<PAGE> 1
ESTABLISHED VALUE FUND
GROWTH & INCOME FUND
OPPORTUNITY VALUE FUND
INTERNATIONAL FUND
Semiannual Report
SEPTEMBER 30, 1998
SECURITIES, MUTUAL FUNDS AND OTHER INVESTMENT PRODUCTS ARE NOT INSURED BY THE
FDIC AND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY MCDONALD
INVESTMENTS INC., KEY BANK OR ANY OF THEIR AFFILIATES, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
The Gradison Division of McDonald Investments Inc., a subsidiary of KeyCorp, is
the investment adviser to the Gradison Growth Trust. The Gradison Funds are
sponsored and distributed by BISYS Fund Services Limited Partnership, which is
not affiliated with KeyCorp or its subsidiaries. Gradison receives a fee for its
services from the Gradison Funds.
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. BISYS Fund
Services Limited Partnership--Distributor
[GRADISON MUTUAL FUNDS LOGO]
<PAGE> 2
LETTER TO SHAREHOLDERS
- ------------------------------------------------------------------------------
November 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 period ended September 30, 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
capitalization in excess of $1 billion. The Fund's ticker symbol is GETGX.
The Fund's value declined 14.22% over the six months ended September 30, 1998
versus a decline in the Standard & Poor Mid Cap 400 index of 16.21% It has been
a long time since we have seen the indiscriminate selling of good solid value
companies as we saw in the last few months. Many companies have seen their
stocks decline 50% or more from their peaks, and yet their earnings continue to
march ahead. Federated Department Stores, for example, expects continued
increases in revenue and earnings, yet the stock price fell from $51/share to
$36.375/share over the last six months and now has a price earnings ratio of 12.
Over the same period, Cooper Industries, a leading supplier of electrical and
mechanical equipment to the auto industry, declined 37% and also has a price
earnings ratio of 12 with the expectation of continued growth of revenues and
earnings.
As a result of price declines such as these, we believe the current valuation of
the entire portfolio is quite attractive, particularly in light of the degree of
profitability measures of all 70 companies in your Established Value Fund. We
list below a number of characteristics versus the S&P 500 equal weighted and
market value weighted.
<TABLE>
<CAPTION>
ESTABLISHED S&P 500 S&P 500
VALUE EQUAL VALUE
FUND WEIGHTED WEIGHTED
<S> <C> <C> <C>
Return on Equity 13.3% 15.8% 22.7%
Earnings Growth 18.7% 13.7% 13.1%
Price/Book Ratio 2.5x 4.4x 7.4x
Price/Earnings Ratio 17.9x 20.7x 23.6x
- ------------------------------------------------------
</TABLE>
As you may recall, we use cash in an attempt to dampen volatility as we do in
the Opportunity Fund. In both funds we took advantage of lower stock prices by
increasing our equity percentage to approximately 81% from 73% in March of this
year. We intend to significantly reduce our cash position further in the near
future and maintain a level necessary to meet liquidations.
1-800-869-5999 [LOGO]
<PAGE> 3
LETTER TO SHAREHOLDERS Continued
- ------------------------------------------------------------------------------
As of September 30, 1998 the dominant economics sectors represented in the fund
are Retail Services, Industrial Products, Insurance, Technology and Energy. The
ten largest holdings on September 30, 1998 were:
COMPANY INDUSTRY
Household International, Inc. Financial Services
Sun Microsystems Computers
Dayton Hudson Department Stores
American Stores Retail
Coastal Energy/Natural Gas
Providian Financial Services
Adolph Coors Food & Beverages
Lockheed Martin Aerospace Defense
Textron Aerospace
Travelers Financial Services
- -------------------------------------------------------
Sincerely,
/s/ William J. Leugers, Jr. /s/ Daniel R. Shick
William J. Leugers, Jr. Daniel R. Shick
Vice President 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 viewed by the investment advisor to be relatively
undervalued and which generally have above average dividend returns. The Fund's
ticker symbol is GRINX.
The Fund's goal is to invest 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 September 30, 1998:
<TABLE>
<CAPTION>
GRADISON
GROWTH
& INCOME S&P 500
FUND INDEX
<S> <C> <C>
Yield 2.2% 1.6%
Price/Earnings Ratio* 18.6x 21.5x
Return on equity 22.5% 22.7%
Annual five year earnings
growth rate 21.2% 13.1%
Annual five year dividend
growth rate 10.2% 5.0%
Beta .89 1.00
- -------------------------------------------------------
* based on 1998 earnings estimates
</TABLE>
Diversification is important, too. The following table shows the five largest
sectors of investment for the Fund. The Fund is positioned defensively with good
sector exposure to consumer non-durables and healthcare industries.
<TABLE>
<CAPTION>
SECTOR WEIGHTING
<S> <C>
Technology 16%
Consumer Non-Durables 12
Healthcare 11
Energy Services 10
Industrial Services 9
- ------------------------------------------
</TABLE>
The investment performance of the Fund for the past 6 months as shown in this
shareholders' report on page 6 under "Total Return" was down 10.7%, compared to
the
2
<PAGE> 4
LETTER TO SHAREHOLDERS Continued
- ------------------------------------------------------------------------------
negative 7.0% return for the S&P 500 index for the same period. The investment
performance for the periods shown below was mixed:
<TABLE>
<CAPTION>
GRADISON
GROWTH &
INCOME FUND S&P 500
<S> <C> <C>
2nd Calendar Quarter
April-June 1998 -3.4% +3.3%
3rd Calendar Quarter
July-September 1998 -7.6 -10.0
Bear Market
(7/17/98-8/31/98) -10.1 -19.2
- -------------------------------------------------------
</TABLE>
The risk averse characteristics of the Fund's holdings prevented the Fund from
participating with the S&P 500 Index's rise in the 2nd quarter, as the driving
forces for the period were common stocks of large capitalized companies with
high price earnings ratios (P/Es) and generally low dividend yields. The Fund's
continuing focus is towards growth oriented, dividend paying, low P/E stocks.
On July 17, 1998 the S&P closed at an all time high of 1186.75. On August 31,
1998, the S&P bottomed at 957.28 posting the first bear market in almost eight
years. The conservative approach of this Fund enabled it to withstand this
exceptional bear market. During this period the S&P 500 index experienced a
negative total return of 19.2% compared to the Fund's decline of 10.1%.
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 September 30, 1998, and their current
dividend yields are presented below. All but two have dividend yields higher
than the 1.6% current yield of the S&P 500 index.
<TABLE>
<CAPTION>
CURRENT
COMPANY YIELD
<S> <C>
Hewlett-Packard Company 1.2%
Pitney Bowes, Inc. 1.7
American Home Products
Corporation 1.7
Ameritech Corporation 2.5
Mobil Corporation 3.0
Norwest Corporation 2.1
Exxon Corporation 2.3
Bristol-Myers Squibb Co. 1.5
Merck & Company, Inc. 1.7
American General Corporation 2.3
- -----------------------------------------------
</TABLE>
In the past year shareholders have received the following distributions.
<TABLE>
<CAPTION>
INCOME CAPITAL GAINS
DISTRIBUTIONS DISTRIBUTIONS
<S> <C> <C>
November 24, 1997 $0.08 $0.11
March 19, 1998 0.06
June 12, 1998 0.03 0.06
September 24, 1998 0.06
- ------------------------------------------------------------
</TABLE>
In total, $0.40 per share was distributed to shareholders over the past twelve
months. The Fund distributes its income each quarter and distributes capital
gains twice a year. The next distribution will be in December and will include
capital gains.
3
<PAGE> 5
LETTER TO SHAREHOLDERS Continued
- ------------------------------------------------------------------------------
The Fund continues to be tax efficient for shareholders subject to income
taxation. The annual portfolio turnover for the Fund for the past six months has
been 1%, well under the mutual fund industry's average turnover. 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,
/s/ Julian C. Ball
Julian C. Ball, CFA
Vice President
and Portfolio Manager
OPPORTUNITY VALUE FUND
The Opportunity Value Fund seeks long-term capital appreciation by investing in
the common stocks of smaller companies that it considers to be undervalued.
These companies generally exhibit 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.
While both the small cap sector of the stock market and the Fund provided
outstanding performance for the Fund's fiscal year ended March 31, 1998,
(+42.24% total return for the Russell 2000 Small Stock Index and +42.02% for the
Fund), the last six months has been an entirely different matter. The well
documented investor concerns regarding a slowdown of domestic corporate earnings
stemming from foreign economies faltering as well as a leadership crisis both
here and abroad have resulted in a significant correction -- particularly within
the small cap sector of the market. Specifically, for the six months ended
September 30, 1998, the Russell 2000 Small Stock Index provided a total return
of -23.87% while the Opportunity Value Fund's return was -22.43%.
The Fund employs the use of cash equivalents in order to reduce net asset value
volatility. During July and August, when the market experienced its most severe
decline, the cash portion of the Fund was reduced to take advantage of lower
stock prices. As of September 30, 1998, cash represented 19% of the total Fund's
assets; last March 31 cash was 27% of assets. We intend to significantly reduce
our cash position in the near future and maintain a level necessary to meet
liquidations.
The Fund's portfolio characteristics as of September 30, 1998, are set forth
below. While the weighted average return on equity and historic five year growth
of earnings of the Fund's stocks are superior to that of the Russell 2000, the
valuation benchmarks (price-to-book ratio and price-to-earnings ratio) of the
Fund reflect a discount to the market.
<TABLE>
<CAPTION>
OPPORTUNITY RUSSELL 2000
VALUE FUND STOCK INDEX
<S> <C> <C>
Return on Equity 17.3% 14.1%
Earnings Growth 19.2% 15.6%
Price/Book Ratio 2.1x 2.2x
Price/Earnings Ratio 13.7x 20.6x
- ---------------------------------------------------------
</TABLE>
Over time, it is our belief that the stocks of companies with superior
profitability and earnings growth, but selling at a discount to the market, will
appreciate as their valuations become more similar to the market.
4
<PAGE> 6
LETTER TO SHAREHOLDERS Continued
- ------------------------------------------------------------------------------
As of September 30, 1998, just over half (53%) of the Fund's stock investments
were in the sectors of Financial Services, Industrial Products/Services, and
Technology. The ten largest holdings on September 30, 1998 were:
COMPANY INDUSTRY
ABM Industries Business Services
Fremont General Insurance
Comair Holdings Regional Airlines
Raymond James Brokerage Firm
Protective Life Insurance
Universal Health Service Acute Care Hospitals
Mueller Industries Metal Fabrication
Wynn's International Auto Parts
Hughes Supply Building Products
M & T Bank Bank
- --------------------------------------------------------
* The figures above were obtained from sources believed to be reliable but are
not guaranteed.
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
Vice President Vice President
and Portfolio Manager and Portfolio Manager
INTERNATIONAL FUND
The Gradison International Fund provides investors the opportunity to gain
international exposure in their portfolios. We have chosen Blairlogie Capital
Management of Edinburgh, Scotland to be our subadvisor on this Fund. Blairlogie
specializes in managing international portfolios and offers a strategy which
includes investments in both developed and emerging markets. The Fund is listed
on the NASDAQ under the symbol INTFX and appears daily in most major newspapers
under the heading Gradison.
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
its assets in companies based in emerging market countries. As of September 30,
the top five countries represented 49% of the Fund's total investments:
<TABLE>
<CAPTION>
PERCENT OF
COUNTRY INVESTMENTS
<S> <C>
France 14.1%
Germany 11.2
Italy 8.6
United Kingdom 8.1
Japan 7.2
- -------------------------------------
</TABLE>
Approximately 50% of the portfolio was diversified over an additional 5
developed and 12 emerging markets. The Fund's cash level was approximately 5%.
The entire portfolio is shown in the enclosed financial statements.
It has been a challenging year for international investors. The contagion from
the Asian recession has made its presence felt in European and Latin American
financial markets. As has been the case in recent years, the emerging markets
suffered more than the developed markets.
Looking ahead, we are heartened by the leadership the U.S. financial community
is showing in attempting to restore calm to the international markets. However,
implementation will be monitored closely by skeptical investors. So too, we
remind ourselves that periods of distress are a normal part of economic and
market cycles and ultimately create the conditions for a subsequent recovery.
We appreciate your participation in the Gradison International Fund. We will do
our best to help you achieve your investment goals.
Sincerely,
/s/ Bradley E. Turner
- ---------------------
Bradley E. Turner
President
5
<PAGE> 7
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
For a share outstanding throughout each period (Unaudited)
<TABLE>
<CAPTION>
ESTABLISHED VALUE FUND 6 MONTHS YEAR ENDED 11 MONTHS YEAR
ENDED --------------------------- ENDED ENDED
9/30/98 3/31/98 3/31/97 3/31/96 3/31/95 4/30/94
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 33.941 $28.827 $27.567 $23.381 $22.515 $ 21.375
-------- ------- ------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .212 .465 .445 .436 .376 .256
Net realized and unrealized gain (loss) on investments (4.889) 7.699 3.615 5.190 1.520 2.104
-------- ------- ------- ------- ------- --------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS (4.677) 8.164 4.060 5.626 1.896 2.360
-------- ------- ------- ------- ------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (.220) (.480) (.450) (.430) (.370) (.220)
Distributions from realized capital gains (.980) (2.570) (2.350) (1.010) (.660) (1.000)
-------- ------- ------- ------- ------- --------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1.200) (3.050) (2.800) (1.440) (1.030) (1.220)
-------- ------- ------- ------- ------- --------
NET ASSET VALUE AT END OF PERIOD $ 28.064 $33.941 $28.827 $27.567 $23.381 $ 22.515
======== ======= ======= ======= ======= ========
TOTAL RETURN (14.23%)(1) 29.67% 15.14% 24.84% 8.85%(1) 11.30%
======== ======= ======= ======= ======= ========
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in millions) $ 471.2 $ 567.3 $ 429.7 $ 366.4 $ 277.4 $ 253.3
Ratio of gross expenses to average net assets (2) 1.09% (3) 1.10% 1.12% 1.16% -- --
Ratio of net expenses to average net assets 1.09% (3) 1.10% 1.12% 1.15% 1.20%(3) 1.22%
Ratio of net investment income to average net assets 1.31% (3) 1.44% 1.57% 1.70% 1.87%(3) 1.15%
Portfolio turnover rate 18% 20% 31% 18% 24% 38%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GROWTH & INCOME FUND
6 MONTHS YEAR ENDED PERIOD
ENDED ------------------------------ 2/28/95*
9/30/98 3/31/98 3/31/97 3/31/96 TO 3/31/95
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $28.988 $21.477 $18.459 $15.189 $15.000
------- ------- ------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .112 .236 .246 .173 .030
Net realized and unrealized gain
(loss) on investments (3.208) 7.825 3.112 3.317 .159
------- ------- ------- -------- --------
TOTAL INCOME (LOSS) FROM
INVESTMENT OPERATIONS (3.096) 8.061 3.358 3.490 .189
------- ------- ------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (.090) (.290) (.210) (.185) --
Distributions from realized capital gains (.060) (.260) (.130) (.035) --
------- ------- ------- -------- --------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (.150) (.550) (.340) (.220) --
------- ------- ------- -------- --------
NET ASSET VALUE AT END OF PERIOD $25.742 $28.988 $21.477 $18.459 $15.189
======= ======= ======= ======== ========
TOTAL RETURN (10.72%)(1) 38.00% 18.33% 23.09% 1.27%(1)
======= ======= ======= ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in millions) $60.2 $60.1 $25.7 $12.0 $1.2
Ratio of gross expenses to
average net assets (2)(4) 1.43%(3) 1.52% 1.84% 3.09% 13.88%(3)
Ratio of net expenses to average net assets 1.43%(3) 1.49% 1.50% 1.50% 0.00%(3)
Ratio of net investment income
to average net assets (4) .84%(3) 1.02% 1.34% 1.39% 4.09%(3)
Portfolio turnover rate 1% 4% 16% 3% 4%
- ------------------------------------------------------------------------------------------------------------
</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
6 See accompanying notes to financial statements.
<PAGE> 8
FINANCIAL HIGHLIGHTS Continued
- -------------------------------------------------------------------------------
For a share outstanding throughout each period (Unaudited)
<TABLE>
<CAPTION>
OPPORTUNITY VALUE FUND
6 MONTHS YEAR ENDED 11 MONTHS YEAR
ENDED ----------------------------- ENDED ENDED
9/30/98 3/31/98 3/31/97 3/31/96 3/31/95 4/30/94
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $27.893 $22.771 $22.264 $18.100 $18.348 $17.547
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .107 .227 .203 .193 .136 .086
Net realized and unrealized gain
(loss) on investments (6.309) 8.725 2.509 4.731 .176 1.585
------- ------- ------- ------- ------- -------
TOTAL INCOME (LOSS) FROM
INVESTMENT OPERATIONS (6.202) 8.952 2.712 4.924 .312 1.671
------- ------- ------- ------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (.090) (.270) (.165) (.185) (.120) (.070)
Distributions from realized capital gains (1.030) (3.560) (2.040) (.575) (.440) (.800)
------- ------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1.120) (3.830) (2.205) (.760) (.560) (.870)
------- ------- ------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD $20.571 $27.893 $22.771 $22.264 $18.100 $18.348
======= ======= ======= ======= ======= =======
TOTAL RETURN (22.96%)(1) 42.02% 12.46% 28.00% 1.75%(1) 9.75%
======= ======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in millions) $137.0 $175.7 $114.5 $103.0 $84.7 $83.3
Ratio of gross expenses to average
net assets (2) 1.29% (3) 1.31% 1.36% 1.41% -- --
Ratio of net expenses to average net assets 1.29% (3) 1.31% 1.36% 1.41% 1.37%(3) 1.38%
Ratio of net investment income to
average net assets .84% (3) .86% .90% .95% .84%(3) .47%
Portfolio turnover rate 12% 42% 35% 24% 32% 40%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL FUND
6 MONTHS YEAR ENDED PERIOD
ENDED --------------------- 5/31/95*
9/30/98 3/31/98 3/31/97 TO 3/31/96
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $19.134 $16.226 $15.822 $15.000
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .068 .011 (.023) .065
Net realized and unrealized gain (loss) on investments (3.224) 3.069 .457 .799
------- ------- ------- -------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS (3.156) 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 $15.978 $19.134 $16.226 $15.822
======= ======= ======= =======
TOTAL RETURN (16.47%)(1) 19.11 2.78% 5.76%(1)
======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in millions) $29.8 $33.3 $24.8 $15.3
Ratio of net expenses to average net assets (4) 2.00%(3) 2.00% 2.00% 1.75%(3)
Ratio of net investment income (loss) to average net assets (4) .74%(3) .04% (.13%) .70%(3)
Portfolio turnover rate 18% 83% 92% 72%
- ------------------------------------------------------------------------------------------------------------------------------
</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 September 30, 1998 and 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 2.20% (annualized),
2.40%, 2.78% and 3.73% (annualized) and the ratio of net investment income
(loss) to average net assets would have been .54% (annualized), -.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
- --------------------------------------------------------------------------------
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS
SHARES COMMON STOCKS - 81.27% VALUE
<S> <C> <C>
AEROSPACE/DEFENSE COMPANIES - 8.81%
180,000 Goodrich (B.F.) Company $ 5,883,750
105,000 Litton Industries, Inc. (1) 6,300,000
84,616 Lockheed Martin Corporation 8,530,351
80,000 Northrop Grumman Corporation 5,840,000
126,400 Raytheon Company Cl. B 6,817,700
140,000 Textron, Inc. 8,487,500
-----------
41,859,301
-----------
BUSINESS SERVICES - 3.30%
218,000 Interim Services, Inc. (1) 4,482,625
156,000 Pittston Brink's Group 5,460,000
185,000 World Color Press, Inc. (1) 5,735,000
-----------
15,677,625
-----------
CHEMICALS - 2.44%
255,000 Engelhard Corporation 4,510,312
134,000 Hercules, Inc. 4,028,375
250,000 International Speciality
Products, Inc. (1) 3,062,500
-----------
11,601,187
-----------
COMPUTING PRODUCTS - 4.33%
180,000 Harris Corporation 5,760,000
250,000 Sun Microsystems, Inc. (1) 12,453,125
150,000 Tektronix, Inc. 2,325,000
-----------
20,538,125
-----------
CONSUMER NON-DURABLES - 4.38%
190,000 Coors (Adolph) Company Cl. B 8,728,125
180,000 Earthgrains Company 5,568,750
220,000 Fortune Brands, Inc. 6,517,500
-----------
20,814,375
-----------
CONSUMER DURABLES - 5.74%
133,000 Black & Decker Corporation 5,536,125
190,000 Brunswick Corporation 2,458,125
145,000 Centex Corporation 5,002,500
144,000 Deere & Company 4,356,000
97,000 Goodyear Tire & Rubber Company 4,983,375
200,000 Pulte Corporation 4,912,500
-----------
27,248,625
-----------
- -------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
ENERGY - 10.58%
109,000 Ashland, Inc. $ 5,041,250
200,000 BJ Services Company (1) 3,250,000
290,000 Coastal Corporation 9,787,500
200,000 El Paso Energy Corporation 6,487,500
139,000 KN Energy, Inc. 7,123,750
100,000 Nicor, Inc. 4,143,750
250,000 Pride International, Inc. (1) 2,000,000
238,000 Tosco Corporation 5,117,000
210,000 Transocean Offshore, Inc. 7,284,375
-----------
50,235,125
-----------
FINANCIAL SERVICES - 8.30%
215,000 Amresco, Inc. (1) 1,612,500
450,000 Household International, Inc. 16,875,000
150,000 Provident Companies, Inc. 5,062,500
70,000 Transamerica Corporation 7,420,000
225,000 Travelers Group, Inc. 8,437,500
-----------
39,407,500
-----------
INDUSTRIAL PRODUCTS - 8.00%
221,000 Cincinnati Milacron, Inc. 3,411,688
118,000 Cooper Industries, Inc. 4,808,500
165,000 Ingersoll-Rand Company 6,259,688
148,000 Johnson Controls, Inc. 6,882,000
175,950 Parker Hannifin Corporation 5,223,516
185,000 Premark International, Inc. 5,191,563
100,000 Timken Company 1,512,500
145,000 Trinity Industries 4,703,438
-----------
37,992,893
-----------
INSURANCE - 8.91%
142,500 Berkley (W.R.) Corporation 4,257,186
70,000 Chubb Corporation 4,410,000
93,000 Cigna Corporation 6,149,625
84,000 Hartford Financial Services Group 3,984,750
30,000 Life Re Corporation 2,758,125
100,000 MBIA, Inc. 5,368,750
110,000 Providian Financial Corporation 9,329,375
186,000 St. Paul Companies 6,045,000
-----------
42,302,811
-----------
- -------------------------------------------------------
</TABLE>
8 See accompanying notes to financial statements.
<PAGE> 10
ESTABLISHED VALUE FUND
- --------------------------------------------------------------------------------
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS Continued
SHARES COMMON STOCKS (CONTINUED) VALUE
<S> <C> <C>
NATURAL RESOURCES - 1.05%
140,000 Bowater, Inc. $ 4,987,500
-----------
RETAIL TRADE - 8.75%
320,000 American Stores Company 10,300,000
300,000 Dayton-Hudson Corporation 10,725,000
135,000 Dillard's, Inc. 3,822,186
110,000 Federated Department Stores (1) 4,001,250
216,000 Fingerhut Companies, Inc. 2,376,000
475,000 K Mart Corporation (1) 5,670,312
200,000 Supervalu, Inc. 4,662,500
-----------
41,557,248
-----------
RETAIL SERVICES - 3.37%
240,000 Brinker International, Inc. (1) 4,500,000
68,774 Metris Companies, Inc. 3,189,413
100,000 Royal Caribbean Cruises Ltd. 2,656,250
254,000 Wendy's International, Inc. 5,635,625
-----------
15,981,288
-----------
- -------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
TELECOMMUNICATIONS - 0.84%
300,000 Andrew Corporation (1) $ 3,975,000
-----------
TRANSPORTATION - 2.47%
222,000 Airborne Freight Corporation 3,843,375
213,000 America West Holdings
Corporation (1) 2,662,500
180,000 Norfolk Southern Corporation 5,231,250
-----------
11,737,125
-----------
TOTAL COMMON STOCKS
(COST $293,038,407) 385,915,728
-----------
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST
AMOUNT COMMERCIAL PAPER -- 13.86% MATURITY RATE(2) VALUE
<S> <C> <C> <C> <C>
$10,000,000 Bell South 10/07/98 5.50% 9,990,833
8,000,000 GE Capital Corporation 10/07/98 5.30 7,992,933
10,000,000 Fuji Photo 10/14/98 5.51 9,980,103
8,000,000 Hitachi America 10/16/98 5.38 7,982,067
10,000,000 Eastman Kodak Company 10/22/98 5.49 9,967,975
10,000,000 Block Financial 10/30/98 5.51 9,955,614
10,000,000 Indianapolis Power and Light 11/03/98 5.48 9,949,767
------------
TOTAL COMMERCIAL PAPER (COST $65,819,292) 65,819,292
------------
- ----------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 4.87%
23,130,000 First Union Capital Markets, dated 10/1/98, collateral:
U.S. Treasury Bills; due 5/27/99, market value $23,856,591
(repurchase proceeds $23,133,502) (Cost $23,130,000) 10/01/98 5.45 23,130,000
------------
TOTAL INVESTMENTS, AT VALUE (NOTE 1) (COST $381,987,699) - 100% $474,865,020
============
- ----------------------------------------------------------------------------------------------------------------------
</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. 9
<PAGE> 11
GROWTH & INCOME FUND
- --------------------------------------------------------------------------------
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS
SHARES COMMON STOCKS - 99.69% VALUE
<S> <C> <C>
BANK SERVICES - 8.14%
33,000 Huntington Bankshares, Inc. $ 816,750
15,000 Morgan (J.P.) & Company, Inc. 1,269,375
10,000 National City Corporation 659,375
60,000 Norwest Corporation 2,148,750
----------
4,894,250
----------
CHEMICALS - 3.77%
20,000 Avery-Dennison Corporation 873,750
20,000 Du Pont (E.I.) de Nemours & Company 1,122,500
20,000 Schulman, (A.), Inc. 272,500
----------
2,268,750
----------
CONSUMER DURABLES - 2.67%
40,000 Cooper Tire & Rubber Company 720,000
20,000 TRW, Inc. 887,500
----------
1,607,500
----------
CONSUMER NON-DURABLES - 12.33%
31,500 Archer Daniels Midland Corporation 527,625
20,000 Bestfoods 968,750
15,000 Heinz (H.J.) Company 766,875
40,000 International Flavors &
Fragrances, Inc. 1,320,000
30,000 Kellogg Company 988,125
25,000 Lancaster Colony Corporation 767,188
20,000 Newell Company 921,250
15,000 Pepsico, Inc. 441,560
10,000 Procter & Gamble Company 709,375
----------
7,410,748
----------
- -----------------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
ENERGY - 10.09%
15,000 Chevron Corporation $1,260,938
30,000 Exxon Corporation 2,105,625
20,000 Helmerich & Payne 420,000
30,000 Mobil Corporation 2,278,125
----------
6,064,688
----------
FINANCIAL SERVICES - 4.24%
30,000 American General Corporation 1,916,250
10,000 Excel Limited 630,000
----------
2,546,250
----------
HEALTHCARE & PHARMACEUTICALS - 11.04%
50,000 American Home Products Corporation 2,618,750
20,000 Bristol-Myers Squibb Company 2,077,500
15,000 Merck & Company, Inc. 1,943,438
----------
6,639,688
----------
INDUSTRIAL PRODUCTS - 8.90%
30,000 AMP, Inc. 1,072,500
15,000 General Electric Company 1,193,438
20,000 Hubbell, Inc. 710,000
20,000 Lincoln Electric Holdings 457,500
40,000 Pall Corporation 887,500
20,000 Parker Hannifin Corporation 593,750
35,000 Worthington Industries, Inc. 437,500
----------
5,352,188
----------
- -----------------------------------------------------------------
</TABLE>
10 See accompanying notes to financial statements.
<PAGE> 12
GROWTH & INCOME FUND
- --------------------------------------------------------------------------------
September 30, 1998 (Unaudited)
PORTFOLIO OF INVESTMENTS CONTINUED
<TABLE>
<CAPTION>
SHARES COMMON STOCKS (CONTINUED) VALUE
<S> <C> <C>
INSURANCE - 5.23%
30,000 Allstate Corporation $ 1,250,625
30,000 Cincinnati Financial Corporation 918,750
30,000 St. Paul Companies 975,000
----------
3,144,375
----------
RETAIL TRADE & SERVICES - 5.17%
10,000 J.C. Penney Company, Inc. 449,375
10,000 May Department Stores Company 515,000
7,000 McDonalds Corporation 417,812
60,000 Reynolds & Reynolds Company Cl. A 1,068,750
15,000 Walgreen Company 660,938
----------
3,111,875
----------
TECHNOLOGY - 16.26%
10,000 Automatic Data Processing, Inc. 747,500
30,000 Diebold, Inc. 660,000
50,000 Hewlett Packard Company 2,646,875
20,000 Intel Corporation 1,715,000
10,000 Minnesota Mining &
Manufacturing Company 736,875
15,000 Motorola, Inc. 640,312
50,000 Pitney-Bowes, Inc. 2,628,125
----------
9,774,687
----------
- -------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
TELECOMMUNICATIONS - 7.77%
50,000 Ameritech Corporation $ 2,368,750
20,000 Bell Atlantic Corporation 968,750
30,000 SBC Communications, Inc. 1,333,125
----------
4,670,625
----------
TRANSPORTATION - 0.96%
20,000 Comair Holdings 575,000
----------
575,000
----------
UTILITIES - 3.12%
15,000 Duke Energy Company 992,814
30,000 Southern Corporation 883,125
----------
1,875,939
----------
TOTAL COMMON STOCKS
(COST $51,610,699) 59,936,563
----------
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST
AMOUNT REPURCHASE AGREEMENT - 0.31% MATURITY RATE (1) VALUE
<S> <C> <C> <C> <C>
$185,000 First Union Capital Markets, dated 9/30/98, collateral:
U.S. Treasury Note 5.625%; due 2/28/01, market value $192,098
(repurchase proceeds $185,028) (COST $185,000) 10/01/98 5.45% 185,000
-----------
TOTAL INVESTMENTS, AT VALUE (NOTE 1) (COST $51,795,699) - 100.00% $60,121,563
===========
- ----------------------------------------------------------------------------------------------------------------------
</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. 11
<PAGE> 13
OPPORTUNITY VALUE FUND
- -------------------------------------------------------------------------------
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS
SHARES COMMON STOCKS - 80.71% VALUE
<S> <C> <C>
AUTOMOTIVES - 3.74%
25,000 Borg-Warner Automotive, Inc. $ 926,562
30,000 Gleason Corporation 481,875
70,000 Intermet Corporation 883,750
30,000 Motocar Parts & Accessories (1) 345,000
30,000 Superior Industries Intl. 686,250
100,000 Wynn's International, Inc. 1,868,750
-----------
5,192,187
-----------
BANKS - 11.76%
45,000 Andover Bancorp, Inc. 1,383,750
30,000 Firstar Corporation 1,518,750
64,000 GBC Bancorp 1,528,000
49,172 HUBCO, Inc. 1,247,740
46,125 Mercantile Bankshares Corporation 1,271,320
4,000 M & T Bank Corporation 1,844,000
34,000 National City Corporation (1) 918,000
42,000 Old Kent Financial Corporation 1,239,000
50,000 TCF Financial Corporation 993,750
66,000 TR Financial Corporation 1,753,124
20,000 Union Planters Corporation 1,005,000
40,000 Zions Bancorporation 1,630,000
-----------
16,332,434
-----------
BUILDING MATERIALS - 3.81%
14,600 Butler Manufacturing Company 337,625
32,000 Cascade Corporation 426,000
25,000 Fibermark, Inc. (1) 354,688
65,000 Hughes Supply, Inc. 1,852,500
74,000 NCI Building Systems, Inc. (1) 1,466,125
34,000 Texas Industries, Inc. 854,250
-----------
5,291,188
-----------
BUSINESS SERVICES - 5.11%
75,000 ABM Industries, Inc. 2,193,750
16,000 Advanced Marketing Services 272,000
65,000 Leasing Solutions, Inc. (1) 1,779,375
70,000 Merrill Corporation 1,085,000
100,000 Norstan, Inc.(1) 1,762,500
-----------
7,092,625
-----------
- -------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
CHEMICALS - 1.99%
60,000 Cambrex Corporation $ 1,413,750
45,000 Ferro Corporation 894,375
44,000 Stephan Company (The) 456,500
-----------
2,764,625
-----------
COMPUTER PRODUCTS - 2.29%
40,000 DRS Technologies, Inc. (1) 387,500
45,000 Keane, Inc. (1) 1,580,625
55,000 MTS Systems Corporation 797,500
30,000 Printronix, Inc. (1) 416,250
-----------
3,181,875
-----------
COMPUTER SERVICES - 1.94%
60,000 Affiliated Computer Svcs-A (1) 1,830,000
11,400 Applied Graphics Technologie (1) 138,225
38,000 Inacom Corporation (1) 717,250
-----------
2,685,475
-----------
CONSUMER DURABLES - 1.94%
15,000 Cannondale Corporation, Inc. 136,875
75,000 Coachmen Industries 1,490,625
50,000 Thor Industries, Inc. 1,062,500
-----------
2,690,000
-----------
CONSUMER NON-DURABLES - 0.68%
40,000 Michael Foods, Inc. 950,000
-----------
ELECTRONICS - 3.38%
40,500 CTS Corporation 1,194,750
54,000 EDO Corporation 398,250
25,000 Electro Scientific
Industries, Inc.(1) 387,500
75,000 Esterline Technologies
Corporation (1) 1,471,875
60,000 Frequency Electronics, Inc. 420,000
22,400 Harman International 821,800
-----------
4,694,175
-----------
ENERGY - 2.33%
53,000 Atwood Oceanics, Inc. (1) 1,103,062
55,000 Input/Output, Inc. (1) 436,562
20,000 SEACOR SMIT, Inc. (1) 830,000
70,000 World Fuel Services Corporation 870,625
-----------
3,240,249
-----------
- -------------------------------------------------------
</TABLE>
12 See accompanying notes to financial statements.
<PAGE> 14
OPPORTUNITY VALUE FUND
- --------------------------------------------------------------------------------
September 30, 1998 (Unaudited)
PORTFOLIO OF INVESTMENTS Continued
<TABLE>
<CAPTION>
SHARES COMMON STOCKS (CONTINUED) VALUE
<S> <C> <C>
FINANCIAL SERVICES - 4.34%
18,000 AmeriCredit Corporation (1) $ 438,750
75,000 ARM Financial Group, Inc. 1,331,250
20,000 D & N Financial Corporation 390,000
75,000 ITLA Capital Corporation (1) 1,012,500
100,000 Raymond James Financial, Inc. 2,100,000
35,000 Vermont Financial Services
Corporation 752,500
-----------
6,025,000
-----------
HEALTH CARE - 3.44%
42,000 Genesis Health Ventures, Inc. (1) 514,500
40,000 HealthSouth Corporation (1) 422,500
35,000 Integrated Health Services, Inc. 588,438
68,000 Mariner Health Group, Inc. (1) 348,500
102,000 Prime Medical Svcs, Inc. (1) 816,000
50,000 Universal Health Services, Inc. (1) 2,087,500
-----------
4,777,438
-----------
HOTELS/CASINOS - 1.82%
25,000 Anchor Gaming (1) 1,418,750
24,000 Harveys Casinos Resorts 574,500
39,000 Rio Hotel and Casino, Inc. (1) 538,688
-----------
2,531,938
-----------
HOUSING - 3.34%
50,000 D.R. Horton, Inc. 800,000
43,000 Lennar Corporation 959,438
43,000 LNR Property Corporation 830,438
49,000 MDC Holdings, Inc. 903,438
50,000 Toll Brothers, Inc. (1) 1,146,875
-----------
4,640,189
-----------
INDUSTRIAL PRODUCTS - 6.01%
50,000 Applied Power, Inc. 1,365,625
21,000 Carpenter Technology 767,812
30,000 Docommun, Inc. (1) 600,000
52,500 Farr Company (1) 485,625
34,000 Gardner Denver, Inc. (1) 480,250
44,000 Gehl Company (1) 599,500
50,000 Met-Pro Corporation 562,500
10,000 Robbins & Meyers, Inc. 211,875
32,000 Thomas Industries, Inc. 686,000
71,000 Transtechnology Corporation 1,464,375
62,000 United Dominion Inds, Ltd. 1,123,750
-----------
8,347,312
-----------
- -------------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
INSURANCE COMPANIES - 5.58%
32,000 Donegal Group, Inc. $ 468,000
45,000 Fremont General Corporation 2,160,000
52,000 HCC Insurance Holdings, Inc. 1,007,500
40,000 Orion Capital Corporation 1,427,500
58,000 Protective Life Corporation 2,088,000
22,000 Selective Insurance Group 418,000
16,000 Unico American Corporation 184,000
-----------
7,753,000
-----------
MEDICAL EQUIPMENT - 2.19%
80,000 Cooper Companies, Inc. (1) 1,410,000
35,000 EMPI, Inc. (1) 533,750
31,000 Thermedics, Inc. (1) 232,500
30,000 West Company, Inc. 862,500
-----------
3,038,750
-----------
METAL FABRICATION - 3.74%
29,000 Atchison Casting Corporation (1) 288,188
37,500 Chase Industries, Inc. (1) 532,031
80,000 Mueller Industries, Inc. (1) 2,035,000
37,000 Quanex Corporation 733,062
26,000 Reliance Steel & Aluminum 853,125
36,000 Wolverine Tube, Inc. (1) 758,250
-----------
5,199,656
-----------
NATURAL RESOURCES - 1.90%
24,000 Florida Rock Inds. 594,000
10,000 Lone Star Industries 597,500
32,000 Southdown, Inc. 1,440,000
-----------
2,631,500
-----------
RETAIL TRADE & SERVICES - 2.55%
43,000 BJ's Wholesale Club, Inc. (1) 1,580,250
60,000 O'Charleys, Inc. (1) 607,500
50,000 Unifirst Corporation 1,346,875
-----------
3,534,625
-----------
SEMICONDUCTORS - 1.94%
50,000 Dallas Semiconductor Corporation 1,350,000
40,000 Kulicke and Soffa
Industries, Inc. (1) 535,000
150,000 Savoir Technology Group, Inc. (1) 806,250
-----------
2,691,250
-----------
- -------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements. 13
<PAGE> 15
OPPORTUNITY VALUE FUND
- --------------------------------------------------------------------------------
September 30, 1998 (Unaudited)
PORTFOLIO OF INVESTMENTS Continued
<TABLE>
<CAPTION>
SHARES COMMON STOCKS (CONTINUED) VALUE
<S> <C> <C>
TRANSPORTATION - 2.70%
75,000 Comair Holdings, Inc. $ 2,156,250
55,000 Forward Air Corporation (1) 797,500
40,000 USFreightways Corporation 792,500
-----------
3,746,250
-----------
- -------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
TELECOMMUNICATIONS - 2.19%
175,000 Cellstar Corporation (1) $ 754,688
100,000 Comdial Corporation (1) 825,000
30,000 Communication Systems, Inc. 346,874
61,000 Vertex Comm. Corporation (1) 1,120,875
-----------
3,047,437
-----------
TOTAL COMMON STOCKS
(COST $95,739,440) 112,079,178
-----------
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST
AMOUNT COMMERCIAL PAPER - 11.85% MATURITY RATE (2) VALUE
<S> <C> <C> <C> <C>
$2,500,000 Bell South 10/07/98 5.50% 2,497,708
2,000,000 GE Capital Corporation 10/07/98 5.30 1,998,233
2,500,000 Fuji Photo 10/14/98 5.51 2,495,026
2,000,000 Hitachi America 10/16/98 5.38 1,995,517
2,500,000 Eastman Kodak Company 10/22/98 5.49 2,491,994
2,500,000 Block Financial 10/30/98 5.51 2,488,903
2,500,000 Indianapolis Power and Lighting 11/03/98 5.48 2,487,442
-----------
TOTAL COMMERCIAL PAPER (COST $16,454,823) 16,454,823
-----------
- ----------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 7.44%
10,330,000 First Union Capital Markets, dated 9/30/98, collateral:
U.S. Treasury Note 7.75%; due 1/31/00, market value $10,666,401
(repurchase proceeds $10,331,564) (COST $10,330,000) 10/01/98 5.45 10,330,000
------------
TOTAL INVESTMENTS, AT VALUE (NOTE 1) (COST $122,524,263) - 100% $138,864,001
============
- ----------------------------------------------------------------------------------------------------------------------
</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.
14 See accompanying notes to financial statements.
<PAGE> 16
INTERNATIONAL FUND
- --------------------------------------------------------------------------------
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS
SHARES PREFERRED STOCKS - 2.38% VALUE
<S> <C> <C>
GERMANY - 1.29%
750 Sap Preferred $ 355,849
----------
BRAZIL - 1.09%
9,000 Aracruz Celulose S.A. 5,999
6,639,000 BCO Bradesco S.A. 38,874
102,000 BCO Itau S.A. 49,484
812,000 CIA Energetica Minas 17,956
2,600 CIA Vale Do Rio Doce 37,291
41,000 Co Cervejaria Brahma 16,258
4,582,000 Elerobras Cent. El 101,673
192,000 Petrol Brasileiros S.A. 19,682
4,000 Usinas Sid Minas Gerais 11,981
----------
299,198
----------
TOTAL PREFERRED STOCKS
(COST $811,865) 655,047
----------
- -----------------------------------------------------------------
SHARES COMMON STOCKS - 97.62% VALUE
ARGENTINA - 2.28%
39,350 Astra Cia Arg De Petroleum $ 43,290
9,497 Bco De Galicia Bank 37,708
7,196 Banco Frances S.A. 46,780
38,364 Dalmine Siderca S.A 47,577
541 Irsa Inversiones Y GDR 11,632
9,040 Molinos Rio Plata 15,823
9,750 Perez Compan ADR 80,446
5,512 Telefonica Argentina ADR 162,260
7,000 YPF S.A. ADR 182,000
----------
627,516
----------
BRAZIL - 0.68%
2,100 Souza Cruz S.A. 12,757
1,452,000 Companhia Siderurgica S.A. 23,889
101,000 Paulista De Forca E Luz 8,351
1,800 Telebras ADR 126,788
383,000 Telebras Telec Bra New 16,804
----------
188,589
----------
CHILE - 1.91%
6,500 Banco Santander Chile ADR 71,500
1,750 Cia Cervecerias ADR 32,156
7,442 Cia Telecommunications Chile ADR 142,328
6,600 Empresa Nacional de Electridad SA ADR 56,100
5,150 Enersis SA ADR 104,931
3,524 Gener S.A. ADR 52,640
1,600 Madeco SA ADR 11,000
3,400 Masisa S.A. ADR 18,773
1,300 Quimica y Minera SA ADR 37,863
----------
527,291
----------
FINLAND - 5.95%
3,750 Hartwall Oy 40,532
9,740 Metsa Serla Oy B Ord 68,907
12,730 Nokia AB Oy 1,010,671
5,200 Okobank Osuspankk 96,977
55 Rauma Oy 621
7,100 Rautaruuki Oy 39,626
4,880 Upm-Kymmene Oy 111,724
550 Viking Line AB 27,022
3,150 Werner Soderstrom 210,470
3,200 Yit Huber 32,700
----------
1,639,250
----------
- -----------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements. 15
<PAGE> 17
INTERNATIONAL FUND
- --------------------------------------------------------------------------------
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS Continued
SHARES COMMON STOCKS (CONTINUED) VALUE
<S> <C> <C>
FRANCE - 14.06%
1,308 Alcatel Alst $ 116,219
4,430 Banque Nationale de Paris 237,118
470 Carrefour 297,774
1,290 Cie De St. Gobain 171,008
880 Danone 231,273
1,170 Vivendi 232,964
550 Vivendi Warrants (1) 844
3,352 Elf Aquitaine 413,257
4,340 France Telecom Sa 256,692
2,100 Groupe Gtm 187,339
490 L'Oreal 227,742
2,220 Lafarge 196,460
1,270 LVMH 173,342
1,550 Peugeot SA 264,380
1,450 Pinault Printemp 209,552
330 Promodes 201,009
1,240 Societe Generale 137,168
2 Shneider S.A. 104
1,880 Total 236,811
1,160 Valeo 82,787
----------
3,873,843
----------
GERMANY - 9.88%
745 Allianz AG Holdings 230,897
2,700 Basf Ag 102,258
6,315 Bayer AG 238,415
2,900 Bayerische Hpyo-vereinsb 213,420
2,400 Commerzbank AG 64,905
1,950 Daimler-Benz AG 163,107
2,400 Deutsche Telekom Bank AG 123,923
1,400 Dresdner Bank AG 52,101
3,620 Mannesmann AG 331,384
2,400 Metro Ag 167,002
360 Munchener Ruckversicheru 158,745
3,000 Rwe Ag 139,198
2,120 Siemens AG 117,077
2,332 Veba AG 121,389
370 Viag 254,142
3,380 Volkswagen Ag 243,689
----------
2,721,652
----------
- -------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
GREECE - 2.44
1,440 Alpha Credit Bank $ 106,993
800 Ergobank S.A. 64,440
3,500 Hellenic Bottling Co. 86,340
10,000 Hellenic Telecom Org. 239,568
864 National Bank of Greece 116,393
1,000 Titan Cement 59,736
----------
673,470
----------
HUNGARY - 2.09%
1,500 Danibius Hotels (1) 23,882
550 Graboplast Textiles Rt. 3,498
8,300 Magyar Olaj Es Gazipari Rt. 161,003
56,500 Matav 248,665
2,900 OTP Bank Rt. 82,259
650 Pick Szeged 18,586
1,250 Richter Gedeon Rt. 38,602
----------
576,495
----------
IRELAND - 2.51%
22,500 Allied Irish Banks Ord 329,538
14,100 CRH Ord 178,063
7,900 Irish Life Ord 58,443
6,000 Kerry Group A Ord 69,943
36,400 Smurfit Jefferson Ord 54,400
----------
690,387
----------
ISRAEL - 2.62%
3,800 Agis Industries 21,938
33,000 Bank Leumi Le Israel Bm 48,745
21,600 Bezeq Israel Telecommunications 63,925
40,000 Bk Hapoalim BM 97,677
3,800 Blue Square Chain Stores (1) 51,882
1,740 Elite Industries (1) 46,381
2,800 Eci Telecom ADR 68,600
2,000 Formula Systems (1) 42,441
47,000 ICl-Israel Chemical 44,001
880 Koor Industries Ltd. 73,462
23,900 Super Sol 67,686
2,530 Teva Pharmaceutical Industries Ltd. 95,140
----------
721,878
----------
- -------------------------------------------------------
</TABLE>
16 See accompanying notes to financial statements.
<PAGE> 18
INTERNATIONAL FUND
- --------------------------------------------------------------------------------
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS Continued
SHARES COMMON STOCKS (CONTINUED) VALUE
<S> <C> <C>
ITALY - 8.56%
14,850 Alleanza Assicuraz $ 173,441
8,120 Assicurazioni Generali SpA 263,807
24,400 BCA Communicatios Italiana 146,513
91,400 Benetton Group SpA 137,690
12,500 Danieli & Co. 77,553
24,000 Edison 182,371
78,500 Eni SpA 480,624
43,600 Fiat SpA 111,315
38,000 Istituto Nazionale delle
Assicurazioni 96,558
10,300 Italcementi Spa 135,847
37,110 Telecom Italia SpA 255,386
51,000 TIM SpA 296,825
----------
2,357,930
----------
JAPAN - 7.22%
6,600 Aoyama Trading Co. 141,087
3,000 Bridgestone Corp 60,605
4,000 Canon 81,394
6,200 Fanuc 184,458
6,000 Fuji Photo Film Co. 207,157
19,000 Fujisawa Pharmaceutical Co. 175,305
28,000 Hitachi Ltd. 123,413
1,000 Ito-yokado Co Ltd 47,749
17,000 Kirin Brewery Co. 136,371
6,000 Matsushita Electric Works 81,761
19,000 Mitsubishi Chemical Corp. 65,181
57,000 Mitsui O.S.K. Lines Ltd. 82,488
4,000 Murata Manufacturing Co. 135,460
8,000 NEC Corporation 52,010
42 Nippon Telgraph & Telephone Co. 153,495
10,000 Tokio Marine & Fire Ins 89,621
4,200 Tokyo Electric 80,527
4,000 Toyota Motor Corp 89,621
----------
1,987,703
----------
- ------------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
MEXICO - 1.30%
5,250 Alfa SA de CV Ser A $ 11,695
6,643 Cemex SA 14,603
21,802 Cifra SA de Cv Servnpv 26,530
8,500 Controlodora Comercial
Mexicana SA de CV 4,671
530 Desc SA de CV Ser C 380
9,250 Desc SA de CV,Ser B 6,990
4,700 Empresas La Modern A (1) 28,089
560 Fomento Economico Mexico SA
de CV ADR 10,990
5,050 Grupo Carso SA de CV Ser A1 15,066
11,554 Grupo Financiero Banamex Accival SA
de CV (1) 9,071
7,172 Grupo Industrial Bimbo SA 12,669
8,150 Grupo Mexico SA 19,995
4,850 Grupo Modelo SA de CV 38,267
780 Grupo Televisa GDR (1) 15,064
3,900 Industrias Penoles SA 11,137
5,950 Kimberly Clark de Mexico SA 13,576
2,620 Telefonos de Mexico ADR 115,935
500 Tv Azteca ADR 3,281
----------
358,009
----------
NETHERLANDS - 4.59%
3,064 ABN-AMRO Holdings NV 52,175
1,400 Akzo Nobel NV 49,759
4,000 Elsevier NV 59,414
1,500 Fortis Amev Nv 84,187
3,200 Ing Groep NV 144,121
1,800 Koninklijke PTT Nederland NV 55,573
1,350 Philips Electronic 72,689
7,280 Royal Dutch Petroleum 361,088
1,800 TNT Post Groep Nv 45,834
2,440 Unilever NV 153,514
4,480 Ver Ned Uitgevers 184,897
----------
1,263,251
----------
- ------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements. 17
<PAGE> 19
INTERNATIONAL FUND
- --------------------------------------------------------------------------------
September 30, 1998 (Unaudited)
PORTFOLIO OF INVESTMENTS Continued
<TABLE>
<CAPTION>
SHARES COMMON STOCKS (CONTINUED) VALUE
------ ------------------------- -----
<S> <C> <C>
PERU - 0.62%
50,127 Backus Y Johnston $ 19,043
3,500 Banco Wiese ADR 9,625
5,250 Cementos Lima 7,221
67,300 Cia Peruana Tele B Shares 82,651
3,400 Credicorp ADR 24,863
1,781 Minas Buenaventura 11,549
900 Minas Buenaventura 5,305
15,500 Luz Del Sur 10,661
----------
170,918
----------
POLAND - 2.11%
900 Agros Holdings (1) 5,038
5,300 Amica Wronki (1) 30,853
350 Bank Przemyslowo Han Pln 23,999
4,420 Bank Rozwoju Eksportu 74,223
1,150 Bank Slaski 56,325
73,900 Big Bank Gdanski 64,117
2,400 Debica 41,645
19,700 Elektrim 199,590
23,900 Polifarb 33,445
2,800 Stomil Olsztyn 14,106
6,000 Wielkopolski Bank Kredyt 36,944
----------
580,285
----------
PORTUGAL - 4.39%
4,072 Banco Comercl Portuguese 109,849
4,121 Banco Espirito Santo 112,876
3,600 BPI 99,172
1,200 Brisa Auto 54,629
3,460 Cimpor (Cimentos de Portugal) 96,385
9,800 Electricidade de Portugal 225,241
1,650 Investec Consultadoria Internacional 70,210
1,895 Jeronimo Martins 64,122
4,000 Mundial Confianca (1) 82,189
6,430 Portugal Telecom SA 233,766
2,040 Sonae Investimentos Socieda de Gestora
de Participacoes Sociais SA 59,468
----------
1,207,907
----------
- -------------------------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
------ ------------------------- -----
SPAIN - 5.40%
8,000 Argentaria Corp Bc $ 159,081
7,140 Autopistas, Concesionari 109,061
15,900 Banco Bilbao Vizcaya SA 170,119
7,161 Banco Central Hispanoame 66,284
4,488 Banco Santander SA 69,342
7,900 Empresa Nacional de Electricid SA 177,946
1,600 Gas Natural 113,187
1,100 Gas Y Electricidad Sa 82,539
10,600 Iberdrola SA 176,461
1,700 Repsol SA 71,798
7,963 Telefonica de Espana 290,348
----------
1,486,166
----------
SWITZERLAND - 6.10%
72 ABB AG 73,076
238 Ciba Specialty Chemical Nw 19,772
250 Clariant AG 114,497
944 Credit Suisse Group 104,335
99 Holderbank Finance Glaris AG 101,552
30 Kuoni Reisen Holdings 91,020
138 Nestle SA 274,542
253 Novartis AG 405,549
29 Roche Holdings AG 312,140
650 Tag Heuer 37,564
750 Ubs Ag 146,282
----------
1,680,329
----------
TURKEY - 2.83%
1,360,305 Adana Cimento Sanayii 28,403
2,383,006 Akbank 33,457
3,540,000 Arcelik AS 82,836
323,000 Aygaz AS 28,779
570,000 Bagfas Bandirma Gubre AS 32,319
1,562,000 Brisa 37,113
687,000 Ege Biracilik Ve Malt SA 51,937
851,000 Eregli Demir Celik (1) 63,570
73,650 Migros Turk TAS 53,028
618,800 Netas Telekomunik AS (1) 17,153
73,000 Otosan Otomobil Sanayii 16,556
2,265,000 Sabanci Holding 34,655
992,800 T Sise Cam 15,905
3,557,000 Turkiye Garanti Bankasi (1) 61,465
6,157,500 Turkiye Is Bankasi 161,819
5,271,550 Yapi Ve Kredi Bankasi (1) 59,780
----------
778,775
----------
- -------------------------------------------------------------------------
</TABLE>
18 See accompanying notes to financial statements.
<PAGE> 20
INTERNATIONAL FUND
- --------------------------------------------------------------------------------
September 30, 1998 (Unaudited)
PORTFOLIO OF INVESTMENTS CONTINUED
<TABLE>
<CAPTION>
SHARES COMMON STOCKS (CONTINUED) VALUE
UNITED KINGDOM - 8.10%
<S> <C> <C>
6,640 Abbey National PLC $ 114,420
9,150 Boots Co. PLC 157,517
7,630 British Petroleum 116,698
9,800 British Telecom PLC 132,067
4,900 Cadbury 63,452
5,900 Cgu 91,391
4,200 Glaxo Wellcome 123,978
2,480 HSBC Holdings 46,444
10,200 IMI PLC 43,508
12,900 Lasmo PLC 38,145
15,459 Lloyds TSB Group PLC 173,126
8,200 National Power 74,692
9,400 Prudential PLC 137,380
11,429 Scot Power 110,708
9,360 Scottish & Newcastle PLC 114,526
8,050 Shell Transport & Trading PLC 48,736
13,600 Smith Kline Beecham 149,534
32,300 Tesco 91,667
7,800 Ti Group Plc 47,189
15,200 Unilever PLC 130,058
11,580 Wolseley PLC 59,037
4,690 Zeneca Group PLC 165,780
-----------
2,230,053
-----------
VENEZUELA - 1.98%
106,356 Banco Provincial 110,364
12,550 Cia Anonima Telefonos
De Venezuela ADR 213,350
367,689 Electricid Caracas 102,600
9,450 Mavesa SA ADR 37,209
424,491 Sider Venezuela 37,090
16,446 Venezolana De Ceme 5,163
123,346 Venezolana De Cemento 39,796
-----------
545,572
-----------
TOTAL COMMON STOCKS
(COST $26,977,372) 26,887,269
-----------
TOTAL INVESTMENTS,
AT VALUE (NOTE 1)
(COST $27,789,237) - 100% $27,542,316
===========
- -------------------------------------------------------
</TABLE>
SUMMARY OF INVESTMENTS BY INDUSTRY
<TABLE>
<CAPTION>
% OF
TOTAL
INDUSTRY INVESTMENTS
<S> <C>
Banking 15.33%
Beverages & Tobacco 2.99
Broadcasting & Publishing 1.96
Building Materials 3.05
Business Services 0.85
Chemicals 4.13
Conglomerates 3.48
Construction & Housing 0.89
Drugs 4.26
Electrical & Electronic Machinery Equipment 6.79
Energy 9.13
Fabric Mills 0.49
Financial Services 1.41
Food & Household Products 5.37
Forest Products & Paper 0.99
Glassware 0.62
Household Appliances & Durables 0.38
Insurance 5.33
Iron & Steel 0.68
Machinery & Engineering 1.66
Materials & Commodities 0.13
Metals & Mining 0.49
Merchandising 4.00
Motor Vehicles & Car Bodies 2.58
Real Estate 0.04
Telecommunications 15.50
Tires 0.42
Tourism 0.33
Transportation Services 1.94
Utilities 4.78
-------
100.00%
=======
- ----------------------------------------------------
</TABLE>
(1) Non-income producing
The following abbreviations are used in this portfolio:
ADR - American Depository Receipts; GDR - Global Depository Receipts.
See accompanying notes to financial statements. 19
<PAGE> 21
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
- ----------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 (UNAUDITED)
<CAPTION>
ESTABLISHED GROWTH & OPPORTUNITY INTERNATIONAL
VALUE FUND INCOME FUND VALUE FUND FUND
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at cost $381,987,699 $51,795,699 $122,524,263 $27,789,237
============ =========== ============ ===========
Investments in securities, at value (Note 1) $474,865,020 $60,121,563 $138,864,001 $27,542,316
Cash 147,698 9,806 -- 2,340,603
Foreign currency, at value (Note 1) (Cost $495,626) -- -- -- 473,536
Receivable for securities sold -- -- -- 176,310
Receivable for Fund shares sold 187,990 32,583 146,803 71,542
Dividends and interest receivable 595,510 128,189 54,347 47,383
Prepaid expenses and other assets 12,429 16,078 28,871 22,486
Organization expenses, net (Note 1) -- 1,766 -- 8,077
------------ ----------- ------------ -----------
TOTAL ASSETS 475,808,647 60,309,985 139,094,022 30,682,253
------------ ----------- ------------ -----------
LIABILITIES
Payable for Fund shares redeemed 4,105,893 33,131 1,910,739 76,640
Payable for securities purchased -- -- -- 504,564
Forward foreign exchange currency contracts (Note 1) -- -- -- 136,385
Futures variation margin payable -- -- -- 10,189
Accrued investment advisory fee (Note 2) 200,730 30,888 71,531 59,297
Other accrued expenses payable to adviser (Note 2) 212,207 33,296 73,762 50,473
Other accrued expenses and liabilities 50,454 7,390 59,310 --
------------ ----------- ------------ -----------
TOTAL LIABILITIES 4,569,284 104,705 2,115,342 837,548
------------ ----------- ------------ -----------
NET ASSETS $471,239,363 $60,205,280 $136,978,680 $29,844,705
============ =========== ============ ===========
NET ASSETS CONSIST OF:
Aggregate paid-in capital $349,813,290 $51,737,592 $118,943,957 $29,950,912
Accumulated undistributed net investment income 166,828 56,694 329,976 139,879
Accumulated undistributed net realized gains 28,381,924 85,130 1,365,009 196,992
Net unrealized appreciation (depreciation)
of investments 92,877,321 8,325,864 16,339,738 (246,921)
Net unrealized depreciation on translation of assets
and liabilities in foreign currency -- -- -- (196,157)
------------ ----------- ------------ -----------
NET ASSETS $471,239,363 $60,205,280 $136,978,680 $29,844,705
============ =========== ============ ===========
SHARES OF CAPITAL STOCK OUTSTANDING
(no par value - unlimited number of shares authorized) 16,791,768 2,338,810 6,658,785 1,867,823
============ =========== ============ ===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE (NOTE 1) $28.06 $25.74 $20.57 $15.98
============ =========== ============ ===========
</TABLE>
20 See accompanying notes to financial statements.
<PAGE> 22
<TABLE>
STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
ESTABLISHED GROWTH & OPPORTUNITY INTERNATIONAL
VALUE FUND INCOME FUND VALUE FUND FUND
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends, net of foreign withholding taxes $ 2,664,466 $ 651,657 $ 497,525 $ 410,379
Interest 3,812,693 49,760 1,253,300 59,761
------------ ----------- ------------ -----------
TOTAL INVESTMENT INCOME 6,477,159 701,417 1,750,825 470,140
------------ ----------- ------------ -----------
EXPENSES:
Investment advisory fee (Note 2) 1,366,527 201,334 502,828 171,470
Distribution (Note 2) 1,306,468 154,872 411,537 85,735
Transfer agency fees (Note 2) 164,401 35,169 77,440 23,665
Accounting services fees (Note 2) 42,066 20,000 21,475 30,000
Custodian fees (Note 1) 16,451 3,467 11,556 36,722
Registration fees 16,745 12,333 16,381 8,420
Professional fees 11,543 8,892 7,615 14,277
Printing 5,842 2,107 5,858 1,154
Trustees' fees (Note 2) 5,397 4,343 3,850 3,346
Amortization of organization expense (Note 1) -- 760 -- 2,279
Other 15,685 83 2,624 --
------------ ----------- ------------ -----------
GROSS EXPENSES 2,951,125 443,360 1,061,164 377,068
LESS FEES WAIVED BY THE ADVISER (NOTE 2) -- -- -- (34,128)
LESS EARNINGS CREDITS ON CASH BALANCES
(NOTE 1) (1,774) (1,286) (1,374) --
------------ ----------- ------------ -----------
NET EXPENSES 2,949,351 442,074 1,059,790 342,940
------------ ----------- ------------ -----------
NET INVESTMENT INCOME 3,527,808 259,343 691,035 127,200
------------ ----------- ------------ -----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gain on investments 29,654,308 91,967 1,398,609 879,979
Net realized loss on foreign
currency transactions -- -- -- (142,293)
Net change in unrealized appreciation
of investments (112,416,595) (7,384,830) (42,712,653) (6,592,783)
Net change in unrealized appreciation
(depreciation) of foreign
currency transactions -- -- -- (207,985)
------------ ----------- ------------ -----------
NET REALIZED AND UNREALIZED LOSSES
ON INVESTMENTS (82,762,287) (7,292,863) (41,314,044) (6,063,082)
------------ ----------- ------------ -----------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ($79,234,479) ($7,033,520) ($40,623,009) ($5,935,882)
============ =========== ============ ===========
</TABLE>
See accompanying notes to financial statements. 21
<PAGE> 23
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<CAPTION>
ESTABLISHED VALUE FUND GROWTH & INCOME FUND
6 MONTHS YEAR 6 MONTHS YEAR
ENDED ENDED ENDED ENDED
------------------------------- ------------------------------
9/30/98 3/31/98 9/30/98 9/31/98
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 3,527,808 $ 7,302,659 $ 259,343 $ 418,785
Net realized gain (loss) on
investments 29,654,308 41,231,389 91,967 278,290
Net realized loss on foreign
currency transactions -- -- -- --
------------- ------------- ------------ ------------
Net change in unrealized
appreciation of investments (112,416,595) 79,580,611 (7,384,830) 12,198,030
Net change in unrealized
depreciation on translation
of assets and liabilities in
foreign currencies -- -- -- --
------------- ------------- ------------ ------------
Net increase (decrease) in net
assets resulting from
operations (79,234,479) 128,114,659 (7,033,520) 12,895,105
------------- ------------- ------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (3,666,827) (7,488,999) (206,550) (483,144)
Net realized capital gains (16,117,209) (39,693,896) (132,856) (376,650)
------------- ------------- ------------ ------------
Decrease in net assets from
distributions to
shareholders (19,784,036) (47,182,895) (339,406) (859,794)
------------- ------------- ------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 139,513,616 177,661,831 14,373,493 28,457,239
Net asset value of shares issued
in reinvestment of
distributions 19,301,020 46,070,717 328,375 837,101
Payments for shares redeemed (155,811,310) (167,135,296) (7,214,814) (6,940,220)
------------- ------------- ------------ ------------
Net increase in net assets from
Fund share transactions 3,003,326 56,597,252 7,487,054 22,354,120
------------- ------------- ------------ ------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS (96,015,189) 137,529,016 114,128 34,389,431
NET ASSETS:
Beginning of period 567,254,552 429,725,536 60,091,152 25,701,721
------------- ------------- ------------ ------------
End of period $ 471,239,363 $ 567,254,552 $ 60,205,280 $ 60,091,152
============= ============= ============ ============
Undistributed net investment
income (Note 1) $ 166,828 $ 305,847 $ 56,694 $ 3,901
============= ============= ============ ============
NUMBER OF FUND SHARES:
Sold 4,425,284 5,536,829 516,463 1,118,081
Issued in reinvestment of
distributions to shareholders 600,839 1,493,854 12,087 33,607
Redeemed (4,947,469) (5,224,469) (262,708) (275,439)
------------- ------------- ------------ ------------
Net increase in shares
outstanding 78,654 1,806,214 265,842 876,249
Outstanding at beginning
of period 16,713,114 14,906,900 2,072,968 1,196,719
------------- ------------- ------------ ------------
Outstanding at end
of period 16,791,768 16,713,114 2,338,810 2,072,968
============= ============= ============ ============
<CAPTION>
OPPORTUNITY VALUE FUND INTERNATIONAL FUND
6 MONTHS YEAR 6 MONTHS YEAR
ENDED ENDED ENDED ENDED
------------------------------- ------------------------------
9/30/98 3/31/98 9/30/98 3/31/98
FROM OPERATIONS:
Net investment income $ 691,035 $ 1,227,375 $ 127,200 $ 12,679
Net realized gain (loss) on
investments 1,398,609 20,508,362 879,979 (254,868)
Net realized loss on foreign
currency transactions -- -- (142,293) (208,788)
Net change in unrealized
appreciation of investments (42,712,653) 26,917,903 (6,592,783) 5,495,316
Net change in unrealized
depreciation on translation
of assets and liabilities in
foreign currencies -- -- (207,985) 13,438
------------- ------------- ------------ ------------
Net increase (decrease) in net
assets resulting from
operations (40,623,009) (48,653,640) (5,935,882) 5,057,777
------------- ------------- ------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (567,485) (1,400,935) -- --
Net realized capital gains (6,494,547) (18,567,761) -- (289,530)
------------- ------------- ------------ ------------
Decrease in net assets from
distributions to
shareholders (7,062,032) (19,968,696) -- (289,530)
------------- ------------- ------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 98,785,841 97,738,720 5,703,967 9,514,677
Net asset value of shares issued
in reinvestment of
distributions 6,955,813 19,731,335 -- 266,710
Payments for shares redeemed (96,762,182) (84,921) (3,201,556) (6,087,530)
------------- ------------- ------------ ------------
Net increase in net assets from
Fund share transactions 8,979,472 32,548,448 2,502,411 3,693,857
------------- ------------- ------------ ------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS (38,705,569) 61,233,392 (3,433,471) 8,462,104
NET ASSETS:
Beginning of period 175,684,249 114,450,857 33,278,176 24,816,072
------------- ------------- ------------ ------------
End of period $ 136,978,680 $ 175,684,249 $ 29,844,705 $ 33,278,176
============= ============= ============ ============
Undistributed net investment
income (Note 1) $ 329,976 $ 206,426 $ 139,879 $ 12,679
============= ============= ============ ============
NUMBER OF FUND SHARES:
Sold 4,118,561 3,748,080 298,590 547,071
Issued in reinvestment of
distributions to shareholders 276,683 796,600 -- 16,413
Redeemed (4,034,930) (3,272,472) (169,913) (353,559)
------------- ------------- ------------ ------------
Net increase in shares
outstanding 360,314 1,272,208 128,677 209,925
Outstanding at beginning
of period 6,298,471 5,026,263 1,739,146 1,529,221
------------- ------------- ------------ ------------
Outstanding at end
of period 6,658,785 6,298,471 1,867,823 1,739,146
============= ============= ============ ============
</TABLE>
22 See accompanying notes to financial statements.
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
SEPTEMBER 30, 1998 (UNAUDITED)
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.
FUNDS SHARE VALUATION
The net asset value per share of each Fund is computed by dividing the net asset
value of each 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.
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 September 30, 1998.
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS Continued
- -------------------------------------------------------------------------------
SEPTEMBER 30, 1998 (Unaudited)
SECURITIES TRANSACTIONS
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.
INVESTMENT INCOME
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.
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 and are being amortized on a straight-line basis over 60
months commencing upon the public offering of the respective Fund's shares.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-dividend date.
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 September 30, 1998 was:
GROSS UNREALIZED GROSS UNREALIZED
APPRECIATION DEPRECIATION
OF SECURITIES OF SECURITIES
Established Value Fund $123,092,740 $30,215,419
Growth & Income Fund 11,953,812 3,627,948
Opportunity Value Fund 31,650,060 15,310,322
International Fund 4,158,892 4,405,813
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.
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
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS Continued
- -------------------------------------------------------------------------------
SEPTEMBER 30, 1998 (Unaudited)
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 period ended September 30, 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 September
30, 1998:
PORTFOLIO HEDGES:
U.S. UNREALIZED
BUY/ FOREIGN DOLLAR SETTLEMENT APPRECIATION
SELL AMOUNT CURRENCY PROCEEDS DATE (DEPRECIATION)
German
Sell 5,700,000 Deutschemark $3,181,336 10/16/98 $(234,795)
Buy 1,500,000 British Pound 2,448,450 10/16/98 98,410
---------
$(136,385)
=========
At September 30, 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 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 $473,450 have been segregated with
the custodian for the following open stock index futures contracts at September
30, 1998.
OPEN
MARKET MARKET UNREALIZED
TYPE EXPIRATION VALUE VALUE (DEPRECIATION)
Long Nikkei 300 (Yen) 12/98 $481,466 $456,583 ($24,883)
- -------------------------------------------------------------------------------
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS Continued
- -------------------------------------------------------------------------------
SEPTEMBER 30, 1998 (Unaudited)
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. 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. 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.
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 period ended September 30, 1998, McDonald waived $34,128 of advisory
fees 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
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS Continued
- -------------------------------------------------------------------------------
SEPTEMBER 30, 1998 (Unaudited)
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 period ended September 30, 1998, cost of purchases, and proceeds from
the sale of securities, excluding short-term securities, amounted to:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
<S> <C> <C>
Established Value Fund $123,324,055 $71,135,533
Growth & Income Fund 9,847,211 806,285
Opportunity Value Fund 40,934,904 14,627,422
International Fund 8,732,230 5,571,239
- -------------------------------------------------------------------------------
</TABLE>
NOTE 4 -- SUBSEQUENT EVENT
Effective October 23, 1998, the parent of McDonald was acquired by KeyCorp.
McDonald, which became a subsidiary of KeyCorp as a result of the merger, has
changed its name to McDonald Investments Inc. As of that date, a new Investment
Advisory Agreement between McDonald Investments Inc. and the Fund became
effective. That Agreement is in substantially the same form as the previous
agreement except that it provides that the fees payable by the Fund under the
Agreement will be held in escrow until shareholders of the Fund approve the
Agreement. If the Agreement is not approved by March 22, 1999, the fees will be
returned to the Fund. The current Transfer Agency, Account Services, and
Administrative Services Agreement between the Fund and McDonald Investments Inc.
continues in effect. BISYS Fund Services Limited Partnership has been retained
by the Fund to act as Distributor, succeeding McDonald Investments Inc.
27
