhibited performance. While it is still
early in your Fund's operation to have meaningful and comparable performance
data, since its inception (February 28, 1995) your Fund has achieved an
annualized total return of 22.5% whereas the S&P 500's total return for the same
period was 32.7%.
DIVIDENDS - On August 28th your Fund paid its first quarterly dividend. In the
fiscal year ending March 31, 1996, shareholders received the following
distributions:
<TABLE>
<CAPTION>
INCOME CAPITAL GAINS
DISTRIBUTIONS DISTRIBUTIONS
<S> <C> <C>
August 28, 1995 $0.060 $0.000
November 24, 1995 0.060 0.035
December 29, 1995 (year end distribution) 0.040 0.000
February 23, 1996 0.025 0.000
</TABLE>
In total, $0.22 per share has been distributed to shareholders in the fiscal
year just ended. We plan to pay dividends each quarter. Subject to the Board of
Trustees' approval, we expect to pay our next dividend consisting of earned
income and capital gains in May, 1996.
DIVIDEND REINVESTMENT PLAN - The Fund has a dividend reinvestment plan available
to all shareholders. You may elect to automatically receive cash payments of
dividends and/or capital gains distributions. You may change or terminate this
election at any time.
MARKET OUTLOOK - The economy has entered its sixth year of growth. The longevity
of economic progress is beginning to show some signs of disquietude as evidenced
by its uneven growth in the past five quarters. Recent economic strength masks
trends of slowing growth, declining corporate profits and rising interest rates.
The rise in energy prices is likely to be reflected in a combination of lower
economic growth and higher inflation. These factors are but a few among several
causing volatility in market prices as investors' attention alternates between
these concerns. Growth in overseas economies will continue to have a positive
effect on the U.S. economy for 1996 as export growth is expected to offset
moderate import growth. Inflation, as measured by the Consumer Price Index
(CPI), has been low for almost 5 years. In the latter stages of an economic
expansion corporate profit growth begins to slow as companies are forced to make
price concessions to entice customers while costs remain high. This downward
pressure on prices may dampen the effect of recent increases. A slowing economy
may force rates lower in future months negating any stimulative response by the
Federal Reserve Board.
Stock market averages have moved close to their all time highs despite some
negative first quarter earnings reports as well as higher interest rate levels.
A good number of companies are expected to record earnings gains this year,
although the overall trend is likely to be flat. We are maintaining a generally
cautious approach to common stock selection with emphasis on earnings
reliability and reasonable price/earnings multiples.
2
<PAGE> 20
LETTER TO SHAREHOLDERS (CONTINUED)
PUBLISHED PRICES - In the next few weeks the Gradison-McDonald Growth & Income
Fund will be listed in daily newspaper mutual fund price listings.
All of us with the Gradison-McDonald Growth & Income Fund thank you for your
confidence and trust. We will continue to do our best to serve you and your
investing needs.
Sincerely,
Gradison Growth Trust
Gradison-McDonald Growth & Income Fund
Julian C. Ball, CFA
Executive Vice President and Portfolio Manager
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT FEBRUARY 28, 1995
TO MARCH 31, 1996
<TABLE>
<CAPTION>
TOTAL RETURN PERIODS ENDED MARCH 31, 1996
Average Annual
1 Year Inception
<S> <C> <C>
Growth & Income 23.09% 22.46%
S & P 500 32.11 32.68
</TABLE>
<TABLE>
<CAPTION>
Gradison-
McDonald
Measurement Growth & Income
Period Fund S&P 500
- -----------------------------------------
<S> <C> <C>
2/28/95 10,000 10,000
3/31/95 10,126 10,273
4/30/95 10,360 10,560
5/31/95 10,566 10,944
6/30/95 10,606 11,176
7/31/95 10,820 11,532
8/31/95 10,760 11,528
9/30/95 11,241 11,990
10/31/95 11,161 11,930
11/30/95 11,714 12,420
12/31/95 12,034 12,637
1/31/96 12,367 13,049
2/29/96 12,384 13,139
3/31/96 12,465 13,244
</TABLE>
Past performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that 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. Expense
reimbursement by the Fund's investment adviser increased return during the
period shown. Such reimbursement is subject to termination which would reduce
future returns.
3
<PAGE> 21
FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR FOR THE PERIOD
ENDED FEBRUARY 28, 1995*
MARCH 31, 1996 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 .173 .030
Net realized and unrealized
gains on investments 3.317 .159
------- -------
Total income from investment operations 3.490 .189
------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (1) (.185) --
Distributions from realized capital gains (1) (.035) --
------- -------
Total distributions to shareholders (.220) --
------- -------
Net asset value at end of period $18.459 $15.189
======= =======
Total return 23.09% 1.27%(2)
======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in millions) $ 12.0 $ 1.2
RATIOS NET OF EXPENSES WAIVED AND REIMBURSED BY THE ADVISER (3):
Ratio of expenses to average net assets 1.50% 0.00%(4)
Ratio of net investment income to average net assets 1.39% 4.09%(4)
RATIOS ASSUMING NO ADVISER WAIVER OR REIMBURSEMENT OF EXPENSES (3):
Ratio of expenses to average net assets 2.87% 13.88%(4)
Ratio of net investment income (loss) to average net assets .01% (9.79%)(4)
Portfolio turnover rate 3.07% 3.62%
<FN>
(1) The Board of Trustees declared a dividend from net investment income of
$0.05 per share, a short-term capital gain distribution of $0.04 per share,
and a long-term capital gain distribution of $0.01 per share payable on May
31, 1996 to shareholders of record on May 30, 1996.
(2) Total return represents the actual return over the period and has not been
annualized.
(3) The adviser absorbed expenses of the Fund through waiver of fees and
reimbursement of certain expenses (Note 2).
(4) Annualized.
* Date of public offering
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 22
PORTFOLIO OF INVESTMENTS MARCH 31, 1996
COMMON STOCKS - 100.00%
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
BANK SERVICES - 8.40%
5,000 Huntington Bankshares, Incorporated $ 119,375
5,000 Morgan, (J.P.) & Company,
Incorporated 415,000
12,000 Norwest Corporation 441,000
-----------
975,375
-----------
CONSUMER DURABLES - 4.27%
2,000 Cooper Tire & Rubber Company 51,500
8,000 Shaw Industries Corp. 88,000
4,000 TRW Inc. 356,500
-----------
496,000
-----------
CONSUMER NON-DURABLES - 14.16%
4,000 CPC International, Inc. 277,500
14,000 Heinz, (H.J.) Company 463,750
14,000 Newell Company 374,500
3,000 Pepsico, Inc. 189,750
4,000 Procter & Gamble Company 339,000
-----------
1,644,500
-----------
ENERGY - 9.92%
5,000 Chevron Corporation 280,625
5,000 Exxon Corporation 408,125
4,000 Mobil Corporation 463,500
-----------
1,152,250
-----------
FINANCIAL SERVICES - 6.61%
6,000 American Express Company 296,250
8,000 American General Corporation 276,000
3,100 Cincinnati Financial Corporation 196,075
-----------
768,325
-----------
HEALTHCARE & PHARMACEUTICALS - 11.50%
3,000 American Home Products Corporation 325,125
5,000 Bristol-Myers Squibb Company 428,125
4,000 Merck & Co.,Inc. 249,000
5,000 U.S. Healthcare, Inc. 230,000
1,000 Warner-Lambert Company 103,250
-----------
1,335,500
-----------
INDUSTRIAL PRODUCTS - 5.65%
5,000 General Electric Company $ 389,375
3,000 Pall Corporation 76,875
6,000 WMX Technologies, Inc. 190,500
-----------
656,750
-----------
NATURAL RESOURCES - 4.81%
3,000 Avery-Dennison Corporation 162,000
3,000 Du Pont (E.I.) de Nemours
& Company 249,000
7,000 Schulman, (A.) Inc. 147,875
-----------
558,875
-----------
RETAIL TRADE & SERVICES - 8.27%
6,000 Dun & Bradstreet Corporation 363,750
6,000 May Department Stores Co. 289,500
3,000 McDonald's Corporation 144,000
5,000 Walgreen Co. 163,125
-----------
960,375
-----------
TECHNOLOGY - 16.50%
4,000 Automated Data Processing, Inc. 157,500
2,000 Intel Corporation 113,500
7,000 Minnesota Mining &
Manufacturing Company 454,125
8,000 Motorola Inc. 424,000
9,000 Pitney-Bowes, Inc. 441,000
10,000 Premier Industrial Corporation 326,250
-----------
1,916,375
-----------
UTILITIES - 9.91%
6,000 Ameritech Corporation 327,000
9,000 Central & South West Corporation 256,500
5,000 Duke Power Company 252,500
6,000 SBC Communications, Inc. 315,750
-----------
1,151,750
-----------
TOTAL COMMON STOCKS
(COST=$10,428,866) $11,616,075
===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 23
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MARCH 31, 1996
<S> <C>
ASSETS
Investments in securities, at value (Note 1) (Cost $10,428,866) $11,616,075
Cash 352,122
Receivable for Fund shares sold 19,253
Dividends receivable 18,898
Prepaid expenses and other assets 7,090
Organization expenses, net (Note 1) 4,939
-----------
TOTAL ASSETS 12,018,377
-----------
LIABILITIES
Liabilities payable to adviser (Note 2) 25,994
Other accrued expenses and liabilities 15,025
-----------
TOTAL LIABILITIES 41,019
-----------
NET ASSETS $11,977,358
===========
Net assets consist of:
Aggregate paid-in capital 10,774,149
Accumulated undistributed net investment income 11,621
Accumulated undistributed net realized gains 4,379
Net unrealized appreciation of investments 1,187,209
-----------
Net Assets $11,977,358
===========
Shares of capital stock outstanding
(no par value - unlimited number of shares authorized) 648,877
===========
Net asset value and redemption price per share (Note 1) $ 18.46
===========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 24
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1996
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 167,716
Interest 20,190
----------
Total investment income $ 187,906
EXPENSES:
Investment advisory fees (Note 2) 42,321
Accounting services fees (Note 2) 40,000
Distribution (Note 2) 32,555
Registration fees 30,512
Professional fees 11,004
Transfer agency fees (Note 2) 10,901
Custodian fees 7,323
Trustees' fees (Note 2) 6,507
Printing 4,126
Amortization of organization expenses (Note 1) 1,367
Other 398
----------
Total expenses 187,014
Less fees waived by the adviser (Note 2) (89,335)
----------
Net expenses 97,679
----------
NET INVESTMENT INCOME 90,227
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 19,093
Net increase in unrealized appreciation of investments 1,179,997
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 1,199,090
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,289,317
==========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 25
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR FOR THE PERIOD
ENDED FEBRUARY 28, 1995*
MARCH 31, 1996 TO MARCH 31, 1995
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 90,227 $ 2,404
Net realized gain on investments 19,093 410
Net increase in unrealized appreciation of investments 1,179,997 7,212
----------- ----------
Net increase in net assets resulting from operations 1,289,317 10,026
----------- ----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (81,010) --
Net realized capital gains (15,124) --
----------- ----------
Decrease in net assets from distributions to shareholders (96,134) --
----------- ----------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 10,777,990 1,198,480
Net asset value of shares issued in reinvestment of distributions 93,588 --
Payments for shares redeemed (1,295,409) (500)
----------- ----------
Net increase in net assets from Fund share transactions 9,576,169 1,197,980
----------- ----------
TOTAL INCREASE IN NET ASSETS 10,769,352 1,208,006
NET ASSETS:
Beginning of period 1,208,006 --
----------- ----------
End of period (including undistributed net investment
income of $11,621 and $2,404, respectively) (Note 1) $11,977,358 $1,208,006
=========== ==========
NUMBER OF FUND SHARES:
Sold 640,085 79,564
Issued in reinvestment of distributions to shareholders 5,402 --
Redeemed (76,141) (33)
----------- ----------
Net increase in shares outstanding 569,346 79,531
Outstanding at beginning of period 79,531 --
----------- ----------
Outstanding at end of period 648,877 79,531
=========== ==========
<FN>
*Date of public offering.
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996
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 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 Fund's investment objective
is to seek long-term growth of capital, current income, and growth of income
consistent with reasonable investment risk.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses for the
period. Actual results could differ from those estimates.
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, 1996.
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.
9
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996
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 March 31, 1996 was $1,309,077 and
$121,868, 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
year ended March 31, 1996, the Fund made total distributions of $.22 per share,
$.185 of which was treated as dividend income and $.035 was treated as
short-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.
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 bears 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.
10
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996
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 year ended March 31,
1996, McDonald waived advisory fees of $42,321, transfer agency fees of $10,901,
and accounting services fees of $36,113.
In accordance with the terms of a Distribution 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 shareholders
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, 1996, the cost of purchases and proceeds from the
sale of securities, excluding short-term securities, amounted to $9,848,164 and
$180,804, respectively.
11
<PAGE> 29
ARTHUR
ANDERSEN
ARTHUR ANDERSEN & CO, SC
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of the
Gradison-McDonald Growth & Income Fund
of the Gradison Growth Trust:
We have audited the accompanying statement of assets and liabilities of the
Gradison-McDonald Growth & Income Fund of the Gradison Growth Trust (an Ohio
business trust), including the portfolio of investments, as of March 31, 1996,
and the related statement of operations for the year then ended, and the
statements of changes in net assets and the financial highlights for the periods
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
audits.
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, 1996, 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 Growth & Income Fund of the Gradison Growth Trust as of March
31, 1996, the results of its operations for the year then ended, and the changes
in its net assets and the financial highlights for the periods indicated
thereon, in conformity with generally accepted accounting principles.
Cincinnati, Ohio,
May 30, 1996
12
<PAGE> 30
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. 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
return and principal 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.
13
<PAGE> 31
This page intentionally left blank.
14
<PAGE> 32
This page intentionally left blank.
15
<PAGE> 33
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
INTERNATIONAL
FUND
GRADISON-McDONALD
ANNUAL REPORT
MARCH 31, 1996
A COMMON STOCK FUND INVESTING
IN NON-UNITED STATES COMPANIES
<PAGE> 34
GRADISON-MCDONALD
INTERNATIONAL FUND
LETTER TO SHAREHOLDERS
May 16, 1996
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 of Edinburgh, Scotland to be
our subadviser 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.
Since our last letter (November 1, 1995) several important events regarding the
Fund have occurred. The Fund is now listed on NASDAQ under the symbol INTFX and
appears daily in most major newspapers under the heading Gradison-McDonald.
Since the end of the fiscal year, the Fund has continued to attract new
shareholders and now stands at almost $17 million in assets.
PORTFOLIO - Your Fund invests approximately 70% of its assets in companies 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 March 31st, the top five
countries represented 49.7% of the Fund's net assets as listed below:
<TABLE>
<CAPTION>
PERCENT OF
COUNTRY NET ASSETS
<S> <C>
Japan 26.4%
Great Britain 8.2%
France 5.6%
Germany 5.3%
Brazil 4.2%
</TABLE>
The remaining 50.3% of the portfolio was diversified over an additional eight
established and seventeen emerging markets. The entire portfolio breakdown by
country is shown in the enclosed financial statements.
INVESTMENT PERFORMANCE - Ten months is much too short a history to provide truly
meaningful performance data. Nonetheless, your Fund's non-annualized performance
for the ten months from inception to the end of the fiscal year on March 31st
was +5.7%, while the hybrid index for the comparable period was +8.2%. We
believe that the Fund's lower return during this period can largely be
attributed to it being in its start-up phase. Recent performance has been very
encouraging with the Fund outperforming the index for the first quarter of 1996
with a return of 4.2% versus 3.9% for the hybrid index. The first four months of
1996 has been even stronger with a return of +8.23% compared to the index's
+7.33%.
1-800-869-5999 [Phone Logo]
<PAGE> 35
LETTER TO SHAREHOLDERS (CONTINUED)
REVIEW AND OUTLOOK - Our recent performance is attributable to good stock
selection in the developed markets of Japan, France and Germany. We also had
positive results in the emerging markets of Turkey and Poland.
Looking toward the remainder of 1996, we would characterize our outlook for the
developed markets as solid. Economic growth in these markets is subdued but
stock valuations appear reasonable, particularly when compared to alternative
investments in bonds or cash. We think the emerging markets offer better profit
opportunities, albeit with greater volatility. Economic growth, in general, is
running at twice the rate of the developed markets, corporate profitability is
strong, and valuations are reasonable.
Our long-term outlook for international investing is quite positive based on a
combination of above-average economic growth, strong demographic trends and a
growing acceptance of free market economics. As such, we believe that most
investors with a long-term perspective will benefit from their portfolio having
an international component.
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
Bradley E. Turner
President
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT MAY 31, 1995 TO
MARCH 31, 1996
<TABLE>
<CAPTION>
TOTAL RETURN
PERIOD ENDED MARCH 31, 1996
NOT ANNUALIZED
YEAR-TO-DATE
<S> <C>
International Fund 5.76%
MSCI EAFE Index 9.84
Hybrid Index 8.22
</TABLE>
<TABLE>
<CAPTION>
Morgan Stanley
Capital
Gradison-McDonald International
Measurement International EAFE Hybrid
Period Fund Index Index
- -------------------------------------------------------
<S> <C> <C> <C>
5-31-95 10,000 10,000 10,000
6-30-95 10,026 9,827 9,888
7-31-95 10,073 10,441 10,385
8-31-95 10,120 10,045 10,035
9-30-95 9,986 10,244 10,161
10-31-95 9,646 9,972 9,874
11-31-95 9,820 10,252 10,001
12-31-95 10,148 10,667 10,416
1-31-96 10,489 10,714 10,659
2-29-96 10,409 10,753 10,636
3-31-96 10,569 10,984 10,821
</TABLE>
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
4.8%. Waiver and reimbursement arrangements may be terminated which would lower
future performance. Performance figures are historical. The investment return
and principal 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 not predictive 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.
2
<PAGE> 36
FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period)
<TABLE>
<CAPTION>
MAY 31, 1995* THROUGH
MARCH 31, 1996
<S> <C>
Net asset value at beginning of period $15.000
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.065
Net realized and unrealized
gain on investments 0.799
-------
Total income from investment operations 0.864
-------
Dividends to shareholders from net investment income (0.042)
-------
Net asset value at end of period $15.822
=======
Total return (1) 5.76%
=======
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in millions) $ 15.3
RATIOS NET OF EXPENSES WAIVED AND REIMBURSED BY THE ADVISER (2) (3):
Ratio of expenses to average net assets 1.75%
Ratio of net investment income to average net assets 0.70%
RATIOS ASSUMING NO ADVISER WAIVER OR REIMBURSEMENT OF EXPENSES (2) (3):
Ratio of expenses to average net assets 3.73%
Ratio of net investment loss to average net assets (1.28%)
Portfolio turnover rate 71.78%
<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> 37
PORTFOLIO OF INVESTMENTS MARCH 31, 1996
PREFERRED STOCKS - 3.20%
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES
<S> <C> <C>
BRAZIL- 3.20%
25,500 Aracruz Celulose $40,792
6,130,000 Banco Bradesco SA 64,237
51,000 Brasmotor SA 13,167
1,310,000 Cia Energetica Minas Gerais 36,739
426,870 Companhia Vale Do Rio Doce 66,990
238,000 Elerobras Centrais Eletricas 65,061
1,100,000 Paranapanema 14,256
364,000 Petroleo Brasileiro SA (Petrobras) 43,488
5,800 Souza Cruz SA 43,631
31,300,000 Usiminas Siderugicas Minas Gerais 34,542
--------
TOTAL PREFERRED STOCKS
(COST = $432,244) $422,903
========
</TABLE>
COMMON STOCKS - 96.80%
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES
<S> <C> <C>
ARGENTINA - 0.97%
1,482 Banco Frances del Rio de la Plata $13,416
200 Buenos Aires
Embotelladora SA ADR 3,325
2,260 Compania Naviera Perez
Compac SA ADR 25,727
6,500 Dalmine Siderca SA 6,502
246 IRSA(Inversiones y
Representaciones SA) 144A ADR 6,920
720 Molinos Rio de la Plata 6,770
750 Telefonica de Argentina ADR 19,219
2,300 YPF Sociedad Anonima ADR 46,288
-------
128,167
-------
AUSTRALIA - 1.52%
2,600 Amcor Ltd. 16,921
7,400 Boral Ltd. 19,391
3,100 Broken Hill Proprietary Co. Ltd. 44,181
4,000 Comalco Ltd. 22,872
6,800 David Jones Ltd. 10,532
3,800 News Corp Ltd. 22,264
3,500 Southcorp Holdings 9,144
3,800 Western Mining Corp. Holding 25,147
6,400 Westpac Banking Corp. 30,137
-------
200,589
-------
BRAZIL - 1.62%
1,430,000 Lojas Americanas SA $34,458
578,000 (1)Paulista de Forca e Luz 35,113
2,900 Telebras SA ADR 144,275
-------
213,846
-------
CHILE - 2.59%
2,500 Banco Osorno La Union ADR 39,062
800 Cia Cervercerias Unidas ADR 17,000
1,030 Compania de Telefonos de
Chile ADR 87,293
2,600 Empresa Nacional de
Electridad SA ADS 50,050
3,200 Enersis SA ADR 90,400
900 Madeco SA ADR 22,500
1,000 Maderas y Sinteticos ADR 17,750
340 Quimica y Minera Chile SA ADR 17,765
-------
341,820
-------
COLUMBIA - 1.12%
5,600 Banco Ind Columbiano ADS 103,600
2,850 Cementos Diamante 144A ADR 44,175
-------
147,775
-------
FINLAND - 0.70%
1,779 Finnair Oy 14,473
420 Nokia (AB) Oy 14,502
500 (1)Rauma Oy 8,848
650 Repola Oy 12,905
550 Valmet Oy 12,640
1,600 (1)Werner Soderstrom 29,176
-------
92,544
-------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 38
PORTFOLIO OF INVESTMENTS MARCH 31, 1996
COMMON STOCKS (CONTINUED)
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES
<S> <C> <C>
FRANCE - 6.49%
648 Alcatel Alst $ 60,089
1,266 AXA 77,820
99 Carrefour 72,514
1,620 Cie de Suez 62,901
707 Club Mediterranee 68,804
490 Credit Local De France 38,382
628 Eaux (Compagnie Generale) 64,234
380 Peugeot SA 57,962
312 Roussel-Uclaf 68,162
102 Salomon SA 65,636
1,750 Schneider SA 77,507
1,129 Total SA 76,238
4,050 Usinor Sacilor 66,239
---------
856,488
---------
GERMANY - 6.16%
550 Adidas AG 40,233
29 Allianz AG Holding 53,880
271 Bayer AG 92,311
80 Daimler Benz AG 43,511
1,270 Deutsche Bank 63,939
88 Karstadt AG 33,230
160 M.A.N. AG 44,107
287 Mannesmann AG 104,584
1,150 Merck AG 49,813
8 Muenchener Rueckversicherungs-
Gesellschaft 16,662
162 Siemens AG 89,154
2,377 Veba AG 115,519
188 Volkswagen AG 65,898
---------
812,841
---------
HONG KONG - 2.24%
6,000 Cheung Kong (Holdings) 42,286
4,000 Citic Pacific 15,518
4,200 Hang Seng Bank 42,907
16,400 Hong Kong
Telecommunications 32,766
7,000 Hutchison Whampoa Ltd. 44,174
8,000 Sun Hung Kai Properties Ltd. 71,640
4,000 Swire Pacific Ltd. 35,174
3,000 Television Bra 11,037
---------
295,502
---------
INDIA - 3.21%
1,250 Bajaj Auto Ltd. GDR $ 38,906
100 Century Textile & Industries GDR 18,000
1,800 East India Hotels GDR 39,150
2,300 Grasim Industries GDS 40,020
1,450 Hindalco Industries GDR 53,650
4,300 Indian Aluminum GDR 31,476
2,800 Indian Rayon & Industries GDR 42,700
2,000 Larsen & Toubro Ltd. GDS 31,500
900 Raymond Ltd. GDR 18,113
2,750 Reliance Industries Ltd. GDS 39,875
4,500 Tata Engineering & Locomotive
Co. Ltd. GDR 70,875
---------
424,265
---------
INDONESIA - 0.00%
475 Indah Kiat Paper & Pulp Corp. 371
---------
14 Africa Israel Investments Ltd. 14,174
10,500 Bk Hapoalim Ltd. 15,140
3,600 Blue Square Chain Stores 25,965
350 Koor Industries Ltd. 33,273
4,000 Osem Investments Ltd. 24,108
6,800 Tadiran Ltd. 24,947
1,500 Tadiran Ltd., New GDR 22,500
60 Teva Pharmaceutical Industries
Ltd. 23,003
---------
183,110
---------
ITALY - 3.03%
2,000 Benetton Group SpA 22,868
66,325 Credito Italiano SpA 70,978
6,000 Edison SpA 30,156
11,100 Eni SpA 40,268
42,000 Parmalat Finanziaria SpA 38,579
4,400 Riunione Adratica di Sicurta SpA 42,883
10,390 Sasib SpA 20,649
21,000 STET-SocietaFinanziaria Telefonica 58,257
25,000 Telecom Italia SpA 39,574
5,710 Unicem (Union Cem March Emil) 36,009
---------
400,221
---------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 39
PORTFOLIO OF INVESTMENTS MARCH 31, 1996
COMMON STOCKS (CONTINUED)
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES
<S> <C> <C>
JAPAN - 30.58%
15,000 Daiwa Securities Co. Ltd. $ 228,925
19,000 Fujisawa Pharmaceutical Co. 183,234
13,000 Hitachi Ltd. 126,588
34,000 Marubeni Corp. 190,687
16,000 Matsushita Electric Works 172,279
43,000 Mitsubishi Chemical Corp. 227,474
85,000 (1)Mitsui Engineering & Shipbuilding 252,286
19,000 Mitsui Fudosan Co. Ltd. 247,277
53,000 (1)Mitsui O.S.K. Lines Ltd. 179,638
39,000 Nippon Oil Co. 249,402
32 Nippon Telephone & Telegraph Corp. 234,300
65,000 (1)NKK Corp. 188,056
18,000 Obayashi Corp. 154,714
1,500 Sony Corp. 89,744
12,000 Sumitomo Bank 242,689
20,000 Sumitomo Metal Mining 192,878
14,000 Sumitomo Trust & Banking 192,691
6,900 Tokyo Electric 177,017
8,000 Tokyo Steel Manufacturing 145,314
29,000 Tokyu Corp. 221,295
36,000 UBE Industries 139,546
----------
4,036,034
----------
MALAYSIA - 3.71%
8,000 Edaran Otomobil Nasional 71,820
7,000 Land & General Berhad 18,548
14,000 Malayan Banking Berhad 130,669
22,000 Metacorp Berhad 67,431
12,000 R J Reynolds Berhad 33,221
31,000 Road Builder 118,923
8,000 Sungei Way Holdings Berhad 34,803
2,000 United Engineers Berhad 13,842
----------
489,257
----------
MEXICO - 4.24%
8,300 Apasco SA de CV $ 42,378
34,000 (1)Cifra SA de CV 45,270
37,000 (1)Controladora Comercial
Mexicana SA de CV 30,815
4,200 (1)Desc SA de CV 19,049
2,920 Empresas ICA Sociedad
Controladora SA 38,259
10,000 (1)Fomento Economico Mexicano
SA de CV 28,778
13,800 (1)Grupo Financiero Banamex
Accival SA de CV 26,354
7,600 (1)Grupo Mexico SA 27,213
10,700 Grupo Modelo SA de CV 49,665
1,100 (1)Grupo Televisa ADR 27,363
5,500 Industrias Penoles SA 23,486
1,800 Kimberly-Clark de Mexico SA 34,303
4,720 Telefonos de Mexico ADR 155,170
1,400 (1)Tubos de Acero de Mexico SA 11,047
----------
559,150
----------
NETHERLANDS - 1.98%
726 ABN-AMRO Holdings NV 36,113
613 Ahold (Koninklijke) NV 29,564
1,320 Elsevier NV 20,209
255 Fortis Amev NV 17,977
790 K.L.M. Royal Dutch Air Lines NV 27,488
518 Koninklijke PTT Nederlands 20,375
685 Philips Electronics NV 24,912
312 Polygram NV 18,880
320 Royal Dutch Petroleum Co. 45,312
1,220 VNU (Verenigde Nederlandse
Uitgevbedri Verigd Bezit) 20,302
----------
261,132
----------
NORWAY - 0.76%
550 Aker AS 10,163
3,950 Christiana Bank Og Kreditkasse 9,177
3,272 Den Norske Bank AS 10,153
380 Hafslund Nycomed Class B 10,370
475 Leif Hoegh & Co. AS 6,814
470 Norsk Hydro AS 20,484
350 Norske Skogindustrier AS 10,642
326 Orkla AS 14,259
310 Sparebanken NOR 8,484
----------
100,546
----------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 40
PORTFOLIO OF INVESTMENTS MARCH 31, 1996
COMMON STOCKS (CONTINUED)
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES
<S> <C> <C>
PERU - 0.83%
7,000 Cerveceria Backus & Johnston SA $ 8,774
32,400 Compania Peruana Telefonica
B Shares 64,704
1,414 Co de Minas Buenaventura SA 10,382
943 Credicorp Ltd. ADR 16,974
600 Minsur SA 4,716
1,000 Southern Peru Copper Corp. 3,824
---------
109,374
---------
PHILLIPPINES - 1.44%
18,600 Ayala Corp. 26,997
1,800 Metropolitan Bank & Trust Co. 44,690
45,600 Petron Corp. 19,595
800 Phillipine Long Distance
Telephone Co. ADR 42,600
9,700 San Miguel Corp. Class B 32,605
80,000 SM Prime Holdings 23,835
---------
190,322
---------
POLAND - 1.00%
1,570 Bank Gdanski GDR 16,799
1,560 Bank Rozwoju Eksportu SA 33,217
1,055 Debica S.A. 25,731
6,310 Elektrim Spolka Akcyjna S.A. 37,376
3,740 Polifarb-Cieszyn S.A. 19,547
---------
132,670
---------
PORTUGAL - 1.02%
1,330 Banco Comercial Portugues 18,262
960 Cimentos de Portugal SA 18,083
1,000 (1)Investec Consultadoria Internacional 23,595
310 Jeronimo Martins & Filho 23,001
1,430 Portugal Telecom SA 32,287
790 Sonae Investimentos Sociedade
Gestora de Participacoes Sociais SA 18,893
---------
134,121
---------
SINGAPORE - 2.09%
28,000 Comfort Group Ltd. 25,861
2,000 Cycle & Carriage Ltd. 23,019
8,000 DBS Land Ltd. 30,692
6,000 Hong Leong Finance Ltd. 26,003
3,000 Keppel Corp. Ltd. 27,282
4,000 Oversea-Chinese Banking
Corp. Ltd. 55,842
8,000 Overseas Union Bank Ltd. 56,837
9,000 Straits Steamship Land Ltd. 30,308
---------
275,844
---------
SOUTH AFRICA - 0.9%
3,370 Amalgamated Banks of South Africa 17,789
145 Anglo American Gold
Investment Co. Ltd. 14,944
1,470 Barlow Ltd. 18,845
640 De Beers Centenary AG 20,592
440 Liberty Life Assoc. of Africa Ltd. 13,825
6,100 Norwich Holdings Ltd. 11,040
3,050 Smith (C.G.) Ltd. 19,550
355 South African Breweries Ltd. 11,244
---------
127,829
---------
SOUTH KOREA - 1.47%
8,800 Korea Fund, Inc.
(closed-end mutual fund) 185,900
320 Pohang Iron & Steel Co. Ltd. ADR 7,760
---------
193,660
---------
SPAIN - 2.32%
2,250 Aumar (Autopistas del Mare
Nostrum SA) 27,011
885 Banco Santander SA 42,141
262 Banco Popular Espanol SA 45,259
5,555 Iberdrola SA 51,246
756 Empresa Nacional de Electridad SA 43,308
1,445 Repsol SA 54,486
2,670 Telefonica De Espana 42,379
---------
305,830
---------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 41
PORTFOLIO OF INVESTMENTS MARCH 31, 1996
COMMON STOCKS (CONTINUED)
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES
<S> <C> <C>
THAILAND - 1.92%
1,900 Advanced Info Service $ 35,695
5,500 Bangkok Bank Public Co. Ltd. 74,117
1,000 Industrial Finance Corp. of Thailand 3,646
8,100 Industrial Finance Corp.
of Thailand (Alien Mkt.) 29,215
5,200 Krung Thai Bank Public Co. Ltd. 24,526
600 Land & House Co. Ltd. 9,893
3,000 Phatra Thanakit Co. Ltd. 27,586
2,300 Property Perfect Public Co. Ltd. 10,757
3,300 Thai Farmers Bank Public Co. Ltd. 38,716
-----------
254,151
-----------
TURKEY - 1.79%
112,800 Adana Cimento Sanayii 20,529
185,900 Akal Tekstil Sanayii 23,944
228,000 Arcelik AS 30,005
50,000 Bagfas Bandirma Gubre AS 17,150
60,000 Brisa Bridgestone Sabanci 21,420
532,000 Demirbank 20,482
220,000 Eregli Demir Co 25,564
31,200 Migros Turk TAS 33,197
62,000 Netas Telekomunik AS 19,096
126,000 Turk Sise AS 25,137
-----------
236,524
-----------
UNITED KINGDOM - 9.55%
8,940 Abbey National PLC $ 76,832
9,975 BAA PLC 81,768
6,500 Barclays PLC 72,333
7,700 Boots Co. PLC 70,524
19,900 British Telecommunications PLC 112,305
6,900 Commercial Union PLC 60,037
6,900 Granada Group PLC 79,207
14,859 Lloyds TSB Group PLC 71,222
23,450 Pilkington PLC 75,172
6,000 Scottish & Newcastle PLC 58,526
4,300 Shell Transportation &
Trading PLC 56,910
18,140 Tesco PLC 73,934
18,300 Tomkins PLC 70,955
10,630 Wolseley PLC 71,398
11,040 Zeneca Group PLC 228,858
-----------
1,259,981
-----------
VENEZUELA - 0.09%
3,000 Mavesa SA 144A ADR 11,430
-----------
TOTAL COMMON STOCKS
(COST = $12,205,028) $12,775,394
===========
TOTAL INVESTMENTS,
AT VALUE (NOTE 1)
(COST = $12,637,272) - 100.00% $13,198,297
===========
<FN>
(1) Non-income producing.
</TABLE>
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 securities 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 $62,525 as of March 31, 1996.
See accompanying notes to financial statements.
8
<PAGE> 42
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MARCH 31, 1996
<S> <C>
ASSETS
Investments in securities, at value (Note 1) (Cost $12,637,272) $13,198,297
Cash 1,697,685
Foreign currency, at value (Note 1) (Cost $514,535) 510,866
Receivable for Fund shares sold 74,906
Dividends and interest receivable 43,793
Receivable from adviser (Note 2) 24,245
Receivable for securities sold 23,815
Organization expenses, net (Note 1) 19,918
Forward foreign currency contracts (Note 1) 13,037
Futures variation margin receivable (Note 1) 11,616
Other assets 6,184
-----------
TOTAL ASSETS 15,624,362
-----------
LIABILITIES
Payable for securities purchased 253,086
Accrued custodian fees 51,572
Accrued investment advisory fee (Note 2) 9,532
Other accrued expenses and liabilities 5,076
-----------
TOTAL LIABILITIES 319,266
-----------
NET ASSETS $15,305,096
===========
Net assets consist of:
Aggregate paid-in capital $14,719,979
Accumulated undistributed net investment income 21,788
Accumulated net realized loss from investments and foreign currency transactions (27,769)
Net unrealized appreciation of investments 561,025
Net unrealized appreciation on translation of assets and liabilities in foreign currencies 30,073
-----------
Net Assets $15,305,096
===========
Shares of capital stock outstanding
(no par value - unlimited number of shares authorized) 967,360
===========
Net asset value and redemption price per share (Note 1) $ 15.82
===========
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 43
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD MAY 31, 1995*
TO MARCH 31, 1996
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 99,385
Dividends, net of foreign withholding taxes of $9,804 83,254
---------
Total investment income $182,639
EXPENSES:
Investment advisory fees (Note 2) 74,223
Custodian fees 55,070
Accounting services fees (Note 2) 50,000
Distribution (Note 2) 37,112
Registration fees 22,695
Professional fees 13,780
Transfer agency fees (Note 2) 11,601
Trustees' fees (Note 2) 5,250
Amortization of organization expenses (Note 1) 3,984
Other 4,192
---------
TOTAL EXPENSES 277,907
LESS FEES WAIVED AND EXPENSES REIMBURSED BY THE ADVISER (NOTE 2) (147,343)
---------
NET EXPENSES 130,564
--------
NET INVESTMENT INCOME 52,075
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on investments 60,985
Net realized loss on foreign currency transactions (88,754)
Net increase in unrealized appreciation of investments 561,025
Net increase in unrealized appreciation on translation of
assets and liabilities in foreign currencies 30,073
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY 563,329
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $615,404
========
<FN>
*Date of public offering.
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 44
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 31,1995* TO
MARCH 31, 1996
<S> <C>
FROM OPERATIONS:
Net investment income $ 52,075
Net realized gain on investments 60,985
Net realized loss on foreign currency transactions (88,754)
Net increase in unrealized appreciation of investments 561,025
Net increase in unrealized appreciation on translation of assets
and liabilities in foreign currencies 30,073
-----------
Net increase in net assets resulting from operations 615,404
-----------
FROM DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (30,287)
-----------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 17,657,397
Net asset value of shares issued in reinvestment of distributions 30,169
Payments for shares redeemed (2,967,587)
-----------
Net increase in net assets from Fund share transactions 14,719,979
-----------
TOTAL INCREASE IN NET ASSETS 15,305,096
NET ASSETS:
Beginning of period --
-----------
End of period (including undistributed net investment income of $21,788) (Note 1) $15,305,096
===========
NUMBER OF FUND SHARES:
Sold 1,162,052
Issued in reinvestment of distributions to shareholders 1,987
Redeemed (196,679)
-----------
Net increase in shares outstanding 967,360
Outstanding at beginning of period --
-----------
Outstanding at end of period 967,360
===========
<FN>
*Date of public offering.
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996
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 Annual 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 Fund's investment objective is to seek
long-term growth of capital.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses for the
period. Actual results could differ from those estimates.
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, 144A
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 are valued 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, resulting from changes in the exchange rate.
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, 1996, the Fund made distributions of $0.042 per share
which is treated as dividend income.
12
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996
FORWARD FOREIGN CURRENCY CONTRACTS -- At March 31, 1996, the Fund had entered
into forward foreign currency contracts under which it is obligated to exchange
currencies at specified future dates. The Fund's currency transactions are
currently transaction hedges and portfolio hedges involving either specific
transactions or portfolio positions.
The contractual amounts of forward foreign exchange contracts do not necessarily
represent the amounts potentially subject to risk. The measurement of the risks
associated with these instruments is meaningful only when all related and
offsetting transactions are considered. Risks arise from the possible inability
of counterparties to meet the terms of their contracts and from movements in
currency values. The Fund had the following outstanding contracts at March 31,
1996:
PORTFOLIO HEDGES:
<TABLE>
<CAPTION>
UNREALIZED
U.S. DOLLAR SETTLEMENT APPRECIATION (DEPRECIATION)
BUY/SELL AMOUNT FOREIGN CURRENCY PROCEEDS DATE AT MARCH 31, 1996
<S> <C> <C> <C> <C> <C>
Sell 4,000,000 French Franc $ 788,000 4/11/96 $(6,084)
Buy 1,167,696 German Deutschmark 789,000 4/11/96 2,166
Buy 236,855 German Deutschmark 160,000 4/11/96 480
Sell 804,455 German Deutschmark 542,000 4/11/96 (3,054)
Sell 25,000,000 Japanese Yen 237,304 4/11/96 2,835
Sell 160,000,000 Japanese Yen 1,511,145 5/15/96 14,067
Sell 20,000,000 Spanish Peseta 160,760 4/11/96 (200)
Buy 650,000 Swiss Franc 542,000 4/11/96 4,360
-------
$14,570
=======
</TABLE>
TRANSACTION HEDGES:
<TABLE>
<CAPTION>
UNREALIZED
U.S. DOLLAR SETTLEMENT APPRECIATION (DEPRECIATION)
BUY/SELL AMOUNT FOREIGN CURRENCY PROCEEDS DATE AT MARCH 31, 1996
<S> <C> <C> <C> <C> <C>
Buy 26,177,982 Japanese Yen $246,683 4/2/96 $(1,579)
Buy 46,313 Malaysian Ringgit 18,298 4/8/96 18
Buy 101,780 Singapore Dollar 72,276 4/2/96 34
Buy 379,357 Thai Baht 15,042 4/2/96 (6)
-------
$(1,533)
=======
</TABLE>
At March 31, 1996, the Fund had sufficient cash and/or securities to cover any
commitments under these contracts.
See accompanying notes to financial statements.
13
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996
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 opening and
closing value of the contract.
Currencies with an aggregate market value of $504,864 have been segregated with
the custodian (an additional $171,067 in currency was segregated on settlement
date of April 2, 1996) for the following open stock index futures contracts at
March 31, 1996:
<TABLE>
<CAPTION>
OPENING MARKET
MARKET VALUE UNREALIZED
TYPE EXPIRATION VALUE 3/31/96 APPRECIATION
<S> <C> <C> <C> <C> <C>
Long Nikkei 300 (Yen) 6/96 $533,209 $552,104 $18,895
Long FT-SE 100 (Pound) 6/96 139,730 141,333 1,603
</TABLE>
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.
For both financial reporting and tax purposes, gross unrealized appreciation and
gross unrealized depreciation of securities at March 31, 1996 was $890,942 and
$329,917, respectively.
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.
14
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996
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 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 $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 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, 1996, McDonald waived advisory fees of $24,385, transfer agency fees of
$11,601, accounting services fees of $50,000, and distribution expenses of
$37,112 and reimbursed the Fund $24,245 for other operating expenses.
15
<PAGE> 49
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996
In accordance with the terms of a Distribution 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 shareholders
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, 1996, cost of purchases, and proceeds from the
sale of securities, excluding short-term securities, amounted to $17,433,338 and
$4,857,052, respectively.
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 March 31, 1996 the Portfolio was diversified within the following industries:
<TABLE>
<S> <C>
Automotive 3.15%
Banking 11.98
Beverages and Tobacco 2.09
Building Materials 2.18
Broadcasting and Publishing 0.99
Chemicals 5.19
Consumer Goods 0.64
Construction and Housing 3.39
Diversified Companies 4.26
Electronics 4.21
Energy 5.62
Financial Services 5.08
Food and Household Products 0.99
Forest Products and Paper 1.15
Health and Personal Care 2.54
Household Appliances and Durables 0.97
Industrial Components 0.73
Insurance 2.23
Investment Companies 1.41
Machinery and Engineering 3.27
Materials and Commodities 0.73
Merchandising 3.43
Metals and Mining 3.37
Public Services 0.69
Real Estate 3.47
Steel 3.99
Telecommunications 8.59
Textiles and Apparel 0.93
Tourism 1.42
Transportation 4.22
Utilities 5.36
Wholesale Trade 1.73
------
100.00%
======
</TABLE>
16
<PAGE> 50
ARTHUR
ANDERSEN
ARTHUR ANDERSEN & CO, SC
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of the
Gradison-McDonald International Fund
of the Gradison Growth Trust:
We have audited the accompanying statement of assets and liabilities of the
Gradison-McDonald International Fund of the Gradison Growth Trust (an Ohio
business trust), including the portfolio of investments, as of March 31, 1996,
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, 1996, 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 International Fund of the Gradison Growth Trust as of March
31, 1996, 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 30, 1996
17
<PAGE> 51
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. 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
return and principal 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.
18
<PAGE> 52
This page intentionally left blank.
19
<PAGE> 53
OPPORTUNITY VALUE
FUND
GRADISON-McDONALD
ANNUAL REPORT
MARCH 31, 1996
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
A COMMON STOCK FUND INVESTING IN SMALLER
COMPANIES JUDGED TO BE UNDERVALUED
<PAGE> 54
GRADISON-McDONALD
OPPORTUNITY VALUE FUND
LETTER TO SHAREHOLDERS
May 16, 1996
Dear Shareholder:
We are pleased to provide you with the audited annual report for the Fund's
fiscal year ended March 31, 1996.
THE ECONOMY AND THE MARKET - It has been difficult to evaluate the level of
strength or weakness of the economy so far this year. Severe weather and the
earlier government shutdown distorted the economic statistics from the first
several months. It appeared that the economy remained in a slow growth mode
following the fourth quarter of 1995. However, more recent data, including
strong employment figures, rising commodity and oil prices, and increased
consumer spending, have hinted at economic strength and have sparked some fear
of inflation. The result has been a sharp rise in interest rates. Despite the
near term reaction by the bond market, it appears unlikely that the Federal
Reserve will take action until there is clear and convincing evidence that
inflation is accelerating.
The uncertainty surrounding the economy has led to volatility in the stock
market. The major market indices have been subject to severe daily price swings
as investors digest various economic figures.
The stock market experienced its best performance in the last 37 years during
1995. Low inflation, a favorable interest rate environment and strong corporate
earnings helped push the market to record levels. The performance of the
financial markets over the past year will be a difficult act to follow. It
remains to be seen what events will shape the markets in 1996. The past year
should remind investors that adhering to a sound, long-term investment strategy
remains prudent.
PERFORMANCE - Total returns for the Fund and the benchmark Russell 2000 Small
Stock Index follow this letter. The quarterly returns for the third and fourth
fiscal quarters for the Fund were 2.75% and 4.85%, respectively, versus 2.20%
and 5.09% for the Russell 2000 Index during the same periods.
The single best performing asset in the Fund over the past year has been Comair
Holdings, a regional passenger airline. Similarly, the returns of Input/Output
Incorporated, a maker of seismic data gathering equipment, and Universal Health
Services, an acute care hospital operator, have significantly outpaced the broad
market during the period. Holdings in the financial sector also provided
outstanding returns for the Fund.
Finally, cash remains at approximately 30% which hopefully will serve to lower
the volatility risk but may dampen the returns in periods like the last year.
1-800-869-5999 [Phone Logo]
<PAGE> 55
LETTER TO SHAREHOLDERS (CONTINUED)
PORTFOLIO - Since our March 31, 1995, annual report, net assets in the Fund have
increased from $84 million to $102 million as of the fiscal year ended March 31,
1996.
The Fund sold its holdings of Xtra Corporation, Heilig-Myers Company, Cordis
Corporation, Quantum Corporation, and Western Digital Corporation since our last
report. There have been several additions to the Fund from the technology sector
over the past several months. These include Innovex Incorporated, Integrated
Device Technologies, Alliance Semiconductor and Computer Data Systems
Incorporated. These purchases occurred following a meaningful, broad based price
decline in the technology sector. As a result, the shares of these companies
exhibited the value characteristics that the Fund seeks.
As always, we remain committed to serving your investment needs.
Sincerely,
Gradison-McDonald Opportunity Value Fund
William J. Leugers, Jr.
Executive Vice President and Portfolio Manager
Daniel R. Shick
Senior Vice President and Portfolio Manager
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT MAY 1, 1986 TO
MARCH 31, 1996
TOTAL RETURN PERIODS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Average Annual
10 Years 5 Years 3 Years 1 Year
<S> <C> <C> <C> <C>
Opportunity 10.15% 13.29% 11.84% 28.00%
S& P 500 13.95 14.66 15.70 32.11
Russell 2000 10.34 15.87 14.53 28.82
</TABLE>
<TABLE>
<CAPTION>
Gradison-
McDonald
Measurement Opportunity
Period Value Fund S&P 500 Russell 2000
- ----------------------------------------------------------
<S> <C> <C> <C>
5-01-86 10,000.00 10,000.00 10,000.00
4-30-87 10,733.83 12,627.02 11,016.52
4-30-88 10,760.79 11,825.78 10,135.26
4-30-89 12,021.43 14,505.61 11,684.14
4-30-90 12,641.60 16,043.59 11,430.33
4-30-91 14,024.69 18,868.43 12,586.30
4-30-92 16,633.65 21,512.99 14,734.96
4-30-93 18,557.47 23,496.46 17,057.95
4-30-94 20,367.18 24,745.10 19,586.19
3-31-95 20,723.76 28,230.60 20,456.27
3-31-96 26,524.61 37,294.81 26,350.96
</TABLE>
Past performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that 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> 56
FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period)
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED YEAR ENDED APRIL 30,
ENDED MARCH 31, 1995 ------------------------------------
MARCH 31, 1996 (NOTE 1) 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 18.100 $ 18.348 $ 17.547 $ 16.462 $ 14.767
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .193 .136 .086 .081 .173
Net realized and unrealized
gains on investments 4.731 .176 1.585 1.744 2.467
-------- -------- -------- -------- --------
Total income from investment operations 4.924 .312 1.671 1.825 2.640
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (1) (.185) (.120) (.070) (.100) (.270)
Distributions from realized capital gains (1) (.575) (.440) (.800) (.640) (.675)
-------- -------- -------- -------- --------
Total distributions to shareholders (.760) (.560) (.870) (.740) (.945)
-------- -------- -------- -------- --------
Net asset value at end of period $ 22.264 $ 18.100 $ 18.348 $ 17.547 $ 16.462
======== ======== ======== ======== ========
Total return 28.00% 1.75%(2) 9.75% 11.57% 18.60%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in millions) $ 103.0 $ 84.7 $ 83.3 $ 68.2 $ 47.4
Ratio of expenses to average net assets 1.41% 1.37%(3) 1.38% 1.44% 1.49%
Ratio of net investment income
to average net assets .95% .84%(3) .47% .61% 1.32%
Portfolio turnover rate 23.98% 31.90% 40.41% 39.00% 64.25%
<FN>
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
$0.065 per share and a long-term capital gain distribution of $0.95 per
share payable on May 31, 1996 to shareholders of record on May 30, 1996.
(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.
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 57
PORTFOLIO OF INVESTMENTS MARCH 31, 1996
<TABLE>
<CAPTION>
NUMBER COMMON STOCKS - 71.32% VALUE
OF SHARES
<S> <C> <C>
BANKS - 7.73%
29,600 Boatmen's Bankshares $1,161,800
5,000 First Empire State Corporation 1,230,000
31,100 Firstar Corporation 1,391,725
45,000 HUBCO, Inc. 877,500
30,750 Mercantile Bankshares
Corporation 807,188
25,252 Old Kent Financial Corporation 1,003,767
24,800 Union Planters Corporation 750,200
10,000 Zions Bancorporation 707,500
----------
7,929,680
----------
BUSINESS SERVICES - 5.65%
45,000 ABM Industries, Inc. 1,490,625
40,500 Banta Corporation 1,083,375
25,000 (1)Interpool, Inc. 437,500
50,000 (1)Norstan, Inc. 1,337,500
26,000 PHH Corporation 1,446,250
----------
5,795,250
----------
COMPUTER HARDWARE - 8.06%
45,000 (1) Adaptec, Inc. 2,171,250
115,000 (1) Alliance Semiconductor
Corporation 1,092,500
56,250 (1) D.H. Technologies, Inc. 1,350,000
55,000 Dallas Semiconductor Corporation 1,010,625
60,000 (1) EXAR Corporation 855,000
79,000 (1) Integrated Circuit Systems, Inc. 770,250
89,000 (1) Integrated Device Technology, Inc. 1,012,375
----------
8,262,000
----------
COMPUTER SOFTWARE - .89%
37,000 Computer Data Systems, Inc. 578,125
11,250 (1)Keane, Inc. 336,094
----------
914,219
----------
CONSUMER DURABLES - 4.87%
46,000 Agco Corporation 1,109,750
56,000 Breed Technologies, Inc. 1,043,000
42,000 Culp, Inc. 441,000
45,000 Titan Wheel International
Corporation 742,500
70,500 Wynn's International, Inc. 1,656,750
----------
4,993,000
----------
CONSUMER NON-DURABLES - 3.35%
67,500 Comair Holdings, Inc. $2,320,312
50,000 (1)CSS Industries, Inc. 1,112,500
----------
3,432,812
----------
ELECTRONICS - 7.25%
80,000 Innovex, Inc. 1,060,000
75,000 (1)Input/Output, Inc. 2,325,000
60,000 (1)Kent Electronics Corporation 2,122,500
45,000 Pioneer Standard Electronics, Inc. 680,625
74,450 (1)Sterling Electronics Corporation 1,240,706
----------
7,428,831
----------
FINANCIAL SERVICES - 6.69%
47,000 Aames Financial Corporation 1,692,000
33,000 AdvantaCorporation 1,707,750
20,000 Orion Capital Corporation 905,000
46,000 Raymond James Financial,Inc. 1,035,000
42,000 TCF Financial Corporation 1,522,500
----------
6,862,250
----------
HEALTH CARE - 6.63%
49,000 (1)Community Health Systems, Inc. 2,009,000
70,000 (1)HealthSouth Corporation 2,380,000
40,800 (1)United American Healthcare
Corporation 550,800
35,000 (1)Universal Health Services, Inc. 1,859,375
----------
6,799,175
----------
HOUSING / BUILDING MATERIALS - 5.21%
39,000 Butler Manufacturing Company 1,287,000
43,000 Lennar Corporation 1,069,625
40,000 Oakwood Homes Corporation 1,985,000
76,500 Republic Gypsum Company 1,004,063
----------
5,345,688
----------
INDUSTRIAL PRODUCTS - 2.18%
30,000 Amcast Industries Corporation 532,500
15,000 Gleason Corporation 609,375
21,000 (1)Raymond Corporation 367,500
31,900 Varlen Corporation 725,725
----------
2,235,100
----------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 58
PORTFOLIO OF INVESTMENTS MARCH 31, 1996
<TABLE>
<CAPTION>
NUMBER COMMON STOCKS (CONTINUED) VALUE
OF SHARES
<S> <C> <C>
INSURANCE COMPANIES - 5.81%
35,000 American Bankers
Insurance Group, Inc. $1,225,000
26,000 Equitable of Iowa Corporation 929,500
56,100 Fremont General Corporation 1,325,362
66,811 GAINSCO, Inc. 743,272
29,000 Protective Life Corporation 978,750
30,000 PXRE Corporation 750,000
-----------
5,951,884
-----------
NATURAL RESOURCES - 3.87%
37,000 First Mississippi Corporation 883,375
54,000 (1)Mueller Industries, Inc. 1,910,250
95,000 Patrick Industries, Inc. 1,175,625
-----------
3,969,250
-----------
RETAIL TRADE & SERVICES - 3.13%
55,000 (1)DAKA International, Inc. $1,375,000
51,000 (1)Rex Stores Corporation 707,625
43,000 (1)Waban, Inc. 1,128,750
-----------
3,211,375
-----------
TOTAL COMMON STOCKS
(COST = $42,727,110) $73,130,514
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL COMMERCIAL PAPER - 21.37% MATURITY INTEREST VALUE
AMOUNT RATE (2)
<S> <C> <C> <C> <C>
$ 1,500,000 Air Products & Chemicals, Inc. 4/12/96 5.12% $ 1,497,653
2,000,000 Ameritech Corporation 4/29/96 5.14 1,992,005
1,500,000 AT&T Capital Corporation 4/30/96 5.13 1,493,801
2,000,000 Dunn & Bradstreet Corporation 5/07/96 5.30 1,989,400
2,000,000 Dupont (E.I.) de Nemours & Company 5/06/96 5.19 1,989,908
2,000,000 Heinz (H.J.) Company 5/03/96 5.15 1,990,845
2,000,000 Motorola Credit Corporation 4/23/96 5.30 1,993,522
1,500,000 Pitney Bowes Credit Corporation 4/04/96 5.11 1,499,361
2,000,000 PPG Industries, Inc. 5/13/96 5.23 1,987,797
1,500,000 Toy's "R" Us, Inc. 4/08/96 5.20 1,498,483
2,000,000 United Parcel Service of America, Inc. 5/01/96 5.17 1,991,383
2,000,000 Weyerhaeuser Company 5/14/96 5.27 1,987,411
-----------
TOTAL COMMERCIAL PAPER (COST = $21,911,569) $21,911,569
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL REPURCHASE AGREEMENT - 7.31% MATURITY INTEREST VALUE
AMOUNT RATE (2)
<S> <C> <C> <C> <C>
$ 7,500,000 First Chicago Capital Markets
dated 3/29/96, collateral; U.S. Treasury Bills, due 9/19/96
with a market value of $7,654,275; repurchase proceeds: $7,503,281
(COST = $7,500,000) 4/01/96 5.32% $ 7,500,000
------------
TOTAL INVESTMENTS, AT VALUE (NOTE 1) (COST = $72,138,679) - 100% $102,542,083
============
<FN>
(1) Non-income producing.
(2) For commercial paper, the rate is the discount rate at the time of purchase
by the Fund. For repurchase agreements, the rate shown reflects the actual
rate of return to the Fund.
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 59
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MARCH 31, 1996
<S> <C>
ASSETS
Investments in securities, at value (Note 1) (Cost $72,138,679) $102,542,083
Receivable for Fund shares sold 469,736
Cash 143,434
Dividends and interest receivable 50,683
Prepaid expenses and other assets 10,835
------------
TOTAL ASSETS 103,216,771
------------
LIABILITIES
Payable for Fund shares redeemed 118,971
Accrued investment advisory fee (Note 2) 54,854
Other liabilities payable to adviser (Note 2) 54,897
Other accrued expenses and liabilities 9,519
------------
TOTAL LIABILITIES 238,241
------------
NET ASSETS $102,978,530
============
Net assets consist of:
Aggregate paid-in capital 68,093,037
Accumulated undistributed net investment income 176,382
Accumulated undistributed net realized gains 4,305,707
Net unrealized appreciation of investments 30,403,404
------------
Net Assets $102,978,530
============
Shares of capital stock outstanding
(no par value - unlimited number of shares authorized) 4,625,391
============
Net asset value and redemption price per share (Note 1) $ 22.26
============
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 60
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1996
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 1,457,206
Dividends 705,090
-----------
Total investment income $ 2,162,296
EXPENSES:
Investment advisory fees (Note 2) 631,571
Distribution (Note 2) 421,414
Transfer agency fees (Note 2) 106,779
Accounting services fees (Note 2) 33,333
Registration fees 19,286
Professional fees 18,983
Custodian fees 14,465
Printing 14,121
Trustees' fees (Note 2) 9,054
Postage and mailing 1,196
Other 18,839
-----------
TOTAL EXPENSES 1,289,041
------------
NET INVESTMENT INCOME 873,255
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 4,563,431
Net increase in unrealized appreciation of investments 17,064,801
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 21,628,232
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 22,501,487
============
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 61
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED
ENDED MARCH 31, 1995
MARCH 31, 1996 (NOTE 1)
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 873,255 $ 639,271
Net realized gain on investments 4,563,431 2,529,940
Net increase (decrease) in unrealized
appreciation of investments 17,064,801 (1,671,004)
------------- ------------
Net increase in net assets resulting from operations 22,501,487 1,498,207
------------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (836,073) (573,964)
Net realized capital gains (2,617,212) (2,002,612)
------------- ------------
Decrease in net assets from distributions to shareholders (3,453,285) (2,576,576)
------------- ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 57,418,476 45,495,191
Net asset value of shares issued in reinvestment of distributions 3,398,854 2,526,554
Payments for shares redeemed (61,625,425) (45,501,572)
------------- ------------
Net increase (decrease) in net assets from Fund share transactions (808,095) 2,520,173
------------- ------------
TOTAL INCREASE IN NET ASSETS 18,240,107 1,441,804
NET ASSETS:
Beginning of period 84,738,423 83,296,619
------------- ------------
End of period (including undistributed net investment
income of $176,382 and $139,200, respectively) (Note 1) $ 102,978,530 $ 84,738,423
============= ============
NUMBER OF FUND SHARES:
Sold 2,817,109 2,552,279
Issued in reinvestment of distributions to shareholders 180,968 141,556
Redeemed (3,054,423) (2,551,892)
------------- ------------
Net increase (decrease) in shares outstanding (56,346) 141,943
Outstanding at beginning of period 4,681,737 4,539,794
------------- ------------
Outstanding at end of period 4,625,391 4,681,737
============= ============
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996
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 Annual Report to Shareholders pertains only to the
Gradison-McDonald Opportunity Value Fund (the "Fund"). The Fund's investment
objective is to seek long-term capital growth by investing primarily in common
stocks.
The Fund changed its fiscal year end to March 31, effective with the September
30, 1994 Semiannual Report.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses for the
period. Actual results could differ from those estimates.
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. Refer to the Fund's
Portfolio of Investments for the face amount of repurchase agreements and
repurchase proceeds as of March 31, 1996.
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.
9
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996
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.
For both financial reporting and tax purposes, gross unrealized appreciation and
gross unrealized depreciation of securities at March 31, 1996 was $31,087,055
and $683,651, 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
year ended March 31, 1996, the Fund made total distributions of $.76 per share,
of which $.185 was treated as dividend income and $.575 was 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.
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 year ended March 31, 1996. 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 bears 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> 64
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996
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 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 shareholders 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 year ended March 31, 1996, the cost of purchases and proceeds from the
sale of securities, excluding short-term securities, amounted to $15,965,932 and
$25,677,259, respectively.
11
<PAGE> 65
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 assets and liabilities of the
Gradison-McDonald Opportunity Value Fund of the Gradison Growth Trust (an Ohio
business trust), including the portfolio of investments, as of March 31, 1996,
and the related statement of operations for the year then ended, the statements
of changes in net assets for the periods indicated thereon, and the financial
highlights for each of the four 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 the year ended April 30, 1992, of the Gradison-McDonald
Opportunity Value Fund of the Gradison Growth Trust, was 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, 1996, 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, 1996, the results of its operations for the year then ended, the
changes in its net assets for the periods indicated thereon, and the financial
highlights for each of the four periods in the period then ended, in conformity
with generally accepted accounting principles.
Cincinnati, Ohio,
May 30, 1996
12
<PAGE> 66
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.
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. 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
return and principal 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.
13
<PAGE> 67
This page intentionally left blank.
14
<PAGE> 68
This page intentionally left blank.
15
