<PAGE> 1
ESTABLISHED
VALUE FUND
Annual Report
March 31, 1997
[LOGO]
Gradison Mutual Funds
580 Walnut Street
Cincinnati, Ohio 45202-3198
This material is intended for distribution to shareholders of the Gradison
Established Value Fund. It may be distributed to other persons only if it is
preceded or accompanied by a current prospectus of the Gradison Established
Value Fund.
McDonald & Company Securities, Inc.--Distributor
<PAGE> 2
GRADISON ESTABLISHED VALUE FUND
Letter to Shareholders
May 15, 1997
Dear Shareholder:
Enclosed for your review are the audited financial statements for the Fund's
fiscal year ended March 31, 1997.
THE ECONOMY AND THE MARKET The U.S. economy showed considerable strength during
the first calendar quarter. This continued strength in the economy could lead to
upward wage pressures which could then spark inflation. As a result, the Federal
Reserve chose to be proactive by increasing short-term interest rates in late
March. However, there are hints of more moderate economic activity emerging.
Jobless claims are rising, excess inventory is beginning to mount in the
industrial sector and the retail sector is softening. The policy dilemma facing
the Fed stems from the conflicting forces of low inflation and strong economic
growth. Any future action by the Fed is quite difficult to predict at this time.
Last year proved to be another banner year for the U.S. equity markets as the
S&P 500 Index returned 23%. The S&P 500 Index generated a 69.1% return for the
combined two year period from 1995 through 1996. This is only the fifth time
since 1926 that the stock market returned almost 70% for a combined two year
period. It last occurred during the 1975-1976 period. As this year began, the
stock market continued to surge ahead. However, a more turbulent market
environment emerged by the middle of the quarter as concerns regarding earnings
and a jittery bond market began to bother investors. The major indices had
fallen approximately 7% from their highs by the end of the quarter. This period
was accompanied by significant levels of volatility as investors attempted to
forecast the actions from the Federal Reserve. It appears that the increase in
short-term interest rates had the most damaging effect on the market. While the
weakness was broad based, the most severe downturn came in the technology and
financial sectors. Still, the market finished the quarter up 2.68%.
PERFORMANCE Total returns for the Fund and the benchmark S&P 500 Index follow
this letter. The Fund underperformed during the third fiscal quarter with a
return of 5.25% versus 8.34% for the S&P 500 Index. There are two main reasons
for the shortfall. First, the strength in the market during the quarter was
generally concentrated in the largest capitalized companies within the index of
which the Fund holds few. Second, the Fund's employment of cash to reduce
volatility dampened performance during the period. However, the cash position
served its purpose during the fourth fiscal quarter which proved to be very
volatile for the markets. As a result, despite holding approximately 30% in
cash, the Fund returned 2.55% versus 2.68% for the Index.
PORTFOLIO Several of the Fund's holdings have been the target of acquisitions in
recent months. Following a lengthy battle between suitors, terms were finally
reached for Conrail Incorporated to be acquired by Norfolk Southern Corporation
and CSX Corporation for $115 per share in cash. Additionally, shares of both
1-800-869-5999 [Artwork]
<PAGE> 3
LETER TO SHAREHOLDERS (CONTINUED)
PanEnergy Corporation, a natural gas provider, and MCI Communications
Corporation, a telecommunications and long distance provider, moved suddenly
higher following announcements of their respective merger agreements. PanEnergy
agreed to be acquired by Duke Power Company while MCI Communications is in a
pact to be combined with British Telecom PLC. Both deals are pending regulatory
approval. Finally, life and health insurer, USLife Corporation, will be acquired
by American General Corporation. These transactions have generated excellent
returns for the Fund.
The potential for takeover is not a consideration when purchasing shares of a
company for the Fund. It is, we believe, merely a product of the Fund's
discipline of focusing on companies that have delivered consistent earnings
growth trading at discounted share valuations. There can be no assurance that
any securities owned by the Fund will be the subject of takeovers.
DIVIDEND The Board of Trustees has declared an income dividend of $0.11 per
share and a long-term capital gain distribution of $0.88 per share payable on
May 30 to shareholders of record May 29.
As always, we remain committed to serving your investment needs.
Sincerely,
/s/ William J. Leugers, Jr. /s/ Daniel R. Shick
William J. Leugers, Jr. Daniel R. Shick
Executive Vice President Vice President
and Portfolio Manager and Portfolio Manager
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
MAY 1, 1987 TO MARCH 31, 1997
TOTAL RETURN PERIODS ENDED MARCH 31, 1997
------ Average Annual ------
10 Years 5 Years 3 Years 1 Year
Established Value Fund 11.50% 15.71% 15.78% 15.14%
GRADISON ESTABLISHED VALUE FUND S&P 500
------------------------------- ---------
<C> <C> <C>
5/1/87 $10,000.00 $10,000.00
4/30/88 10,362.92 9,365.46
4/30/89 12,149.30 11,487.75
4/30/90 12,284.20 12,705.76
4/30/91 13,272.28 14,942.90
4/30/92 14,279.85 17,037.26
4/30/93 17,116.79 18,608.08
4/30/94 19,050.36 19,596.94
3/31/95 20,735.36 22,357.29
3/31/96 25,885.99 29,535.72
3/31/97 29,806.16 36,904.78
</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
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period)
ELEVEN MONTHS
YEAR ENDED MARCH 31, ENDED YEAR ENDED APRIL 30,
--------------------- MARCH 31,1995 -------------------
1997 1996 (NOTE 1) 1994 1993
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $27.567 $23.381 $22.515 $21.375 $18.366
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .445 .436 .376 .256 .286
Net realized and unrealized
gains on investments 3.615 5.190 1.520 2.104 3.278
-------- -------- -------- -------- ------
Total income from investment
operations 4.060 5.626 1.896 2.360 3.564
-------- -------- -------- -------- ------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (.450) (.430) (.370) (.220) (.285)
Distributions from realized capital gains (2.350) (1.010) (.660) (1.000) (.270)
-------- -------- -------- -------- ------
Total distributions to shareholders (2.800) (1.440) (1.030) (1.220) (.555)
-------- -------- -------- -------- ------
Net asset value at end of period $28.827 $27.567 $23.381 $22.515 $21.375
======== ======== ======== ======== =======
Total return 15.14% 24.84% 8.85%(1) 11.30% 19.86%
======== ======== ======== ======== =====
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in millions) $ 429.7 $ 366.4 $ 277.4 $ 253.3 $ 203.6
Ratio of expenses to average net assets 1.12% 1.15% 1.20%(2) 1.22% 1.28%
Ratio of net investment income
to average net assets 1.57% 1.70% 1.87%(2) 1.15% 1.48%
Portfolio turnover rate 31.22% 18.48% 24.23% 38.39% 28.08%
Average commission paid per share traded $ .045 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Total return represents the actual return over the period and has not been annualized.
(2) Annualized.
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 5
STATEMENT OF NET ASSETS MARCH 31, 1997
SHARES COMMON STOCKS - 71.44% VALUE
------ ---------------------- -----
AEROSPACE/DEFENSE
COMPANIES - 6.40%
99,756 Lockheed Martin Corporation $ 8,379,504
80,000 Northrop Grumman Corporation 6,050,000
126,400 Raytheon Company 5,703,800
70,000 Textron, Inc. 7,350,000
-----------
27,483,304
-----------
CHEMICALS - 2.56%
255,000 Engelhard Corporation 5,355,000
134,000 Hercules, Inc. 5,661,500
-----------
11,016,500
-----------
COMPUTER PRODUCTS - 11.73%
140,000 Compaq Computer
Corporation (1) 10,727,500
300,000 Data General Corporation 5,100,000
90,000 Harris Corporation 6,918,750
80,000 Intel Corporation 11,120,000
400,000 Sun Microsystems, Inc. (1) 11,500,000
100,000 Tektronix, Inc. 5,050,000
-----------
50,416,250
-----------
CONSUMER DURABLES - 5.54%
133,000 Black & Decker Corporation 4,272,625
190,000 Brunswick Corporation 5,106,250
97,000 Goodyear Tire & Rubber
(The) Company 5,068,250
100,000 Pulte Corporation 2,925,000
166,500 Snap-on, Inc. 6,451,875
-----------
23,824,000
-----------
ENERGY - 6.35%
145,000 Coastal Corporation 6,960,000
100,000 Nicor Inc. 3,200,000
152,000 PanEnergy Corporation 6,555,000
32,000 Royal Dutch Petroleum Company 5,600,000
82,000 Western Atlas Inc. (1) 4,971,250
-----------
27,286,250
-----------
==========================================================
SHARES COMMON STOCKS (CONTINUED) VALUE
------ ------------------------- -----
FINANCIAL SERVICES - 7.35%
85,000 Beneficial Corporation $ 5,493,125
119,000 Household International, Inc. 10,248,875
70,000 Transamerica Corporation 6,265,000
200,000 Travelers, Inc. 9,575,000
-----------
31,582,000
-----------
INDUSTRIAL PRODUCTS - 8.69%
118,000 Cooper Industries, Inc. 5,118,250
120,000 Foster Wheeler Corporation 4,245,000
180,000 Goodrich (B.F.) Company 6,592,500
110,000 Ingersoll-Rand Company 4,798,750
74,000 Johnson Controls, Inc. 5,957,000
117,300 Parker Hannifin Corporation 5,014,575
105,000 Timken Company 5,617,500
-----------
37,343,575
-----------
INSURANCE - 7.62%
95,000 W. R. Berkley Corporation 4,821,250
42,000 ITT Hartford Group, Inc. 3,029,250
110,000 Providian Corporation 5,885,000
143,000 SAFECO Corporation 5,720,000
93,000 St. Paul Companies, Inc. 6,033,375
155,000 USLIFE Corporation 7,246,250
-----------
32,735,125
-----------
RETAIL TRADE - 5.67%
160,000 American Stores Company 7,120,000
150,000 Dayton-Hudson Corporation 6,262,500
134,000 The Great Atlantic
& Pacific Tea Company, Inc. 3,400,250
99,000 Mercantile Stores, Inc. 4,591,125
100,000 Supervalu, Inc. 2,975,000
-----------
24,348,875
-----------
SERVICES - 2.71%
42,000 ITT Corporation (1) 2,472,750
156,000 Pittson Brink's Group 3,939,000
254,000 Wendy's International, Inc. 5,238,750
-----------
11,650,500
-----------
- ----------------------------------------------------------
See accompanying notes to financial statements.
4
<PAGE> 6
STATEMENT OF NET ASSETS MARCH 31, 1997
SHARES COMMON STOCKS (CONTINUED) VALUE
------ ------------------------- -----
TELECOMMUNICATIONS - 4.31%
300,000 Andrew Corporation (1) $ 10,725,000
220,000 MCI Communications
Corporation 7,810,000
-----------
18,535,000
-----------
- ----------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
------ ------------------------- -----
TRANSPORTATION - 2.51%
50,171 Conrail, Inc. $ 5,656,780
60,000 Norfolk Southern Corporation 5,115,000
-----------
10,771,780
-----------
TOTAL COMMON STOCKS
(Cost $181,279,854) 306,993,159
-----------
=========================================================
<TABLE>
<CAPTION>
PRINCIPAL INTEREST
AMOUNT COMMERCIAL PAPER - 20.87% MATURITY RATE (2) VALUE
<S> <C> <C> <C>
$10,000,000 BMW US Capital Corporation 4/30/97 5.32% $ 9,957,144
10,000,000 Campbell Soup 4/09/97 5.25 9,988,333
10,000,000 Du Pont (E.I.) de Nemours & Company 4/23/97 5.26 9,967,856
10,000,000 Knight-Ridder 5/07/97 5.60 9,944,000
10,000,000 Lucent Technology 5/14/97 5.37 9,935,858
10,000,000 Metlife Funding 5/07/97 5.31 9,946,900
10,000,000 Norfolk Southern Corporation 4/23/97 5.60 9,965,778
10,000,000 Philip Morris Company 4/02/97 5.25 9,998,542
10,000,000 Xerox Corporation 4/16/97 5.25 9,978,125
-------------
TOTAL COMMERCIAL PAPER (COST $89,682,536) 89,682,536
-------------
=======================================================================================================================
REPURCHASE AGREEMENT - 8.24%
35,405,000 First National Bank of Chicago, dated 3/31/97, collateral; U.S. Treasury
Note, 55/8% due 10/31/97 with a market value of $36,119,469;
repurchase proceeds: $35,410,999 (Cost $35,405,000) 4/01/97 6.18 35,405,000
------------
TOTAL INVESTMENTS, AT VALUE (NOTE 1)
(COST $306,367,390) - 100.55% 432,080,695
ACCRUED INVESTMENT ADVISORY FEE (NOTE 2) - (0.05%) (198,152)
OTHER LIABILITIES PAYABLE TO ADVISER (NOTE 2) - (0.05%) (217,535)
OTHER ASSETS AND LIABILITIES, NET - (.45%) (1,939,472)
------------
NET ASSETS - APPLICABLE TO 14,906,900 OUTSTANDING SHARES (NO PAR
VALUE - UNLIMITED NUMBER OF SHARES AUTHORIZED)
(NOTE 4) - 100% $429,725,536
============
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE (NOTE 1) $28.83
============
=======================================================================================================================
<FN>
(1) Non-income producing
(2) For commercial paper, the interest 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> 7
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED
MARCH 31, 1997
INVESTMENT INCOME:
<S> <C>
Interest $ 6,092,265
Dividends 4,641,083
----------
TOTAL INVESTMENT INCOME $10,733,348
EXPENSES:
Investment advisory fee (Note 2) 2,093,562
Distribution (Note 2) 1,928,903
Transfer agency fees (Note 2) 263,816
Accounting services fees (Note 2) 69,857
Registration fees 23,905
Printing 21,263
Custodian fees 16,637
Professional fees 15,002
ICI dues 14,367
Insurance 8,268
Trustees' fees (Note 2) 6,899
Postage and mailing 1,239
Other 12,251
----------
Total expenses 4,475,969
-----------
NET INVESTMENT INCOME 6,257,379
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gain on investments 37,844,738
Net change in unrealized appreciation of investments 11,774,353
----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 49,619,091
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $55,876,470
===========
- ---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 8
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED MARCH 31,
--------------------
1997 1996
FROM OPERATIONS:
<S> <C> <C>
Net investment income $ 6,257,379 $ 5,553,462
Net realized gain on investments 37,844,738 13,508,988
Net change in unrealized appreciation of investments 11,774,353 51,890,255
------------ ------------
Net increase in net assets resulting from operations 55,876,470 70,952,705
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (6,248,864) (5,404,325)
Net realized capital gains (32,341,951) (12,516,066)
------------ ------------
Decrease in net assets from distributions to shareholders (38,590,815) (17,920,391)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 150,040,288 204,134,880
Net asset value of shares issued in reinvestment of distributions 37,843,938 17,748,840
Payments for shares redeemed (141,861,173) (185,868,913)
------------ ------------
Net increase in net assets from Fund share transactions 46,023,053 36,014,807
------------ ------------
TOTAL INCREASE IN NET ASSETS 63,308,708 89,047,121
NET ASSETS:
Beginning of year 366,416,828 277,369,707
------------ ------------
End of year (including undistributed net investment income of
$753,874 and $745,359, respectively) (Note 1) $429,725,536 $366,416,828
============ ============
NUMBER OF FUND SHARES:
Sold 5,266,990 7,979,631
Issued in reinvestment of distributions to shareholders 1,334,128 709,780
Redeemed (4,986,154) (7,260,289)
------------ ------------
Net increase in shares outstanding 1,614,964 1,429,122
Outstanding at beginning of year 13,291,936 11,862,814
------------ ------------
Outstanding at end of year 14,906,900 13,291,936
============ ============
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997
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 series, the Gradison Established Value Fund, the Gradison Opportunity Value
Fund, the Gradison Growth &Income Fund and the Gradison International Fund
(collectively, the "Funds"); each of which, in effect, represents a separate
diversified fund with its own investment policies. This Annual Report to
Shareholders pertains only to the Gradison 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 by management
using procedures approved 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
Statement of Net Assets for the face amount of repurchase agreements and
repurchase proceeds as of March 31, 1997.
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 applicable 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.
8
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends in
each calendar year, at least 98% of its net investment income (earned during the
calendar year) and 98% of its net realized capital gains, if any (earned during
the twelve months ended October 31), plus undistributed amounts from prior
years.
The tax basis of investments is equal to the cost as shown on the Statement of
Net Assets. For both financial reporting and tax purposes, gross unrealized
appreciation and gross unrealized depreciation of securities at March 31, 1997
was $127,966,137, and $2,252,832, 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.
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, 1997. 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.
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.
9
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997
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, 1997, the cost of purchases and proceeds from the
sale of securities, excluding short-term securities, amounted to $88,893,687 and
$101,027,531, respectively.
Note 4 -- Net Assets
================================================================================
Net assets of the Fund consisted of:
<TABLE>
<CAPTION>
MARCH 31, 1997
<S> <C>
Aggregate paid-in capital $290,212,712
Accumulated undistributed net investment income 753,874
Accumulated undistributed net realized gains 13,045,645
Net unrealized appreciation of investments 125,713,305
------------
Net Assets $429,725,536
============
- -----------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL INFORMATION (UNAUDITED)
================================================================================
During the year ended March 31, 1997, the Fund made total distributions of $2.80
per share, of which $.45 was treated as ordinary income, 74% qualified for the
dividends-received deduction for corporations, and $2.35 was treated as
long-term capital gain.
The Board of Trustees declared an ordinary income dividend of $0.11 per share
and a long-term capital gain distribution of $0.88 per share payable on May 30,
1997 to shareholders of record on May 29, 1997.
10
<PAGE> 12
ARTHUR ANDERSEN
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of the
Gradison Established Value Fund
of the Gradison Growth Trust:
We have audited the accompanying statement of net assets of the Gradison
Established Value Fund of the Gradison Growth Trust (an Ohio business trust) as
of March 31, 1997, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, 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, 1997, 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 Established Value Fund of the Gradison Growth Trust as of March 31,
1997, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for the periods indicated thereon, in conformity with generally
accepted accounting principles.
Cincinnati, Ohio, /s/ Arthur Andersen LLP
May 7, 1997
11
<PAGE> 13
OPPORTUNITY
VALUE FUND
ANNUAL REPORT
MARCH 31, 1997
[GRADISON MUTUAL FUNDS LOGO]
GRADISON MUTUAL FUNDS
580 WALNUT STREET
CINCINNATI, OHIO 45202-3198
This material is intended for distribution to shareholders of the Gradison
Opportunity Value Fund. It may be distributed to other persons only if it is
preceded or accompanied by a current prospectus of the Gradison Opportunity
Value Fund. McDonald & Company Securities, Inc.--Distributor
<PAGE> 14
GRADISON OPPORTUNITY VALUE FUND
Letter to Shareholders
May 15, 1997
Dear Shareholder:
Enclosed for your review are the audited financial statements for the Fund's
fiscal year ended March 31, 1997.
THE ECONOMY AND THE MARKET The U.S. economy showed considerable strength during
the first calendar quarter. This continued strength in the economy could lead to
upward wage pressures which could then spark inflation. As a result, the Federal
Reserve chose to be proactive by increasing short-term interest rates in late
March. However, there are hints of more moderate economic activity emerging.
Jobless claims are rising, excess inventory is beginning to mount in the
industrial sector and the retail sector is softening. The policy dilemma facing
the Fed stems from the conflicting forces of low inflation and strong economic
growth. Any future action by the Fed is quite difficult to predict at this time.
Last year proved to be another banner year for the U.S. equity markets as the
S&P 500 Index returned 23%. The S&P 500 Index generated a 69.1% return for the
combined two year period from 1995 through 1996. This is only the fifth time
since 1926 that the stock market returned almost 70% for a combined two year
period. It last occurred during the 1975-1976 period. As this year began, the
stock market continued to surge ahead. However, a more turbulent market
environment emerged by the middle of the quarter as concerns regarding earnings
and a jittery bond market began to bother investors. The major indices had
fallen approximately 7% from their highs by the end of the quarter. This period
was accompanied by significant levels of volatility as investors attempted to
forecast the actions from the Federal Reserve. It appears that the increase in
short-term interest rates had the most damaging effect on the market. While the
weakness was broad based, the most severe downturn came in the technology and
financial sectors. Still, the S&P 500 finished the quarter up 2.68%.
PERFORMANCE Total returns for the Fund and the benchmark Russell 2000 Small
Stock Index follow this letter. The Fund has now outperformed the benchmark for
three consecutive quarters despite holding nearly 30% in cash equivalents. The
returns for the third and fourth fiscal quarters for the Fund were 8.42% and
- -1.30%, respectively, versus 5.12% and -5.16% for the Russell 2000 Index. The
Fund's superior performance can be attributed to several of the holdings within
the Fund. Innovex Corporation, a maker of precision electromagnetic products,
has more than tripled in value over the past year.
Additionally, software developer Keane Incorporated has doubled in value in the
last twelve months. Several holdings from the financial sector continue to
provide returns significantly better than the market. Moreover, it is important
to note that the Fund's cash position helped lessen the severity of the market
decline during the fourth fiscal quarter.
PORTFOLIO Several of the Fund's holdings have been the target of acquisitions in
recent months. PHH
1-800-869-5999 [Artwork]
<PAGE> 15
LETTER TO SHAREHOLDERS (CONTINUED)
Corporation, a business management firm and long time Fund holding, was
purchased by HFS Incorporated. Two of the more recent additions to the Fund were
also acquired during the last quarter. Measurex Corporation, a manufacturer of
computer integrated manufacturing systems, agreed to be acquired by Honeywell
Incorporated for $35 per share in cash while refrigerated display case maker,
Kyzor Industrial, was purchased by Scotsman Industries for $43 per share in
cash. The Fund acquired shares of Kyzor in July of 1996 and added shares of
Measurex in November 1996.
The potential for takeover is not a consideration when purchasing shares of a
company for the Fund. It is, we believe, merely a product of the Fund's
discipline of focusing on companies that have delivered consistent earnings
growth trading at discounted share valuations. There can be no assurance that
any securities owned by the Fund will be the subject of takeovers.
DIVIDEND The Board of Trustees has declared an ordinary income dividend of $0.62
per share and a long-term capital gain distribution of $0.40 per share payable
on May 30 to shareholders of record May 29.
As always, we remain committed to serving your investment needs.
Sincerely,
/s/ William J. Leugers, Jr. /s/ Daniel R. Shick
William J. Leugers, Jr. Daniel R. Shick
Executive Vice President Vice President
and Portfolio Manager and Portfolio Manager
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT MAY 1, 1987 TO
MARCH 31, 1997
<TABLE>
<CAPTION>
TOTAL RETURN PERIODS ENDED MARCH 31, 1997
------ Average Annual ------
10 Years 5 Years 3 Years 1 Year
<S> <C> <C> <C> <C>
Opportunity Value Fund 10.30% 12.23% 14.42% 12.46%
</TABLE>
GRADISON
OPPORTUNITY
VALUE FUND S&P RUSSELL
----------- ---------- -----------
Apr-87 $10,000.00 $10,000.00 $10,000.00
Apr-88 10,025.11 9,365.46 9,200.06
Apr-89 11,199.57 11,487.75 10,606.02
Apr-90 11,777.34 12,705.76 10,375.62
Apr-91 13,065.87 14,942.90 11,424.94
Apr-92 15,496.47 17,037.26 13,375.33
Apr-93 17,288.77 18,608.08 15,483.97
Apr-94 18,974.75 19,596.94 17,778.93
Mar-95 19,306.95 22,357.29 18,568.72
Mar-96 24,711.22 29,535.72 23,919.49
Mar-97 27,789.79 36,904.78 22,883.41
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> 16
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED MARCH 31, ENDED YEAR ENDED APRIL 30,
------------------------ MARCH 31,1995 -----------------------
1997 1996 (NOTE 1) 1994 1993
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 22.264 $ 18.100 $ 18.348 $ 17.547 $ 16.462
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .203 .193 .136 .086 .081
Net realized and unrealized
gains on investments 2.509 4.731 .176 1.585 1.744
-------- -------- -------- -------- --------
Total income from investment
operations 2.712 4.924 .312 1.671 1.825
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment
income (.165) (.185) (.120) (.070) (.100)
Distributions from realized
capital gains (2.040) (.575) (.440) (.800) (.640)
-------- -------- -------- -------- --------
Total distributions to shareholders (2.205) (.760) (.560) (.870) (.740)
-------- -------- -------- -------- --------
Net asset value at end of period $ 22.771 $ 22.264 $ 18.100 $ 18.348 $ 17.547
======== ======== ======== ======== ========
Total return 12.46% 28.00% 1.75%(1) 9.75% 11.57%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in millions) $ 114.5 $ 103.0 $ 84.7 $ 83.3 $ 68.2
Ratio of expenses to average net assets 1.36% 1.41% 1.37%(2) 1.38% 1.44%
Ratio of net investment income
to average net assets .90% .95% .84%(2) .47% .61%
Portfolio turnover rate 34.91% 23.98% 31.90% 40.41% 39.00%
Average commission paid per share traded $ .029 -- -- -- --
</TABLE>
(1) Total return represents the actual return over that period and has not been
annualized.
(2) Annualized.
See accompanying notes to financial statements.
3
<PAGE> 17
STATEMENT OF NET ASSETS MARCH 31, 1997
<TABLE>
<CAPTION>
SHARES COMMON STOCKS - 70.51% VALUE
<S> <C>
AUTOMOTIVES - 3.79%
30,000 Amcast Industries Corporation $ 701,250
----------------
25,000 Borg-Warner Auto, Inc. 1,065,625
15,000 Gleason Corporation 491,250
90,000 Wynn's International, Inc. 2,081,250
----------------
4,339,375
----------------
BANKS - 10.20%
5,000 First Empire State Corporation 1,600,000
62,200 Firstar Corporation 1,710,500
46,350 HUBCO, Inc. 1,042,875
30,750 Mercantile Bankshares Corporation 1,026,281
26,514 Old Kent Financial Corporation 1,249,472
42,000 TCF Financial Corporation 1,664,250
33,000 TR Financial Corporation 1,188,000
24,800 Union Planters Corporation 1,007,500
10,000 Zions Bancorporation 1,187,500
----------------
11,676,378
----------------
BUILDING MATERIALS - 4.33%
43,000 ABT Building Products Company (1) 924,500
39,000 Butler Manufacturing Company 1,384,500
13,000 Hughes Supply Company 424,125
84,150 Republic Group Corporation 1,283,288
34,000 Texas Industries, Inc. 935,000
----------------
4,951,413
----------------
BUSINESS SERVICES - 4.88%
90,000 ABM Industries, Inc. 1,687,500
37,500 Interpool, Inc. 576,563
100,000 Norstan, Inc.(1) 1,475,000
40,000 PHH Corporation 1,845,000
----------------
5,584,063
----------------
CHEMICALS - 1.66%
30,000 Cambrex Corporation 1,005,000
30,000 Ferro Corporation 900,000
----------------
1,905,000
----------------
COMPUTER HARDWARE - 2.64%
60,000 Adaptec, Inc. (1) 2,137,500
56,250 D.H. Technologies, Inc. (1) 878,906
----------------
3,016,406
----------------
COMPUTER SOFTWARE - 1.60%
37,000 Computer Data Systems, Inc. 1,096,125
22,500 Keane, Inc. (1) 739,688
----------------
1,835,813
----------------
CONSUMER DURABLES - 2.23%
55,000 Coachman Industries, Inc. $ 1,038,125
60,000 Coastcast Corporation (1) 787,500
42,000 Culp, Inc. 724,500
----------------
2,550,125
----------------
ELECTRONICS - 6.78%
65,000 Bel Fuse, Inc. (1) 788,125
30,000 Bell Industries, Inc. (1) 540,000
13,500 CTS Corporation 688,500
25,000 ElectroScientific Industries, Inc. 631,250
80,000 Innovex, Inc. 1,960,000
60,000 Input/Output, Inc. (1) 870,000
60,000 Kent Electronics Corporation (1) 1,380,000
76,072 Sterling Electronics Corporation (1) 903,355
----------------
7,761,230
----------------
FINANCIAL SERVICES - 4.32%
75,000 Aames Financial Corporation 1,518,750
33,000 Advanta Corporation 886,875
25,500 Alex. Brown Incorporated 1,083,750
46,000 Raymond James Financial, Inc. 1,454,750
----------------
4,944,125
----------------
HEALTH CARE - 3.68%
100,000 HealthSouth Corporation (1) 1,912,500
70,000 Universal Health Services, Inc. (1) 2,301,250
----------------
4,213,750
----------------
HOUSING - 4.70%
80,000 Cavalier Homes, Inc. 900,000
34,000 Continental Homes Holding Corporation 565,250
50,000 D.R. Horton, Inc. 537,500
43,000 Lennar Corporation 1,053,500
80,000 Oakwood Homes Corporation 1,410,000
50,000 Toll Brothers, Inc. (1) 912,500
----------------
5,378,750
----------------
INDUSTRIAL PRODUCTS - 2.82%
40,000 Core Industries, Inc. 580,000
51,000 Global Industries Technologies, Inc. (1) 879,750
25,000 Raymond Corporation 693,750
22,000 Transtechnology Corporation 470,250
25,000 United Dominion Industries, Inc. 609,375
----------------
3,233,125
----------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 18
STATEMENT OF NET ASSETS MARCH 31, 1997
<TABLE>
<CAPTION>
SHARES COMMON STOCKS - (CONTINUED) VALUE
<S> <C> <C>
INSURANCE COMPANIES - 6.67%
35,000 American Bankers Insurance Group, Inc. $ 1,706,250
26,000 Equitable of Iowa Corporation 1,300,000
56,100 Fremont General Corporation 1,577,812
66,811 GAINSCO, Inc. 601,299
20,000 Orion Capital Corporation 1,235,000
29,000 Protective Life Corporation 1,218,000
---------------
7,638,361
---------------
NATURAL RESOURCES - 4.73%
45,000 Mueller Industries, Inc. (1) 1,760,625
95,000 Patrick Industries, Inc. 1,353,750
37,000 Quanex Corporation 929,625
40,000 Southdown, Inc. 1,370,000
---------------
5,414,000
---------------
RETAIL TRADE & SERVICES - 2.56%
80,000 Comair Holdings, Inc. $ 1,730,000
43,000 Waban, Inc. (1) 1,198,625
---------------
2,928,625
---------------
SEMICONDUCTORS - 2.92%
90,000 Chips & Technology, Inc. (1) 933,750
55,000 Dallas Semiconductor Corporation 1,457,500
60,000 EXAR Corporation (1) 945,000
---------------
3,336,250
---------------
Total Common Stocks
(Cost $48,572,301) 80,706,789
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST
AMOUNT COMMERCIAL PAPER - 19.59% MATURITY RATE (2) VALUE
<S> <C> <C> <C>
$2,500,000 BMW US Capital 4/30/97 5.32% $ 2,489,286
2,500,000 Campbell Soup 4/09/97 5.25 2,497,083
2,500,000 Du Pont (E.I.) de Nemours & Company 4/23/97 5.26 2,491,964
2,500,000 Knight-Ridder 5/07/97 5.60 2,486,000
2,500,000 Lucent Technology 5/14/97 5.37 2,483,965
2,500,000 Metlife Funding 5/07/97 5.31 2,486,725
2,500,000 Norfolk Southern Corp 4/23/97 5.60 2,491,445
2,500,000 Philip Morris Company 4/02/97 5.25 2,499,635
2,500,000 Xerox Corporation 4/16/97 5.25 2,494,531
---------------
TOTAL COMMERCIAL PAPER (COST $22,420,634) 22,420,634
---------------
</TABLE>
<TABLE>
<CAPTION>
REPURCHASE AGREEMENT - 11.28%
<S> <C> <C> <C>
12,890,000 First National Bank of Chicago, dated 3/31/97, collateral; U.S. Treasury Note, 5 5/8% due
10/31/97 with a market value of $13,153,864; repurchase proceeds: $12,892,184
(Cost $12,890,000) 4/01/97 6.18 12,890,000
------------
TOTAL INVESTMENTS, at value (Note 1) (Cost $83,882,935) - 101.36% 116,017,423
Accrued investment advisory fee (Note 2) - (0.05%) (64,861)
Other liabilities payable to adviser (Note 2) - (0.05%) (59,725)
Other assets and liabilities, net - (1.26%) (1,441,980)
------------
Net Assets - applicable to 5,026,263 outstanding shares
(no par value - unlimited number of shares authorized) (Note 4) - 100% $114,450,857
============
Net asset value and redemption price per share (Note 1) $ 22.77
============
</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> 19
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1997
<S> <C> <C>
INVESTMENT INCOME:
Interest $1,657,156
Dividends 812,130
----------
TOTAL INVESTMENT INCOME $2,469,286
EXPENSES:
Investment advisory fee (Note 2) 699,336
Distribution (Note 2) 544,851
Transfer agency fees (Note 2) 114,756
Accounting services fees (Note 2) 40,000
Registration fees 26,156
Custodian fees 18,717
Professional fees 15,637
Printing 12,635
Trustees' fees (Note 2) 7,222
ICI dues 4,458
Other 1,148
----------
TOTAL EXPENSES 1,484,916
-----------
NET INVESTMENT INCOME 984,370
-----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gain on investments 9,839,496
Net change in unrealized appreciation of investments 1,731,084
----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 11,570,580
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $12,554,950
===========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 20
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 984,370 $ 873,255
Net realized gain on investments 9,839,496 4,563,431
Net change in unrealized appreciation of investments 1,731,084 17,064,801
------------- -------------
Net increase in net assets resulting from operations 12,554,950 22,501,487
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (780,766) (836,073)
Net realized capital gains (9,624,857) (2,617,212)
------------- -------------
Decrease in net assets from distributions to shareholders (10,405,623) (3,453,285)
------------- -------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 74,520,949 57,418,476
Net asset value of shares issued in reinvestment of distributions 10,317,863 3,398,854
Payments for shares redeemed (75,515,812) (61,625,425)
------------- -------------
Net increase (decrease) in net assets from Fund share transactions 9,323,000 (808,095)
------------- -------------
TOTAL INCREASE IN NET ASSETS 11,472,327 18,240,107
NET ASSETS:
Beginning of year 102,978,530 84,738,423
------------- -------------
End of year (including undistributed net investment income of
$379,986 and $176,382, respectively) (Note 1) $ 114,450,857 $ 102,978,530
============= =============
NUMBER OF FUND SHARES:
Sold 3,262,371 2,817,109
Issued in reinvestment of distributions to shareholders 454,117 180,968
Redeemed (3,315,616) (3,054,423)
------------- -------------
Net increase (decrease) in shares outstanding 400,872 (56,346)
Outstanding at beginning of year 4,625,391 4,681,737
------------- -------------
Outstanding at end of year 5,026,263 4,625,391
============= =============
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997
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 series, the Gradison Opportunity Value Fund, the Gradison Established Value
Fund, the Gradison Growth & Income Fund, and the Gradison International Fund
(collectively, the "Funds"); each of which, in effect, represents a separate
diversified fund with its own investment policies. This Annual Report to
Shareholders pertains only to the Gradison 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 by management
using procedures approved 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
Statement of Net Assets for the face amount of repurchase agreements and
repurchase proceeds as of March 31, 1997.
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 applicable 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.
8
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends in
each calendar year, at least 98% of its net investment income (earned during the
calendar year) and 98% of its net realized capital gains, if any (earned during
the twelve months ended October 31), plus undistributed amounts from prior
years.
The tax basis of investments is equal to the cost as shown on the Statement of
Net Assets. For both financial reporting and tax purposes, gross unrealized
appreciation and gross unrealized depreciation of securities at March 31, 1997
was $33,508,976 and $1,374,488, 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.
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, 1997. 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.
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.
9
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997
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, 1997, the cost of purchases and proceeds from the
sale of securities, excluding short-term securities, amounted to $27,311,968 and
$31,306,273, respectively.
NOTE 4 -- NET ASSETS
<TABLE>
<CAPTION>
Net assets of the Fund consisted of:
MARCH 31, 1997
<S> <C>
Aggregate paid-in capital $ 77,416,037
Accumulated undistributed net investment income 379,986
Accumulated undistributed net realized gains 4,520,346
Net unrealized appreciation of investments 32,134,488
------------
Net Assets $114,450,857
============
- --------------------------------------------------------------
</TABLE>
===============================================================================
SUPPLEMENTAL INFORMATION (UNAUDITED)
During the year ended March 31, 1997, the Fund made total distributions of
$2.205 per share, of which $.165 was treated as ordinary income, 23% qualified
for the dividends-received deduction for corporations, and $2.04 was treated as
long-term capital gain.
The Board of Trustees declared an ordinary income dividend of $0.62 per share
and a long-term capital gain distribution of $0.40 per share payable on May 30,
1997 to shareholders of record on May 29, 1997.
10
<PAGE> 24
[ARTHUR ANDERSEN LOGO]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of the
Gradison Opportunity Value Fund
of the Gradison Growth Trust:
We have audited the accompanying statement of net assets of the Gradison
Opportunity Value Fund of the Gradison Growth Trust (an Ohio business trust) as
of March 31, 1997, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, 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, 1997, 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 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 Opportunity Value Fund of the Gradison Growth Trust as of March 31,
1997, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for the periods indicated thereon, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Cincinnati, Ohio,
May 7, 1997
11
<PAGE> 25
GROWTH &
INCOME FUND
ANNUAL REPORT
MARCH 31, 1997
[GRADISON GROWTH MUTUAL FUNDS LOGO]
This material is intended for distribution to shareholders of the Gradison
Growth & Income Fund. It may be distributed to other persons only if it is
preceded or accompanied by a current prospectus of the Gradison Growth & Income
Fund. McDonald & Company Securities, Inc.--Distributor
Gradison Mutual Funds
580 Walnut Street
Cincinnati, Ohio 45202-3198
<PAGE> 26
Gradison Growth & Income Fund
Letter to Shareholders
May 15, 1997
Dear Shareholder:
I am pleased to report to you that the Gradison Growth & Income Fund had a 3.5%
return for the first three months in 1997. We are proud that the Fund was one of
only a few equity funds that had a positive return for that time period and also
outperformed the S&P 500 Index.
INVESTMENT PERFORMANCE For the year ending March 31, 1997, your Fund achieved a
total return of 18.3%. This compares to the 19.8% total return achieved by the S
& P 500 for the same time period. Since your Fund's inception -- February 28,
1995, it has achieved an annualized total return of 20.5% and the S&P 500's
total return for the same period was 26.3%.*
Total returns for the periods ending March 31, 1997:
<TABLE>
<CAPTION>
3 MONTHS SINCE 2/28/95
NOT AVERAGE
ANNUALIZED 1 YEAR ANNUALIZED
<S> <C> <C> <C>
Gradison Growth
& Income Fund 3.5% 18.3% 20.5%
S&P 500 2.7 19.8 26.3
</TABLE>
The favorable performance achieved by your Fund for the first three months is
attributable to its more conservative nature of sector diversification. The
Fund's smaller position in technology and larger exposure to defensive stocks
helped achieve the superior return during the period.
For the year ending March 31, 1997, the Fund's strong defensive nature and low
exposure to technology and cyclical stocks held the annual total return modestly
below that of the S&P 500 index.
PORTFOLIO At March 31, 1997, your Fund approached an asset value of twenty-six
million dollars. At March 31, 1997, over 95% of the Fund was invested in common
stock.
Throughout this year of rising stock prices, we have continued to focus on our
primary objective and have not deviated from our stated investment policies.
Simply put, the Fund's success is attributable to its investment in quality
common stocks at value prices. Indeed, as shown in the following tables, your
Fund's assets are invested 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.
1-800-869-5999 [LOGO]
<PAGE> 27
LETTER TO SHAREHOLDERS (CONTINUED)
The Fund's stock portfolio exhibited the following value and growth
characteristics at March 31, 1997:
<TABLE>
<CAPTION>
GRADISON GROWTH S&P 500
& INCOME FUND INDEX
<S> <C> <C>
Yield 2.5% 2.0%
Price/earnings ratio** 16.3x 16.6x
Return on equity 19.6% 17.0%
Annual 5 year earnings
growth rate 11.1% 14.4%
Annual 5 year dividend
growth rate 9.9% 4.1%
Beta 0.99 1.00
</TABLE>
**based on 1997 earnings estimates
Dividends play an important role in this Fund. Studies have shown that an
"above-average dividend yield" strategy is one of the best approaches for
selecting superior stocks.
Every stock in the Fund has a history of dividend increases.
The top ten holdings of the Fund at March 31, 1997, and their current dividend
yields are presented below. All but two have dividend yields higher than the
2.0% current yield of the S&P 500 index.
<TABLE>
<CAPTION>
COMPANY CURRENT YIELD
<S> <C>
Exxon Corp. 2.9%
Morgan (J.P.) & Co. 3.6
Pitney Bowes Inc. 2.0
CPC International Inc. 2.7
Hewlett-Packard Co. 0.9
Mobil Corp. 3.2
DuPont (E.I.) de Nemours 2.2
Bristol-Myers Squibb Co. 2.6
Cincinnati Financial Corp. 2.3
Norwest Corporation 2.6
</TABLE>
Portfolio diversification is important, too. The following table shows the five
largest sectors of investment for the Fund. We maintain a defensive posture with
a strong sector exposure to consumer non-durables.
<TABLE>
<CAPTION>
SECTOR WEIGHTING
<S> <C>
Consumer Non-durables 17%
Technology 15
Energy Services 9
Healthcare 8
Financial Services 8
</TABLE>
The Fund is tax efficient for shareholders subject to income taxation as
evidenced by its low portfolio turnover. Low turnover in the Fund's holdings
results in fewer realized capital gains and losses. Therefore, less of the total
return earned for shareholders is currently taxable.
DIVIDENDS TO FUND SHAREHOLDERS In the fiscal year ending March 31, 1997,
shareholders received the following distributions.
<TABLE>
<CAPTION>
INCOME CAPITAL GAINS
DISTRIBUTIONS DISTRIBUTIONS
<S> <C> <C>
May 31, 1996 $0.05 $0.05
August 30, 1996 0.05 --
November 29, 1996 0.05 0.08
December 31, 1996
(year end distribution) 0.03 --
February 28, 1997 0.03 --
</TABLE>
In total, $0.34 per share was distributed to shareholders in the fiscal year
just ended compared to the $0.22 per share distributed last year. The Fund
distributes its income each quarter and distributes capital gains twice a year.
Subject to the Board of Trustees' approval, we
2
<PAGE> 28
LETTER TO SHAREHOLDERS (CONTINUED)
expect to pay our next dividend consisting of earned income and capital gains in
May, 1997.
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 seventh year of growth. Growth this
year has been exceptionally robust, warding off fears of declining corporate
profits. Expectations of Federal Reserve tightening of interest rates are mixed.
The recent rise in the US dollar against foreign currencies is likely to be
reflected in near term lower economic growth and inflation. These factors are
but a few among several causing volatility in market prices as investors react
to monthly economic reports.
Stock market averages are at high levels and prices for stocks have become more
volatile as economic scenarios give mixed signals. A good number of companies
are expected to record earnings gains this year. We are maintaining a generally
cautious approach to common stock selection with emphasis on earnings
reliability, reasonable price/earnings multiples, and dividend growth.
PUBLISHED PRICES The Gradison Growth & Income Fund (ticker symbol GRINX) is
listed in daily newspaper mutual fund price listings along with the other
Gradison Mutual Funds.
All of us with the Gradison 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,
/s/ Julian C. Ball
Julian C. Ball, CFA
Executive Vice President and Portfolio Manager
Footnote:
*This represents historical performance. The investment return and value of an
investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than the original cost. Total return
includes changes in share value and reinvestment of all distributions. [From the
inception of the Fund the investment advisor has waived certain fees owed by the
Fund and paid certain Fund expenses, which had the effect of increasing the
Fund's return.]
3
<PAGE> 29
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT FEBRUARY 28, 1995 TO
MARCH 31, 1997
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
2/28/95 3/31/95 6/30/95 9/30/95 12/31/95 3/31/96 6/30/96 9/30/96 12/31/96 3/31/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GRADISON GROWTH &
INCOME FUND $10,000 $10,126 $10,606 $11,241 $12,034 $12,465 $12,904 $13,333 $14,258 $14,751
S&P 500 $10,000 $10,273 $11,176 $11,990 $12,637 $13,244 $13,760 $14,101 $15,209 $15,534
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN PERIODS ENDED MARCH 31, 1997
Inception
1 Year 2/28/95
<S> <C> <C>
Growth & Income Fund 18.33% 20.47%
</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.
4
<PAGE> 30
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, FOR THE PERIOD
---------------------- FEBRUARY 28, 1995*
1997 1996 TO MARCH 31, 1995
<S> <C> <C> <C>
Net asset value at beginning of period $18.459 $15.189 $15.000
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .246 .173 .030
Net realized and unrealized gains on investment 3.112 3.317 .159
------- ------- -------
Total income from investment operations 3.358 3.490 .189
------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (.210) (.185)
Distributions from realized capital gains (.130) (.035)
------- ------- -------
Total distributions to shareholders (.340) (.220)
------- ------- -------
Net asset value at end of period $21.477 $18.459 $15.189
======= ======= =======
Total return 18.33% 23.09% 1.27% (1)
======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in millions) $ 25.7 $ 12.0 $ 1.2
RATIOS NET OF EXPENSES WAIVED
AND REIMBURSED BY THE ADVISER (2):
Ratio of expenses to average net assets 1.50% 1.50% 0.00% (3)
Ratio of net investment income
to average net assets 1.34% 1.39% 4.09% (3)
RATIOS ASSUMING NO ADVISER WAIVER
OR REIMBURSEMENT OF EXPENSES (2):
Ratio of expenses to average net assets 1.74% 2.87% 13.88% (3)
Ratio of net investment income (loss)
to average net assets 1.09% .01% (9.79%)(3)
Portfolio turnover rate 16.01% 3.07% 3.62%
Average commission paid per share traded $ .046 -- --
<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.
5
<PAGE> 31
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
<TABLE>
<CAPTION>
SHARES COMMON STOCKS - 94.75% VALUE
<S> <C> <C>
Bank Services - 7.39%
8,000 Huntington Bankshares,
Incorporated $ 210,000
10,000 Morgan (J.P.) & Company
Incorporated 982,500
15,000 Norwest Corporation 693,750
-------------
1,886,250
-------------
CHEMICALS - 6.29%
15,000 Avery-Dennison Corporation 577,500
7,000 Du Pont (E.I.) de Nemours
& Company 742,000
15,000 Schulman, (A.) Inc. 285,000
-------------
1,604,500
-------------
CONSUMER DURABLES - 2.39%
5,000 Cooper Tire & Rubber Company 92,500
10,000 TRW Inc. 517,500
-------------
610,000
-------------
CONSUMER
NON-DURABLES - 17.24%
10,000 Archer Daniels Midland 178,750
10,000 CPC International, Inc. 820,000
15,000 Heinz (H.J.) Company 592,500
10,000 International Flavors
& Fragrances, Inc. 437,500
10,000 Kellogg Company 672,500
20,000 Newell Company 670,000
14,000 Pepsico, Inc. 456,750
5,000 Procter & Gamble Company 575,000
-------------
4,403,000
-------------
ENERGY - 9.47%
8,000 Chevron Corporation $ 557,000
10,000 Exxon Corporation 1,077,500
6,000 Mobil Corporation 783,750
-------------
2,418,250
-------------
FINANCIAL SERVICES - 7.69%
15,000 American General Corporation 611,250
10,000 Cincinnati Financial Corporation 702,500
10,000 St. Paul Companies 648,750
-------------
1,962,500
-------------
HEALTHCARE &
PHARMACEUTICALS - 8.11%
10,000 American Home Products
Corporation 600,000
12,000 Bristol-Myers Squibb Company 708,000
7,000 Merck & Co., Inc. 589,750
2,000 Warner-Lambert Company 173,000
-------------
2,070,750
-------------
INDUSTRIAL PRODUCTS - 5.94%
6,000 General Electric Company 595,500
10,000 Pall Corporation 231,250
10,000 WMX Technologies, Inc. 306,250
20,000 Worthington Industries, Inc. 382,500
-------------
1,515,500
-------------
RETAIL TRADE
& SERVICES - 5.39%
5,000 J.C. Penney Company, Inc. 238,125
10,000 May Department Stores Co. 455,000
10,000 McDonald's Corporation 472,500
5,000 Walgreen Co. 209,375
-------------
1,375,000
-------------
See accompanying notes to financial statements.
<PAGE> 32
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
<CAPTION>
SHARES COMMON STOCKS (CONTINUED) VALUE
<S> <C> <C>
TECHNOLOGY - 15.14%
10,000 Automated Data
Processing, Inc. $ 418,750
-------------
10,500 Diebold, Inc. 395,063
15,000 Hewlett Packard Company 798,750
3,000 Intel Corporation 417,000
7,000 Minnesota Mining &
Manufacturing Company 591,500
6,000 Motorola Inc. 362,250
15,000 Pitney-Bowes, Inc. 881,250
-------------
3,864,563
-------------
TELECOMMUNICATIONS - 5.42%
10,000 Ameritech Corporation 615,000
4,000 Bell Atlantic
Corporation 243,500
10,000 SBC Communications, Inc. 526,250
-------------
1,384,750
-------------
TRANSPORTATION - 1.23%
10,000 Illinois Central
Corporation $ 315,000
-------------
UTILITIES - 3.05%
10,000 Central & South West
Corporation 213,750
8,000 Duke Power Company 353,000
10,000 Southern Corporation 211,250
-------------
778,000
-------------
TOTAL COMMON STOCKS
(COST $20,675,399) 24,188,063
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST
AMOUNT REPURCHASE AGREEMENT - 5.25% MATURITY RATE (1) VALUE
<S> <C> <C> <C>
1,340,000 First National Bank of Chicago, dated 3/31/97, collateral;
U.S. Treasury Note, 55/8% due 10/31/97 with a market value
of $1,369,555; repurchase proceeds: $1,340,227
(COST $1,340,000) 4/01/97 6.18% 1,340,000
-----------
TOTAL INVESTMENTS, AT VALUE (NOTE 1)
(COST $22,015,399) - 100% $25,528,063
===========
<FN>
(1) For repurchase agreements, the interest rate reflects the actual rate of
return to the Fund.
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 33
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MARCH 31, 1997
<S> <C>
ASSETS
Investments in securities, at value (Note 1) (Cost $22,015,399) $25,528,063
Receivable for Fund shares sold 191,726
Dividends and interest receivable 55,412
Prepaid expenses and other assets 9,390
Cash 8,488
Organization expenses, net (Note 1) 3,678
-----------
TOTAL ASSETS 25,796,757
===========
LIABILITIES
Accrued investment advisory fee (Note 2) 72,378
Other accrued expenses payable to adviser (Note 2) 15,517
Other accrued expenses and liabilities 5,253
Payable for Fund shares redeemed 1,888
-----------
TOTAL LIABILITIES 95,036
-----------
NET ASSETS $25,701,721
===========
Net assets consist of:
Aggregate paid-in capital $21,896,418
Accumulated undistributed net investment income 63,881
Accumulated undistributed net realized gains 228,758
Net unrealized appreciation of investments 3,512,664
-----------
Net Assets $25,701,721
===========
Shares of capital stock outstanding
(no par value - unlimited number of shares authorized) 1,196,719
===========
Net asset value and redemption price per share (Note 1) $ 21.48
===========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 34
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1997
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 462,906
Interest 49,799
---------
TOTAL INVESTMENT INCOME $ 512,705
EXPENSES:
Investment advisory fee (Note 2) 117,370
Distribution (Note 2) 90,284
Accounting services fees (Note 2) 40,000
Transfer agency fees (Note 2) 23,835
Professional fees 17,713
Trustees' fees (Note 2) 9,124
Registration fees 8,655
Printing 5,423
Amortization of organization expense (Note 1) 1,261
Other 1,380
---------
TOTAL EXPENSES 315,045
LESS FEES WAIVED BY THE ADVISER (NOTE 2) (44,992)
---------
NET EXPENSES 270,053
----------
NET INVESTMENT INCOME 242,652
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gain on investments 337,124
Net change in unrealized appreciation of investments 2,325,455
---------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 2,662,579
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,905,231
==========
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 35
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1997 1996
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 242,652 $ 90,227
Net realized gain on investments 337,124 19,093
Net change in unrealized appreciation of investments 2,325,455 1,179,997
------------ ------------
Net increase in net assets resulting from operations 2,905,231 1,289,317
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (190,392) (81,010)
Net realized capital gains (112,745) (15,124)
------------ ------------
Decrease in net assets from distributions to shareholders (303,137) (96,134)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 13,724,115 10,777,990
Net asset value of shares issued in reinvestment of distributions 297,051 93,588
Payments for shares redeemed (2,898,897) (1,295,409)
------------ ------------
Net increase in net assets from Fund share transactions 11,122,269 9,576,169
------------ ------------
Total increase in net assets 13,724,363 10,769,352
NET ASSETS:
Beginning of year 11,977,358 1,208,006
------------ ------------
End of year (including undistributed net investment
income of $63,881 and $11,621, respectively) (Note 1) $ 25,701,721 $ 11,977,358
============ ============
NUMBER OF FUND SHARES:
Sold 674,493 640,085
Issued in reinvestment of distributions to shareholders 14,650 5,402
Redeemed (141,301) (76,141)
------------ ------------
Net increase in shares outstanding 547,842 569,346
Outstanding at beginning of year 648,877 79,531
------------ ------------
Outstanding at end of year 1,196,719 648,877
============ ============
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997
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 series, the Gradison Growth &Income Fund, the Gradison Established Value
Fund, the Gradison Opportunity Value Fund and the Gradison International Fund
(collectively, the "Funds"); each of which, in effect, represents a separate
diversified fund with its own investment policies. This Annual Report to
Shareholders pertains only to the Gradison 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 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 by management
using procedures approved 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, 1997.
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.
11
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997
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, 1997 was $3,819,869 and $307,205, 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.
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.
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 1.50% of the average net assets of the
Fund. This agreement is in effect until July 31, 1997 and is subject to
12
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997
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 1.50%. For the year ended March 31,
1997, McDonald waived advisory fees of $44,992.
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 year ended March 31, 1997, the cost of purchases and proceeds from the
sale of securities, excluding short-term securities, amounted to $12,612,282 and
$2,702,873, respectively.
================================================================================
SUPPLEMENTAL INFORMATION (UNAUDITED)
During the period ended March 31, 1997, the Fund made total distributions of
$.34 per share, $.33 of which was treated as ordinary income, 100% qualified for
the dividends-received deduction for corporations, and $.01 was treated as
long-term capital gain.
The Board of Trustees declared an ordinary income dividend of $0.15 per share
and a long-term capital gain distribution of $0.09 per share payable on May 30,
1997 to shareholders of record on May 29, 1997.
13
<PAGE> 39
[ARTHUR ANDERSEN LOGO]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of the
Gradison Growth & Income Fund
of the Gradison Growth Trust:
We have audited the accompanying statement of assets and liabilities of the
Gradison Growth & Income Fund of the Gradison Growth Trust (an Ohio business
trust), including the portfolio of investments, as of March 31, 1997, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, 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, 1997, 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 Growth & Income Fund of the Gradison Growth Trust as of March 31,
1997, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the
financial highlights for the periods indicated thereon, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
May 7, 1997
14
<PAGE> 40
GRADISON FAMILY OF FUNDS
Increasingly, MUTUAL FUNDS are the preferred vehicle for starting and building
an investment program. And today, GRADISON is a preferred name in mutual funds
for a GROWING number of investors.
GOVERNMENT INCOME FUND
An income fund which invests in intermediate to long-term U.S. Government
securities.
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 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.
15
<PAGE> 41
INTERNATIONAL
FUND
Annual Report
March 31, 1997
[LOGO]
Gradison Mutual Funds
580 Walnut Street
Cincinnati, Ohio 45202-3198
This material is intended for distribution to shareholders of the Gradison
International Fund. It may be distributed to other persons only if it is
preceded or accompanied by a current prospectus of the Gradison International
Fund. McDonald & Company Securities, Inc.--Distributor
<PAGE> 42
GRADISON INTERNATIONAL FUND
Letter to Shareholders
May 15, 1997
Dear Shareholder:
It has been approximately two years since we commenced operations in the
Gradison International Fund. You will recall that we chose Blairlogie Capital
Management of Edinburgh, Scotland to be our subadvisor to this Fund. Blairlogie
specializes in managing international portfolios and offers a strategy which
includes investments in both developed and emerging stock markets, called the
hybrid strategy.
The Fund has continued to attract new shareholders and now stands at well over
$24 million in assets. The Fund is now listed on NASDAQ under the symbol INTFX
and appears daily in most major newspapers under the heading Gradison. These
milestones could not have been accomplished without the support of our
shareholders, and for that, we thank you.
PORTFOLIO The Fund seeks growth of capital by investing in common stocks of
companies based outside of the United States. The Fund generally invests a
maximum of 30% of assets in companies based in emerging market countries. As of
March 31, the top five countries represented 45.78% of the Fund's total
investments in securities as listed below:
PERCENT OF
COUNTRY NET ASSETS
Japan 17.55%
Germany 8.26%
United Kingdom 8.09%
Switzerland 6.09%
Malaysia 5.79%
- -------------------------------------------------------------------------------
The remaining 54.22% of the portfolio was diversified over an additional seven
developed and fourteen emerging markets. The entire portfolio breakdown is shown
in the enclosed financial statements.
INVESTMENT PERFORMANCE We are encouraged by the Fund's recent performance
results. For the quarter ended March 31, 1997, the Fund showed a total return of
1.2% versus -0.2 for the Hybrid Index. For the past year, the results were 2.8%
versus 2.4%. The results for the recent quarter and year are largely
attributable to our decision to be overweighted in the emerging market countries
and underweighted in Japan relative to the index. Since inception, the Fund has
returned 4.6% versus 5.8%. We believe the Fund's lower return during this period
can be largely attributed to it being in a start-up phase.
OUTLOOK Throughout much of the past year, attention has been focused on the
domestic equity market where investors have enjoyed above average returns.
However, the recent decline in the domestic market may cause investors to renew
their interest in the international markets. Regardless of the short-term
behavior of the domestic equity markets, we believe that investors with a
long-term perspective should benefit from having an international component in
their portfolios.
The reasons for this are severalfold. First, prudent
1-800-869-5999[Artwork]
<PAGE> 43
LETTER TO SHAREHOLDERS (CONTINUED)
investors diversify. As the recent period indicates, markets rarely move in
tandem. Second, valuations in the international markets appear to be more
compelling than domestic valuations. This is particularly the case in the
emerging markets where the underlying economic growth is quite rapid. Third,
demographic trends suggest the increasing importance of foreign economies and
their equity markets.
We appreciate your investment in the Gradison International Fund. We will do our
best to serve your investing needs.
Sincerely,
/s/ Bradley E. Turner
Bradley E. Turner
*During the past year we began comparing the performance of the Fund against
the MSCI EAFE/EMS Index instead of the Hybrid and EAFE Indices. This index has
increasingly become the preferred benchmark for Funds that invest in both
developed and emerging markets. Moreover, we believe this will provide our
shareholders with a more relevant comparison in the years ahead. While we show
all three indices in the following chart to comply with regulatory
requirements, in the future we will show only the MSCI EAFE/EMS Index.
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT MAY 31, 1995 TO
MARCH 31, 1997
GRADISON INTERNATIONAL FUND EAFE Index Hybrid Index EAFE/EMS Index
--------------------------- ----------- ------------ --------------
<C> <C> <C> <C> <C>
5/31/95 $10,000 $10,000 $10,000 $10,000
6/30/95 10,026 9,827 9,888 9,850
9/30/95 9,986 10,244 10,163 10,201
12/31/95 10,148 10,667 10,415 10,540
3/31/96 10,569 10,984 10,830 10,855
6/30/96 10,890 11,166 11,091 11,116
9/30/96 10,636 11,160 10,968 11,039
12/31/96 10,743 11,346 11,090 11,162
3/31/97 10,870 11,177 11,086 11,158
TOTAL RETURN PERIODS ENDED MARCH 31, 1997
1 Year Inception 3/31/95
International Fund 2.78% 4.65%
<FN>
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
total return for the year ending March 31, 1997 would have been 1.79% and for
the period from its inception its average annualized total return would have
been 3.80%. 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
EAFE Index is the Morgan Stanley Capital International ("MSCI") EAFE Index
which is the Europe Australasia Far East Index. The EAFE/EMS Index is the MSCI
EAFE/EMS Index which is the Europe Australasia Far East plus Emerging Markets
Index. The hybrid index is composed of investing 70% in the developed markets
represented in the EAFE Index, and 30% in the EMS Index.
</TABLE>
2
<PAGE> 44
FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR FOR THE PERIOD
ENDED MAY 31, 1995*
MARCH 31, 1997 TO MARCH 31, 1996
<S> <C> <C>
Net asset value at beginning of period $15.822 $15.000
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (.023) .065
Net realized and unrealized gains on investments .457 .799
------- -------
Total income from investment operations .434 .864
------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income - (.042)
Distributions from realized capital gains (.030) -
------- -------
Total distributions to shareholders (.030) (.042)
------- -------
Net asset value at end of period $16.226 $15.822
======= =======
Total return 2.78% 5.76% (1)
======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in millions) $ 24.8 $ 15.3
RATIOS NET OF EXPENSES WAIVED AND REIMBURSED
BY THE ADVISER (2):
Ratio of expenses to average net assets 2.00% 1.75% (3)
Ratio of net investment income (loss) to average net assets (.13%) .70% (3)
RATIOS ASSUMING NO ADVISER WAIVER
OR REIMBURSEMENT OF EXPENSES (2):
Ratio of expenses to average net assets 2.78% 3.73% (3)
Ratio of net investment loss to average net assets (.91%) (1.28%)(3)
Portfolio turnover rate 92.36% 71.78%
Average commission paid per share traded $.001 -
- ----------------------------------------------------------------------------------------------------------------------
<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> 45
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SHARES PREFERRED STOCKS - 3.86% VALUE
- -------------------------------------------------------------------------------
BRAZIL - 3.14%
<S> <C> <C>
11,000 Aracruz Celulose $ 20,023
9,195,000 Banco Bradesco SA 75,101
114,000 Banco Itau SA 59,672
98,000 Brasmotor SA 28,560
100,000 Cia Cervejaria Brahma 65,076
1,210,000 Cia Energetica Minas Gerais 50,041
85,000 Cia Tecidos Norte De Minas 34,512
4,214 Cia Vale Do Rio Doce 95,782
360,000 Eletrobras Centrais Eletricas 154,486
302,000 Petrol Brasileiros 60,098
39,760,000 Usiminas Siderugicas Minas Gerais 44,999
---------
688,350
---------
GERMANY - 0.72%
700 Man AG Vorzugsaktien 157,756
---------
TOTAL PREFERRED STOCKS
(COST $688,931) 846,106
---------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SHARES COMMON STOCKS - 96.14% VALUE
- -------------------------------------------------------------------------------
ARGENTINA - 3.09%
<S> <C> <C>
7,500 Astra Cia Argentina de Petroleum 12,151
6,900 Banco de Galicia Bue 'B' 42,440
1,800 Banco Frances Rio Plata 17,912
2,700 Ciadea SA 12,827
250 IRSA (Inversiones y
Representaciones SA) 144A ADR 9,313
3,700 Molinos Rio Plata 'B' 13,618
10,150 Perez Companc SA ADR 157,343
18,650 Siderca SA 39,636
5,250 Telefonica de Argentina ADR 154,219
8,250 YPF SA ADR 218,625
---------
678,084
---------
BRAZIL - 2.04%
161,000 Cia Paulista de Forca e Luz 22,321
650,000 Cia Siderurgica Nacional 22,866
4,500 Souza Cruz SA 37,560
800,000 Telecomunicacoes Brasileiras SA 80,129
2,500 Telebras SA ADR 255,938
18,000,000 White Martins SA Co. 29,030
---------
447,844
---------
CHILE - 2.24%
3,000 Banco Santander Chile ADR 50,250
1,750 Chilgener SA ADR 45,062
1,200 Cia Cerveceria Unidas ADR 23,700
4,150 Cia Telecommunications Chile ADR 119,313
3,800 Empresa Nacional de
Electridad SA ADS 72,200
3,200 Enersis SA ADR 101,600
1,000 Madeco SA ADR 26,750
1,500 Maderas y Sinteticos ADR 22,812
500 Quimica y Minera SA ADR 28,813
---------
490,500
---------
COLUMBIA - 0.07%
5,520 Carulla 144A SA ADR 15,180
---------
FINLAND - 2.12%
950 Hartwall Oy 49,870
1,140 Kemira Oy 12,337
3,860 Metsa Serla Oy B Ord 28,057
1,240 Neste Oy 32,297
2,085 Nokia AB Oy 125,660
540 Stockmann AB Oy 30,201
1,980 Upm-Kymmene Oy 43,775
2,130 Valmet Oy 38,275
550 Viking Line AB 18,656
2,300 Werner Soderstrom 70,354
1,200 Yit Yhtyma 15,749
---------
465,231
---------
FRANCE - 3.97%
648 Alcatel Alst 78,057
916 AXA 60,589
314 Bic 47,698
1,550 Banque Nationale de Paris 68,874
108 Carrefour 66,985
568 Cie De St Gobain 85,980
400 Danone 63,392
952 Elf Aquitaine 97,593
600 Havas 44,559
850 Lafarge 58,866
1,680 Rhone Poulenc SA 56,801
752 Schneider SA 43,021
450 Societe Generale 52,607
660 Valeo 44,348
---------
869,370
---------
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to financial statements.
4
<PAGE> 46
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
- -------------------------------------------------------------------------------
GERMANY - 8.64%
<S> <C> <C>
90 Allianz AG Holdings $ 185,838
6,090 Bayer AG 253,325
2,400 Commerzbank AG 69,049
1,250 Daimler-Benz AG (1) 99,946
396 Degussa AG 168,996
6,000 Deutsche Telekom AG 137,737
3,100 Dresdner Bank AG 110,184
462 Mannesmann AG 176,671
3,220 Siemens AG 173,507
5,042 Veba AG 285,434
418 Volkswagen AG 230,998
---------
1,891,685
---------
HONG KONG - 2.27%
38,000 Amoy Properties 40,211
10,000 Cheung Kong Holdings 88,075
7,000 Citic Pacific 34,688
3,400 HSBC Holdings 78,977
10,000 Hutchison Whampoa Ltd. 75,171
12,000 New World Development Co. 64,731
7,000 Sun Hung Kai Properties Ltd. 74,074
11,000 Wharf Holdings 42,089
---------
498,016
---------
HUNGARY - 1.54%
1,000 Borsodchem Rt. 37,112
400 Egis Gyogyszergyar Rt. 24,806
650 Graboplast Textiles Rt. 29,210
5,800 Magyar Olaj Es Gazipari Rt. 101,022
2,900 OTP Bank Rt. 63,716
1,250 Richter Gedeon Rt. 80,755
---------
336,621
---------
INDONESIA - 0.45%
24,116 Bank Internasional Indonesia 18,309
2,143 Bank Internasional Indonesia
Warrants 758
8,000 H.M. Sampoerna 37,440
1,400 Telekomunikasi Indonesia ADR 42,175
---------
98,682
---------
IRELAND - 0.95%
8,000 Allied Irish Banks Ord 52,737
3,800 Bank of Ireland Ord 36,579
4,000 CRH Ord 38,377
4,800 Irish Life Ord 24,246
2,000 Kerry Group A Ord 19,453
15,000 Smurfit Jefferson Ord 37,647
---------
209,039
---------
ISRAEL - 3.49%
40,000 Bank Hapoalim Ltd. $ 78,851
21,600 Bezeq Israel Telecommunications 56,815
6,500 Blue Square Chain Stores (1) 62,496
207,000 Clal Israel 58,646
5,200 Eci Telecommunications ADR 96,200
1,740 Elite Industries 43,537
2,000 Formula Systems 26,787
63,000 ICI-Israel Chemical 67,450
37,000 Industrial Building 52,523
720 Koor Industries Ltd. 66,240
6,000 Osem Investments Ltd. 33,389
2,170 Teva Pharmaceutical Industries Ltd. 121,987
---------
764,921
---------
ITALY - 2.25%
3,500 Alleanza Assicuraz 23,481
17,325 Credito Italiano SpA 24,595
5,500 Danieli & Co. 39,238
13,500 Eni SpA 68,533
23,000 Fiat SpA 73,018
29,000 Istituto Nazionale delle Assicurazioni 38,911
8,600 Istituto Mobiliare Italiano 74,669
18,300 Pirelli SpA 39,791
15,390 Sasib Di Risp SpA 28,578
12,000 STET-Sicieta Finanziaria Telefonica 42,553
16,000 Telecom Italia SpA 39,965
---------
493,332
---------
JAPAN - 19.88%
11,000 Aoyama Trading Co. 257,624
1,300 Autobacs Seven Co. 77,691
30,000 Dainippon Screen Manufacturing Co. 221,686
16,000 Daiwa Securities Co. Ltd. 115,261
7,000 Fanuc 214,822
29,000 Fujisawa Pharmaceutical Co. 229,520
40,000 Hitachi Ltd. 355,344
8,000 Komori Corp. 159,582
65,000 Marubeni Corp. 251,971
19,000 Matsushita Electric Works 173,392
51,000 Mitsubishi Chemicals Corp. 154,453
65,000 Mitsui O.S.K. Lines Ltd. (1) 118,636
11,000 Murata Manufacturing Co. 394,432
51,000 Nippon Oil Co. 205,938
29 Nippon Telgraph & Telephone Co. 203,992
119,000 NKK Corp. 249,871
16,000 Sumitomo Bank 189,947
41,000 Sumitomo Metal Mining 247,344
21,000 Sumitomo Trust & Banking 167,900
3,300 Tokyo Electric 109,268
10,200 Tokyo Steel Manufacturing 100,498
33,000 Tokyu Corp. 155,108
---------
4,354,280
---------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 47
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
- -------------------------------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
- -------------------------------------------------------------------------------
MALAYSIA - 6.56%
<S> <C> <C>
1,000 Edaran Otomobil Nasional Berhard $ 10,083
27,499 Gamuda Berhad 104,260
18,000 IOI Properties Berhard 59,533
23,000 Jaya Tiasa Holdings Berhard 128,020
27,000 Land & General Berhard 50,095
11,000 Malayan Banking Berhard 125,338
40,000 Metacorp Berhad 115,355
19,000 Perusahaan Otomobil Berhard 120,316
40,000 Public Bank Berhad 78,732
16,000 Road Builder Berhard 92,930
42,000 Sungei Way Holdings Berhad 115,194
32,000 Tan Chong Motor Holdings Berhard 61,953
13,000 Tanjong Berhard 51,648
23,000 Telekom Malaysia Berhard 179,043
23,000 UMW Holdings Berhard 127,092
2,000 United Engineers Berhard 17,424
---------
1,437,016
---------
MEXICO - 1.93%
4,600 Alfa SA de CV Ser A 25,752
2,500 Apasco SA Co. 16,896
13,500 Cemex SA 49,363
19,528 Cifra SA de CV Ser B 27,278
12,500 Controlodora Comerical
Mexicana SA de CV 8,984
1,800 Desc SA de CV Ser B 12,029
87 Desc SA de CV Ser C (1) 576
720 Empresas ICA Sociedad Controladora 11,475
1,900 Empresas La Modern A 9,487
7,000 Fomento Economico
Mexico SA de CV 30,979
4,200 Grupo Carso SA de CV Ser A1 24,625
9,254 Grupo Financiero Banamex
Accival SA de CV 18,809
2,393 Grupo Industrial Bimbo SA (1) 14,769
3,300 Grupo Mexico SA 11,026
3,600 Grupo Modelo SA de CV 21,697
700 Grupo Televisa GDS 17,412
1,800 Industrias Penoles SA 8,829
7,000 Kimberly Clark de Mexico SA 28,199
1,870 Telefonos de Mexico ADR 71,995
700 Tubos de Acero de Mexico SA 12,030
---------
422,210
---------
NETHERLANDS - 4.59%
766 ABN-AMRO Holdings NV $ 52,679
753 Ahold (Koninklijke) NV 52,468
350 Akzo Nobel NV 50,268
450 DSM NV 45,437
6,420 Elsevier NV 104,389
1,200 Ing Groep NV 47,277
1,800 Koninklijke PTT Nederland Nv 66,693
1,300 Philips Electronic 60,642
1,570 Royal Dutch Petroleum 285,079
610 Unilever NV 119,154
1,500 Vendex International NV 71,011
2,480 VNU(Verenigde Nederlandse
Uitgevbedri Verigd Bezit) 51,034
---------
1,006,131
---------
PERU - 0.96%
2,000 Banco Wiese ADR 12,500
4,000 Cementos Lima 6,851
8,993 Cervecerias Peruanan
Backus & Johnston SA 8,482
47,600 Cia Peruana Telefonica B Shs 105,955
760 Credicorp Ltd. ADR 17,765
5,500 Ferreyros(Enrique) SA 4,711
16,000 Luz Del Sur SA 19,800
1,414 Minas Buenaventura A 12,435
353 Minas Buenaventura B 3,370
1,892 Minsur SA 7,388
2,700 Southern Peru Copper Corp. 11,215
---------
210,472
---------
PHILLIPPINES - 3.41%
103,450 Ayala Corp. 105,941
2,800 Equitable Banking Corp. 12,033
5,600 Metropolitan Bank & Trust Co. 145,496
184,300 Petron Corp. 75,146
2,600 Phillippine Long Distance
Telephone Co. ADR 155,675
43,530 San Miguel Corp. Class B 151,071
351,000 SM Prime Holdings 102,511
---------
747,873
---------
POLAND - 0.57%
2,054 Bank Rozwoju Eksportu SA 61,462
395 Bank Slaski SA 37,257
2,870 Elektrim Spolka Akcyjna SA 25,204
---------
123,923
---------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 48
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
- -------------------------------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
- -------------------------------------------------------------------------------
PORTUGAL - 2.86%
<S> <C> <C>
3,500 Banco Espirito Santo $ 67,566
2,460 Cimpor (Cimentos de Portugal) 51,462
4,900 Colep 68,629
1,095 Inparsa-indus E Participacoe 9,789
1,750 Investec Consultadoria
Internacional (1) 63,623
1,578 Jeronimo Martins & Filho 87,465
4,000 Mundial Confianca 48,634
4,430 Portugal Telecom SA 164,886
1,890 Sonae Investimentos Socieda de
Gestora de Participacoes Sociais SA 63,813
-----------
625,867
-----------
SOUTH KOREA - 1.11%
4,790 Cho Hung Bank 24,590
1,090 Daewoo Securities 10,571
3,250 Korea Electric Power 94,302
6,300 Korea Fund Inc.
(closed-end mutual fund) 90,562
330 Samsung Electronics 22,060
-----------
242,085
-----------
SPAIN - 2.05%
1,020 Banco Bilbao Vizcaya SA 61,725
850 Banco Santander SA 58,452
1,086 Empresa Nacional de Electricid SA 69,932
5,564 Iberdrola SA 61,219
1,475 Repsol SA 61,379
1,000 Tabacalera SA 50,076
3,590 Telefonica de Espana 86,468
-----------
449,251
-----------
SWITZERLAND - 6.90%
72 ABB Ag 86,463
53 Alusuisse Lonza Holdings AG 44,736
238 Ciba Specialty Chemical Nw (1) 19,660
125 Clariant AG 61,519
1,164 Credit Suisse Group 139,579
99 Holderbank Finance Glaris AG 75,867
30 Kuoni Reisen Holdings 84,547
138 Nestle SA 161,409
238 Novartis Ag 295,059
32 Roche Holdings AG 276,436
200 Schweiz Bankgesellschaft 179,645
650 Tag Heuer 85,840
-----------
1,510,760
-----------
TURKEY - 3.04%
721,000 Adana Cimento Sanayii $ 70,568
477,850 Akal Tekstil Sanayii 59,865
242,000 Akbank 36,002
418,000 Arcelik AS 55,640
169,000 Bagfas Bandirma Gubre AS 41,683
522,000 Demirbank 23,297
883,000 Eczacibasi Yapi Gere (1) 35,261
284,000 Erciyas Biracilik 26,129
366,000 Eregli Demir Celik 49,435
69,000 Goodyear Lastikleri Tas 42,681
3,745,000 Izmar Demir Celik Sanayi 65,978
23,800 Migros Turk TAS 24,692
193,000 Netas Telekomunik AS 55,158
373,000 T Sise Cam 53,301
120,000 Tansas 25,369
-----------
665,059
-----------
UNITED KINGDOM - 9.16%
12,440 Abbey National PLC 152,177
6,900 Boots Co. PLC 76,476
12,700 British Telecom PLC 93,006
4,500 Burmah Castrol PLC 75,368
30,500 Burton Group PLC 78,126
5,600 Commercial Union PLC 61,332
13,700 Glynwed International PLC 63,212
6,500 Granada Group PLC 98,085
14,200 IMI PLC 91,400
18,759 Lloyds TSB Group PLC 153,703
10,800 Marks & Spencer PLC 86,540
9,500 Prudential PLC 88,602
17,179 Scot Power 99,856
10,000 Scottish & Newcastle PLC 111,328
5,550 Shell Transport & Trading PLC 98,877
5,100 Smith Kline Beecham 75,703
4,350 Thorn EMI PLC 79,427
2,900 Unilever PLC 76,856
13,530 Wolseley PLC 109,304
8,190 Zeneca Group PLC 237,088
-----------
2,006,466
-----------
TOTAL COMMON STOCKS
(COST $20,366,527) $21,059,898
-----------
TOTAL INVESTMENTS, AT VALUE (NOTE 1)
(COST $21,055,458) - 100% $21,906,004
===========
- -------------------------------------------------------------------------------
<FN>
(1) Non-income producing.
The following abbreviations are used in this portfolio.
ADR - American Depository Receipts; ADS - American Depository Shares;
GDR - Global Depository Receipts; GDS - Global Depository Shares
144A - These 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 $24,493 as of March 31, 1997.
</TABLE>
See accompanying notes to financial statements.
7
.
<PAGE> 49
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
ASSETS
MARCH 31, 1997
<S> <C>
Investments in securities, at value (Note 1) (Cost $21,055,458) $21,906,004
Cash 3,211,493
Receivable for securities sold 490,550
Foreign currency, at value (Note 1) (Cost $147,470) 147,157
Dividends and interest receivable 57,795
Receivable for Fund shares sold 42,315
Prepaid expenses and other assets 19,332
-----------
TOTAL ASSETS 25,874,646
-----------
LIABILITIES
Payable for investments purchased 984,099
Other accrued expenses and liabilities 27,808
Accrued investment advisory fee (Note 2) 15,491
Payable for Fund shares redeemed 13,790
Payable for foreign currency purchased 11,714
Other accrued expenses payable to adviser (Note 2) 5,672
-----------
TOTAL LIABILITIES 1,058,574
-----------
NET ASSETS $24,816,072
===========
Net assets consist of:
Aggregate paid-in capital $23,754,644
Accumulated undistributed net realized gains from investments
and foreign currency transactions 212,492
Net unrealized appreciation of investments 850,546
Net unrealized depreciation on translation of assets and liabilities in foreign currency (1,610)
-----------
NET ASSETS $24,816,072
===========
Shares of capital stock outstanding
(no par value - unlimited number of shares authorized) 1,529,221
===========
Net asset value and redemption price per share (Note 1) $16.23
===========
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 50
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED
MARCH 31, 1997
---------------------------
INVESTMENT INCOME:
<S> <C>
Dividends, net of foreign withholding taxes of $44,035 $311,953
Interest 77,212
--------
Total investment income $389,165
EXPENSES:
Investment advisory fees (Note 2) 208,135
Custodian fees 104,955
Distribution (Note 2) 104,067
Accounting services fees (Note 2) 60,000
Professional fees 34,907
Transfer agency fees (Note 2) 31,507
Registration fees 14,877
Trustees' fees (Note 2) 7,329
Printing 7,137
Amortization of organization expenses (Note 1) 4,816
Other 1,777
--------
TOTAL EXPENSES 579,507
LESS FEES WAIVED BY THE ADVISER (NOTE 2) (163,238)
--------
NET EXPENSES 416,269
--------
NET INVESTMENT LOSS (27,104)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on investments 690,706
Net realized loss on foreign currency transactions (403,339)
Net change in unrealized appreciation of investments 289,521
Net change in unrealized depreciation of foreign currency transactions (31,683)
--------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS AND FOREIGN CURRENCY 545,205
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $518,101
========
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 51
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE PERIOD
ENDED MAY 31, 1995*
MARCH 31, 1997 TO MARCH 31, 1996
-------------- -----------------
FROM OPERATIONS:
<S> <C> <C>
Net investment income (loss) $ (27,104) $ 52,075
Net realized gain on investments 690,706 60,985
Net realized loss on foreign currency transactions (403,339) (88,754)
Net change in unrealized appreciation of investments 289,521 561,025
Net change in unrealized appreciation (depreciation) on translation
of assets and liabilities in foreign currencies (31,683) 30,073
----------- -----------
Net increase in net assets resulting from operations 518,101 615,404
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income - (30,287)
Net realized capital gains (41,790) -
----------- -----------
Decrease in net assets from distributions to shareholders (41,790) (30,287)
----------- -----------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 12,548,017 17,657,397
Net asset value of shares issued in reinvestment of distributions 38,087 30,169
Payments for Fund shares redeemed (3,551,439) (2,967,587)
----------- -----------
Net increase in net assets from Fund share transactions 9,034,665 14,719,979
----------- -----------
TOTAL INCREASE IN NET ASSETS 9,510,976 15,305,096
NET ASSETS:
Beginning of period 15,305,096 -
----------- -----------
End of period (including undistributed net investment income
of ($0 and $21,788, respectively) (Note 1) $24,816,072 $15,305,096
=========== ===========
NUMBER OF FUND SHARES:
Sold 780,856 1,162,052
Issued in reinvestment of distributions to shareholders 2,370 1,987
Redeemed (221,365) (196,679)
----------- -----------
Net increase in shares outstanding 561,861 967,360
Outstanding at beginning of period 967,360 -
----------- -----------
Outstanding at end of period 1,529,221 967,360
=========== ===========
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Date of public offering
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997
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 series, the Gradison International Fund, the Gradison
Established Value Fund, the Gradison Opportunity Value Fund and the Gradison
Growth &Income Fund (collectively, the "Funds"); each of which, in effect,
represents a separate diversified fund with its own investment policies. This
Annual Report to Shareholders pertains only to the Gradison 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
using procedures approved 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
year ended March 31, 1997, the Fund made distributions of $0.030 per share
which is treated as ordinary income.
11
<PAGE> 53
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997
Forward Foreign Currency Contracts -- During the year ended March 31, 1997, the
Fund entered into forward foreign currency contracts under which it was
obligated to exchange currencies at specified future dates. The Fund's currency
transactions were 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 no outstanding contracts at
March 31, 1997.
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.
The Fund had no futures contracts as of March 31, 1997.
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 applicable 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 approximately 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, 1997 was $2,361,290 and $1,510,744, 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.
12
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997
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 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 $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 July 31, 1997 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, 1997, McDonald waived advisory fees of $41,627, distribution expenses
of $104,067, and accounting services fees of $17,544.
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.
13
<PAGE> 55
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997
NOTE 3 -- SUMMARY OF PURCHASES AND SALES OF INVESTMENTS
================================================================================
For the year ended March 31, 1997, cost of purchases, and proceeds from the
sale of securities, excluding short-term securities, amounted to $24,804,753
and $17,075,057, respectively.
NOTE 4 -- PORTFOLIO COMPOSITION
===============================================================================
The Fund invests primarily 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, 1997 the Portfolio was diversified within the following
industries:
<TABLE>
<CAPTION>
MARKET
VALUE
<S> <C>
Automotive 4.44%
Banking 11.95
Beverages and Tobacco 2.72
Building Materials 2.42
Broadcasting and Publishing 2.20
Business Services 0.19
Chemicals 5.47
Construction and Housing 2.51
Diversified Companies 4.69
Electronics 7.83
Energy 6.73
Financial Services 2.40
Food and Household Products 2.68
Forest Products and Paper 1.59
Health and Personal Care 4.92
- ---------------------------------------------
<CAPTION>
MARKET
VALUE
<S> <C>
Household Appliances and Durables 0.57%
Insurance 2.43
Machinery and Engineering 2.12
Materials and Commodities 1.16
Merchandising 5.67
Metals and Mining 3.10
Real Estate 2.00
Steel 2.37
Telecommunications 10.59
Textiles and Apparel 0.41
Tourism 0.83
Transportation 1.33
Utilities 4.68
-------
100.00%
=======
</TABLE>
- ---------------------------------------------
14
<PAGE> 56
ARTHUR ANDERSEN
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of the
Gradison International Fund
of the Gradison Growth Trust:
We have audited the accompanying statement of assets and liabilities of the
Gradison International Fund of the Gradison Growth Trust (an Ohio business
trust), including the portfolio of investments, as of March 31, 1997, 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, 1997, by correspondence with the custodian and brokers or
alternate procedures. 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 International Fund of the Gradison Growth Trust as of March 31, 1997,
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, /s/ Arthur Andersen LLP
May 7, 1997
15
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000720492
<NAME> GRADISON GROWTH TRUST
<SERIES>
<NUMBER> 1
<NAME> ESTABLISHED VALUE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 306,367,390
<INVESTMENTS-AT-VALUE> 432,080,695
<RECEIVABLES> 744,775
<ASSETS-OTHER> 184,533
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 433,010,003
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,284,467
<TOTAL-LIABILITIES> 3,284,467
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 290,212,712
<SHARES-COMMON-STOCK> 14,906,900
<SHARES-COMMON-PRIOR> 13,291,936
<ACCUMULATED-NII-CURRENT> 753,874
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,045,645
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 125,713,305
<NET-ASSETS> 429,725,536
<DIVIDEND-INCOME> 4,641,083
<INTEREST-INCOME> 6,092,265
<OTHER-INCOME> 0
<EXPENSES-NET> 4,475,969
<NET-INVESTMENT-INCOME> 6,257,379
<REALIZED-GAINS-CURRENT> 37,844,738
<APPREC-INCREASE-CURRENT> 11,774,353
<NET-CHANGE-FROM-OPS> 55,876,470
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,248,864
<DISTRIBUTIONS-OF-GAINS> 32,341,951
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,266,990
<NUMBER-OF-SHARES-REDEEMED> 4,986,154
<SHARES-REINVESTED> 1,334,128
<NET-CHANGE-IN-ASSETS> 63,308,708
<ACCUMULATED-NII-PRIOR> 745,359
<ACCUMULATED-GAINS-PRIOR> 7,542,858
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,093,562
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,475,969
<AVERAGE-NET-ASSETS> 398,569,410
<PER-SHARE-NAV-BEGIN> 27.567
<PER-SHARE-NII> .445
<PER-SHARE-GAIN-APPREC> 3.615
<PER-SHARE-DIVIDEND> .450
<PER-SHARE-DISTRIBUTIONS> 2.350
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 28.827
<EXPENSE-RATIO> 1.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000720492
<NAME> GRADISON GROWTH TRUST
<SERIES>
<NUMBER> 2
<NAME> OPPORTUNITY VALUE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 83,882,935
<INVESTMENTS-AT-VALUE> 116,017,423
<RECEIVABLES> 106,163
<ASSETS-OTHER> 45,234
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 116,168,820
<PAYABLE-FOR-SECURITIES> 1,139,490
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 578,473
<TOTAL-LIABILITIES> 1,717,963
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