<PAGE> 1
BULK RATE
U.S. POSTAGE
PAID
THE NIELSEN CO.
ESTABLISHED
VALUE FUND
GROWTH &
INCOME FUND
OPPORTUNITY
VALUE FUND
INTERNATIONAL
FUND
ANNUAL REPORT
MARCH 31, 1998
[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
Growth Trust. It may be distributed to other persons only if it is preceded or
accompanied by a current prospectus of the Gradison Growth Trust. McDonald &
Company Securities, Inc.--Distributor
<PAGE> 2
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
May 6, 1998
Dear Shareholder:
The following letters are designed to provide general information about the
investment activities in the four stock mutual funds which constitute the
Gradison Growth Trust, during the year ended March 31, 1998. We have been
deliberately brief, but encourage investors with questions to call their
Investment Consultant or our Shareholder Service Representatives at (800)
869-5999.
All of us at Gradison Mutual Funds thank you for investing with us. We will
continue to do our best to serve your investing needs.
ESTABLISHED VALUE FUND
The Established Value Fund invests primarily in common stocks of companies that
are considered by Gradison to be undervalued. Stocks are selected based upon
certain objective criteria and are chosen from those in the Standard & Poor's
(S&P) 500 Composite Stock Index and from other companies with market
capitalizations in excess of $1 billion. The Fund's ticker symbol is GETGX.
The stock market has continued to benefit from a favorable interest rate and low
inflationary environment. Although it has been subjected to considerable
volatility during the past year, the S&P 500 Index forged ahead with a total
return of 48.09% for the 12 months ended March 31, 1998. The Fund provided a
total return of 29.67% over the same period. The returns for the third and
fourth fiscal quarters for the Fund were -2.71% and 8.42%, respectively, versus
2.87% and 13.95% for the S&P 500 Index. The performance shortfall of the Fund
can be attributed to its exposure to technology stocks during the third fiscal
quarter and its cash position in the fourth fiscal quarter. Although the Fund's
returns on its technology holdings have significantly outpaced those of the
market over the long term, their prices declined considerably along with the
entire sector during the final calendar quarter of 1997. The employment of cash
equivalents by the Fund typically serves to reduce the volatility during
difficult markets, but can dampen returns during a surging stock market. This is
what occurred in the fourth fiscal quarter as the broad market was in the midst
of a powerful rise. Cash levels were approximately 26% during the period.
Performance leadership came from the financial sector. The shares of long time
Fund holdings Travelers Group, Providian Financial, and Household International
each posted excellent returns. Additionally, Beneficial Corporation
significantly outperformed the market during the period and has since agreed to
be acquired by Household International.
The ten largest holdings for the Fund as of March 31, 1998 were:
COMPANY INDUSTRY
------- --------
Household International, Inc. Financial Services
Travelers, Inc. Financial Services
Dayton-Hudson Corporation Department Stores
Intel Corporation Microprocessors
Textron, Inc. Aerospace
Beneficial Corporation Financial Services
Sun Microsystems, Inc. Computers
Compaq Computer Corporation Computers
Lockheed Martin Corporation Aerospace Defense
Coastal Corporation Energy/Natural Gas
<PAGE> 3
LETTER TO SHAREHOLDERS Continued
- --------------------------------------------------------------------------------
The Fund continues to be built around holdings exhibiting consistent growth
trading at valuations discounted from market price-to-earnings and price-to-book
multiples.
As always, we remain committed to serving your investment needs.
Sincerely,
[SIGNATURE WILLIAM J. LEUGERS, JR.] [SIGNATURE DANIEL R. SHICK]
William J. Leugers, Jr. Daniel R. Shick
Executive Vice President Senior Vice President
and Portfolio Manager and Portfolio Manager
GROWTH & INCOME FUND
The Growth & Income Fund seeks long-term capital growth, current income, and
growth of income by investing in high quality common stocks of large U.S.
corporations that are determined to be relatively undervalued and which
generally have above average dividend returns. The Fund's ticker symbol is
GRINX.
The Fund's success is attributed to investing in quality common stocks at value
prices. Indeed, as shown in the table below, your Fund's asset characteristics
reflect the underlying attributes of high quality, well-known companies with
histories of growing profits and dividends. It is our view that companies with
these characteristics are usually good candidates for capital appreciation and
income growth.
The Fund's stock portfolio exhibited the following value and growth
characteristics at March 31, 1998:
GRADISON
GROWTH
& INCOME S&P 500
FUND INDEX
---- -----
Yield 1.9% 1.4%
Price/earnings ratio* 20.9x 23.2x
Return on equity 20.4% 21.7%
Annual five year earnings
growth rate 11.0% 12.5%
Annual five year dividend
growth rate 10.3% 4.2%
Beta .95 1.00
- --------------
* based on 1998 earnings estimates
Diversification has been important, too. The following table shows the five
largest sectors of investment for the Fund. The Fund is positioned defensively
with a strong sector exposure to consumer non-durables and services.
SECTOR WEIGHING
------ --------
Technology 16%
Consumer Non-Durables 15
Energy Services 9
Healthcare 9
Financial Services 8
2
<PAGE> 4
LETTER TO SHAREHOLDERS Continued
- --------------------------------------------------------------------------------
The investment performance of the Fund shown in this annual report is
attributable to its more conservative sector diversification and value
characteristics. The Fund's risk averse and safe posture, coupled with its
smaller position in technology and large exposure in defensive stocks, caused
its annual total return performance to be lower than that achieved by the S&P
500 Index, 38% versus 48%.
Dividends play an important role in this Fund. Every stock in the Fund has a
history of dividend increases. Long term dividend growth has been strong, as
shown above. We believe that an "above-average dividend yield" strategy is one
of the best approaches for selecting superior stocks and can contribute to
steady investment performance results over a long-term investment horizon.
The top ten holdings of the Fund at March 31, 1998, and their current dividend
yields are presented below.
All but two have dividend yields higher than the 1.4% current yield of the S&P
500 Index.
CURRENT
COMPANY YIELD
------- -----
Hewlett-Packard Company 0.9%
Pitney Bowes, Inc. 1.8
Ameritech Corporation 2.4
Mobil Corporation 3.0
Norwest Corporation 1.6
Exxon Corporation 2.4
Merck & Co., Inc. 1.4
American Home Products
Corporation 1.8
International Flavors &
Fragrances, Inc. 3.1
American General Corporation 2.3
In the fiscal year ending March 31, 1998, shareholders received the following
distributions.
INCOME CAPITAL GAINS
DISTRIBUTIONS DISTRIBUTIONS
------------- -------------
June 2, 1997 $0.06 $0.18
August 26, 1997 0.06
November 24, 1997 0.11 0.08
March 19, 1998 0.06
In total, $0.55 per share was distributed to shareholders over the past twelve
months compared to the $0.34 per share distributed for the same period last
year. The Fund distributes its income each quarter and distributes capital gains
twice a year. Beginning with the March distribution, all distributions will be
made during the last month of each calendar quarter. The next distribution will
be in June, 1998, subject to the Board of Trustees' approval.
The Fund continues to be tax efficient for shareholders subject to income
taxation. The annual portfolio turnover for the Fund for the year was 4%, well
under the mutual fund industry's average turnover which is close to 80%
annually. Reduced turnover in the Fund's holdings results in lower recognition
of capital gains. Therefore, less of the Fund's total return to shareholders is
currently taxable.
Sincerely,
[SIGNATURE, JULIAN C. BALL, CFA]
Julian C. Ball, CFA
Executive Vice President
and Portfolio Manager
3
<PAGE> 5
LETTER TO SHAREHOLDERS Continued
- --------------------------------------------------------------------------------
OPPORTUNITY VALUE FUND
The Opportunity Value Fund invests primarily in common stocks of smaller
companies that are exhibiting high earnings growth relative to their
price-earnings ratio. Stocks are chosen based upon certain objective criteria
and are selected from securities not included in the Standard & Poor's (S&P) 500
Composite Stock Index whose market capitalizations are typically less than $1
billion at the time of purchase. The Fund's ticker symbol is GOGFX.
The small cap sector of the market provided outstanding returns over the past 12
months as the Russell 2000 Small Stock Index had a total return of 42.24%
through March 31, 1998. The total return for the Fund was 42.02% during the same
period. The Fund employs the use of cash equivalents in order to reduce net
asset value volatility. We believe such a strategy is a prudent practice under
current market conditions. Despite having in excess of 25% in cash equivalents
during the year ended March 31, 1998, the Fund garnered nearly the entire
(99.5%) return of the Russell 2000 Index over the period.
The Fund continues to benefit from corporate actions among its holdings. There
have been several companies within the portfolio that have been the target of
acquisitions in recent months. The merger activity has occurred across several
industries. These would include the financial sector where insurers Equitable of
Iowa and American Bankers Insurance Group were both acquired. Companies within
the technology group were also merged, such as DHTK Technology, Chips &
Technologies, Computer Data Systems, Devon Group and Graphic Industries. Other
acquisitions included casino operator Harvey's Casino Resorts and specialized
industrial parts maker Talley Industries. The final closing of certain
acquisitions is pending. It is important to note that 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 a takeover.
The ten largest holdings for the Fund as of March 31, 1998 were:
COMPANY INDUSTRY
------- --------
American Bankers
Insurance Group Insurance
Raymond James
Financial, Inc. Brokerage Firm
Universal Health Services Acute Care Hospitals
Fremont General Corporation Insurance
Keane, Inc. Computer Software
Mueller Industries, Inc. Metal Fabrication
Norstan, Inc. Telecommunications
ABM Industries, Inc. Business Services
TR Financial Corporation Banking
Wynn's International, Inc. Automotive Parts
As always, we remain committed to serving your investment needs.
Sincerely,
[SIGNATURE, WILLIAM J. LEUGERS, JR.] [SIGNATURE, DANIEL R. SHICK]
William J. Leugers, Jr. Daniel R. Shick
Executive Vice President Senior Vice President
and Portfolio Manager and Portfolio Manager
4
<PAGE> 6
LETTER TO SHAREHOLDERS Continued
- --------------------------------------------------------------------------------
INTERNATIONAL FUND
The Gradison International Fund provides investors the opportunity to gain
exposure to international markets in their portfolios. We have chosen Blairlogie
Capital Management of Edinburgh to be our investment subadviser for this fund.
Blairlogie specializes in managing international portfolios and offers a
strategy which includes investments in both developed and emerging markets. The
Fund's ticker symbol is INTFX.
The Fund seeks growth of capital by investing in common stocks of companies
based outside the United States. The Fund generally invests a maximum of 30% of
assets in companies based in emerging countries. As of March 31, 1998, the top
five countries represented 47% of the Fund's total investments:
PERCENT OF
COUNTRY INVESTMENTS
------- -----------
France 11.6%
Italy 10.5
Japan 8.8
Germany 8.2
United Kingdom 7.9
The remainder of the portfolio was diversified over an additional 6 developed
and 8 emerging markets. The entire portfolio is shown in the enclosed financial
statements.
We are encouraged by the Fund's recent performance results. For the quarter
ended March 31, 1998, the Fund showed a total return of 14.7% versus the MSCI
EAFE and EM Index of 13.6%. For the past year, the returns are even more
encouraging at 19.1% versus 15.1%. The results of the past quarter and year were
influenced largely by the Fund's significant emphasis on Continental Europe and
deemphasis of Asian markets.
Looking ahead, the international markets have demonstrated considerably more
stability since the beginning of the year than they did at the end of 1997. The
European markets are benefiting from a combination of a trend towards corporate
restructuring reminiscent of the United States and the macroeconomic convergence
around the European currency. While the emerging markets have bounced a bit from
an oversold position, they will continue to feel the impact of the weakness in
the Asian economies and generally declining investor sentiment surrounding these
markets. As we have indicated on several occasions, the best outcome for
international investing would be for the U.S. market to go sideways for a
period, allowing other markets to shine.
Sincerely,
[SIGNATURE, BRADLEY E. TURNER]
Bradley E. Turner
President
5
<PAGE> 7
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each period
<TABLE>
<CAPTION>
ESTABLISHED VALUE FUND YEAR ENDED 11 MONTHS YEAR
----------------------------- ENDED ENDED
3/31/98 3/31/97 3/31/96 3/31/95 4/30/94
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $28.827 $27.567 $23.381 $22.515 $21.375
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .465 .445 .436 .376 .256
Net realized and unrealized gain on investments 7.699 3.615 5.190 1.520 2.104
------- ------- ------- ------- -------
TOTAL INCOME FROM INVESTMENT OPERATIONS 8.164 4.060 5.626 1.896 2.360
------- ------- ------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (.480) (.450) (.430) (.370) (.220)
Distributions from realized capital gains (2.570) (2.350) (1.010) (.660) (1.000)
------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (3.050) (2.800) (1.440) (1.030) (1.220)
------- ------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD $33.941 $28.827 $27.567 $23.381 $22.515
======= ======= ======= ======= =======
TOTAL RETURN 29.67% 15.14% 24.84% 8.85%(1) 11.30%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in millions) $567.3 $429.7 $366.4 $277.4 $253.3
Ratio of gross expenses to average
net assets(2) 1.10% 1.12% 1.16% -- --
Ratio of net expenses to average net assets 1.10% 1.12% 1.15% 1.20%(3) 1.22%
Ratio of net investment income to average
net assets 1.44% 1.57% 1.70% 1.87%(3) 1.15%
Portfolio turnover rate 20% 31% 18% 24% 38%
Average commission paid per share traded $.0679 $.0600 -- -- --
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH & INCOME FUND YEAR ENDED PERIOD
----------------------------- 2/28/95*
3/31/98 3/31/97 3/31/96 TO 3/31/95
------- ------- ------- ----------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $21.477 $18.459 $15.189 $15.000
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .236 .246 .173 .030
Net realized and unrealized gain on investments 7.825 3.112 3.317 .159
------- ------- ------- -------
TOTAL INCOME FROM INVESTMENT OPERATIONS 8.061 3.358 3.490 .189
------- ------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (.290) (.210) (.185) --
Distributions from realized capital gains (.260) (.130) (.035) --
------- ------- ------- -------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (.550) (.340) (.220) --
------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD $28.988 $21.477 $18.459 $15.189
======= ======= ======= =======
TOTAL RETURN 38.00% 18.33% 23.09% 1.27%(1)
======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in millions) $60.1 $25.7 $12.0 $1.2
Ratio of gross expenses to average
net assets(2)(4) 1.52% 1.84% 3.09% 13.88%
Ratio of net expenses to average net assets 1.49% 1.50% 1.50% 0.00%(3)
Ratio of net investment income to average
net assets(4) 1.02% 1.34% 1.39% 4.09%(3)
Portfolio turnover rate 4% 16% 3% 4%
Average commission paid per share traded $.0595 $.0466 -- --
</TABLE>
- --------------------------------------------------------------------------------
(1) Total return represents the actual return over the period and has not
been annualized.
(2) Effective March 31, 1996, this ratio reflects gross expenses before
reduction for earnings credits; such reductions are included in the ratio
of net expenses.
(3) Annualized.
(4) During each of the periods ending March 31, 1997, 1996, and 1995, the
adviser absorbed expenses of the Growth & Income Fund through waiver of
certain expenses. Assuming no waiver of expenses, the ratio of net
investment income to average net assets would have been 1.09%, .01% and
-9.79% (annualized), respectively. (Note 2)
* Date of public offering
See accompanying notes to financial statements.
6
<PAGE> 8
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
For a share outstanding throughout each period
<TABLE>
<CAPTION>
OPPORTUNITY VALUE FUND YEAR ENDED 11 MONTHS YEAR
------------------------------ ENDED ENDED
3/31/98 3/31/97 3/31/96 3/31/95 4/30/94
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $22.771 $22.264 $18.100 $18.348 $17.547
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .227 .203 .193 .136 .086
Net realized and unrealized gain on investments 8.725 2.509 4.731 .176 1.585
------- ------- ------- ------- -------
TOTAL INCOME FROM INVESTMENT OPERATIONS 8.952 2.712 4.924 .312 1.671
------- ------- ------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (.270) (.165) (.185) (.120) (.070)
Distributions from realized capital gains (3.560) (2.040) (.575) (.440) (.800)
------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (3.830) (2.205) (.760) (.560) (.870)
------- ------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD $27.893 $22.771 $22.264 $18.100 $18.348
======= ======= ======= ======= =======
TOTAL RETURN 42.02% 12.46% 28.00% 1.75%(1) 9.75%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in millions) $175.7 $114.5 $103.0 $84.7 $83.3
Ratio of gross expenses to average
net assets(2) 1.31% 1.36% 1.41% -- --
Ratio of net expenses to average net assets 1.31% 1.36% 1.41% 1.37%(3) 1.38%
Ratio of net investment income to average
net assets .86% .90% .95% .84%(3) .47%
Portfolio turnover rate 42% 35% 24% 32% 40%
Average commission paid per share traded $.0572 $.0600 -- -- --
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL FUND YEAR ENDED PERIOD
------------------ 5/31/95*
3/31/98 3/31/97 TO 3/31/96
------- ------- ----------
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $16.226 $15.822 $15.000
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .011 (.023) .065
Net realized and unrealized gain on investments 3.069 .457 .799
------- ------- -------
TOTAL INCOME FROM INVESTMENT OPERATIONS 3.080 .434 .864
------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income -- -- (.042)
Distributions from realized capital gains (.172) (.030) --
------- ------- -------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (.172) (.030) (.042)
------- ------- -------
NET ASSET VALUE AT END OF PERIOD $19.134 $16.226 $15.822
======= ======= =======
TOTAL RETURN 19.11% 2.78% 5.76%(1)
======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in millions) $33.3 $24.8 $15.3
Ratio of net expenses to average net
assets(4) 2.00% 2.00% 1.75%(3)
Ratio of net investment income (loss) to average
net assets(4) .04% (.13)% .70%(3)
Portfolio turnover rate 83% 92% 72%
Average commission paid per share traded $.0036 $.0010 --
</TABLE>
- --------------------------------------------------------------------------------
(1) Total return represents the actual return over the period and has not
been annualized.
(2) Effective March 31, 1996, this ratio reflects gross expenses before
reduction for earnings credits; such reductions are included in the ratio
of net expenses.
(3) Annualized.
(4) During each of the periods ending March 31, 1998, 1997 and 1996, the
adviser absorbed expenses of the International Fund through waiver of
certain expenses. Assuming no waiver of expenses, the ratio of expenses
to average net assets would have been 2.40%, 2.78% and 3.73% (annualized)
and the ratio of net investment income to average net assets would have
been -.35%, -.91% and -1.28% (annualized), respectively. (Note 2)
* Date of public offering
See accompanying notes to financial statements.
7
<PAGE> 9
ESTABLISHED VALUE FUND
- --------------------------------------------------------------------------------
March 31, 1998
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
May 1, 1988 to March 31, 1998
5/1/88 3/31/98
------ -------
GRADISON ESTABLISHED VALUE FUND $10,000 $37,296
S & P 500 $10,000 $57,221
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED MARCH 31, 1998
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
Established Value Fund 14.21% 17.35% 23.07% 29.67%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Performance figures
are historical. 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. Total returns shown include changes in share value and
reinvestment of distributions.
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
SHARES COMMON STOCKS - 73.88% VALUE
------ ------------------------- -----
AEROSPACE/DEFENSE COMPANIES - 6.44%
84,616 Lockheed Martin Corporation $ 9,519,300
80,000 Northrop Grumman Corporation 8,595,000
126,400 Raytheon Company Cl. B 7,378,600
140,000 Textron, Inc. 10,780,000
-----------
36,272,900
-----------
CHEMICALS - 2.03%
255,000 Engelhard Corporation 4,845,000
134,000 Hercules, Inc. 6,616,250
-----------
11,461,250
-----------
COMPUTING PRODUCTS - 9.69%
400,000 Compaq Computer Corporation 10,350,000
300,000 Data General Corporation(1) 5,306,250
180,000 Harris Corporation 9,382,500
160,000 Intel Corporation 12,480,000
250,000 Sun Microsystems, Inc.(1) 10,421,875
150,000 Tektronix, Inc. 6,693,750
-----------
54,634,375
-----------
CONSUMER NON-DURABLES - 1.96%
190,000 Coors (Adolph) Company Cl. B 6,602,500
142,000 RJR Nabisco Holdings Corporation 4,446,375
-----------
11,048,875
-----------
CONSUMER DURABLES - 6.69%
150,000 Agco Corporation 4,453,125
133,000 Black & Decker Corporation 7,057,312
190,000 Brunswick Corporation 6,626,250
97,000 Goodyear Tire & Rubber
(The) Company 7,347,750
100,000 Pulte Corporation 4,650,000
166,500 Snap-on, Inc. 7,596,563
-----------
37,731,000
-----------
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
8
<PAGE> 10
ESTABLISHED VALUE FUND
- --------------------------------------------------------------------------------
March 31, 1998
PORTFOLIO OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
------ ------------------------- -----
ENERGY - 6.21%
109,000 Ashland, Inc. $ 6,172,125
145,000 Coastal Corporation 9,443,125
100,000 Nicor, Inc. 4,225,000
250,000 Pride International, Inc.(1) 5,968,750
50,000 Royal Dutch Petroleum Company 2,840,625
82,000 Western Atlas, Inc.(1) 6,344,750
-----------
34,994,375
-----------
FINANCIAL SERVICES - 9.07%
85,000 Beneficial Corporation 10,566,562
100,000 Household International, Inc. 13,775,000
150,000 Provident Companies 5,146,875
70,000 Transamerica Corporation 8,155,000
225,000 Travelers, Inc. 13,500,000
-----------
51,143,437
-----------
INDUSTRIAL PRODUCTS - 9.82%
118,000 Cooper Industries, Inc. 7,013,625
180,000 Goodrich (B.F.) Company 9,191,250
165,000 Ingersoll-Rand Company 7,909,688
148,000 Johnson Controls, Inc. 8,981,750
175,950 Parker Hannifin Corporation 9,017,438
185,000 Premark International 6,128,125
210,000 Timken Company 7,100,625
-----------
55,342,501
-----------
INSURANCE - 7.11%
142,500 Berkley (W.R.) Corporation 6,750,937
42,000 Hartford Financial Services Group 4,557,000
82,000 MBIA, Inc. 6,355,000
110,000 Providian Corporation 6,318,125
143,000 SAFECO Corporation 7,811,375
93,000 St. Paul Companies, Inc. 8,288,625
-----------
40,081,062
-----------
RETAIL TRADE - 8.90%
320,000 American Stores Company 8,320,000
150,000 Dayton-Hudson Corporation 13,200,000
135,000 Dillard's, Inc. 4,986,562
110,000 Federated Department Stores,
Inc.(1) 5,699,375
400,000 K Mart Corporation(1) 6,675,000
99,000 Mercantile Stores, Inc. 6,651,563
100,000 Supervalu, Inc. 4,662,500
-----------
50,195,000
-----------
SERVICES - 2.75%
150,000 Fingerhut Companies, Inc. 3,890,625
156,000 Pittston Brink's Group 5,947,500
254,000 Wendy's International, Inc. 5,667,375
-----------
15,505,500
-----------
TELECOMMUNICATIONS - 1.05%
300,000 Andrew Corporation(1) 5,925,000
-----------
TRANSPORTATION - 2.16%
213,000 America West Holdings Co.(1) 5,458,125
180,000 Norfolk Southern Corporation 6,727,500
-----------
12,185,625
-----------
TOTAL COMMON STOCKS
(COST $211,226,984) 416,520,900
-----------
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
9
<PAGE> 11
ESTABLISHED VALUE FUND
- --------------------------------------------------------------------------------
March 31, 1998
PORTFOLIO OF INVESTMENTS Continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST
AMOUNT COMMERCIAL PAPER - 15.90% MATURITY RATE(2) VALUE
------ ------------------------- -------- -------- -----
<S> <C> <C> <C> <C>
$10,000,000 Ameritech Corporation 4/08/98 5.44% $ 9,989,422
10,000,000 Eastman Kodak Co. 4/09/98 5.51 9,987,756
10,000,000 Tribune Co. 4/17/98 5.48 9,975,644
10,000,000 Goldman Sachs Group (The), L.P. 4/21/98 5.50 9,969,444
10,000,000 American Express Company 4/29/98 5.48 9,957,378
10,000,000 International Business Machines Credit Corporation 5/05/98 5.48 9,948,245
10,000,000 Avco Financial Services, Inc. 5/11/98 5.50 9,938,889
10,000,000 Chevron Corporation 5/13/98 5.47 9,936,183
10,000,000 Equitable Resources, Inc. 5/20/98 5.51 9,925,071
-----------
TOTAL COMMERCIAL PAPER (COST $89,628,032) 89,628,032
-----------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 10.22%
-----------------------------
<S> <C> <C> <C> <C>
57,610,000 First National Bank of Chicago, dated 3/31/98, collateral:
U.S. Treasury Note 6.25%; due 5/31/00, market value $35,555,031
and U.S. Treasury 6.125%; due 12/31/01, market value $26,340,086
(repurchase proceeds $57,619,362) (COST $57,610,000) 4/01/98 5.85 57,610,000
------------
TOTAL INVESTMENTS, AT VALUE (NOTE 1) (COST $358,465,016) - 100% $563,758,932
============
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Non-income producing
(2) For commercial paper, the interest rate is the discount rate at the time
of purchase by the Fund. For the repurchase agreement, the rate shown
reflects the actual rate of return to the Fund.
See accompanying notes to financial statements.
10
<PAGE> 12
GROWTH & INCOME FUND
- --------------------------------------------------------------------------------
March 31, 1998
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
February 28, 1995 to March 31, 1998
2/28/95 3/31/98
------- -------
GRADISON GROWTH & INCOME FUND $10,000 $20,355
S & P 500 $10,000 $24,118
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED MARCH 31, 1998
INCEPTION 3 YEARS 1 YEAR
--------- ------- ------
Growth & Income Fund 25.88% 26.20% 38.00%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Performance figures
are historical. 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. Total returns shown include changes in
share value and reinvestment of distributions.
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
SHARES COMMON STOCKS - 97.47% VALUE
------ ---------------------- -----
BANK SERVICES - 7.70%
25,000 Huntington Bancshares, Inc. $ 909,375
12,000 Morgan (J.P.) & Company, Inc. 1,611,750
50,000 Norwest Corporation 2,078,125
----------
4,599,250
----------
CHEMICALS - 4.91%
20,000 Avery-Dennison Corporation 1,067,500
20,000 Du Pont (E.I.) de Nemours
& Company 1,360,000
20,000 Schulman, (A.), Inc. 502,500
----------
2,930,000
----------
CONSUMER DURABLES - 3.24%
35,000 Cooper Tire & Rubber Company 831,250
20,000 TRW, Inc. 1,102,500
----------
1,933,750
----------
CONSUMER NON-DURABLES - 14.66%
30,000 Archer Daniels Midland Corporation 658,125
10,000 Bestfoods 1,168,750
15,000 Heinz (H.J.) Company 875,625
40,000 International Flavors &
Fragrances, Inc. 1,885,000
20,000 Kellogg Company 862,500
20,000 Lancaster Colony Corporation 846,250
20,000 Newell Company 968,750
15,000 Pepsico, Inc. 640,312
10,000 Procter & Gamble Company 843,750
----------
8,749,062
----------
ENERGY - 9.27%
15,000 Chevron Corporation 1,204,687
30,000 Exxon Corporation 2,028,750
30,000 Mobil Corporation 2,298,750
----------
5,532,187
----------
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
11
<PAGE> 13
GROWTH & INCOME FUND
- --------------------------------------------------------------------------------
March 31, 1998
PORTFOLIO OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
------ ------------------------- -----
FINANCIAL SERVICES - 8.32%
25,000 American General Corporation $1,617,187
10,000 Cincinnati Financial Corporation 1,240,000
10,000 Excel Limited 775,000
15,000 St. Paul Companies 1,336,875
----------
4,969,062
----------
HEALTHCARE & PHARMACEUTICALS - 8.52%
20,000 American Home Products Corporation 1,907,500
12,000 Bristol-Myers Squibb Company 1,251,750
15,000 Merck & Co., Inc. 1,925,625
----------
5,084,875
----------
INDUSTRIAL PRODUCTS - 8.01%
10,000 AMP Inc. 438,125
15,000 General Electric Company 1,292,812
20,000 Hubbell, Inc. 1,007,500
30,000 Pall Corporation 645,000
25,000 Waste Management, Inc. 770,313
35,000 Worthington Industries, Inc. 627,813
----------
4,781,563
----------
RETAIL TRADE & SERVICES - 6.12%
10,000 J.C. Penney Company, Inc. 756,875
10,000 May Department Stores Co. 635,000
7,000 McDonald's Corporation 420,000
60,000 Reynolds & Reynolds Company Cl. A 1,312,500
15,000 Walgreen Co. 527,813
----------
3,652,188
----------
TECHNOLOGY - 16.44%
10,000 Automatic Data Processing, Inc. 680,625
25,000 Diebold, Inc. 1,100,000
40,000 Hewlett Packard Company 2,535,000
15,000 Intel Corporation 1,170,000
10,000 Minnesota Mining & Manufacturing
Company 911,875
15,000 Motorola, Inc. 909,375
50,000 Pitney-Bowes, Inc. 2,509,375
----------
9,816,250
----------
TELECOMMUNICATIONS - 7.68%
50,000 Ameritech Corporation 2,471,875
10,000 Bell Atlantic Corporation 1,025,000
25,000 SBC Communications, Inc. 1,090,625
----------
4,587,500
----------
TRANSPORTATION - 0.44%
10,000 Comair Holdings 265,000
----------
UTILITIES - 2.16%
10,000 Duke Energy Company 595,625
25,000 Southern Corporation 692,188
----------
1,287,813
----------
TOTAL COMMON STOCKS
(COST $42,477,806) 58,188,500
----------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
PRINCIPAL INTEREST
AMOUNT REPURCHASE AGREEMENT - 2.53% MATURITY RATE(1) VALUE
------ ---------------------------- -------- -------- -----
$1,510,000 First National Bank of Chicago, dated 3/31/98, collateral:
U.S. Treasury Note 6.75%; due 6/30/99, market value $1,545,798
(repurchase proceeds $1,510,245) (COST $1,510,000) 4/01/98 5.85% 1,510,000
-----------
TOTAL INVESTMENTS, AT VALUE (NOTE 1) (COST $43,987,806) - 100.00% $59,698,500
===========
</TABLE>
- --------------------------------------------------------------------------------
(1) For the repurchase agreement, the interest rate shown reflects the actual
rate of return to the Fund.
See accompanying notes to financial statements.
12
<PAGE> 14
OPPORTUNITY VALUE FUND
- --------------------------------------------------------------------------------
March 31, 1998
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
May 1, 1988 to March 31, 1998
5/1/88 3/31/98
------ -------
GRADISON OPPORTUNITY VALUE FUND $10,000 $39,369
S & P 500 $10,000 $57,221
RUSSELL 2000 $10,000 $34,111
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED MARCH 31, 1998
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
Opportunity Value Fund 14.88% 17.44% 26.92% 42.02%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Performance figures
are historical. 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.
Total returns shown include changes in share value and reinvestment of
distributions.
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
SHARES COMMON STOCKS - 72.85% VALUE
------ ---------------------- -----
AUTOMOTIVES - 4.60%
25,000 Borg-Warner Auto, Inc. $1,603,125
30,000 Gleason Corporation 1,051,875
70,000 Intermet Corporation 1,557,500
30,000 Motocar Parts & Acc.(1) 534,375
30,000 Superior Industries International 995,625
100,000 Wynn's International, Inc. 2,275,000
-----------
8,017,500
-----------
BANKS - 10.12%
4,000 First Empire State Corporation 1,999,500
30,000 Firstar Corporation 1,185,000
39,000 Granite State Bankshares 1,057,875
47,740 HUBCO, Inc. 1,826,055
46,125 Mercantile Bankshares Corporation 1,669,148
12,000 National City Bankcorp(1) 406,500
40,000 Old Kent Financial Corporation 1,535,000
50,000 TCF Financial Corporation 1,696,875
66,000 TR Financial Corporation 2,293,500
20,000 Union Planters Corporation 1,243,750
39,000 Westcorp, Inc. 653,250
40,000 Zions Bancorporation 2,090,000
-----------
17,656,453
-----------
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
13
<PAGE> 15
OPPORTUNITY VALUE FUND
- --------------------------------------------------------------------------------
March 31, 1998
PORTFOLIO OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
------ ------------------------- -----
BUILDING MATERIALS - 4.48%
39,000 Butler Manufacturing Company $ 1,404,000
32,000 Cascade Corporation 518,000
25,000 Fibermark, Inc.(1) 582,812
45,000 Hughes Supply Company 1,628,438
84,150 Republic Group, Inc. 1,714,556
34,000 Texas Industries, Inc. 1,965,625
-----------
7,813,431
-----------
BUSINESS SERVICES - 4.22%
75,000 ABM Industries, Inc. 2,329,687
38,000 Inacom Corporation(1) 1,049,750
70,000 Merrill Corporation 1,531,250
100,000 Norstan, Inc.(1) 2,450,000
-----------
7,360,687
-----------
CHEMICALS - 1.94%
30,000 Cambrex Corporation 1,511,250
45,000 Ferro Corporation 1,321,875
44,000 Stephan Company 555,500
-----------
3,388,625
-----------
COMPUTER PRODUCTS - 3.43%
35,000 Adaptec, Inc.(1) 686,875
40,000 DRS Technologies, Inc.(1) 555,000
70,000 Innovex, Inc. 1,693,125
45,000 Keane, Inc.(1) 2,542,500
30,000 Printronix, Inc.(1) 498,750
-----------
5,976,250
-----------
COMPUTER SERVICES - 1.77%
60,000 Affiliated Computer
Services, Inc.(1) 1,991,250
19,000 Devon Group, Inc.(1) 1,099,625
-----------
3,090,875
-----------
CONSUMER DURABLES - 1.47%
46,000 Cannondale Corporation(1) 759,000
42,000 Culp, Inc. 861,000
23,000 Thor Industries, Inc. 941,563
-----------
2,561,563
-----------
ELECTRONICS - 3.77%
52,000 Coherent, Inc.(1) 1,248,000
40,500 CTS Corporation 1,374,469
54,000 EDO Corporation(1) 486,000
25,000 Electro Scientific Industries,
Inc.(1) 962,500
25,000 Esterline Technologies
Corporation(1) 1,054,687
34,000 Park Electrochemical Corporation 877,625
20,000 Zero Corporation 565,000
-----------
6,568,281
-----------
ENERGY SERVICES - 1.70%
20,000 Lone Star Technology, Inc.(1) 475,000
20,000 SEACOR SMIT, Inc.(1) 1,163,750
60,000 World Fuel Services Corporation 1,320,000
-----------
2,958,750
-----------
FINANCIAL SERVICES - 2.88%
18,000 AmeriCredit Corporation(1) 495,000
20,000 D & N Financial Corporation(1) 555,000
69,000 Raymond James Financial, Inc. 3,005,813
35,000 Vermont Financial Services
Corporation 966,875
-----------
5,022,688
-----------
HEALTH CARE - 4.42%
42,000 Genesis Health Ventures, Inc.(1) 1,181,250
40,000 HealthSouth Corporation(1) 1,122,500
35,000 Integrated Health Services, Inc. 1,375,937
68,000 Mariner Health Group, Inc.(1) 1,147,500
50,000 Universal Health Services, Inc.(1) 2,887,500
-----------
7,714,687
-----------
HOTELS/CASINOS - 0.39%
24,000 Harveys Casinos Resorts 681,000
-----------
HOUSING - 4.68%
50,000 D.R. Horton, Inc. 1,062,500
43,000 Lennar Corporation 1,480,812
43,000 LNR Property Corporation 1,150,250
49,000 MDC Holdings, Inc. 869,750
60,000 Oakwood Homes Corporation 2,197,500
50,000 Toll Brothers, Inc.(1) 1,406,250
-----------
8,167,062
-----------
INDUSTRIAL PRODUCTS - 4.96%
21,000 Carpenter Technology 1,134,000
25,000 Chase Industries, Inc.(1) 773,437
30,000 DT Industries, Inc. 1,140,000
35,000 Farr Company(1) 665,000
44,000 Gehl Company(1) 935,000
31,800 Met-Pro Corporation 494,888
55,000 MTS Systems Corporation 876,562
10,000 Robbins & Meyers, Inc. 381,250
22,000 Thomas Industries, Inc. 489,500
32,000 Transtechnology Corporation 964,000
25,000 United Dominion Industries, Inc. 810,938
-----------
8,664,575
-----------
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
14
<PAGE> 16
OPPORTUNITY VALUE FUND
- --------------------------------------------------------------------------------
March 31, 1998
PORTFOLIO OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
------ ------------------------- -----
INSURANCE COMPANIES - 7.22%
60,000 American Bankers Insurance
Group, Inc. $ 3,870,000
45,000 Fremont General Corporation 2,646,562
52,000 HCC Insurance Holdings, Inc. 1,196,000
40,000 Orion Capital Corporation 2,187,500
29,000 Protective Life Corporation 2,117,000
22,000 Selective Insurance Group, Inc. 585,750
-----------
12,602,812
-----------
MEDICAL EQUIPMENT - 1.16%
35,000 EMPI, Inc.(1) 564,375
31,000 Thermedics, Inc.(1) 552,188
30,000 West Company, Inc. 903,750
-----------
2,020,313
-----------
NATURAL RESOURCES - 4.20%
29,000 Atchison Casting Corporation 453,125
24,000 Florida Rock Industries 685,500
40,000 Mueller Industries, Inc.(1) 2,532,500
37,000 Quanex Corporation 1,112,313
5,000 Scope Industries 315,313
32,000 Southdown, Inc. 2,230,000
-----------
7,328,751
-----------
RETAIL TRADE & SERVICES - 1.93%
43,000 BJ's Wholesale Club, Inc.(1) 1,677,000
40,000 O'Charleys, Inc.(1) 847,500
45,000 Play By Play Toys &
Novelties, Inc.(1) 838,125
-----------
3,362,625
-----------
SEMICONDUCTORS - 1.46%
50,000 Dallas Semiconductor Corporation 1,681,250
40,000 Kulicke and Soffa Industries,
Inc.(1) 870,000
-----------
2,551,250
-----------
TELECOMMUNICATIONS - 0.29%
30,000 Communication Systems, Inc. 511,875
-----------
TRANSPORTATION - 1.76%
75,000 Comair Holdings, Inc. 1,987,500
30,000 U.S. Freightways Corporation 1,080,000
-----------
3,067,500
-----------
TOTAL COMMON STOCKS
(COST $68,035,162) 127,087,553
-----------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST
AMOUNT COMMERCIAL PAPER - 12.84% MATURITY RATE (2) VALUE
------ ------------------------- -------- -------- -----
<S> <C> <C> <C> <C>
$2,500,000 Ameritech Corporation 4/08/98 5.44% 2,497,356
2,500,000 Eastman Kodak Co. 4/09/98 5.51 2,496,939
2,500,000 Tribune Co. 4/17/98 5.48 2,493,911
2,500,000 Goldman Sachs Group (The), L.P. 4/21/98 5.50 2,492,361
2,500,000 American Express Company 4/29/98 5.48 2,489,344
2,500,000 International Business Machines Credit Corporation 5/05/98 5.48 2,487,061
2,500,000 Avco Financial Services, Inc. 5/11/98 5.50 2,484,722
2,500,000 Chevron Corporation 5/13/98 5.47 2,484,046
2,500,000 Equitable Resources, Inc. 5/20/98 5.51 2,481,268
-----------
TOTAL COMMERCIAL PAPER (COST $22,407,008) 22,407,008
-----------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
REPURCHASE AGREEMENT - 14.31%
-----------------------------
<S> <C> <C> <C> <C>
24,960,000 First National Bank of Chicago, dated 3/31/98,
collateral:
U.S. Treasury Note 6.75%; due 6/30/99, market value
$25,474,745 (repurchase proceeds $24,964,057)
(COST $24,960,000) 4/01/98 5.85 24,960,000
------------
TOTAL INVESTMENTS, AT VALUE (NOTE 1)
(COST $115,402,170) - 100% $174,454,561
============
</TABLE>
- --------------------------------------------------------------------------------
(1) Non-income producing
(2) For commercial paper, the interest rate is the discount rate at the time
of purchase by the Fund. For the repurchase agreement, the rate shown
reflects the actual rate of return to the Fund.
See accompanying notes to financial statements.
15
<PAGE> 17
INTERNATIONAL FUND
- --------------------------------------------------------------------------------
March 31, 1998
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
May 31, 1995 to March 31, 1998
5/31/95 3/31/98
------- -------
GRADISON INTERNATIONAL FUND $10,000 $12,948
EAFE/EMS $10,000 $12,843
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED MARCH 31, 1998
INCEPTION 1 YEAR
--------- ------
International Fund 9.54% 19.11%
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 which increased the Fund's return. 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/EMS Index is the Morgan Stanley
Capital International Europe Australasia Far East plus Emerging Markets Index.
Total returns shown include changes in share value and reinvestment of
distributions.
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
SHARES PREFERRED STOCKS - 0.76% VALUE
------ ------------------------ -----
GERMANY - 0.76%
450 Man Ag-vorzugsaktien $113,027
270 Sap Preferred 114,827
--------
TOTAL PREFERRED STOCKS
(COST $203,457) 227,854
--------
- --------------------------------------------------------------------------------
Common Stocks - 99.24%
----------------------
ARGENTINA - 2.84%
39,350 Astra Cia Argentina De Petroleum 74,385
9,497 Banco De Galicia Bue 'B' 58,512
7,196 Banco Frances Rio Plata 72,333
38,364 Dalmine Siderca Sa 102,450
541 IRSA (Inversiones y Representaciones
SA) 144A ADR 20,727
9,040 Molinos Rio Plata 'B' 22,152
9,750 Perez Companc SA ADR 132,038
5,512 Telefonica de Argentina ADR 209,801
4,800 YPF SA ADR 163,200
----------
855,598
----------
CHILE - 2.76%
6,500 Banco Santander Chile ADR 91,406
3,524 Chilgener SA ADR 84,796
1,750 Cia Cerveceria Unidas ADR 52,937
7,000 Cia Telecommunications Chile ADR 192,938
6,600 Empresa Nacional de Electridad
SA ADS 127,050
5,150 Enersis SA ADR 162,547
1,600 Madeco SA ADR 27,700
3,400 Maderas Y Sinteticos ADR 35,063
1,300 Quimica y Minera SA ADR 57,200
----------
831,637
----------
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
16
<PAGE> 18
INTERNATIONAL FUND
- --------------------------------------------------------------------------------
March 31, 1998
PORTFOLIO OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
------ ------------------------- -----
FINLAND - 5.61%
5,000 Enso Oy $ 46,147
1,200 Hartwall Oy 141,113
9,740 Metsa Serla Oy B Ord 86,770
2,070 Neste Oy 61,224
8,165 Nokia AB Oy 876,506
5,200 Okobank Osuspankk 100,062
55 Rauma Oy 1,019
7,100 Rautaruuki Oy 59,077
4,880 Upm-Kymmene Oy 124,336
550 Viking Line AB 21,069
3,000 Werner Soderstrom 133,630
3,200 Yit Yhtyma 39,056
----------
1,690,009
----------
FRANCE - 11.64%
1,308 Alcatel Alst 245,525
1,616 AXA 166,407
5,050 Banque Nationale de Paris 392,461
1,290 Cie De St Gobain 212,373
1,230 Credit Commercial de France 101,049
880 Danone 212,482
1,720 Eaux (Cie Generale) 279,277
550 Eaux (Cie Generale) Warrant 617
1,482 Elf Aquitaine 194,229
1,840 France Telecom SA 97,053
2,100 Groupe GTM 163,371
490 L'Oreal 227,770
2,050 Lafarge 174,371
2,050 Lafarge Rights 2,680
1,550 Peugeot SA 267,185
290 Pinault-Printemps -- Redoute SA 224,203
752 Schneider SA 57,896
1,240 Societe Generale 248,172
1,120 Total SA 134,493
1,160 Valeo 102,038
----------
3,503,652
----------
GERMANY - 7.41%
25 Allianz AG DEM (REGD) 7,496
860 Allianz AG Holdings 259,720
2,700 Basf AG 120,083
6,315 Bayer AG 288,887
2,400 Commerzbank AG 86,690
1,450 Daimler-Benz AG 133,291
1,010 Degussa AG 57,509
1,200 Deutsche Telekom Bank AG 90,292
1,400 Dresdner Bank AG 63,742
462 Mannesmann AG 338,255
160 Munchener Ruckversicheru 69,214
3,000 Rwe Ag 161,409
2,120 Siemens AG 141,919
4,232 Veba AG 300,236
138 Volkswagen AG 108,052
138 Volkswagen AG Rights 2,507
----------
2,229,302
----------
HUNGARY - 2.71%
1,500 Danibius Hotels(1) 39,379
650 Graboplast Textiles Rt. 26,450
6,900 Magyar Olaj Es Gazipari Rt. 211,550
42,000 Matav 258,918
2,900 OTP Bank Rt. 147,508
1,250 Richter Gedeon Rt. 131,528
----------
815,333
----------
IRELAND - 2.63%
22,500 Allied Irish Banks Ord 276,077
14,100 CRH Ord 211,901
8,800 Irish Life Ord 80,355
6,000 Kerry Group A Ord 79,898
49,900 Smurfit Jefferson Ord 143,068
----------
791,299
----------
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
17
<PAGE> 19
INTERNATIONAL FUND
- --------------------------------------------------------------------------------
March 31, 1998
PORTFOLIO OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
------ ------------------------- -----
ISRAEL - 3.09%
3,800 Agis Industries $ 27,216
33,000 Bank Leumi Le-Israel BM 62,385
21,600 Bezeq Israel Telecommunications 58,283
40,000 Bk Hapoalim BM 109,485
3,800 Blue Square Chain Stores(1) 41,879
2,800 Eci Telecommunications ADR 86,100
1,740 Elite Industries 55,306
2,000 Formula Systems(1) 81,836
63,000 ICl-Israel Chemical 75,552
37,000 Industrial Building 63,065
880 Koor Industries Ltd. 109,441
15,800 Supersol Ltd. 51,098
2,530 Teva Pharmaceutical Industries Ltd. 108,931
----------
930,577
----------
ITALY - 10.52%
13,500 Alleanza Assicuraz 214,542
8,120 Assicurazioni Generali SpA 250,076
58,400 BCA Communicatios Italiana 291,069
6,240 Benetton Group SpA 130,968
12,500 Danieli & Company 121,587
24,000 Edison SpA 201,817
61,500 Eni SpA 418,579
43,600 Fiat SpA 181,705
61,000 Istituto Nazionale delle
Assicurazioni 197,559
18,300 Instituto Mobiliare Italiano 296,841
15,000 Italcementi SpA 175,908
52,110 Telecom Italia SpA 410,211
51,000 TIM SpA 273,751
----------
3,164,613
----------
JAPAN - 8.82%
6,600 Aoyama Trading Company 158,379
3,000 Bridgestone Corporation 67,941
4,000 Canon 90,288
6,200 Fanuc 213,871
6,000 Fuji Photo Film Company 223,170
19,000 Fujisawa Pharmaceutical Company 169,552
28,000 Hitachi Ltd. 203,673
1,000 Ito-yokado Co Ltd. 54,143
17,000 Kirin Brewery Company 151,705
6,000 Matsushita Electric Works 96,287
19,000 Mitsubishi Chemical Corporation 72,238
65,000 Mitsui O.S.K. Lines Ltd.(1) 108,698
6,000 Murata Manufacturing Company 165,578
8,000 Nec Corporation 80,389
42 Nippon Telgraph & Telephone Company 174,802
18,000 Sumitomo Bank 183,576
22,000 Sumitomo Trust & Banking 142,046
10,000 Tokio Marine & Fire Insurance 111,735
4,200 Tokyo Electric 79,369
4,000 Toyota Motor Corporation 106,486
----------
2,653,926
----------
MEXICO - 1.81%
5,250 Alfa SA de CV Ser A 29,708
6,450 Cemex SA 29,229
21,802 Cifra SA de Cv Servnpv 39,776
8,500 Controlodora Comercial
Mexicana SA de CV 10,398
1,850 Desc SA de CV Ser B 13,531
106 Desc SA de CV Ser C 809
4,700 Empresas La Modern A(1) 23,313
2,800 Fomento Economico Mexico SA de CV 20,216
5,050 Grupo Carso SA de CV Ser A1 31,304
11,554 Grupo Financiero Banamex
Accival SA de CV(1) 27,102
7,172 Grupo Industrial Bimbo SA 18,945
8,150 Grupo Mexico SA 26,313
4,850 Grupo Modelo Sa de Cv 40,939
780 Grupo Televisa GDS(1) 28,567
3,900 Industrias Penoles SA 16,483
5,950 Kimberly Clark de Mexico SA 30,736
2,620 Telefonos de Mexico ADR 147,703
500 Tv Azteca ADS(1) 9,813
----------
544,885
----------
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
18
<PAGE> 20
INTERNATIONAL FUND
- --------------------------------------------------------------------------------
March 31, 1998
PORTFOLIO OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
------ ------------------------- -----
NETHERLANDS - 4.77%
3,064 ABN-AMRO Holdings NV $ 70,696
350 Akzo Nobel NV 71,102
4,000 Elsevier NV 65,813
1,500 Fortis Amev NV 88,503
2,200 Ing Groep NV 124,844
1,800 Koninklijke PTT Nederland NV 93,252
1,300 Philips Electronic 95,410
7,280 Royal Dutch Petroleum 412,073
2,440 Unilever NV 164,564
1,500 Vendex International NV 94,979
4,480 Ver Ned Uitgevers 153,225
----------
1,434,461
----------
POLAND - 1.38%
900 Agros Holding SA(1) 20,982
1,900 Amica Wronki(1) 35,491
300 Bank Przemyslowo Handlowy SA 23,893
1,900 Bank Rozwoju Eksportu SA 52,824
800 Bank Slaski SA 57,922
35,100 BIG Bank Gdanski SA 49,301
700 Debica SA 18,245
9,300 Elektrim Spolka Akcyjna SA 115,814
4,600 Polifarb Cieszyn-Wroclaw SA(1) 19,184
2,800 Stomil Olsztyn SA 21,894
----------
415,550
----------
PORTUGAL - 4.86%
3,400 Banco Comercial Portugues SA 109,776
3,400 Banco Comercial Portugues SA Rights 11,005
5,450 Banco Espirito Santo 251,790
1,200 Brisa-Auto Estradas de
Portugal SA(1) 54,806
3,460 Cimpor (Cimentos de Portugal) 121,926
9,800 Electricidade de Portugal 227,415
1,650 Investec Consultadoria
Internacional(1) 66,647
1,895 Jeronimo Martins 77,944
4,000 Mundial Confianca(1) 129,360
6,630 Portugal Telecom SA 344,848
1,440 Sonae Investimentos Socieda de Gestora
de Participacoes Sociais SA 67,782
----------
1,463,299
----------
SPAIN - 5.53%
2,000 Argentaria Corp Bc 165,594
6,800 Autopistas, Concesionari 112,604
5,300 Banco Bilbao Vizcaya SA 248,780
700 Banco Central Hispanoame 22,425
700 Banco Central Hsp Rights 553
1,450 Banco Popular Espanol 140,742
2,200 Banco Santander SA 109,572
5,400 Empresa Nacional de Electricid SA 129,832
1,600 Gas Natural 99,866
800 Gas Y Electricidad Sa 64,709
10,600 Iberdrola SA 161,015
1,700 Repsol SA 86,727
7,300 Telefonica de Espana 321,736
----------
1,664,155
----------
SWITZERLAND - 6.85%
72 ABB AG 107,588
238 Ciba Specialty Chemical Nw 30,443
125 Clariant AG 134,881
944 Credit Suisse Group 188,864
99 Holderbank Finance Glaris AG 103,904
30 Kuoni Reisen Holdings 150,543
138 Nestle SA 263,691
253 Novartis AG 447,754
29 Roche Holdings AG 313,876
150 Schweiz Bankgesellschaft 245,001
650 Tag Heuer 73,976
----------
2,060,521
----------
TURKEY - 4.03%
632,700 Adana Cimento Sanayii 41,606
624,237 Akal Tekstil Sanayii 15,650
953,203 Akbank 69,539
1,770,000 Arcelik AS 152,769
323,000 Aygaz AS 45,800
57,000 Bagfas Bandirma Gubre AS 56,810
1,562,000 Brisa AS 78,643
687,000 Ege Biracilik Ve Malt SA 98,825
851,000 Eregli Demir Celik 106,677
73,000 Ford Otomotiv Sanayi AS 45,005
73,650 Migros Turk TAS 65,081
119,000 Netas Telekomunik AS(1) 37,660
906,000 Sabanci Holding 53,062
794,240 T Sise Cam 28,073
3,557,000 Turkiye Garanti Bankasi 140,345
69,7000 Turkiye Is Bankasi 74,481
294,5000 Yapi Ve Kredi Bankasi 101,673
----------
1,211,699
----------
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
19
<PAGE> 21
INTERNATIONAL FUND
- --------------------------------------------------------------------------------
March 31, 1998
PORTFOLIO OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
------ ------------------------- -----
UNITED KINGDOM - 7.87%
6,640 Abbey National PLC $ 128,651
7,600 Boots Co. PLC 121,797
4,600 British Petroleum 66,401
8,500 British Telecom PLC 92,522
5,900 Commercial Union PLC 115,202
3,550 Glaxo Wellcome 95,533
3,930 HSBC Holdings 128,201
9,500 IMI PLC 72,385
16,000 Lasmo PLC 73,950
17,059 Lloyds TSB Group PLC 265,388
6,200 National Power PLC 63,541
9,400 Prudential PLC 138,208
11,429 Scot Power 107,561
9,100 Scottish & Newcastle PLC 144,007
10,050 Shell Transport & Trading PLC 73,883
13,600 Smith Kline Beecham 171,948
8,300 Tesco 83,256
15,200 Unilever PLC 143,815
11,580 Wolseley PLC 89,009
4,490 Zeneca Group PLC 193,538
-----------
2,368,796
-----------
VENEZUELA - 4.11%
106,356 Banco Provincial 192,478
12,550 Compania Anonima Nacional
Telefonos De Venezuela 524,747
259,750 Electricid Caracas 244,938
9,450 Mavesa SA 144A ADR 49,613
363,850 Sider Venezuela ADR 100,504
82,231 Venezolana De Cemento 125,320
-----------
1,237,600
-----------
TOTAL COMMON STOCKS
(COST $23,545,447) 29,866,912
-----------
TOTAL INVESTMENTS,
AT VALUE (NOTE 1)
(COST $23,748,904) - 100% $30,094,766
===========
- --------------------------------------------------------------------------------
(1) Non-income producing
The following abbreviations are used in this portfolio:
ADR - American Depository Receipts; ADS - American Depository Shares;
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 $70,339 as of March 31, 1998.
- --------------------------------------------------------------------------------
SUMMARY OF INVESTMENTS BY INDUSTRY
% OF
TOTAL
INDUSTRY INVESTMENTS
- -------- -----------
Automotive 3.73%
Banking 17.46
Beverages and Tobacco 2.24
Broadcasting and Publishing 1.52
Building Materials 4.00
Business Services 0.93
Chemicals 4.50
Construction and Housing 1.21
Diversified Companies 4.08
Electronics 6.77
Energy 7.65
Financial Services 1.96
Food and Household Products 3.78
Forest Products and Paper 1.40
Health and Personal Care 4.30
Household Appliances and Durables 1.14
Insurance 6.08
Machinery and Engineering 1.53
Materials and Commodities 0.60
Merchandising 3.10
Metals and Mining 0.39
Real Estate 0.07
Steel 0.89
Telecommunications 13.86
Textiles and Apparel 0.58
Tourism 0.50
Transportation 0.76
Utilities 4.97
------
100.00%
======
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
20
<PAGE> 22
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
March 31, 1998
<TABLE>
<CAPTION>
ESTABLISHED GROWTH & OPPORTUNITY INTERNATIONAL
VALUE FUND INCOME FUND VALUE FUND FUND
----------- ----------- ----------- -------------
ASSETS
<S> <C> <C> <C> <C>
Investments in securities, at cost $358,465,016 $43,987,806 $115,402,170 $23,748,904
============ =========== ============ ===========
Investments in securities, at value (Note 1) $563,758,932 $59,698,500 $174,454,561 $30,094,766
Cash 187,719 10,468 30,931 2,043,534
Foreign currency, at value (Note 1) (Cost $619,985) -- -- -- 584,859
Receivable for securities sold -- -- 328,189 596,412
Receivable for Fund shares sold 3,687,669 339,549 1,127,047 21,075
Dividends and interest receivable 492,337 112,195 63,521 58,331
Forward foreign exchange currency contracts,
at value (Note 1) -- -- -- 66,315
Prepaid expenses and other assets 23,056 7,488 11,031 4,104
Organization expenses, net (Note 1) -- 2,526 -- 10,356
------------ ----------- ------------ -----------
TOTAL ASSETS 568,149,713 60,170,726 176,015,280 33,479,752
------------ ----------- ------------ -----------
LIABILITIES
Payable for Fund shares redeemed 388,782 16,537 153,105 27,625
Payable for securities purchased -- -- -- 91,553
Accrued investment advisory fee (Note 2) 231,912 29,639 85,196 20,568
Other accrued expenses payable to adviser (Note 2) 257,653 31,373 85,878 37,518
Other accrued expenses and liabilities 16,814 2,025 6,852 20,850
Futures variation margin payable -- -- -- 3,462
------------ ----------- ------------ -----------
TOTAL LIABILITIES 895,161 79,574 331,031 201,576
------------ ----------- ------------ -----------
NET ASSETS $567,254,552 $60,091,152 $175,684,249 $33,278,176
============ =========== ============ ===========
NET ASSETS CONSIST OF:
Aggregate paid-in capital $346,809,964 $44,250,538 $109,964,485 $27,448,501
Accumulated undistributed net investment
income (loss) 305,847 3,901 206,426 12,679
Accumulated undistributed net realized
gains (losses) 14,844,825 126,019 6,460,947 (540,694)
Net unrealized appreciation of investments 205,293,916 15,710,694 59,052,391 6,345,862
Net unrealized appreciation on translation
of assets and liabilities in foreign currency -- -- -- 11,828
------------ ----------- ------------ -----------
NET ASSETS $567,254,552 $60,091,152 $175,684,249 $33,278,176
============ =========== ============ ===========
SHARES OF CAPITAL STOCK OUTSTANDING
(no par value - unlimited number of shares
authorized) 16,713,114 2,072,968 6,298,471 1,739,146
============ =========== ============ ===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE (Note 1) $33.94 $28.99 $27.89 $19.13
============ =========== ============ ===========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
21
<PAGE> 23
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended March 31, 1998
<TABLE>
<CAPTION>
ESTABLISHED GROWTH & OPPORTUNITY INTERNATIONAL
VALUE FUND INCOME FUND VALUE FUND FUND
----------- ----------- ----------- -------------
INVESTMENT INCOME:
<S> <C> <C> <C> <C>
Dividends, net of foreign withholding taxes $ 5,183,890 $ 890,955 $ 940,214 $ 432,272
Interest 7,688,489 143,096 2,143,373 145,489
------------ ----------- ----------- ----------
TOTAL INVESTMENT INCOME 12,872,379 1,034,051 3,083,587 577,761
------------ ----------- ----------- ----------
EXPENSES:
Investment advisory fee (Note 2) 2,580,124 267,848 881,658 282,889
Distribution (Note 2) 2,454,412 206,037 710,599 141,445
Transfer agency fees (Note 2) 303,442 47,227 130,769 41,353
Accounting services fees (Note 2) 80,669 40,000 40,000 60,000
Custodian fees (Note 1) 23,598 12,002 19,263 79,583
Registration fees 43,019 23,113 32,427 18,955
Professional fees 14,022 12,937 12,758 32,716
Printing 40,438 7,236 15,904 5,889
Trustees' fees (Note 2) 7,067 6,394 6,618 7,050
Amortization of organization expense (Note 1) -- 1,153 -- 4,746
Other 27,303 3,321 8,356 3,285
------------ ----------- ----------- ----------
GROSS EXPENSES 5,574,094 627,268 1,858,352 677,911
LESS FEES WAIVED BY THE ADVISER (Note 2) -- -- -- (112,829)
LESS EARNINGS CREDITS ON CASH BALANCES
(Note 1) (4,374) (12,002) (2,140) --
------------ ----------- ----------- ----------
NET EXPENSES 5,569,720 615,266 1,856,212 565,082
------------ ----------- ----------- ----------
NET INVESTMENT INCOME 7,302,659 418,785 1,227,375 12,679
------------ ----------- ----------- ----------
NET REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS:
Net realized gain (loss) on investments 41,231,389 278,290 20,508,362 (254,868)
Net realized loss on foreign currency
transactions -- -- -- (208,788)
Net change in unrealized appreciation
of investments 79,580,611 12,198,030 26,917,903 5,495,316
Net change in unrealized depreciation
of foreign currency transactions -- -- -- 13,438
------------ ----------- ----------- ----------
NET REALIZED AND UNREALIZED GAINS ON
INVESTMENTS 120,812,000 12,476,320 47,426,265 5,045,098
------------ ----------- ----------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $128,114,659 $12,895,105 $48,653,640 $5,057,777
============ =========== =========== ==========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
22
<PAGE> 24
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ESTABLISHED VALUE FUND GROWTH & INCOME FUND OPPORTUNITY VALUE FUND
YEAR ENDED YEAR ENDED YEAR ENDED
---------------------- ----------------------- ------------------------
3/31/98 3/31/97 3/31/98 3/31/97 3/31/98 3/31/97
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 7,302,659 $ 6,257,379 $ 418,785 $ 242,652 $ 1,227,375 $ 984,370
Net realized gain (loss) on
investments 41,231,389 37,844,738 278,290 337,124 20,508,362 9,839,496
Net realized loss on foreign
currency transactions -- -- -- -- -- --
Net change in unrealized
appreciation of investments 79,580,611 11,774,353 12,198,030 2,325,455 26,917,903 1,731,084
Net change in unrealized
depreciation on translation
of assets and liabilities in
foreign currencies -- -- -- -- -- --
------------- ------------ ------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations 128,114,659 55,876,470 12,895,105 2,905,231 48,653,640 12,554,950
------------- ------------ ------------ ------------ ------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (7,488,999) (6,248,864) (483,144) (190,392) (1,400,935) (780,766)
Net realized capital gains (39,693,896) (32,341,951) (376,650) (112,745) (18,567,761) (9,624,857)
------------- ------------ ------------ ------------ ------------ ------------
Decrease in net assets from
distributions to shareholders (47,182,895) (38,590,815) (859,794) (303,137) (19,968,696) (10,405,623)
------------- ------------ ------------ ------------ ------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 177,661,831 150,040,288 28,457,239 13,724,115 97,738,720 74,520,949
Net asset value of shares
issued in reinvestment
of distributions 46,070,717 37,843,938 837,101 297,051 19,731,335 10,317,863
Payments for shares redeemed (167,135,296) (141,861,173) (6,940,220) (2,898,897) (84,921,607) (75,515,812)
------------- ------------ ------------ ------------ ------------ ------------
Net increase in net assets from
Fund share transactions 56,597,252 46,023,053 22,354,120 11,122,269 32,548,448 9,323,000
------------- ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS 137,529,016 63,308,708 34,389,431 13,724,363 61,233,392 11,472,327
NET ASSETS:
Beginning of year 429,725,536 366,416,828 25,701,721 11,977,358 114,450,857 102,978,530
------------- ------------ ------------ ------------ ------------ ------------
End of year $ 567,254,552 $429,725,536 $ 60,091,152 $ 25,701,721 $175,684,249 $114,450,857
============= ============ ============ ============ ============ ============
Undistributed net investment
income (Note 1) $ 305,847 $ 753,874 $ 3,901 $ 63,881 $ 206,426 $ 379,986
============= ============ ============ ============ ============ ============
NUMBER OF FUND SHARES:
Sold 5,536,829 5,266,990 1,118,081 674,493 3,748,080 3,262,371
Issued in reinvestment of
distributions to shareholders 1,493,854 1,334,128 33,607 14,650 796,600 454,117
Redeemed (5,224,469) (4,986,154) (275,439) (141,301) (3,272,472) (3,315,616)
------------- ------------ ------------ ------------ ------------ ------------
Net increase in shares
outstanding 1,806,214 1,614,964 876,249 547,842 1,272,208 400,872
Outstanding at beginning of year 14,906,900 13,291,936 1,196,719 648,877 5,026,263 4,625,391
------------- ------------ ------------ ------------ ------------ ------------
Outstanding at end of year 16,713,114 14,906,900 2,072,968 1,196,719 6,298,471 5,026,263
============= ============ ============ ============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL FUND
YEAR ENDED
------------------------
3/31/98 3/31/97
------- -------
<S> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 12,679 $ (27,104)
Net realized gain (loss) on
investments (254,868) 690,706
Net realized loss on foreign
currency transactions (208,788) (403,339)
Net change in unrealized
appreciation of investments 5,495,316 289,521
Net change in unrealized
depreciation on translation
of assets and liabilities in
foreign currencies 13,438 (31,683)
------------ ------------
Net increase in net assets
resulting from operations 5,057,777 518,101
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income -- --
Net realized capital gains (289,530) (41,790)
------------ ------------
Decrease in net assets from
distributions to shareholders (289,530) (41,790)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 9,514,677 12,548,017
Net asset value of shares issued
in reinvestment of distribution 266,710 38,087
Payments for shares redeemed (6,087,530) (3,551,439)
------------ ------------
Net increase in net assets from
Fund share transactions 3,693,857 9,034,665
------------ ------------
TOTAL INCREASE IN NET ASSETS 8,462,104 9,510,976
NET ASSETS:
Beginning of year 24,816,072 15,305,096
------------ ------------
End of year $33,278,176 $ 24,816,072
============ ============
Undistributed net investment
income (Note 1) $ 12,679 --
============ ============
NUMBER OF FUND SHARES:
Sold 547,071 780,856
Issued in reinvestment of
distributions to shareholders 16,413 2,370
Redeemed (353,559) (221,365)
------------ ------------
Net increase in shares
outstanding 209,925 561,861
Outstanding at beginning of year 1,529,221 967,360
------------ ------------
Outstanding at end of year 1,739,146 1,529,221
============ ============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
March 31, 1998
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. The Trust consists of four series,
the Gradison Established Value Fund ("Established Fund"), the Gradison Growth
&Income Fund ("Growth & Income Fund"), the Gradison Opportunity Value Fund
("Opportunity Fund") and the Gradison International Fund ("International Fund"),
(collectively, the "Funds"), each of which represents a separate diversified
fund with its own investment policies.
The public offering of shares of the Funds commenced as follows:
DATE OF
PUBLIC OFFERING
---------------
Established Value Fund 8/16/83
Growth & Income Fund 2/28/95
Opportunity Value Fund 8/16/83
International Fund 5/31/95
The investment objective of the Established Fund and the Opportunity Fund is
long-term capital growth by investing primarily in common stocks. The investment
objective of the Growth & Income Fund is long-term growth of capital, current
income, and growth of income consistent with reasonable investment risk. The
investment objective of the International Fund is growth of capital.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their 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 or which are
believed to not be valid 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 market value.
Repurchase agreements, which are collateralized by U.S. Government obligations,
are valued at cost which, together with accrued interest, approximates market
value. Collateral for repurchase agreements is held in safekeeping in the
customer-only account of the Funds' custodian. At the time the Funds enter 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 Funds 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
securities and the face amount of the repurchase agreement and accrued interest.
To minimize the possibility of loss, the Funds enter into repurchase agreements
only with selected domestic banks and securities dealers which the Funds'
investment adviser believes present minimal credit risk. Refer to the Funds'
Portfolio of Investments for the face amount of repurchase agreements and
repurchase proceeds as of March 31, 1998.
FUNDS SHARE VALUATION AND DISTRIBUTIONS TO SHAREHOLDERS
The net asset value per share of each Fund is computed by dividing the net asset
value of each Fund (total
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
March 31, 1998
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.
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 Funds' 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 a 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 Funds' intention to declare as dividends in
each calendar year, at least 98% of each Fund's net investment income (earned
during the calendar year) and 98% of each Fund's 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 for each Fund is approximately equal to the cost as
shown on the Statements of Assets and Liabilities. For both financial reporting
and tax purposes, gross unrealized appreciation and gross unrealized
depreciation of securities of the Funds at March 31, 1998 was:
GROSS UNREALIZED GROSS UNREALIZED
APPRECIATION DEPRECIATION
OF SECURITIES OF SECURITIES
------------- -------------
Established Value Fund $205,878,885 $ 584,969
Growth & Income Fund 15,819,545 108,851
Opportunity Value Fund 60,339,374 1,286,983
International Fund 7,538,110 1,192,248
As of March 31, 1998 the International Fund had a capital loss carryforward for
Federal income tax purposes of approximately $360,000 which may be utilized to
offset future net realized capital gains through March 31, 2006 prior to
distributing such gains to shareholders.
EXPENSES
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of the net assets or number of accounts, as appropriate. In all other
respects, expenses are charged to the respective Fund as incurred on a specific
identification basis.
EXPENSE OFFSET ARRANGEMENT
Each Fund, other than the International Fund, has an arrangement with its
custodian bank whereby the custodian's fees are reduced by credits earned on
each Fund's cash on deposit with the bank. This deposit arrangement is an
alternative to overnight investments. The credits are shown as a reduction of
expenses on the Statements of Operations.
ORGANIZATION EXPENSES
Expenses of organization of the Growth & Income Fund and the International Fund
have been capitalized
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
March 31, 1998
and are being amortized on a straight-line basis over 60 months commencing upon
the public offering of the respective Fund's shares.
INTERNATIONAL FUND FOREIGN CURRENCY TRANSLATION
The accounting records of the International 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 International 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 International 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.
INTERNATIONAL FUND FORWARD FOREIGN CURRENCY CONTRACTS
During the year ended March 31, 1998, the International Fund entered into
forward foreign currency contracts under which it was obligated to exchange
currencies at specified future dates. The International 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 the following outstanding contracts at March 31,
1998:
PORTFOLIO HEDGES:
U.S.
BUY/ FOREIGN DOLLAR SETTLEMENT UNREALIZED
SELL AMOUNT CURRENCY PROCEEDS DATE APPRECIATION
---- ------ -------- -------- ---------- ------------
German
Sell 4,900,000 Deutschemark $2,680,525 4/15/98 $27,165
Buy 1,200,000 British Pound 1,976,400 4/15/98 39,150
------
$66,315
======
At March 31, 1998, the Fund had sufficient cash and/or securities to cover any
commitments under these contracts.
INTERNATIONAL FUND 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
International
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
March 31, 1998
Fund records a realized gain or loss equal to the difference between the opening
and closing value of the contract.
Currencies with an aggregate market value of $567,262 have been segregated with
the custodian for the following open stock index futures contracts at March 31,
1998.
OPEN
MARKET MARKET UNREALIZED
TYPE EXPIRATION VALUE VALUE (DEPRECIATION)
---- ---------- ------ ------ --------------
Long Nikkei 300(Yen) 6/98 $593,821 $582,326 $(11,495)
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 Funds pay McDonald a fee computed and accrued daily and paid
monthly based upon each Fund's daily net assets, other than the International
Fund, 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. The
International Fund pays McDonald a fee computed and accrued daily and paid
monthly based upon its daily net assets at the annual rate of 1.00% of the first
$100 million of its 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 Sub-Advisor for the International Fund pursuant to
a Sub-Advisor 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.
The Agreement provides that McDonald bears the costs of salaries and related
expenses of executive officers of the Trust who are necessary for the management
and operations of the Funds. 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 Funds.
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 Funds. Effective July 1,
1997, the Funds pay McDonald a monthly fee for transfer agency and
administrative services at an annual rate of $18.50 per shareholder non-zero
balance account and $5.00 per closed shareholder account, as defined, plus
out-of-pocket costs for statement paper, statement and reply envelopes and reply
postage. Prior to July 1, 1997 the Funds, other than the International Fund,
paid 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. Prior to July 1, 1997 the International Fund paid 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 Funds, other than
the International Fund, pay McDonald a monthly fee for accounting services based
on the Fund's average daily net assets at an annual rate of .03% on the first
$100 million, .02% on the next $100 million and .01% on any amount in excess of
$200 million, with a minimum annual fee of $40,000. The International 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.
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
March 31, 1998
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 Growth & Income Fund and the International Fund
if, and to the extent that, expenses (excluding brokerage commissions, taxes,
interest and extraordinary items) borne by the respective Fund in any fiscal
year exceed 1.50% with respect to the Growth & Income Fund, and 2.00% with
respect to the International Fund, of the average net assets of the respective
Fund. This agreement is in effect until July 31, 1998 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
a Fund for other expenses in order to limit the Fund's expenses to a specified
percentage of average net assets lower than the amount subject to the agreement.
For the year ended March 31, 1998, McDonald waived $59,867 of advisory fees and
distribution expenses of $52,962 with respect to the International Fund.
In accordance with the terms of a Distribution Plan adopted under Rule 12b-1 of
the Investment Company Act of 1940, the Funds pay 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 Funds' average daily net assets. The Funds also pay McDonald a fee
for its assistance in selling shares of the Fund including advising shareholders
regarding purchase, sale and retention of Funds 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, 1998, cost of purchases, and proceeds from the sale
of securities, excluding short-term securities, amounted to:
COST OF PROCEEDS
PURCHASES FROM SALES
--------- ----------
Established Value Fund $71,681,680 $82,965,939
Growth & Income Fund 22,952,595 1,428,477
Opportunity Value Fund 44,047,629 45,068,610
International Fund 24,162,712 21,214,411
28
<PAGE> 30
ARTHUR ANDERSEN
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
of the Gradison Growth Trust:
We have audited the accompanying statements of assets and liabilities, including
the portfolio of investments, of the Gradison Growth Trust (comprising,
respectively, the Gradison Established Value Fund, Gradison Opportunity Value
Fund, Gradison Growth & Income Fund and the Gradison International Fund) as of
March 31, 1998, and the related statements 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 audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1998, by correspondence with custodians 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 the material respects, the financial position of
each of the respective portfolios constituting the Gradison Growth Trust as of
March 31, 1998, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and their financial highlights for the periods indicated thereon, in conformity
with generally accepted accounting principles.
[SIGNATURE, ARTHUR ANDERSEN LLP]
Cincinnati, Ohio,
May 6, 1998
29
<PAGE> 31
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.
GROWTH & INCOME FUND
A common stock fund that seeks long-term capital growth, current income and
growth of income.
OPPORTUNITY VALUE FUND
A common stock fund that seeks long-term capital growth by investing in
companies that are generally smaller in size than those included in the
Standard & Poor's 500 Index.
INTERNATIONAL FUND
A common stock fund that seeks capital growth by investing in common stocks
of non-United States companies.
MONEY MARKET FUNDS
Gradison 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.
