<PAGE> 1
1933 Act Registration No. 2-55297
1940 Act File No. 811-2618
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 41 (X)
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 24 (X)
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G R A D I S O N - M c D O N A L D C A S H R E S E R V E S T R U S T
(Exact Name of Registrant as Specified in Declaration of Trust)
580 Walnut Street, Cincinnati, Ohio 45202
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (513) 579-5700
Copy to:
BRADLEY E. TURNER ROBERT J. ZUTZ
Gradison-McDonald Cash Reserves Trust Kirkpatrick & Lockhart
580 Walnut Street 1800 M St., N.W.
Cincinnati, Ohio 45202 Washington, D.C. 20036
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b)
---
on _______________ pursuant to paragraph (b)
---
60 days after filing pursuant to paragraph (a)
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X on February 1, 1999 pursuant to paragraph (a) of
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Rule 485
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<PAGE> 2
GRADISON-McDONALD CASH RESERVES TRUST Cross-Reference Sheet
Pursuant to Item 501(b) of Regulation S-K
Under the Securities Act of 1933
Form N-1A
Item Number Location in Prospectus
- ----------- ----------------------
1. Cover Page . . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . . Expense Summary
3. Condensed Financial Information .. Financial History Summary
Yield and Effective Yield
Calculations
4. General Description of Registrant . How the Fund Invests; General
Information; Further
Information About How the
Fund Invests
5. Management of Fund . . . . . . . . . Management of the Fund, Cover
6. Capital Stock and Other Securities . Dividends and Taxes
7. Purchase of Securities Being Offered Purchases and Redemptions
8. Redemption or Repurchase . . . . . Purchases and Redemptions
9. Pending Legal Proceedings . . . . . Not Applicable
Location in Statement
of Additional information
-------------------------
10. Cover Page . . . . . . . . . . . . . . Cover Page
11. Table of Contents . . . . . . . . .. . . Contents
12. General Information and History . . . . Description of the Trust
13. Investment Objectives and Policies . . . Investment Restrictions;
Portfolio Transactions
14. Management of the Fund . . . . . . . . . Trustees and Officers of
the Trust
15. Control Persons and Principal
Holders of Securities . . . . . .. . . Trustees and Officers of
the Trust
16. Investment Advisory and Other Services . Investment Adviser
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities . . . Description of the Trust
19. Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . Purchase of shares
Redemption of Shares;
Exchange Privilege;
Signature Guarantees;
Net Asset Value
20. Tax Status . . . . . . . . . . . .. . . . Taxes
21. Underwriters . . . . . . . . . . . . . . Investment Adviser
22. Calculation of Yield Quotations of Money
Market Funds . . . . . . . . . . . . . Yield Information
23. Financial Statements . . . . . .. . . . . Financial Statements and
Accountants
<PAGE> 3
GRADISON U.S. GOVERNMENT RESERVES
Prospectus dated February 1, 1999
Gradison U.S. Government Reserves (the "Fund") is a diversified series of the
Gradison-McDonald Cash Reserves Trust, an open-end management investment
company. The Gradison-McDonald Asset Management Division of Key Asset Management
Inc. is the investment adviser for the Fund (the "Adviser"). The Fund is a money
market fund investing in U.S. government securities.
This Prospectus is designed to provide you with information that you should know
before investing and should be retained for future reference. A Statement of
Additional Information for the Fund, dated February 1, 1999, has been filed with
the Securities and Exchange Commission and is incorporated herein by reference.
This Statement is available upon request without charge from the Fund at 580
Walnut Street, Cincinnati, Ohio 45202 or by calling the phone numbers provided
below.
For information and transactions (including purchases, redemptions, and most
recent yield), call 579-5700 from Cincinnati, Ohio or 1-800-869-5999 toll free.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
An investment in the Fund is not insured or guaranteed by the FDIC or any other
government agency. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Fund.
SHARES OF THE FUND ARE:
NOT INSURED BY THE FDIC;
NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY KEY BANK,
ANY OF ITS AFFILIATES, OR ANY OTHER BANK;
SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT
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EXPENSE SUMMARY
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C>
Management Fees .44%
12b-1 Fees .10%
Other Expenses .19%
------
TOTAL FUND OPERATING EXPENSES .73%
======
</TABLE>
Example: You would pay the following expenses on a $1,000 investment assuming a
5% annual return* and redemption at the end of each period:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$7 $23 $41 $91
- --------------------------------------------------------------------------------
</TABLE>
*The 5% annual return is a standardized rate prescribed for use by all mutual
funds for the purpose of this example and does not represent the past or future
return of the Fund.
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly and
indirectly. (For more information about Fund expenses, see "Purchases and
Redemptions" and "Management of the Fund.")
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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FINANCIAL HIGHLIGHTS
The table below presents the financial highlights of the most recent ten years
of the Fund's operations. (Prior to September 27, 1993, the financial results
are the results of Gradison Cash Reserves, the assets and liabilities of which
were acquired by the Fund effective September 27, 1993.) The information is
expressed in terms of a single share outstanding throughout each year. The
financial highlights for the years ended on September 30, 1993 and thereafter
have been audited by Arthur Andersen LLP, independent public accountants, whose
unqualified report appears in the Statement of Additional Information. The
financial highlights for periods ended prior to September 30, 1993 were audited
by other accountants. Further information about the Fund's performance is
contained in the Fund's annual report to shareholders, which may be obtained
without charge.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year $1.000 $1.000 $1.000 $1.000 $1.000
------ -------- -------- ------- ------
Net investment income .049 .047 .047 .050 .029
Dividends from net investment income (.049) (.047) (.047) (.050) (.029)
-------- ------- ------- ------- -------
Net asset value at end of year $1.000 $1.000 $1.000 $1.000 $1.000
======== ======== ======== ======= =======
Total return 4.98% 4.85% 4.86% 5.10% 2.97%
======== ======== ======== ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (in millions) $1,933.8 $1,610.1 $1,333.1 $1,224.1 $1,001.2
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of gross expenses to average net assets(1) .73% .73% .76% .80% --
Ratio of net expenses to average net assets(2) .72% .72% .75% .78% .80%
Ratio of net investment income to
average net assets(2) 4.86% 4.75% 4.72% 5.00% 2.90%
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
-------------------------------------------------------
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------- ------- ------
Net investment income .025 .037 .059 .076 .084
Dividends from net investment income (.025) (.037) (.059) (.076) (.084)
------ ------ ------- ------- ------
Net asset value at end of year $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ======
Total return 2.55% 3.83% 6.12% 7.87% 8.74%
====== ===== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (in millions) $979.8 $575.9 $638.7 $659.8 $613.4
Ratio of gross expenses to average net assets(1) -- -- -- -- --
Ratio of net expenses to average net assets(2) .81% .75% .75% .76% .79%
Ratio of net investment income to
average net assets(2) 2.53% 3.77% 5.96% 7.57% 8.41%
</TABLE>
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On October 4, 1991, Gradison became investment adviser of the Fund as a
result of a merger with Gradison & Company Incorporated.
(1) Effective for the fiscal year ended September 30, 1995, this ratio reflects
gross expenses before reduction for earnings credits on cash balances; such
reductions are included in the ratio of net expenses.
(2) During the year ended September 30, 1994, the Adviser absorbed expenses of
the Fund through waiver of a portion of the investment advisory fee.
Assuming no waiver of expenses, the ratio of expenses to average net assets
was .81% and the ratio of net investment income to average net assets was
2.89%.
HOW THE FUND INVESTS
The Fund's investment objective is to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity.
The Fund's investment objective cannot be changed without approval by the
holders of a majority of the Fund's outstanding voting shares (as defined in the
Investment Company Act of 1940 (the "Act")). All other policies set forth in
this Prospectus, unless otherwise noted, are subject to change without
shareholder approval. There can be no assurance that the Fund's investment
objective will be achieved. To achieve its investment objective, the Fund
invests in securities issued or guaranteed as
to principal and interest by the U.S. Government or its agencies or
instrumentalities, and repurchase agreements in respect of these securities.
Securities in which the Fund invests may not earn as high a level of current
income as long-term or lower quality securities which generally have less
liquidity, greater market risk and more fluctuation in market value. THE FUND
INTENDS TO MAXIMIZE, TO THE EXTENT POSSIBLE, THE PORTION OF ITS DIVIDENDS THAT
ARE NOT SUBJECT TO STATE AND LOCAL TAXATION.
The Fund seeks to maintain a net asset value of $1.00 per share for purchases
and redemptions. To do so, the Fund uses the amortized cost method of valuing
its securities pursuant to Rule 2a-7 under the Act, certain requirements of
which are summarized as follows. In accordance with Rule 2a-7, the Fund will
maintain a dollar-weighted average portfolio maturity of 90 days or less and
purchase only U.S. dollar denominated instruments having remaining maturities of
497 days or less as defined in that Rule. There can be no assurance that the
Fund will be able to maintain a stable net asset value of $1.00 per share.
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities include U.S. Treasury securities, which differ only in their
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interest rates, maturities and times of issuance. Treasury bills have initial
maturities of one year or less; Treasury notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of greater than
ten years. Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities in which the Fund may invest, for example, Government National
Mortgage Association pass-through certificates, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, by the right of the issuer to borrow from the Treasury; others, such as
those issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality; and others, such as those issued by the Federal Farm Credit
Bank System, only by the credit of the agency or instrumentality. While the U.S.
Government may provide financial support to such U.S. Government-sponsored
agencies or instrumentalities, no assurance can be given that it will always do
so, since it is not so obligated by law. The Fund will invest in such securities
only when it is satisfied that the credit risk with respect to the issuer is
minimal.
The Fund invests in securities which bear fixed, floating or variable rates of
interest. Interest derived from floating rate or variable rate securities may
fluctuate based on generally recognized reference rates or the relationship of
rates. The Fund may purchase floating and variable rate securities, including
securities the maturity of which exceeds one year if, under conditions that can
reasonably be foreseen, the Adviser believes that interest rate adjustments will
result in the market value of such securities returning to at least
approximately par. However, there can be no assurance that the market value of
such securities will always be at least approximately par.
The Fund also may invest in repurchase agreements secured by government
securities. For additional information about repurchase agreements and the
Fund's investment policies and restrictions, see "Further Information About How
the Fund Invests."
PURCHASES AND REDEMPTIONS
HOW TO PURCHASE SHARES
You may purchase shares of the Fund, without sales charge, by personally
delivering, mailing, or wiring funds to the Gradison-McDonald Investments
Division of McDonald Investments Inc. ("Gradison") or to McDonald Investments
Inc. ("McDonald"). A completed Account Information Form must accompany or
precede the initial purchase. The minimum investment required to open an
account is $1,000 and additional investments must be at least $50. These
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minimums may, however, be waived for certain group purchases. The minimum
investment required to open an Education IRA is $500.
Purchases by check will be credited to your account (and begin earning
dividends) when the Fund receives Federal funds for your check which normally
will be on the next business day after receipt of the check. Purchase checks
should be made payable (or properly endorsed) to the order of "Gradison U.S.
Government Reserves" and should be accompanied by your account name and account
number (if the number has been assigned).
Purchases by bank wire will be credited to your account (and begin earning
dividends) on the same business day that the wire is received by the Fund's
custodian bank or Gradison. However, Gradison must be advised by you of the
exact amount of your wire prior to 12:00 noon, Eastern time.
HOW TO REDEEM SHARES
You may redeem shares of the Fund without charge or penalty on any day that the
Fund is open for business. A redemption request (identifying the account name,
account number and the amount of your redemption) may be made in writing or by
telephone call to the Fund. If your request is received by the Fund by 12:00
noon, Eastern time, a check for the amount of your redemption will normally be
mailed the same business day, or if you prefer, you may arrange to pick up your
redemption check at the Fund's offices after 3:00 p.m. the same business day.
The checkwriting feature permits you to write your own redemption checks in
amounts of $100 or more without any fees. Checks also may be written in amounts
of less than $100, in which case you will be charged a fee of $.30 per check,
which reimburses the Fund for expenses associated with clearing such checks.
Shares continue to earn daily dividends until these checks are presented for
payment. Shareholders choosing the checkwriting feature must return a signature
card to the Fund signed by all owners of the account. The names of payees of
checks and the date checks are cashed appear on monthly transaction statements.
The checkwriting feature should not be used to effect a complete redemption of
an account. Shareholders who desire a complete redemption should contact the
Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchase and redemption information and authorizations should be mailed or
delivered to Gradison, McDonald, or to Gradison Mutual Funds, 580 Walnut Street,
Cincinnati, Ohio 45202.
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<PAGE> 10
Purchases and redemptions are made at the next net asset value per share
calculated after receipt of Federal funds or a valid redemption request. The
Fund may, upon 30 days' written notice, impose reasonable service charges for
what it deems to be excessive use of the checkwriting feature. Share
certificates are not issued. Account transactions are reported on periodic
statements. There is a $10 fee per wire redemption of less than $50,000.
In the case of shares purchased through McDonald and Gradison brokerage
accounts, credit balances arising on the settlement date of a securities sale
will generally be transferred to the Fund by McDonald in the form of Federal
funds on the day after settlement.
Normally, the Fund makes payment for redeemed shares within one business day
(but in no event more than seven days) after receipt of a properly executed
redemption request. However, the Fund may delay payment for the redemption of
shares in those cases where the shares were purchased by check (or any method of
payment subject to collection) until the purchase payment has cleared, currently
considered to be no more than 15 days from the date of receipt by the Fund. If
you need more immediate access to your investment, you should consider
purchasing shares by wire or with other immediately available funds. The Fund
may, at its discretion, redeem all shares in any account if the value of that
account falls below $500. However, shareholders will be given notice and 60 days
to increase the value of the account to the required $500. The Fund reserves the
right to limit or reject any purchase order and to close any account deemed, in
its discretion, to be detrimental to the Fund. The Fund may modify these and
other purchase or redemption procedures to facilitate purchase and redemption of
shares through Gradison and McDonald brokerage accounts.
Under extraordinary circumstances, such as periods of drastic economic or market
changes, it is possible that you might not be able to reach the Fund by
telephone to effect a redemption. If such an occasion were ever to occur, you
can redeem your shares by using the checkwriting feature or you can make a
redemption request in writing (by mail or personally delivered) to the Fund's
offices. Shareholders who have brokerage accounts with Gradison or McDonald can
request that their Investment Consultants arrange the redemption. The telephone
redemption feature may be terminated or modified upon 30 days' notice to
shareholders.
The Fund, its Adviser, BISYS Fund Services Limited Partnership (the
"Distributor"), and their officers and employees will not be
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liable for following instructions communicated by telephone that are reasonably
believed to be genuine. The Fund will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine, and if it does not, it
may be liable for any losses resulting from unauthorized instructions. Telephone
transactions are available to all shareholders as a standard service. Redemption
checks which are uncashed for any reason, including non-receipt, will not earn
interest.
Certain optional services are available to shareholders. See "Optional
Shareholder Services" in the Statement of Additional Information.
EXCHANGES
Shares may be exchanged, without administrative fees, for shares of any Gradison
Mutual Fund and for shares of certain other Federal and Federal/Ohio tax-free or
municipal income money market funds.
You may request exchanges of your shares by telephoning or writing the Fund.
Before making an exchange, you should read the prospectus of the fund in which
you desire to invest, each of which is available upon request. The terms of the
exchange feature are subject to change and the exchange feature is subject to
termination, both upon 60 days' notice.
DIVIDENDS AND TAXES
The Fund's net income is accrued daily as dividends and distributed monthly.
Share purchases effective before 12:00 noon, Eastern time, earn the dividend
that day. Shares do not receive a dividend for the day on which they are
redeemed. (See "Purchases and Redemptions.") Dividends may be received in
cash or reinvested in additional shares of the Fund. Dividend checks which are
uncashed for any reason, including non-receipt, will not earn interest.
If your account is not a tax-deferred retirement account or exempt from
taxation, the dividends you receive will be subject to Federal taxation as
ordinary income. The Fund's dividends will not qualify for the dividends
received deduction for corporations. Each shareholder will receive, on an annual
basis, a statement of the Federal income tax consequences of all distributions.
The Fund distributes substantially all of its net investment income and capital
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gains, if any, to shareholders each year.
The Fund is required to withhold 31% of all dividends payable to any individual
and certain other noncorporate shareholders who do not provide the Fund with a
correct taxpayer identification number or certification that they are not
subject to backup withholding and that they have provided the Fund with a
correct taxpayer identification number.
Under the laws of most state and local jurisdictions, the portion of the Fund's
dividends derived from direct investments in certain U.S. government securities
will not be subject to state or local income taxation. Each year, shareholders
will be provided with information as to the percentage of income dividends
derived from U.S. government securities which is generally not taxable by state
and local jurisdictions. For the fiscal year ending September 30, 1998, 100% of
the Fund's dividends were derived from qualifying federal obligations and,
therefore, were not taxable by state and local jurisdictions.
NET ASSET VALUE
The net asset value of the Fund's shares is generally calculated as of 12:00
noon and 4:00 p.m. Eastern time on each day when the New York Stock Exchange is
open for business. The net asset value per share, which is the price at which
shares are purchased and redeemed, is computed by dividing the value of the
Fund's net assets (assets minus liabilities) by the number of shares
outstanding. The Fund intends to maintain a constant net asset value of $1.00
per share, although there is no assurance that it will be able to do so.
GENERAL INFORMATION
The Fund is a series of the Gradison-McDonald Cash Reserves Trust (the "Trust"),
which is a business trust organized under the laws of the State of Massachusetts
by a Declaration of Trust dated October 20, 1981. The Trust succeeded to the
business of Gradison Cash Reserves, Inc. which began its operations on April 26,
1976. Each share of the Fund has one vote and represents an equal pro rata
interest in the Fund. Shareholder inquiries should be directed to the phone
number or address of the Fund listed on the first page of this Prospectus.
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MANAGEMENT OF THE FUND
The Trust's Board of Trustees is responsible for the direction and supervision
of the Fund's operations. Subject to the authority of the Board of Trustees,
Gradison manages the investment and reinvestment of the assets of the Fund, and
provides its employees to act as the officers of the Fund who are responsible
for the overall management of the Fund. Gradison is a Division of Key Asset
Management Inc. ("KAM"), 127 Public Square, Cleveland, Ohio 44114. The parent
corporation of KAM is KeyCorp, a bank holding company with assets of
approximately $75 billion. Through four principal lines of business,
Corporate Capital, Consumer Finance, Community Banking, and Capital Partners,
KeyCorp provides retail and wholesale banking, investment, financing, and
money management services to individuals and companies across the United States.
Prior to October 23, 1998, the investment adviser of the Fund was the Gradison
Division of McDonald & Company Securities, Inc. ("McDonald Securities"). On
that date, the parent corporation of McDonald Securities, McDonald &
Company Investments Inc., merged with KeyCorp. This may have caused a change
in control of McDonald Securities. Thus, the Board of Trustees of the Trust
approved a new investment advisory agreement with McDonald Securities,
which subsequently changed its name to McDonald Investments Inc. This
new investment advisory agreement was implemented prior to shareholder approval
of the agreement pursuant to an order issued by the Securities and Exchange
Commission. The new agreement contains substantially the same provisions as the
prior investment advisory agreement, except that all investment advisory fees
will be held in escrow until the new agreement has been approved by Fund
shareholders. If such approval is not obtained by March 22, 1999, the escrowed
fees will be returned to the Fund and the Trustees will attempt to obtain
other investment advisory services for the Fund. On ___________ __, 1999,
certain of the investment advisory activities of McDonald Investments
Inc., including the advisory agreement with the Fund, were assigned to KAM.
This assignment, which did not constitute an assignment under the Investment
Company Act of 1940, had been previously approved by the Board of Trustees of
the Trust.
On November 6, 1998, the Board of Trustees of the Trust approved an Agreement
and Plan of Reorganization for the Fund. The Reorganization is subject to the
approval of the shareholders of the Fund and the Board of Trustees of the
Victory Portfolios. The Reorganization is being submitted to shareholders of
the Fund at a special meeting to be held in March 1999. There can be no
assurance that the shareholders of the Fund or the Board of Trustees of the
Victory Portfolios will approve the Reorganization.
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If the Reorganization of the Fund is approved, shareholders will exchange their
Fund shares for shares of the Victory Gradison Government Reserves Fund Class
"G". The shares received by Gradison Fund shareholders will have the same value
as the total value of their Gradison Fund shares on the effective date of the
Reorganization. (In other words, a shareolder owning $1,000 worth of Gradison
U.S. Government Reserves shares, will receive $1,000 worth of Victory Gradison
Government Reserves Fund shares Class "G".) The exchange of shares will not be
taxable. The Victory Gradison Government Reserves Fund will be a new fund formed
to continue the operations of the Gradison U.S. Government Reserves Fund and
will have substantially the same investment objective and policies as the
current Gradison U.S. Government Reserves Fund. The Victory Gradison
Government Reserves Fund is a "Series" or "Portfolio" of the Victory
Portfolios, an open-end management investment company organized as a Delaware
business trust.
BISYS Fund Services Limited Partnership ("BISYS"), 3435 Stelzer Road, Columbus,
Ohio 43219, acts as Distributor of the Fund's shares.
For acting as investment adviser, the Fund pays the Adviser an annual fee of
.50% of the first $400 million of average daily net assets, .45% of the next
$600 million of average daily net assets, .40% of the next $1 billion of average
daily net assets and .35% of amounts in excess of $2 billion of average daily
net assets. Gradison acts as the Fund's transfer agent, dividend disbursing
agent, and administrative services provider. For providing transfer agent and
administrative services, Gradison receives an annual fee of $23.50 per
shareholder non-zero balance account, $5.00 per closed or zero balance account
per year, plus out of pocket costs. Gradison also provides accounting services
to the Fund for which it receives a fee of .0150% of the first $400 million of
average daily net assets, .0125% of the next $300 million of average daily net
assets, .0100% of the next $300 million of average daily net assets, and .0075%
of average daily net assets in excess of $1 billion, with a minimum fee of
$25,000 per year. Gradison's address is 580 Walnut Street, Cincinnati, Ohio
45202.
Under the terms of a distribution service plan (the "Plan"), adopted pursuant to
Rule 12b-1 under the Act, the Fund pays to the Distributor a service fee
at the annual rate of .10% of the average daily net assets of the Fund. (The
maximum annual fee permitted by the Plan is .20% of the average daily net assets
of the Fund.) Such fee is calculated on a daily basis and paid to the
Distributor monthly. The service fee is paid as compensation to brokers
for providing personal services to shareholders of the Fund, including
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responding to shareholder inquiries and providing information to shareholders
about their Fund accounts. The Distributor uses the fee to make payments to
authorized dealers for providing these services to Fund shareholders. In
addition to the service fee, the Distributor may
also expend funds provided by the Plan for advertising and printing
prospectuses, annual reports, and other promotional material for prospective
investors, and for other distribution activities.
Registered broker-dealers, third party administrators of tax-qualified
retirement plans, and other entities which establish omnibus accounts with the
Fund may provide sub-transfer agency, recordkeeping, or similar services to
participants in the omnibus accounts which reduce or eliminate the need for
identical services to be provided on behalf of participants by the Fund's
transfer agent. In such cases, the Fund may pay the entity a sub-transfer agency
or recordkeeping fee. Certain entities receiving such fees may also receive
service fees.
INDIVIDUAL RETIREMENT ACCOUNTS
Shares of the Fund may be purchased in conjunction with an Individual Retirement
Account ("IRA") which permits exchange privileges with other Gradison funds (see
"Exchanges") and which may also be used with a self-directed brokerage account.
Contact Gradison or McDonald for details.
FURTHER INFORMATION ABOUT HOW THE FUND INVESTS
The Fund may engage in repurchase agreement transactions in which it buys a
security at one price and simultaneously agrees to sell the same security back
to the original owner ("seller") at a higher price, usually within seven days of
the initial purchase. The Fund engages in repurchase agreement transactions only
with selected domestic banks and securities dealers which the Adviser believes
present minimal credit risk. In all cases, the security subject to resale is
held by the Fund's custodian and the Fund ensures on a daily basis that the
value of the security, including accrued interest, is maintained at no less than
the price at which the seller is required to repurchase the security. Should a
seller fail to repurchase the security, the Fund could incur costs to sell the
security to another party and possibly a loss if the sale price is less than the
repurchase price. Under certain limited circumstances, the Fund could also be
delayed or otherwise limited in disposing of the security, which could result in
a decline in its value and loss of interest.
The Fund may not borrow money, except from banks as a temporary measure or for
Page 13
<PAGE> 16
extraordinary or emergency purposes, and then only in amounts not exceeding 15%
of the Fund's total assets at the time of borrowing. While any borrowing of
greater than 5% of the assets occurs, the Fund will not purchase additional
portfolio securities. The foregoing policy may not be changed without
shareholder approval. The Fund may not, in an aggregate amount exceeding 10% of
the value of the Fund's total assets, (a) enter into repurchase agreements
maturing in more than seven days, (b) purchase illiquid securities, and (c)
purchase securities for which there are no readily available market quotations.
The Fund may invest in "stripped" securities (both interest-only and
principal-only) issued by the U.S. Treasury and recorded in the Federal Reserve
book-entry record-keeping system. "Stripped" U.S. Treasury securities include
zero coupon obligations that are normally issued at a discount to their "face
value", and may exhibit greater price volatility than ordinary debt securities.
The Fund may purchase securities on a when-issued or forward delivery basis, for
payment and delivery at a later date. The price and yield are generally fixed on
the date of commitment to purchase. During the period between purchase and
settlement, no interest accrues to the Fund. At the time of settlement, the
market value of the security may be more or less than the purchase price.
The Statement of Additional Information contains additional information
regarding Fund investment restrictions and policies.
PERFORMANCE CALCULATIONS
From time to time the Fund may advertise its "yield," "effective yield," and/or
"total return". All performance figures are based on historical earnings and are
not intended to indicate future performance. The yield of the Fund refers to the
investment income generated by an investment in the Fund over a 7-day period.
This income is then annualized. That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The effective yield of
the Fund is calculated similarly but, when annualized, the income earned by an
investment in the Fund is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The total return refers to the average annual compounded rate of
return over specified time periods that would equate an initial amount of money
invested in the Fund at the beginning of a stated period to the ending
redeemable value of the investment assuming the reinvestment of dividends in
additional Fund shares.
Page 14
<PAGE> 17
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
Expense Summary
Financial Highlights
How the Fund Invests
Purchases and Redemptions
Additional Purchase and
Redemption Information
Exchanges
Dividends and Taxes
Net Asset Value
General Information
Management of the Fund
Individual Retirement Accounts
Further Information About
How the Fund Invests
Performance Calculations
[GRADISON MUTUAL FUNDS LOGO]
580 Walnut Street, Cincinnati, Ohio 45202
(513) 579-5700 (800) 869-5999
Page 15
<PAGE> 18
GRADISON U.S. GOVERNMENT RESERVES
Gradison-McDonald Cash Reserves Trust
The Gradison Division of Key Asset Management Inc. ("Gradison"), is the
investment adviser of the Fund ("Adviser").
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL
INFORMATION
- -------------------------------------------------------------------------------
For information (including most recent yield), call:
579-5700 from Cincinnati, Ohio
Toll free (800) 869-5999 outside Cincinnati
Information may also be obtained from the Fund at:
580 Walnut Street
Cincinnati, Ohio 45202
- -------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus of the Fund, dated February 1, 1999, which
has been filed with the Securities and Exchange Commission. The Prospectus is
available upon request without charge from the Fund at the above address or by
calling the phone numbers provided above.
The date of this Statement of Additional Information is February 1, 1999.
<PAGE> 19
- --------------------------------------------------------------------------------
CONTENTS
- --------------------------------------------------------------------------------
Page Location in Prospectus
INVESTMENT RESTRICTIONS AND POLICIES. . . . . 4 How the Fund Invests; Further
Information About How the
Fund Invests
PURCHASE OF SHARES . . . . . . . . . . . . . 6 Purchases and Redemptions;
Additional Purchase and
Redemption Information
REDEMPTION OF SHARES . . . . . . . . . . . . .6 Purchases and Redemptions;
Additional Purchase and
Redemption Information
EXCHANGE PRIVILEGE . . . . . . . . . . . . . 7 Exchanges
Telephone Exchanges . . . . . . . . . . 7
Written Exchanges . . . . . . . . . . . 7
General Exchange Information . . . . . . 7
SIGNATURE GUARANTEES . . . . . . . . . . . . 8
INCOME AND DIVIDENDS . . . . . . . . . . . . 8 Dividends and Taxes
TAXES . . . . . . . . . . . . . . . . . . . . 8 Dividends and Taxes
YIELD INFORMATION . . . . . . . . . . . . . . 9 Performance
Calculations
NET ASSET VALUE . . . . . . . . . . . . . . . 10 Net Asset Value
PORTFOLIO TRANSACTIONS . . . . . . . . . . 11
INVESTMENT ADVISER . . . . . . . . . . . . . 12 Management of the Fund
Advisory Agreement . . . . . . . . . . . 12
Distribution Service Plan . . . . . . . 13
Transfer Agency, Accounting Services,
and Administrative Services
Agreement . . . . . . . . . . . . .15
OTHER COMPENSATION PAID/REIMBURSEMENT MADE
TO THE ADVISER . . . . . . . . . . . . . 15
TRUSTEES AND OFFICERS OF THE TRUST . . . . . 15
DESCRIPTION OF THE TRUST . . . . . . . . . . 17 General Information
2
<PAGE> 20
CUSTODIAN . . . . . . . . . . . . . . . . . . 19
ACCOUNTANTS . . . . . . . . . . . . . . . . . 19
LEGAL COUNSEL . . . . . . . . . . . . . . . . 19
OPTIONAL SHAREHOLDER SERVICES . . . . . . . . 19
TOTAL RETURN INFORMATION . . . . . . . . . . .21
SALES BROCHURE INFORMATION. . . . . . . . . . 23
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT PUBLIC ACCOUNTANT .Following page 33 Financial Highlights
3
<PAGE> 21
INVESTMENT RESTRICTIONS AND POLICIES
In addition to the investment restrictions described in the Prospectus,
the Fund has adopted the following investment restrictions and limitations,
which may not be changed without the approval of the holders of a majority of
the outstanding voting securities of the Fund as defined in the Investment
Company Act of 1940 (the "Act"). (See "Description of the Trust".) The Fund will
not:
(1) Borrow money, except from banks as a temporary measure or for
extraordinary or emergency purposes such as to enable the Fund to
satisfy redemption requests where liquidation of portfolio securities is
considered disadvantageous, and not for leverage purposes, and then only
in amounts not exceeding 15% of the total assets of the Fund at the time
of the borrowing. While any borrowing of greater than 5% of the assets
is outstanding, the Fund will not purchase additional portfolio
securities;
(2) Make loans, except that the purchase of debt securities as allowed by
the Fund's investment objective and other Investment Restrictions,
entering into repurchase agreements, and the lending of portfolio
securities in an amount not to exceed 30% of the value of its total
assets with the collateral value of loaned securities marked-to-market
daily and in accordance with applicable regulations or guidelines
established by the Securities and Exchange Commission shall not be
prohibited by this restriction;
(3) Purchase or sell real estate. The purchase of securities secured by real
estate which are otherwise allowed by the Fund's investment objective
and other Investment Restrictions shall not be prohibited by this
restriction;
(4) Underwrite the securities of other issuers, except insofar as the Fund
may technically be deemed an underwriter under the Securities Act of
1933 in connection with the disposition of portfolio securities;
(5) Purchase or sell commodities or commodity contracts or interests in oil,
gas or other mineral exploration or development programs or leases
except the purchase or sale of financial futures contracts or options on
financial futures contracts;
(6) Issue senior securities as defined in the Act, except to the extent that
such issuance might be involved with respect to borrowings subject to
item (1) above or with respect to transactions involving futures
contracts or the writing of options and provided that the Trust may
issue shares of additional series or classes that the Trustees may
establish.
(7) Invest more than 25% of its total assets in the securities of issuers in
any single industry, provided that there shall be no limitation on
4
<PAGE> 22
investments in obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities.
The limitations and policies set forth in the remainder of this section are
not fundamental and may be changed without shareholder approval: (1) The Fund
will not purchase securities of other investment companies except in connection
with a reorganization, merger, or consolidation with another open-end investment
company; (2) The Fund will not make short sales of securities, or purchase
securities on margin, except for short-term credit as is necessary for the
clearance of transactions; 3) The Fund will not purchase or retain in its
portfolio any securities issued by an issuer, if to the Fund's knowledge, those
Trustees and officers of the Trust or of the Fund's investment adviser, who
individually own beneficially more than 1/2 of 1% of the outstanding securities
of such issuer, together own beneficially more than 5% of such outstanding
securities. This limitation shall not apply to U.S. Government securities; (4)
The Fund will not mortgage, pledge or hypothecate securities except in
connection with permitted borrowings. The Fund has no current intention of
engaging in the lending of portfolio securities.
Government Securities are frequently offered on a "when-issued" or "forward
delivery" basis. When so offered, the price, which is generally expressed in
yield terms, is fixed at the time the commitment to purchase is made, but
delivery and payment for the when-issued or forward delivery securities take
place at a later date. During the period between purchase and settlement, no
payment is made by the Fund to the issuer and no interest accrues to the Fund.
To the extent that assets of the Fund are not invested prior to the settlement
of a purchase of securities, the Fund will earn no income; however, it is
intended that the Fund will be fully invested to the extent practicable and
subject to the policies stated herein. When-issued or forward delivery purchases
are negotiated directly with the other party and are not traded on an exchange.
While when-issued or forward delivery securities may be sold prior to the
settlement date, it is intended that the Fund will purchase such securities with
the purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time the Fund makes the commitment to purchase
securities on a when-issued or forward delivery basis, it will record the
transaction and reflect the value of the security in determining its net asset
value. The Fund does not believe that its net asset value or income will be
adversely affected by its purchase of securities on a when-issued or forward
delivery basis. The Fund will establish a segregated account in which it will
maintain cash, U.S. Government securities, or other high-grade debt obligations
equal in value to commitments for when-issued or forward delivery securities.
Such segregated securities either will mature or, if necessary, be sold on or
before the settlement date. The Fund will not enter into such transactions for
leverage purposes.
5
<PAGE> 23
If a percentage restriction set forth above is met at the time of
investment, a later movement above the restriction level resulting from a change
in the value of securities held by the Fund will not be considered a violation
of the investment restriction.
PURCHASE OF SHARES
Purchase orders become effective when the Fund receives the necessary
information regarding an investor's account and Federal funds are available to
the Fund for investment. (See "Net Asset Value".) Federal funds are normally
available to the Fund on the next bank business day following receipt by the
Fund of an investor's check or other payment including credit balances arising
on the settlement date of a sale of securities or receipt of a dividend or
interest payment transferred from a brokerage account maintained by
Gradison-McDonald Investments Division of McDonald Investments Inc. ("Gradison")
or McDonald Investments Inc. ("McDonald"). The Fund reserves the right to impose
a charge of $15 for any purchase check returned to the Fund as uncollectible and
to collect such fee by redeeming shares of the Fund from such shareholder's
account.
On Fund share purchases through Gradison or McDonald brokerage accounts,
prior to the time that an investor's funds become Federal Funds and become
invested in the Fund, McDonald may receive the "float" benefit from those funds.
REDEMPTION OF SHARES
The Fund may suspend the right of redemption or may delay payment (a)
during any period when the New York Stock Exchange is closed other than for
customary weekend and holiday closings, (b) when trading in markets normally
utilized by the Fund is restricted, or an emergency exists (determined in
accordance with the rules and regulations of the Securities and Exchange
Commission) so that disposal of the Fund's portfolio securities or determination
of the Fund's net asset value is not reasonably practicable, or (c) for such
other periods as the Securities and Exchange Commission by order may permit for
the protection of the Fund's shareholders.
The checkwriting privilege is subject to the Fund custodian's (Star Bank,
N.A.) rules and regulations concerning checking accounts, including those
relating to the right of Star Bank to refuse to honor checks in amounts
exceeding the value of the account at the time the check is presented for
payment. The Fund reserves the right to impose a charge of $15 for any
redemption check written against an insufficient Fund balance and to collect
such fee by redeeming shares of the Fund from such shareholder's account.
On Fund redemptions effected by the drawing of a McDonald check, McDonald
will receive the "float" benefit from the funds redeemed until the check is
presented for payment. Domestic wire redemptions (in a minimum
6
<PAGE> 24
amount of $1,000) are available to shareholders. There is a $10 fee for each
wire redemption in an amount less than $50,000.
The Fund transmits redemption proceeds only to shareholder names and
addresses on its records or which it has otherwise verified, provides written
confirmation of all transactions initiated by telephone either immediately or by
monthly statement, depending on the circumstances, requires identification from
individuals picking up checks at its offices, and may take other additional
steps to verify the identity of persons giving telephone instructions.
EXCHANGE PRIVILEGE
If a new account is established by an exchange, the dollar amount of the
exchange from the Fund must at least be equal to the minimum initial investment
of the Fund into which the exchange is being made; if an exchange is made into
an existing account, the minimum additional investment requirement must be met.
TELEPHONE EXCHANGES
Telephone exchanges may be made only when the registration of the two
accounts are identical.
WRITTEN EXCHANGES
You may also exchange your shares of the Fund by written request directed
to:
Gradison Mutual Funds
580 Walnut Street
Cincinnati, Ohio 45202
Such written request should include your name and account number and the
number of shares or dollar amount to be exchanged.
GENERAL EXCHANGE INFORMATION
An exchange involves a redemption of the Fund shares being exchanged and
the investment of the redemption proceeds into shares of the fund being
purchased. Both the redemption and investment will occur at the respective net
asset value per share next determined after receipt by the Fund of a proper
exchange request. For Federal income tax purposes, an exchange of shares is
considered to be a sale. Unless otherwise indicated, a new account established
by written exchange will have the same registration and selected options as your
present account.
The funds into which exchanges are made, and the Fund's Distributor (with
respect to any other fund) each reserve the right to reject any exchange
request. In the case of excessive use of the exchange privilege,
7
<PAGE> 25
the Fund or the Distributor, upon 60 days' written notice, may make reasonable
service charges (as specified in the notice) by redeeming shares from such
shareholder's account. The terms of the exchange feature are subject to change
and the exchange feature is subject to termination, both upon at least 60 days
notice, except that no notice shall be required under circumstances provided for
by the rules of the Securities and Exchange Commission.
SIGNATURE GUARANTEES
Signatures guaranteed by a domestic commercial bank or trust company,
credit union, savings and loan association, or a member firm of a national
securities exchange or other eligible guarantee institution may be required for
certain transactions. Shareholders may contact the Fund's transfer agent for
additional information about signature guarantee requirements.
INCOME AND DIVIDENDS
Net income of the Fund, for the purpose of declaring dividends, consists
of accrued interest income, plus or minus amortized purchase discount or
premium, plus or minus realized gains or losses, less accrued expenses. To the
extent the Fund's portfolio securities are valued at amortized cost (see "Net
Asset Value"), there will be no unrealized gains or losses on portfolio
securities. However, should net asset value, calculated by using available
market quotations, deviate significantly from $1.00 per share, the Trustees
could decide to value portfolio securities by using available market quotations,
which could result in unrealized gains or losses being considered in the
determination of net investment income of the Fund.
Income dividends accrue daily and are paid monthly. In the event that the
Fund incurs or anticipates any unusual expense, loss or depreciation which would
adversely affect its net income for a particular period, the Board of Trustees
may at that time consider whether to adhere to this dividend policy or to revise
it in light of then prevailing circumstances. Such expenses, losses or
depreciation could result in a shareholder receiving no dividends during such
period or in a shareholder receiving, upon redemption, a price per share lower
than the cost per share.
TAXES
The Fund has qualified and intends to qualify in the future for treatment
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended. As such it will not be taxed on net income distributed to shareholders.
In order to continue to qualify for treatment as a regulated investment company,
the Fund must distribute to its shareholders for each taxable year at least 90%
of its investment company
8
<PAGE> 26
taxable income (consisting generally of taxable net investment income plus net
short-term capital gain, if any), and must meet several additional requirements.
These requirements include the following: (1) the Fund must derive at least 90%
of its gross income each taxable year from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of
securities and certain other income; (2) at the close of each quarter of the
Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. government securities and other
securities, with these other securities limited, in respect of any one issuer,
to an amount that does not exceed 5% of the value of the Fund's total assets;
and (3) at the close of each quarter of the Fund's taxable year, not more than
25% of the value of its total assets may be invested in securities (other than
U.S. government securities) of any one issuer.
The Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and any capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.
The Federal income tax matters summarized above and in the Prospectus are
subject to change by legislation, administrative action and judicial decision.
YIELD INFORMATION
The current yield of the Fund for any seven-day period is calculated by
determining the net change exclusive of capital changes in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, dividing the net change by the value of the account at the
beginning of the base period to obtain the base period return, and multiplying
the base period return by (365/7). For purposes of this calculation, the net
change reflects dividends declared on the original share and dividends declared
on any shares purchased with dividends on that share. Capital changes that are
excluded from the net change are realized gains and losses as well as unrealized
appreciation and depreciation with respect to the Fund's portfolio and
non-investment income. The yield of the Fund for the seven day period ended
September 30, 1998 was 4.80%.
The effective or compounded yield of the Fund is calculated by compounding
the unannualized base period return by adding one (1) to the base period return,
raising the sum to a power equal to 365 divided by 7, and subtracting one (1)
from the result. The effective yield of the Fund for the seven day period ended
September 30, 1998 was 4.92%.
9
<PAGE> 27
Yield information may be useful to investors in reviewing the Fund's
performance. However, yield normally fluctuates on a daily basis and the yield
for any given past period is not an indication or representation by the Fund of
future yields or rates of return on its shares. The Fund's yield is affected by
prevailing market interest rates, investment portfolio quality and maturity,
type of instruments held and operating expenses. When comparing the Fund's yield
with that of other alternatives, investors should understand that certain other
investments, such as money market instruments or bank accounts, may provide
fixed yields, that other investments and other investment companies may use a
different method of calculating yield, and that bank accounts may be insured.
Investors should also consider that bank accounts may sometimes offer
temporarily high "promotional" rates and may, under certain circumstances,
subject accounts to service charges which reduce their effective yield.
NET ASSET VALUE
The net asset value of the Fund's shares is calculated daily, as of 12:00 noon
and 4:00 p.m., Eastern time, on each day when the New York Stock Exchange is
open for business. The Fund does not calculate its net asset value on the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, Christmas Day, Columbus Day,
Martin Luther King, Jr. Day, and Veterans' Day.
The Fund values its portfolio instruments on the basis of the amortized
cost valuation method, which involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the instrument.
During such periods, the yield to shareholders of the Fund may differ somewhat
from that obtained in a similar fund with identical investments which uses
market values for all its portfolio securities. For example, if the use of
amortized cost resulted in a lower aggregate portfolio value on a particular
day, a prospective investor in the Fund would be able to obtain a somewhat
higher yield than would result from investment in such a similar fund and
existing shareholders of the Fund would receive less investment income. The
converse would apply in a period of rising interest rates.
The valuation of the Fund's portfolio instruments based upon their
amortized cost and the maintenance of the Fund's per share net asset value of
$1.00 is permitted based on the Fund's adherence to certain conditions. The Fund
will maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of 397 days or less (as
calculated in accordance with Rule 2a-7 under the Act) and invest only in
securities determined by the Board of Trustees or, pursuant
10
<PAGE> 28
to delegated authority, the Adviser, to be of high quality with minimal credit
risks. The Board also has established procedures designed to stabilize, to the
extent reasonably possible, the Fund's price per share, as computed for the
purpose of sales and redemptions, at $1.00. Such procedures include review of
the Fund's portfolio holdings by the Board, at such intervals as it may deem
appropriate, to determine whether the Fund's net asset value, calculated by
using available market quotations, and estimates of market values obtained from
yield data relating to instruments or securities with similar characteristics
pursuant to procedures approved by the Board of Trustees deviates from $1.00 per
share and, if so, whether such deviation may result in material dilution or is
otherwise unfair to existing shareholders. In the event the Board determines
that such a deviation exists, it has agreed to take such corrective action as it
deems necessary or appropriate, including, for example, the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity, withholding dividends, redemptions of shares in
kind, establishing a net asset value per share by using available market
quotations, and effecting a reverse split of shares.
Assets other than portfolio securities are valued at their fair value as
determined in good faith pursuant to procedures approved by the Board and
subject to the oversight of the Board. The Board reviews these valuation methods
at least annually and from time to time may, in its absolute discretion,
establish other methods which it considers appropriate for determining net asset
value.
PORTFOLIO TRANSACTIONS
Most of the Fund's purchases and sales of portfolio securities will be
direct transactions with issuers, underwriters or major dealers in U.S.
Government securities. Accordingly, the Fund will incur little or no brokerage
cost. Purchases of portfolio securities from underwriters, however, include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers include a spread between the bid and ask prices.
The Fund's policy of investing in short-term debt securities, coupled with
its active portfolio management, may result in high portfolio turnover. However,
high turnover is not expected to adversely affect net asset value or yields,
since there are usually no brokerage commissions paid by the Fund in connection
with the purchase or sale of U.S. Government securities.
The Adviser will make investment decisions for the Fund, arrange for
placement of buy and sell orders and initiate portfolio transactions, subject to
general supervision by the Trust's Board of Trustees. No portfolio transactions
are currently executed with the Adviser or any securities dealer affiliated with
the Adviser. When initiating a portfolio
11
<PAGE> 29
transaction, the Adviser seeks the prompt execution of its order in an effective
manner at the most favorable price.
The Adviser also serves as the investment adviser for other investment
companies. Although investment decisions for the Fund will be made independently
from those for such investment companies, purchases and sales of particular
securities may be effected simultaneously by such entities and the Fund. In such
instances, the transactions will be allocated among the entities and the Fund in
a manner the Adviser considers equitable to each. In some cases, this procedure
could have a detrimental effect upon the price or amount of the securities
purchased or sold by the Fund. On the other hand, in some cases the ability of
the Fund to participate in volume transactions may produce better executions for
the Fund. It is the opinion of the Board of Trustees that the benefits available
to the Fund from retaining the Adviser outweigh any disadvantages which may
arise from exposure to simultaneous transactions.
INVESTMENT ADVISER
ADVISORY AGREEMENT
The Agreement provides that the Adviser will manage the investments of the
Fund, subject to review by the Board of Trustees. The Adviser also bears the
cost of salaries and related expenses of executive officers of the Trust who are
necessary for the management and operation of the Fund and compensates the
Trustees who are affiliated with the Adviser. The Fund reimburses the Adviser
its cost, including salary and fringe benefits, of personnel who perform legal
services for the Fund.
As compensation for its services under the Agreement, the Adviser receives
from the Fund a monthly fee at an annual rate of .50% of the first $400 million
of average daily net assets, .45% of the next $600 million of average daily net
assets, .40% of the next $1 billion of average daily net assets, and .35% of
average daily net assets in excess of $2 billion.
The Agreement further provides that in the absence of willful misfeasance,
bad faith or gross negligence in the performance of its duties thereunder, or
reckless disregard of its obligations thereunder, the Adviser is not liable to
the Fund or any of its shareholders for any act or omission by the Adviser. The
Agreement does not restrict the Adviser from acting as an investment manager or
adviser for others.
The Agreement grants to the Trust the right to use the names "Gradison" and
"McDonald" as a part of its name and the name(s) of its Fund(s), without charge,
subject to withdrawal of such right by the Adviser upon not less than 30 days'
written notice to the Trust and subject to the automatic termination of such
right within 30 days after the termination of the Agreement for any reason. The
Agreement does not impair the right of the Adviser to use the name Gradison or
McDonald in the name and the
12
<PAGE> 30
name(s) of its Fund(s) without charge in connection with any other business
enterprise with which it is or may become associated.
The Agreement continues in effect from year to year if such continuance is
specifically approved at least annually by the vote of the holders of a majority
of the outstanding voting securities of the Fund or by the vote of a majority of
the Trust's Board of Trustees, and in either event by the vote cast in person of
a majority of the Trustees who are not "interested persons" of any party to the
Agreement.
The Agreement may be terminated at any time without penalty upon 60 days'
written notice by (i) the Board of Trustees, (ii) the vote of the holders of a
majority of the outstanding voting securities of the Fund, or (iii) the Adviser.
The Agreement will terminate automatically in the event of its assignment by the
Adviser. The Agreement may be amended at any time by the mutual consent of the
parties thereto, provided that such consent on the part of the Fund shall have
been approved by the vote of the holders of a majority of its outstanding voting
securities and by the vote of a majority of the Board of Trustees, including the
vote cast in person by a majority of the Trustees who are not "interested
persons" of any party to the Agreement.
For the years ended September 30, 1998, September 30, 1997, and September
30, 1996, the Fund paid Gradison advisory fees totaling respectively,
$7,875,357, $6,956,236 and $6,078,331.
DISTRIBUTION SERVICE PLAN
The Fund has in effect a Distribution Service Plan (the "Plan") under Rule
12b-1 of the Act. Rule 12b-1 permits an investment company to finance, directly
or indirectly, activities primarily intended to result in the sale of its shares
only if it does so in accordance with the provisions of such Rule. The purpose
of the Plan is to increase sales of shares of the Fund to enable it to acquire
and retain a sufficient level of assets to enable it to operate more efficiently
and to provide service to Fund shareholders. Higher levels of assets tend to
result in operating efficiencies with respect to the Fund's fixed costs and
portfolio management.
The Plan permits the Fund to incur expenses related to the distribution of
its shares, but only as specifically contemplated by the Plan. Under the Plan,
the Fund may incur expenses in an amount that does not exceed an annual rate of
.20% of its average daily net assets. Expenses that may be incurred by the Fund
under the Plan within the limitation described above are limited to service fee
payments to broker-dealers or other persons, expenditures to broker-dealers or
other persons for their assistance with respect to distribution of shares of the
Fund
13
<PAGE> 31
with respect to any activity primarily intended to result in sale or maintenance
of Fund shares, and expenditures by the BISYS Fund Services Limited Partnership
(the "Distributor") for advertising, prospectuses, annual and semi-annual
reports, and other promotional material for prospective investors.
In approving the Plan, the Board of Trustees concluded that there was a
reasonable likelihood that the Plan would benefit the Fund and its shareholders.
The Plan (together with any agreements relating to implementation of the Plan)
continues in effect for a period of more than one year only so long as such
continuance is specifically approved at least annually by the vote of a majority
of the Board of Trustees, including the vote of a majority of the Independent
Trustees, cast in person at a meeting called for such purpose. The Plan may not
be amended to materially increase the amount of distribution expenses incurred
by the Fund without the approval of a majority of the Independent Trustees by
vote cast in person at a meeting called for the purpose of voting on such
amendment and without the approval of a majority of the outstanding voting
securities of the Fund. The Plan may be terminated at any time by a vote of a
majority of the Independent Trustees or by a vote of the majority of the
outstanding voting securities of the Fund. Any agreement implementing the Plan
may be terminated at any time, without the payment of any penalty, by a vote of
a majority of the Independent Trustees or by a vote of a majority of the
outstanding voting securities of the Fund, on not more than sixty days' written
notice to the other party to the agreement, and any related agreement will
terminate automatically in the event of its assignment. The Plan requires that
the Board of Trustees receive at least quarterly written reports as to the
amounts expended during each quarter pursuant to the Plan and the purposes for
which such amounts were expended. While the Plan is in effect, the selection and
nomination of those Trustees who are not "interested persons" (as defined in the
Act) of the Trust shall be committed to the discretion of the Independent
Trustees then in office.
Pursuant to the Plan the Fund has entered into an agreement with the
Distributor pursuant to which the Fund pays the Distributor an annual service
fee in the amount of .10% of the average assets annually which the Distributor
pays to securities dealers as payment for the provision of personal services to
Fund shareholders. For the fiscal years ended September 30, 1998, September 30,
1997, and September 30, 1996, the Fund paid the former Distributor (McDonald
Investments Inc.) respectively, $1,778,775, $1,550,945 and $1,334,962 as
distribution fees.
TRANSFER AGENCY, ACCOUNTING SERVICES, AND ADMINISTRATIVE SERVICES AGREEMENT
Pursuant to the Transfer Agency, Accounting Services, and Administrative
Services Agreement, McDonald provides transfer agent, dividend disbursing,
accounting services, and administrative services to the Fund. McDonald responds
to inquiries from shareholders, processes purchase and redemption requests,
maintains shareholder account records,
14
<PAGE> 32
provides statements and confirmations to shareholders, maintains the Fund's
books and accounting records, and prepares and files registration statements and
other reports, with the Securities and Exchange Commission and other regulatory
authorities. Pursuant to this Agreement, McDonald receives a fee of $23.50 per
year per shareholder non-zero balance account and $5.00 per closed or zero
balance account per year for transfer agency and administrative services. In
addition to this fee, the Fund pays out of pocket costs including the cost of
statement paper, statement envelopes, reply envelopes, and reply postage. For
accounting services, the Fund pays McDonald an annual fee in the amount of .015%
of the first $400 million of average daily net assets, .0125% of the next $300
million, .01% of the next $300 million, and .0075% of assets in excess of $1
billion, with a minimum fee of $25,000 per year. For the fiscal years ending
September 30, 1998, September 30, 1997, and September 30, 1996, the Fund paid
McDonald respectively $2,612,210, $2,408,388 and $2,179,364 pursuant to this
Agreement.
OTHER COMPENSATION PAID/REIMBURSEMENT MADE TO THE ADVISER
In addition to the advisory fee, transfer agent fee, and distribution fees
paid by the Fund to the Adviser, for the fiscal year ended September 30, 1998,
1997 and 1996, the Fund reimbursed the Adviser, on a cost basis, for costs
allocable to services performed by the Adviser's employees, including salaries
and office space, respectively $4,957, $7,741 and $4,424.
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and officers of the Trust, together with information as to
their principal occupations during the past five years and positions currently
held with the Gradison Growth Trust ("GGT"), the Gradison-McDonald Custodian
Trust ("GCT"), and the Gradison-McDonald Municipal Custodian Trust ("GMMT"), and
the Adviser, are listed below. All principal occupations have been held for at
least five years unless otherwise specified. Positions held with Gradison were
previously held with Gradison & Company Incorporated. The mailing address for
all officers of the Trust is c/o Gradison Funds, 580 Walnut Street, Cincinnati,
Ohio 45202.
*DONALD E. WESTON, 580 Walnut Street, Cincinnati, Ohio. Trustee and
Chairman of the Board; Chairman of Gradison; Trustee and Chairman of the
Board of GGT, GCT, and GMMT.; Director of Cincinnati Milacron Commercial
Corporation (financing subsidiary of Cincinnati Milacron Corporation
(manufacturer of machine tools).
THEODORE H. EMMERICH, 1201 Edgecliff Place, Cincinnati, Ohio 45206.
Trustee. Retired; until 1986, managing partner (Cincinnati office) Ernst &
Young LLP (independent public accountants); Director of Carillon Fund, Inc.
(investment company), American Financial Group, Inc.(insurance), and
Cincinnati Milacron Commercial Corp.; Trustee of
15
<PAGE> 33
Summit Investment Trust and Carillon Investment Trust (investment
companies); Trustee of GGT, GCT, and GMMT.
RICHARD A. RANKIN, 1717 Dixie Highway, Suite 600, Ft. Wright, Kentucky
41011. Trustee. Partner, Rankin and Rankin (independent public
accountants); Trustee of GGT, GCT, and GMMT.
JEROME E. SCHNEE, 14 Walt Whitman, Morristown, N. J. 07960. Trustee. Senior
Director, Health Economics Johnson & Johnson (Pharmaceuticals) since August
1996; Prior to that Professor of Management, College of Business
Administration, University of Cincinnati); Trustee of GGT, GCT, and GMMT.
DANIEL J. CASTELLINI, 312 Walnut Street, Cincinnati, Ohio 45202. Trustee;
Senior Vice President/Finance and Administration of the E. W. Scripps
Company (communications); Trustee of GGT, GCT, and GMMT.
C. STEPHEN WESSELKAMPER. Vice President and Portfolio Manager; First Vice
President of McDonald.
BRADLEY E. TURNER. President. Senior Managing Director of McDonald;
President of GGT, GCT, and GMMT.
PATRICIA J. JAMIESON. Treasurer. Managing Director and Chief Financial
Officer of McDonald; Treasurer of GGT, GCT, and GMMT.
MARK A. FRIETCH. Assistant Treasurer. Assistant Treasurer of GGT, GCT, and
GMMT (since May 1995.); Senior Vice President of McDonald.
RICHARD M. WACHTERMAN. Secretary. Senior Vice President and General Counsel
of Gradison; Secretary of GGT, GCT, and GMMT.
* Trustee who is an interested and affiliated person as defined by the
Investment Company Act of 1940, of the Trust and the Adviser by virtue of
stock ownership of the parent of the Adviser and employment by the Adviser.
Trustees and officers of the Trust who are affiliated with the Adviser
receive no remuneration from the Trust. Trustees who are not affiliated with the
Adviser receive fees as determined by the Board of Trustees. For the year ended
September 30, 1998, the fees paid to the Trustees by the Trust aggregated
$32,000.
<TABLE>
<CAPTION>
Compensation Table
------------------
<S> <C> <C>
Name of Trustee Aggregate Total Compensation
- --------------- Compensation From Fund and fund
From Fund complex (3 additional
for fiscal Trusts) paid to
</TABLE>
16
<PAGE> 34
<TABLE>
<CAPTION>
year ended trustee for calendar
9/30/98 year ended 12/31/98
------- ---------------------
<S> <C> <C>
Theodore H. Emmerich 8,000 ______
Richard A. Rankin 8,000 ______
Jerome E. Schnee 8,000 ______
Daniel J. Castellini 8,000 ______
</TABLE>
The Trust maintains a deferred compensation plan which allows trustees to defer
receipt of trustee fees otherwise payable to them until a future date. Deferred
amounts are credited with interest at a rate equal to the yield of the Gradison
U.S. Government Reserves Fund. The Trust does not maintain any other pension or
retirement plans. There are currently no amounts owing to any current trustee
pursuant to the deferred compensation plan. As of September 30, 1998, the amount
of $11,624 was payable by the Trust to the beneficiary of a former trustee who
is deceased and as of December 31, 1998, the amount of _________ was payable to
that beneficiary by the fund complex (including the Fund).
DESCRIPTION OF THE TRUST
The Trust is a diversified, open-end investment company organized under the
laws of the Commonwealth of Massachusetts by an Amended and Restated Declaration
of Trust dated October 25, 1993. The Trust was formed for the specific purpose
of succeeding to the business and acquiring all of the assets of Gradison Cash
Reserves, Inc. in a reorganization effected on December 28, 1981. The Gradison
U.S. Government Reserves series of the Trust was formed for the purpose of
consolidating the following mutual funds: the Gradison Cash Reserves series of
the Trust, Gradison U.S. Government Trust, McDonald Money Market Fund, Inc., and
McDonald U.S. Government Money Market Fund, Inc. The shareholders of each of the
funds approved the consolidation. The Declaration of Trust provides for an
unlimited number of full and fractional shares of beneficial interest, $.01 par
value, of any series authorized by the Board of Trustees. The Board of Trustees
has authorized the issuance of shares of one series, representing the Fund. Any
additional series of shares must be issued in compliance with the Act and must
not constitute a security that is senior to the shares offered pursuant to the
Prospectus. All shares are of the same class and are freely transferable. Upon
issuance and sale in accordance with the terms of the offering, each share will
be fully paid and nonassessable. Shares have no preemptive, subscription or
conversion rights and are redeemable as set forth under "Redemption of Shares."
Holders of shares of the Fund are entitled to one vote per share.
Voting rights are not cumulative, which means that the holders of more than 50%
of the shares voting in any election of Trustees can elect all of the Trustees
of the Trust if they choose to do so, in which event the holders
17
<PAGE> 35
of the remaining shares will be unable to elect a Trustee. Under the Declaration
of Trust, meetings of shareholders are not required to elect Trustees, unless
less than a majority of Trustees holding office have been elected by the
shareholders and a Trustee may be removed for cause by the vote of at least two
thirds of the remaining Trustees. Shareholders' meetings will be held only when
required pursuant to the Declaration of Trust or the Act, and when called by the
Fund or shareholders pursuant to the Declaration of Trust. The Trustees are
required to call a meeting of shareholders when requested in writing to do so by
shareholders of record of not less than 10 percent of the Trust's outstanding
shares. Pursuant to Section 16(c) of the Act, shareholders have the right to
remove trustees upon the vote of two-thirds of the outstanding shares of the
Trust, access shareholder lists under certain circumstances, and, as noted
above, instruct the trustees to call a shareholders' meeting.
Whenever the approval of a majority of the outstanding shares of a series
of the Trust is required in connection with shareholder approval of the
Investment Advisory Agreement or the Distribution Service Plan, or changes in
the investment objective or the investment restrictions, a "majority" shall mean
the vote of (i) 67% or more of the outstanding shares of the Fund present at a
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present in person or by proxy, or (ii) more than 50% of the outstanding
shares of the Fund, whichever is the lesser.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. The Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Trust and requires that notice of such disclaimer be given in every written
obligation, contract, instrument, certificate, share of beneficial interest,
other security of the Trust or undertaking made or issued by the Trustees or by
any officers, employees or agents of the Trust. The Declaration of Trust
provides for indemnification out of Trust property of any shareholder held
personally liable for the obligations of the Trust. The Declaration of Trust
also provides that the Trust shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of the Trust and
satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations. Management
believes that, in view of the above, there is no realistic risk of personal
liability.
The Declaration of Trust provides that no Trustee, officer or agent of the
Trust shall be personally liable to any person for any action or failure to act
except (1) for his own bad faith, willful misfeasance, gross negligence, or
reckless disregard of his duties, (2) with respect to any matter as to which he
did not act in good faith and in a manner he reasonably believed to be in, and
not opposed to, the best interests of the
18
<PAGE> 36
Trust, or (3) in the case of any criminal proceeding, with respect to any
conduct which he had reasonable cause to believe was unlawful.
CUSTODIAN
Star Bank, N.A., Star Bank Center, Cincinnati, Ohio 45202, acts as the
custodian of the portfolio securities and other assets of the Fund. Star Bank
has no part in determining the investment policies of the Fund or the securities
which are to be purchased, held or sold by the Fund. The Fund may enter into
repurchase agreements with Star Bank and may purchase or sell securities from or
to Star Bank.
ACCOUNTANTS
Arthur Andersen LLP, 425 Walnut Street, Cincinnati, Ohio, is the independent
public accountant for the Fund.
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP acts as counsel to the Trust.
OPTIONAL SHAREHOLDER SERVICES
Shareholders may receive cash payment of the dividends that their account
has earned during the month or have such dividends reinvested in additional
shares of the Fund. If such election is made, dividends will be mailed to the
shareholder or any other person designated by the shareholder. This option may
be changed or terminated by written notice to the Fund.
Shareholders may arrange for a fixed amount of money to be transferred on a
regular automatic basis from a bank or other depository account to their Fund
account. For additional information shareholders should contact the Fund or
their sales representative.
If an account has a value of at least $5,000 shareholders may elect to have
monthly or quarterly payments of a specified amount (but not less than $50)
mailed to themselves or another specified person. This option may be changed or
terminated at any time by written notice to the Fund. Because the Fund cannot
guarantee that payments will be made on the date specified, such payments should
not be used when receipt of the payment is time-sensitive.
These services may not be available as to Fund shares not held directly
with the Fund.
19
<PAGE> 37
<TABLE>
<CAPTION>
Gradison U. S. Government Reserves
TOTAL RETURN FOR PERIODS ENDED SEPTEMBER 30, 1998
Average Annual Total Return
10 Years 5 Years 3 Years 1 Year Quarter*
<S> <C> <C> <C> <C> <C>
U. S. Government Reserves +5.35% +4.05% +4.93% +4.85% +1.23%
Consumer Price Index +3.5% +2.7% +2.7% +2.3% +0.5%
<CAPTION>
U. S. Government Consumer Price
Year Cash Reserves Index
<C> <C> <C>
1998 4.98% + 1.4%
1997 4.92% + 1.7%
1996 4.78% + 3.3%
1995 5.26% + 2.6%
1994 + 3.46% + 2.7%
1993 + 2.49% + 2.7%
1992 + 3.33% + 2.9%
1991 + 5.48% + 3.1%
1990 + 7.64% + 6.1%
1989 + 8.78% + 4.6%
1988 + 7.07% + 4.4%
</TABLE>
The table above is intended to compare the total return results of the
U. S. Government Reserves with the Consumer Price Index which is widely
considered as a measure of inflation. Total returns reflect the reinvestment and
compounding of actual daily dividends and distributions for each period noted
above. The performance quoted above represents past performance. Future returns
will fluctuate. Past performance does not insure future results.
Gradison U. S. Government Reserves acquired all of the outstanding shares of
Gradison Cash Reserves (GCR), Gradison U. S. Government Trust, McDonald Money
Market Fund, Inc., and McDonald U. S. Government Money Market Fund, Inc. on
September 27, 1993. Returns prior to that date are those of GCR. In 1993 and
1994 certain fees were waived by the Adviser which increased returns.
An investment in the Fund is neither insured nor guaranteed by the U. S.
Government and there can be no assurance that the Fund will be able to maintain
a stable net asset value of $1.00 per share.
All income earned in 1998 was received from U. S. Government obligations that
are exempt from state and local taxes. In some of the periods noted above, GCR
invested in commercial paper and other securities that generally have a higher
yield than U. S. Government Obligations.
20
<PAGE> 38
For a copy of the prospectus please call your Investment Consultant at (513)
579-5000 or (800) 869-5666. The prospectus contains more complete information.
Read it carefully before you invest.
*Not annualized
BISYS Fund Services Limited Partnership - Distributor
GRADISON
Mutual Funds
21
<PAGE> 39
Sales Brochure
COVER PAGE
- ----------
MONEY MARKET
FUNDS
GRADISON MCDONALD
[GRAPHIC: COLLAGE OF CAMERA, PASSPORT, STAMPS, MAP, COMPASS, POSTCARDS AND "YOUR
FUTURE STARTS TODAY."]
U.S. GOVERNMENT RESERVES
MUNICIPAL CASH SERIES
OHIO MUNICIPAL CASH TRUST
22
<PAGE> 40
FAMILY OF MUTUAL FUNDS
MONEY MARKET
INTERMEDIATE OHIO TAX FREE
MUNICIPAL INCOME
INTERNATIONAL ESTABLISHED
VALUE
GOVERNMENT OPPORTUNITY
INCOME VALUE
GROWTH
& INCOME
23
<PAGE> 41
PAGE 1
[Graphic; collage of passport, stamps, map, and camera]
Whatever your goals or ASPIRATIONS.
Whatever your objective. One thing is certain.
An INVESTMENT made today brings
you that much closer to meeting that OBJECTIVE
and reaching that GOAL ...
whether it's buying a house, starting a family,
SAVING for a college education,
or planning for retirement. Hesitate and
time will pass you by.
Today, opening a MONEY MARKET account
is a FUNDAMENTAL step in starting a
savings and investment program.
And for a growing number of TODAY'S INVESTORS,
GRADISON-McDONALD is a preferred name among money market funds.
1-800-869-5999[Graphic of call for information logo.]
24
<PAGE> 42
PAGE 2
- ------
MONEY MARKET
FUND
GRADISON-McDONALD, RECOGNIZING THE BENEFITS
THAT MONEY MARKET FUNDS OFFERED THEIR
CLIENTS, BEGAN MANAGING ITS MONEY MARKET
FUND IN 1976. MONEY MARKET MUTUAL FUNDS
WERE ORIGINALLY VIEWED AS A CONVENIENT, TEM-
PORARY LOCATION FOR CASH WHILE LONG-TERM
INVESTMENTS WERE CONSIDERED. THEY QUICKLY
BECAME A POPULAR VEHICLE FOR SAVINGS AND
CHECKING ASSETS AS PASSBOOK SAVING RATES
DECLINED AND THE COST OF MAINTAINING A
CHECKING ACCOUNT ROSE. TODAY, MONEY MAR-
KET FUNDS--WITH THEIR COMPETITIVE CURRENT
YIELDS AND HIGH LEVEL OF SERVICE--ARE A FUN-
DAMENTAL ASPECT OF PERSONAL FINANCE AND
BUSINESS MANAGEMENT.
CHOOSE FROM THREE FUNDS
- -----------------------
U.S. GOVERNMENT RESERVES invests solely in U.S. Government and agency
securities. The Fund is managed by experienced Gradison-McDonald portfolio
managers.
MUNICIPAL CASH SERIES provides current income exempt from Federal regular income
tax.FN1 and is managed by Federated Advisers and available through Gradison-
McDonald.
OHIO MUNICIPAL CASH TRUST (CASH II SHARES) is a double tax-free money market
mutual fund for Ohio investors. The Fund seeks to provide money market income
exempt from both Federal regular FN1 and Ohio taxation and is also managed by
Federated Advisers and available through Gradison-McDonald.
25
<PAGE> 43
PAGE 3
- ------
[Graphic: Collage: Compass, postcards.]
Unlike checking and passbook accounts, an investment in the Funds is neither
insured nor guaranteed by the U.S. Government. There can be no assurance that
the Funds will maintain a stable net asset value of $1.00 per share.
LIQUIDITY
---------
Money market fund assets are as easily accessible as making a phone call or
writing a check. ATM access is also available for an additional fee through the
McDonald Relationship Account.
LOW MINIMUM INVESTMENT
----------------------
There is no minimum size account or minimum additional investment for money
market fund accounts maintained together with a Gradison-McDonald active
brokerage account.
Money market fund accounts maintained separately from an active brokerage
account must have an initial investment of $1,000 and minimum additional
investments of at least $50.
FN 1 A portion of the income will be subject to Alternative Minimum Taxation for
Taxpayers subject to such tax.
1-800-869-5999 [Graphic of call for information logo.]
26
<PAGE> 44
PAGE 4
- ------
FREE CHECK WRITING
- ------------------
Money market fund accounts offer free check writing for any check of $100 or
more. Checks of less than $100 are processed for a minimal fee of 30 cents per
check.
DAILY DIVIDENDS
- ---------------
Dividends are declared daily. You may also choose to have each month's dividends
paid to you.
EXCHANGES
- ---------
You can move money from the money market funds to any of the following
Gradison-McDonald funds at any time. The Gradison-McDonald funds currently
include
Opportunity Value Fund
Established Value Fund
Government Income Fund
Ohio Tax-Free Income Fund
Intermediate Municipal Income Fund
Gradison-McDonald funds planned for 1995 and sold by prospectus only include:
Growth & Income Fund
International Fund
ACCESS
- ------
You can redeem money market fund shares on any business day.
[Graphic: Passport and stamps.]
27
<PAGE> 45
INSIDE BACK COVER
- -----------------
A TRUSTED NAME
Gradison o McDonald
is headquartered in Cincinnati and has
managed mutual funds since 1976.
The parent company, McDonald & Company
Investments, was founded in 1924
and has been listed on the
New York Stock Exchange since 1983.
It operates a leading regional
investment advisory, investment banking,
and investment brokerage firm
with offices throughout
Ohio, Michigan and Indiana,
and in Atlanta, Boston, Dallas, Chicago,
Los Angeles, the New York City area
and Naples, Florida
1-800-869-5999 [Graphic of call for information logo.]
28
<PAGE> 46
Back Cover
- ----------
[Graphic: Portable phone and envelopes]
To find out more about the
GRADISON-McDONALD
MONEY MARKET FUNDS
OR OTHER FUNDS IN THE FAMILY
CALL
1-800-869-5999
OR WRITE
Gradison o McDonald Mutual Funds
580 Walnut Street
Cincinnati, Ohio 45202
GRADISON-McDONALD
You may obtain a prospectus containing complete information about the money
market funds from a Gradison-McDonald Mutual Funds representative or your
Investment Consultant. Read it carefully before investing.
Federated Securities Corp. is the principal distributor for the shares of
Municipal Cash Series and Ohio Municipal Cash Trust (Cash II Shares). McDonald &
Company Securities, Inc. is the principal distributor for the shares of the
Gradison-McDonald U.S. Government Reserves.
McDonald & Company Securities Inc., acts as agent for clients investing in
Municipal Cash Series and Ohio Municipal Cash Trust (Cash II Shares) and does
not act as investment adviser for the those funds. Checking redemptions for
these funds is provided by Gradison-McDonald through Star Bank, N.A.
29
<PAGE> 47
[Fact Sheet]
GRAPHIC: Logo
GRADISON
MUTUAL Funds
U. S.
Government
Reserves
U. S. Government Reserves is a money market mutual fund designed to provide
investors with current money market yields by investing exclusively in
securities issued by the U. S. Government or its agencies or instrumentalities,
and in repurchase agreements for such securities.
The Fund is used by individuals, institutions and corporations as a short-term
investment with convenient daily liquidity. Investors and retirement plan
participants make use of the Fund as a temporary depository for assets between
longer-term investment decisions.
U. S. Government Reserves offers high levels of service including checkwriting,
wire transfers, daily sweeps with brokerage accounts, monthly statements that
include check payee names, and telephone redemption privileges. Additional
services, including a debit card with ATM access, are available for an
additional fee through the optional "Relationship Account".
Symbol: GMUXX
AVERAGE ANNUAL TOTAL RETURN Periods Ended 9/30/98
Quarter* One Year Three Years Five Years Ten Years 7-Day Yield
+1.23% +4.98% +4.89% +4.54% +5.17% _____%
*Not annualized
** 7-Day Yield as of October ___, 1998. The yield quotation more closely
reflects the current earnings of the Fund than does the total return quotation.
Bar Chart stating "Annual Return of U. S. Government Reserves" with these plot
points 1976 - 5.26%*; 1977 - 5.00%; 1978 - 6.88%; 1979 - 10.18%; 1980 - 11.60%;
1981 - 16.95%; 1982 - 12.32%; 1983 - 8.54%; 1984 - 10.09%; 1985 - 7.78%; 1986 -
6.28%; 1987 - 6.03%; 1988 - 7.07%; 1989 - 8.78%; 1990 - 7.64%; 1991 - 5.48%;
1992 - 3.33%; 1993 - 2.49%; 1994 - 3.46%; 1995 - 5.26%; 1996 - 4.78%; 1997 -
4.92%; 9/30/98 - 4/98%.
30
<PAGE> 48
Line Chart stating "Annual Percent of Change in the Consumer Price Index" with
these plot points 1976 - 4.8%; 1977 - 6.8%; 1978 - 9.0%; 1979 - 13.3%; 1980 -
12.4%; 1981 - 8.9%; 1982 - 3.9%; 1983 - 3.8%; 1984 - 4.0%; 1985 - 3.8%; 1986 -
1.1%; 1987 - 4.4%; 1988 - 4.4%; 1989 - 4.6%; 1989 - 4.6%; 1990 - 6.1%; 1991 -
3.1%; 1992 - 2.9%; 1993 - 2.7%; 1994 - 2.7%; 1995 - 2.6%; 1996 - 3.3%; 1997 -
1.7%; 9/98 - 1.4%.
The performance quoted on this document and any attachment represents past
performance. Future returns will fluctuate. Total return includes reinvestment
of all distributions. Past performance does not ensure future results. Returns
prior to September 27, 1993, are those of Gradison Cash Reserves, a predecessor
money market fund which invested in non-government obligations, the yields of
which generally exceed the yields of government obligations.
An investment in the Fund is not insured or guaranteed by the FDIC. Or any other
Government agency. Although the fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
fund.
WHERE THE FUND IS INVESTED
The information below is as of September 30, 1998, and is subject to change in
the future.
$ 1.93 Billion [Graphic: Pie Chart
Net Assets as of 9/30/98 Federal Home Loan Banks 55%
Federal Farm Credit Bank 24%
Student Loan
Marketing Association 21%]
September 30, 1998
GRAPHIC: Photo of Woman
PORTFOLIO MANAGER PROFILES
[Graphic: Photo C. Stephen Wesselkamper]
C. Stephen Wesselkamper
First Vice President/Portfolio Manager
Gradison McDonald Asset Management
With more than 20 years financial analysis and portfolio management experience,
the last 15 with Gradison, Stephen Wesselkamper carries primary responsibility
for short-term fixed income management on the Gradison McDonald Asset Management
team. In addition to his responsibilities as portfolio manager of U. S.
Government Reserves, Steve is also involved with
31
<PAGE> 49
the Government Income Fund. A magna cum laude graduate of the University of
Cincinnati, Steve holds an MBA from Xavier University.
PROFILE OF GRADISON MUTUAL FUNDS
Gradison mutual Funds is a division of McDonald & Company, a leading regional
investment firm which acquired Gradison in 1991. As a registered investment
advisor since 1974 and mutual fund advisors since 1976, Gradison currently
manages in excess of $4 billion in Gradison Mutual Funds and individually
managed accounts.
A prospectus for U. S. Government Reserves or any other Gradison Mutual Fund may
be obtained by calling 513/579-5700 or 800/869-5999. The prospectus contains
more complete information. Read it carefully before you invest.
Securities, mutual funds and other investment products are:
- Not Insured by the FDIC.
- Not deposits or other obligations of, or guaranteed by McDonald
Investments Inc. Key Bank or any of their affiliates.
- Subject to investment risks, including possible loss of the
principal amount invested.
BISYS Fund Services Limited Partnership - Distributor
GMFS 1059 - GMU 9/98
GRAPHIC: Photo of a Man and two Women
International Fund
Opportunity Value Fund
Growth & Income Fund
Established Value Fund
Ohio Tax-Free Income Fund
Government Income Fund
Money Market Funds
McDonald Investments Inc., a subsidiary of KeyCorp, is the investment adviser to
the Gradison Funds. The Gradison Funds are sponsored and distributed by BISYS
Fund Services, which is not affiliated with KeyCorp or its subsidiaries.
McDonald Investments Inc. receives a fee for its services from the Gradison
Funds.
GRAPHIC: Logo
Gradison
Mutual Funds
32
<PAGE> 50
U.S. GOVERNMENT RESERVES
- --------------------------------------------------------------------------------
September 30, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
Maturity, Interest Principal
Coupon Rate Rate (1) Amount Value
Federal Farm Credit Banks,
Discount Notes - 6.52%
<S> <C> <C> <C>
10/06/98 5.41% $ 26,928,000 $ 26,907,753
10/07/98 5.41 22,000,000 21,980,163
10/15/98 5.42 20,000,000 19,957,844
10/19/98 5.15 25,000,000 24,935,625
11/09/98 5.35 9,500,000 9,444,940
12/22/98 5.05 5,000,000 4,942,486
1/27/99 5.37 19,000,000 18,665,568
--------------
126,834,379
--------------
<CAPTION>
Federal Farm Credit Banks,
Bonds - 5.04%
<S> <C> <C> <C>
11/02/98, 5.51% 5.51 23,000,000 22,997,869
12/01/98, 5.48 5.48 16,075,000 16,074,579
2/02/99, 5.30 5.30 20,000,000 19,990,182
4/01/99, 5.50 5.50 14,000,000 13,989,459
9/29/99, 5.24 5.24 25,000,000 25,000,000
--------------
98,052,089
--------------
<CAPTION>
Federal Farm Credit Banks,
Floating Rate Notes (2) - 8.99%
<S> <C> <C> <C>
10/01/98 5.44 50,000,000 50,000,000
12/01/98 5.56 50,000,000 50,000,000
2/01/99 5.46 50,000,000 50,000,000
8/17/99 5.48 25,000,000 24,987,090
--------------
174,987,090
--------------
<CAPTION>
Federal Farm Credit Banks,
Floating Rate Master Note (2) - 3.21%
<S> <C> <C> <C>
10/16/98 5.43 62,500,000 62,500,000
--------------
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Maturity, Interest Principal
Coupon Rate Rate (1) Amount Value
Federal Home Loan Banks,
Discount Notes - 40.20%
<S> <C> <C> <C>
10/07/98 5.41% $ 96,400,000 $ 96,313,076
10/09/98 5.43 228,790,000 228,514,225
10/14/98 5.42 100,000,000 99,804,224
10/16/98 5.43 27,000,000 26,938,913
10/21/98 5.44 50,000,000 49,849,000
10/26/98 5.11 14,500,000 14,448,545
11/04/98 5.39 56,498,000 56,210,450
11/12/98 5.40 50,000,000 49,685,146
12/02/98 5.07 10,900,000 10,804,919
12/04/98 5.29 38,423,000 38,061,995
12/23/98 5.28 25,000,000 24,695,782
1/06/99 5.37 25,000,000 24,638,608
1/08/99 5.37 15,000,000 14,778,694
1/13/99 5.37 11,000,000 10,829,512
2/03/99 5.35 12,568,000 12,334,532
2/12/99 5.35 25,000,000 24,502,153
--------------
782,409,774
--------------
<CAPTION>
Federal Home Loan Banks,
Bonds - 9.55%
<S> <C> <C> <C>
11/18/98, 5.30% 5.70 14,000,000 $ 13,992,917
12/08/98, 5.42 5.66 14,000,000 13,993,744
2/26/99, 5.53 5.65 10,000,000 9,989,120
3/16/99, 5.56 5.62 20,000,000 19,994,498
4/07/99, 5.54 5.70 10,150,000 10,141,672
6/10/99, 5.53 5.69 10,000,000 9,989,230
6/11/99, 5.61 5.65 13,700,000 13,695,655
7/01/99, 5.55 5.58 15,000,000 14,996,400
7/23/99, 5.66 5.58 40,000,000 40,008,350
8/04/99, 5.68 5.70 19,175,000 19,171,210
8/17/99, 5.51 5.57 20,000,000 19,990,005
--------------
185,962,801
--------------
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
33
<PAGE> 51
U.S. GOVERNMENT RESERVES
- --------------------------------------------------------------------------------
September 30, 1998
PORTFOLIO OF INVESTMENTS Continued
<TABLE>
<CAPTION>
Maturity, Interest Principal
Coupon Rate Rate (1) Amount Value
Federal Home Loan Banks,
Floating Rate Notes (2) - 5.14%
<S> <C> <C> <C>
10/20/98 5.01% $ 50,000,000 $ 49,999,242
8/12/99 4.98 50,000,000 49,974,541
--------------
99,973,783
--------------
Student Loan Marketing Association,
Discount Note - 10.28%
<S> <C> <C> <C>
10/01/98 5.39 200,000,000 200,000,000
--------------
Student Loan Marketing Association,
Bonds - 4.65%
<S> <C> <C> <C>
12/17/98, 5.74% 5.61 11,500,000 11,502,813
1/22/99, 5.66 5.69 10,000,000 9,998,831
1/27/99, 5.56 5.71 13,700,000 13,689,049
2/10/99, 5.40 5.59 20,375,000 20,360,721
6/10/99, 5.52 5.66 10,000,000 9,990,561
9/30/99, 5.20 5.20 25,000,000 25,000,000
--------------
90,541,975
--------------
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Maturity, Interest Principal
Coupon Rate Rate (1) Amount Value
Student Loan Marketing Association,
Floating Rate Notes (2) - 6.42%
<S> <C> <C> <C>
3/18/99 5.14% $ 75,000,000 $ 75,000,000
9/15/99 5.28 50,000,000 49,968,272
--------------
124,968,272
--------------
TOTAL INVESTMENTS,
at value (Cost $ 1,946,230,163) - 100% $1,946,230,163
==============
- --------------------------------------------------------------------------------
</TABLE>
(1) The interest rates disclosed in the portfolio of investments are as follows:
- U.S. Government Agency discount notes - the discount rate at the time of
purchase;
- U.S. Government Agency bonds - the yield to maturity at the time of
purchase;
- U.S. Government Agency floating rate notes - the current coupon rate;
(2) For regulatory purposes, the maturity date of floating rate securities with
market prices that approximate par is considered to be the date upon which
the next readjustment of the interest rate can occur.
See accompanying notes to financial statements.
34
<PAGE> 52
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
9/30/98
<S> <C>
Assets
Investments in securities, at value (Note 1)
(Cost $1,946,230,163) $1,946,230,163
Interest receivable 7,293,972
Prepaid expenses and other assets 6,743,161
--------------
Total Assets 1,960,267,296
Liabilities
Payable for securities purchased 25,000,000
Accrued investment advisory fee (Note 2) 686,155
Other accrued expenses payable to adviser (Note 2) 414,402
Dividend payable 206,780
Other accrued expenses and liabilities 134,263
Payable for Fund shares redeemed 2,000
--------------
Total Liabilities 26,443,600
--------------
Net Assets
Equivalent to $1.00 per share on 1,933,823,696 outstanding
shares (Note 1) ($.01 par value - unlimited number of
shares authorized) $1,933,823,696
==============
- ---------------------------------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended 9/30/98
<S> <C> <C>
Interest income $100,139,720
Expenses:
Investment advisory fees (Note 2) $ 7,875,357
Transfer agency fees (Note 2) 2,612,210
Distribution (Note 2) 1,778,775
Registration fees 190,291
Accounting services fees (Note 2) 187,038
Custodian fees (Note 1) 166,962
Printing 161,496
Professional fees 57,389
ICI dues 56,101
Trustees' fees (Note 2) 38,326
Amortization of organization expense (Note 1) 4,369
Other 12,868
-----------
Gross expenses 13,141,182
Less earnings credits on cash balances (Note 1) (166,962)
-----------
Net expenses 12,974,220
------------
Net investment income $ 87,165,500
============
- -----------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
35
<PAGE> 53
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
------------------------------
9/30/98 9/30/97
<S> <C> <C>
From net investment income $ 87,165,500 $ 74,249,386
-------------- --------------
From dividends to shareholders (87,165,500) (74,249,386)
-------------- --------------
From Fund share transactions:
(at a constant net asset value of $1.00 per share)
Proceeds from shares sold 9,220,288,201 7,808,119,094
Net asset value of shares issued in reinvestment of dividends 85,372,300 73,390,308
Payments for shares redeemed (8,981,894,940) (7,604,514,450)
-------------- --------------
Increase in net assets from Fund share transactions 323,765,561 276,994,952
-------------- --------------
Total increase in net assets 323,765,561 276,994,952
Net assets:
Beginning of year 1,610,058,135 1,333,063,183
-------------- --------------
End of year $1,933,823,696 $1,610,058,135
============== ==============
- ------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
36
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
September 30, 1998
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Gradison - McDonald Cash Reserves Trust (the Trust) is a no-load, diversified,
open-end management investment company registered under the Investment Company
Act of 1940 (the Act), as amended. Effective with the start of business on
September 27, 1993 (the Reorganization Date) all of the outstanding shares of
the Gradison Cash Reserves (GCR) series of the Trust, Gradison U.S. Government
Trust, McDonald Money Market Fund, Inc., and McDonald U.S. Government Money
Market Fund, Inc. were acquired by a new series of the Trust, Gradison U.S.
Government Reserves (the Fund).
The Fund's investment objective is to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity.
The following is a summary of significant accounting policies followed by the
Trust in the preparation of the Fund's financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amount of income and expenses for that
period. Actual results could differ from those estimates.
FUND SHARE VALUATION
Fund shares are sold and redeemed on a continuing basis at the net asset value
per share. The net asset value per share is computed by dividing the net asset
value of the Fund (total assets less total liabilities) by the number of shares
outstanding.
SECURITIES VALUATION
Investments are valued using the amortized cost method which approximates market
value. This involves initially valuing a security at its original cost and
thereafter assuming a constant amortization to maturity of any discount or
premium. This method of valuation is expected to enable the Fund to maintain a
constant net asset value per share, but there can be no assurance that this will
be the case.
SECURITIES TRANSACTIONS
Securities transactions are accounted for on the trade date (the date the order
to buy or sell is executed).
INTEREST INCOME
Interest income is accrued as earned and includes immaterial gains or losses
realized from securities transactions during the year.
EXPENSE OFFSET ARRANGEMENT
The Fund has an arrangement with its custodian bank whereby the custodian's fees
are reduced by credits earned on the 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 Statement of Operations.
DIVIDENDS TO SHAREHOLDERS
All of the net investment income of the Fund is declared as a dividend daily and
paid monthly. Net investment income consists of all interest income accrued on
the portfolio securities of the Fund, plus or minus amortized purchase discount
or premium, less accrued expenses. Share purchases effective before 12:00 noon
(Eastern time) earn dividends that day. Redemption requests received before
12:00 noon will not receive that day's dividend.
TAXES
It is the Trust's policy to comply with the provisions of the Internal Revenue
Code applicable to regulated investment companies. As provided therein, in any
fiscal year in which the Trust so qualifies, and distributes at least 90% of its
taxable net income, the Trust will be relieved of federal income tax on the
income distributed. Accordingly, no provision for income taxes has been made.
37
<PAGE> 55
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
September 30, 1998
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Trust's intention to declare as dividends
in each calendar year, at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains, if any (earned
during the twelve months ended October 31) plus undistributed amounts from prior
years.
The tax basis of investments is equal to the amortized cost as shown on the
Portfolio of Investments.
NOTE 2 -- TRANSACTIONS WITH AFFILIATES
The Fund'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 (the Agreement). Under the terms
of the Agreement, the Trust pays McDonald a fee computed and accrued daily and
paid monthly based upon the Fund's average daily net assets at the annual rate
of .50% on the first $400 million, .45% on the next $600 million, .40% on the
next $1 billion and .35% on any amounts in excess of $2 billion.
Under the terms of the Agreement, 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 Trust. 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.
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 Trust. The Trust pays
McDonald a monthly fee for transfer agency and administrative services at an
annual rate of $23.50 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 Trust pays McDonald
a monthly fee for accounting services based on the Fund's average daily net
assets at an annual rate of .015% on the first $400 million, .0125% on the next
$300 million, .01% on the next $300 million and .0075% on any amount in excess
of $1 billion, with a minimum annual fee of $25,000.
Under the terms of a Distribution Service Plan adopted under Rule 12b-1 of the
Act, the Trust has entered into an agreement with McDonald pursuant to which the
Trust pays McDonald a service fee in the annual amount of .10% 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 $6,000 payable in quarterly installments
for service during each fiscal quarter, (b) $500 for each Board of Trustees
meeting attended and (c) $300 for each committee meeting attended.
NOTE 3 -- 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.
38
<PAGE> 56
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
ARTHUR
ANDERSEN
To the Shareholders and Board of Trustees
of the Gradison U.S. Government Reserves series of
the Gradison - McDonald Cash Reserves Trust
We have audited the accompanying statement of assets
and liabilities of the Gradison U.S. Government Reserves, a series of the
Gradison - McDonald Cash Reserves Trust (a Massachusetts business trust),
including the portfolio of investments, as of September 30, 1998, the related
statement of operations for the year then ended, and the statements of changes
in net assets for the two years then ended, and the financial highlights for
each of the five years in the year then ended. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
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 from 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
September 30, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Gradison U.S. Government Reserves series of the Gradison - McDonald Cash
Reserves Trust as of September 30, 1998, the results of its operations for the
year then ended, the changes in its net assets for the two years then ended, and
the financial highlights for each of the five years in the year then ended, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Cincinnati, Ohio,
October 23, 1998
39
<PAGE> 57
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a)(1) Financial Statements (included in the Prospectus):
Financial Highlights
(a)(2) Financial Statements (included in the Statement of Additional
Information):
Portfolio of Investments at September 30, 1998 Statements of Assets and
Liabilities at September 30, l998 Statement of Operations for the year
ended September 30, 1998 Statement of Changes in Net Assets for the two
years ended
September 30, 1997 and September 30, l998
Notes to Financial Statements
Report of Independent Accountant
(b) Exhibits
( 1) Registrant's Declaration of Trust, as amended October 25,
l993.*
( 2) Registrant's By-Laws *.
( 3) None.
( 4) None.
( 5) Investment Advisory Agreement dated October 23, l998
(included herein).
( 6) See Exhibit 15 (b).
( 7) None.
( 8) Custodian Agreement *.
( 9) Transfer Agency, Accounting Services, and Administrative
Services Agreement dated September 24, l993*
(10) Opinion of Counsel*
(11) Consent of Arthur Andersen LLP (included herein). (12) None.
(13) None.
(14) Individual Retirement Account Plan Booklet*
(15)(a) Distribution Service Plan dated September 24, 1993*
(b) Distribution Agreement between Trust and Adviser
dated September 24, l993(included herein).
(16) None.
Other Exhibits: Powers of Attorney of Theodore Emmerich, Richard
Rankin, Jerome Schnee, Bradley E. Turner,
Daniel J. Castellini, Patricia Jamieson, and
Donald Weston.*
*Incorporated by reference to the N-1A filing of Registrant filed electronically
on January 29, l998, accession number 0000950152-98-000546.
C-1
<PAGE> 58
Item 27. Indemnification
Reference is made to Article V of the Declaration of Trust of the
Registrant, filed as Exhibit 1 to this Registration Statement. Officers and
Trustees of Registrant are insured against liability by reasons of acts, errors,
or omissions in such capacities.
Item 28. Business and Other Connections of Investment Adviser
Reference is made to the captions "Management of the Fund" in the
Prospectus that is Part A of this Registration Statement and "Trustees and
Officers of the Trust" in the Statement of Additional Information that is Part B
of this Registration Statement..
<TABLE>
<CAPTION>
Position with Principal Positions and
Investment Business Offices with
Name Adviser Address Registrant
- ---- ------- ---------------------------------------
<S> <C> <C> <C>
Daniel F. Austin Director,
Vice 800 Superior Avenue None
Chairman Cleveland Ohio 44114
Jack N. Aydin Director, Managing One Evertrust Plaza None
Director Jersey City, NJ 07302
Eugene H. Bosart, Director, Senior 260 East Brown Street None
III Managing Director Birmingham, MI 48009
Thomas G. Clevidence Director, Senior 800 Superior Avenue None
Managing Director Cleveland, OH 44114
Robert Clutterbuck Director, President 800 Superior Avenue None
Chief Operating Cleveland, OH 44114
Officer,
Leonard J. DeRoma Director, Senior 800 Superior Avenue None
Managing Director Cleveland, Ohio 44114
Ralph M. Della Ratta Director, Senior 800 Superior Avenue None
Jr. Managing Director Cleveland, Ohio 44114
Dennis J. Donnelly Director, Senior 800 Superior Avenue None
Managing Director Cleveland, OH 44114
David W. Ellis, III Director, and 580 Walnut Street None
Managing Director Cincinnati, OH 45202
(Gradison Division)
Patricia J. Jamieson Secretary/Treasurer 800 Superior Avenue Treasurer
Chief Financial Cleveland, OH 44114 Chief
</TABLE>
C-2
<PAGE> 59
<TABLE>
<S> <C> <C> <C>
Officer, Senior Financial
Managing Director Officer
David W. Knall Director, Senior One American Square None
Managing Director Indianapolis, IN 46282
Thomas M. McDonald Director, Senior 800 Superior Avenue None
Managing Director, Cleveland, OH 44114
John F. O'Brien Director, Senior 800 Superior Avenue None
Managing Director Cleveland, OH 44114
Lawrence T. Oakar Director, 800 Superior Avenue None
Managing Director Cleveland, OH 44114
James C. Redinger Director, Senior 800 Superior Avenue None
Managing Director Cleveland, OH 44114
William Summers, Jr. Director, Chairman 800 Superior Avenue None
Chief Executive Cleveland, OH 44114
Officer
David D. Sutcliffe Director, 800 Superior Avenue None
Managing Director Cleveland, OH 44114
Bradley E. Turner Director, Senior 580 Walnut Street President
Managing Director Cincinnati, Ohio 45202
</TABLE>
Item 29. Principal Underwriters
(a) The principal underwriter of Registrant is BISYS Fund Services Limited
Partnership, which, also acts as the distributor for the following investment
companies as of November 13, 1998:
Alpine Equity Trust
The ARCH Fund, Inc.
American Performance Funds
AmSouth Mutual Funds
The BB&T Mutual Funds Group
The Coventry Group
ESC Strategic Funds, Inc.
The Eureka Funds
Fifth Third Funds,
Hirtle Callaghan Trust
HSBC Funds Trust and HSBC Mutual Funds Trust
INTRUST Funds Trust
The Infinity Mutual Funds, Inc.
The Kent Funds
Magna Funds
Meyers Investment Trust
C-3
<PAGE> 60
MMA Praxis Mutual Funds
M.S.D.&T. Funds
Pacific Capital Funds
The Parkstone Advantage Funds
Pegasus Funds
The Republic Advisors Funds Trust
Puget Sound Alternative Investment Series Trust
Republic Funds Trust
Republic Funds
The Riverfront Funds, Inc.
Sefton Funds Trust
The Sessions Group
Summit Investment Trust
BISYS Variable Insurance Funds
The Victory Portfolios
The Victory Variable Insurance Funds
Vintage Mutual Funds, Inc.
(b) Directors, officers and partners of BISYS Fund Services Inc., the
General Partner of BISYS Fund Services Limited Partnership, as of October 1,
1998 were as follows:
Lynn J. Mangum, Chairman and CEO.
Dennis Sheehan, Director, Executive Vice President and
Treasurer
J. David Huber, President.
Kevin J. Dell, Vice President and Secretary.
Mark Rybarczyk, Senior Vice President.
William Tomko, Senior Vice President.
Michael D. Burns, Vice President.
David Blackmore, Vice President.
Steve Ludwig, Compliance Officer.
Robert Tuch, Assistant Secretary.
The business address of each of the foregoing individuals is BISYS
Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43215. None of these
individuals holds any office with the Registrant.
C-4
<PAGE> 61
Item 30. Location of Accounts and Records
Registrant undertakes to provide without cost a copy of its most recent annual
report upon request.
All accounts, books and documents required to be maintained by the Registrant
pursuant to Section 31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31(a) thereunder are maintained at the offices of the Registrant, 580
Walnut Street, Cincinnati, Ohio 45202, except as indicated below opposite the
applicable reference the aforesaid Rules.
Rules In Possession of:
----- -----------------
31a-1(b)(1), 31a-1(b)(2)(i)(a)-(f), Star Bank, N.A.
31a-1(b)(2)(ii), 31a-1(b)(5) and Star Bank Center
31a-1(b)(8) Cincinnati,
Ohio 45202
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Insofar as indemnification for liability arising under the Securities Act of
l933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction, the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
C-5
<PAGE> 62
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cincinnati and State of Ohio on the 23rd day of
November, 1998 .
GRADISON-McDONALD CASH RESERVES TRUST
By BRADLEY E. TURNER*
------------------
Bradley E. Turner, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
*DONALD E. WESTON Chairman of the Board November 23, 1998
(Principal Executive
Officer and Trustee)
*DANIEL J. CASTELLINI Trustee "
*THEODORE EMMERICH Trustee "
*RICHARD RANKIN Trustee "
*JEROME SCHNEE Trustee "
*BRADLEY E. TURNER President "
*PATRICIA JAMIESON Treasurer "
(Principal Financial and
Accounting Officer)
*By RICHARD M. WACHTERMAN
---------------------
Richard M. Wachterman, Attorney-in-fact
S-1
<PAGE> 63
Exhibit List
Exhibit Number Description
- -------------- -----------
( 5) Investment Advisory Agreement dated October 23, 1998
(11) Consent of Arthur Andersen LLP).
(15) (b) Master Distribution Agreement dated October 23, l998.
<PAGE> 1
Exhibit 5
INVESTMENT ADVISORY AGREEMENT
Between
McDONALD INVESTMENTS INC.
and
GRADISON-MCDONALD U. S. GOVERNMENT RESERVES SERIES
OF GRADISON CASH RESERVES TRUST
THIS AGREEMENT is made as of the 23rd day of October 1998, between McDonald
Investments Inc.., an Ohio corporation (the "Adviser"), and Gradison U. S.
Government Reserves (the "Fund"), a series of Gradison McDonald Cash Reserves
Trust (the "Trust"), a Massachusetts business trust.
In consideration of the mutual covenants hereinafter contained, the parties
hereto agree as follows:
1. a. The Trust hereby employs the Adviser to manage the investment and
reinvestment of the assets of the Fund in accordance with the Fund's investment
objective and policies, and to perform certain other services herein set forth
and administer the Trust's affairs to the extent requested subject to the
supervision of the Board of Trustees of the Trust, for the period and on the
terms herein set forth.
b. The Adviser hereby accepts such employment, and agrees to render
such services and to assume the obligations herein set forth.
2. The Adviser shall:
a.-Manage the investment of the Fund's assets including the placing of
orders for purchases and sales and other investment transactions;
b.-Report periodically to the Trust with respect to the Fund's
investment programs and with respect to the Adviser's activities in connection
with the administration of the Fund;
c. In all matters relating to the performance of this Agreement, act in
conformity with the Declaration of Trust, By-Laws, and Registration Statement of
the Trust and with the instructions and directions of the Board of Trustees and
will comply with the requirements of the Investment Company Act of l940 ("1940
Act"), the rules thereunder, and all other applicable federal and state laws and
regulations; and
d.-Provide persons satisfactory to the Board of Trustees of the Trust
to act as officers of the Trust to the extent permissible under applicable
federal laws and regulations.
<PAGE> 2
3. Any investment program undertaken by the Adviser pursuant to this Agreement,
and any other activities undertaken by the Adviser on behalf of the Fund, shall
at all times be subject to any directives of the Board of Trustees of the Trust,
or of any duly constituted committee of the Board, or of any officer of the
Trust acting pursuant to authority granted by the Board or by any such
committee.
4. In addition to performing the obligations set forth in Paragraph 2 hereof,
the Adviser shall assume and bear expenses incurred with respect to Trustees who
are affiliated with the Adviser, officers affiliated with the Adviser who are
necessary for the management, operations, administration and investments of the
Trust, office space, office facilities, business equipment and utilities
(including communications expense). The payment or assumption by the Adviser of
any expense of the Trust or the Fund that the Adviser is not required by this
Agreement to pay or assume shall not obligate the Adviser to pay or assume the
same or any similar expense of the Trust or Fund on any subsequent occasion.
5. All expenses not specifically assumed by the Adviser under this Agreement or
any other agreement, or by another party pursuant to any other agreement, which
may be incurred in the operation of the Fund will be borne by the Fund. These
expenses to be borne by the Fund include:
a. Costs of preparing, printing and mailing, and expenses incurred in
connection with furnishing of information and administrative assistance with
respect to the preparation of; registration statements and prospectuses,
including amendments and revisions thereto, and annual, semiannual and other
periodic reports furnished to shareholders of the Fund or to regulatory
authorities; and other documents required by regulatory authorities; and notices
and proxy solicitation materials furnished to shareholders of the Fund;
b. Such distribution expenses or service fees as may be contemplated by
an effective plan pursuant to Rule 12b-1 under the 1940 Act, provided, however,
that any such payment by the Fund of distribution expenses shall be in the
amounts, and in accordance with the procedures, set forth in such plan;
c. Registration, filing and other fees in connection with requirements
of regulatory authorities;
d. Expenses of issue, sale, redemption and repurchase of shares of the
Fund;
e. Compensation of Trustees of the Trust who are not interested persons
of the Trust as defined by the l940 Act.
f. Compensation and expenses of any transfer agent, dividend disbursing
agent, registrar, custodian or depository appointed by the Fund which may be the
Adviser;
g. Any costs, expenses or other relief asserted against the Trust or
Fund for violation of any law;
<PAGE> 3
h. Charges and expenses of independent accountants retained by the
Trust;
i. Brokers' commissions and issue or transfer taxes chargeable to the
Fund in connection with securities transactions to which the Fund is a party;
j. Any extraordinary expenses (including fees and disbursements of
counsel, costs of actions, suits or proceedings to which the Fund is a party and
the expenses the Fund may incur as a result of its legal obligation to provide
indemnification to officers, trustees, agents and shareholders of the Trust)
incurred by the Fund;
k. Taxes and other fees payable by the Fund to federal, state, or other
governmental agencies;
l. Costs of share certificates representing shares of the Fund, if
provided for;
m. Legal and accounting fees and expenses in connection with the
operations of the Fund, including its organization and the registration or
qualification of its shares with federal or state regulatory authorities;
n. Expenses incurred in connection with shareholders' or Trustees'
meetings;
o. Fees and other expenses incurred by the Fund in connection with its
membership in any organization; and
p. Costs of liability, errors and omissions and other insurance and
fidelity bond.
6. The Fund shall reimburse the Adviser for the costs (salaries, benefits and
expenses) which are fairly allocable to legal services performed by the
Adviser's employees under this Agreement on behalf of the Fund.
7. The services of the Adviser to the Fund are not to be deemed exclusive, and
the Adviser shall be free to render similar services to other persons so long as
the services to be rendered hereunder are not impaired thereby. Nothing in this
Agreement shall limit or restrict the right of any director, officer or employee
of the Adviser to engage in any other business or to devote his time and
attention in part to any other business.
8. The Adviser assumes no responsibility or obligation under this Agreement
other than to render in good faith the services provided for herein; provided
that nothing herein shall be deemed to protect or purport to protect the Adviser
against any liability to the Fund or its shareholders to which the Adviser would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties hereunder, or by reason of reckless
disregard of its obligations and duties hereunder. The Adviser shall not be
responsible or liable for any action or inaction of the Board of Trustees of the
Trust or any committee thereof.
<PAGE> 4
9. In addition to all other charges and expenses to be paid hereunder, the Fund
shall pay to the Adviser compensation for its services and facilities furnished
hereunder, at an annual rate computed in accordance with Schedule A attached
hereto. The fee shall be computed and accrued daily. The fee so computed and
accrued during each calendar month shall be paid to the Adviser on the first day
of the next month. If this Agreement becomes effective or terminates before the
end of any month, the fee for the period from the effective date to the end of
the month or from the beginning of such month to the date of termination, as the
case may be, shall be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination occurs.
10. The Adviser shall reimburse the Fund if and to the extent that expenses
borne by the Fund in any fiscal year exceed any expense limitation applicable to
the Fund imposed by any regulatory authority (as such limitations may be
established from time to time). During any fiscal year, the Adviser shall be
bound, in calculating the amount of any such excess, by the most stringent
applicable requirements of any state in which the shares of the Fund are
qualified for sale. Such excess expenses, if any, shall be determined and paid
on a monthly basis, subject to annual adjustment so that the aggregate of
reimbursements, if any, by the Adviser to the Fund for the fiscal year are in
the amount necessary to limit such expenses to the applicable expense
limitation.
11. Subject to compliance with the provisions of the 1940 Act and the duties and
conditions to which the Adviser is bound by Paragraph 3 of this Agreement, the
Fund hereby agrees that the Adviser may subcontract for the performance of any
of the services contemplated to be rendered by the Adviser hereunder.
12. It is mutually understood that trustees, officers, shareholders, employees
and agents of the Trust are or may be interested in the Adviser as directors,
officers, stockholders, employees, agents or in other capacities; that
directors, officers, stockholders, employees and agents of the Adviser are or
may be interested in the Trust as trustees, officers, shareholders, employees,
agents or in other capacities; that the Adviser may be interested in the Fund as
a shareholder or otherwise; and that the existence of any such dual interest
shall not affect the validity of this Agreement or of any transactions made
hereunder, except as may otherwise be provided in the Declaration of Trust of
the Trust or the Articles of Incorporation of the Adviser, or by any specific
provision of any applicable statute, rule or regulation.
13. This Agreement shall become effective as of the date first set forth above
and shall continue in effect for a two year period so long as it is approved by
the vote of a majority of the outstanding voting securities of the Fund as
defined in the l940 Act, and in accordance with the exemptive order issued by
the Securities and Exchange Commission in Investment Company Act Release number
IC-23484 providing for this Agreement to become effective prior to the required
vote of the shareholders of the Fund. Thereafter, it shall continue in effect
from year to year, provided such continuance is specifically approved at least
annually, at meetings called for the purpose of voting upon such approvals, by
the vote of a majority of the outstanding voting securities of the Fund or by
the vote of a majority
<PAGE> 5
of the Board of Trustees of the Trust, and in either event by the vote cast in
person of a majority of the trustees of the Trust who are not interested persons
(as defined in the 1940 Act) of either party to this Agreement.
14. The Trust may at any time and without the payment of any penalty terminate
this Agreement as to the Fund upon 60 days' written notice to the Adviser,
either by action of the Board of Trustees of the Trust or by the vote of a
majority of the outstanding voting securities of the Fund, and the Adviser may
at any time and without the payment of any penalty terminate this Agreement
upon 60 days' written notice to the Trust. This Agreement shall automatically
terminate in the event of its assignment (within the meaning of the 1940 Act)
by the Adviser, unless such automatic termination shall be prevented by an
order of exemption from the Securities and Exchange Commission. Subject to
approval by the Trustees of the Trust, this Agreement may be assigned by the
Adviser to Key Asset Management Inc. so long as such assignment shall not
constitute an assignment within the meaning of the l940 Act.
15. This Agreement may be amended at any time by the mutual consent of the
parties, provided that such consent on the part of the Fund shall have been
approved, at meetings called for the purpose of voting upon such consent, by
the vote of a majority of the outstanding voting securities of the Fund, and by
the vote of a majority of the Board of Trustees of the Trust, including the
vote cast in person by a majority of the trustees of the Trust who are not
interested persons (as defined in the 1940 Act) of either party to this
Agreement.
16. The parties to this Agreement acknowledge that the Adviser has an exclusive
proprietary interest in the use of the names "Gradison" and "McDonald" and
further acknowledge that the Adviser has consented to the use of such names by
the Fund subject to withdrawal of such consent upon 30 days' written notice to
the Trust. The Trust agrees that the names "Gradison" and "McDonald" will be
used by it only in connection with the business of any open-end management
investment company; that such names will be used only in such forms, styles and
contexts as may be approved by the Adviser; and that the Trust will not do or
cause to be done any act or undertaking which has the effect of contesting,
challenging or in any way impairing the Adviser's right, title or interest in
or to such names. The Trust agrees that it will not represent that it has any
right, title or interest in such names, and that the Trust's use of such names
shall not create any right, title or interest in its favor therein. Within 30
days after the termination of this Agreement for any reason, or after the
written withdrawal of such consent of the Adviser (with or without cause and
within the Adviser' sole discretion) the Trust
a. will cease and desist from every use of the names "Gradison" and
"McDonald" and will deliver to the Adviser all prospectuses, sales literature
and other advertising materials bearing such names;
b. will cause its name to be changed so as to eliminate the word
"Gradison" or "McDonald" therefrom; and
<PAGE> 6
c. will not at any time thereafter adopt or use any name, mark or other
trade designation which is confusingly similar to the names "Gradison" or
"McDonald" or likely to mislead the public.
17. Any notice required by or permitted to be given in connection with this
Agreement shall be in writing, addressed and delivered in person, or mailed
postage prepaid, to the addresses designated by the respective parties for the
receipt of such notice. Until further written notice, it is agreed that the
addresses of the Adviser and of the Trust, respectively, shall be:
McDonald Investments Inc.
Attention: Bradley E. Turner
580 Walnut Street
Cincinnati, Ohio 45202
Gradison-McDonald Cash Reserves Trust
Attention: Richard M. Wachterman
580 Walnut Street
Cincinnati, Ohio 45202
18. The shareholders of the Fund and, trustees, officers, employees and agents
of the Trust shall not personally be bound by or liable under this Agreement,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim hereunder, as more fully provided under the terms of the
Declaration of Trust.
19. This Agreement shall be construed in accordance with the laws of the State
of Ohio. To the extent that the applicable laws of the State of Ohio conflict
with the applicable provisions of the 1940 Act, the latter shall control.
20. Notwithstanding any other provision of this Agreement, until the approval
of this Agreement by a vote of a majority of the outstanding voting securities,
as defined in the Investment Company Act of l940, ("Shareholder Approval"), all
fees payable under this Agreement shall be paid to an independent escrow agent
which shall hold such fees pending Shareholder Approval. If Shareholder
Approval has not been received by the date specified in the exemptive order
issued by the Securities and Exchange Commission allowing this Agreement to be
implemented prior to Shareholder Approval, then all such fees shall be repaid
to the Fund.
IN WITNESS WHEREOF, the parties have executed this Investment Advisory Agreement
as of the date first written above.
GRADISON - McDONALD CASH RESERVES TRUST
By: Donald E. Weston
Title: Chairman
MCDONALD INVESTMENTS INC.
By: Bradley E. Turner
Title: Senior Managing Director
<PAGE> 7
Schedule A
Investment Advisory Fee
.50 of 1% of first $400 million of average daily net assets
.45 of l% of next $600 million of average daily net assets
.40 of l% of next $l billion of average daily net assets
.35 of l% of average daily net assets in excess of $2 billion
<PAGE> 1
Exhibit 11
Consent of Independent Public Accountants
-----------------------------------------
As independent public accountants, we hereby consent to the use in this Post
Effective Amendment No. 41 of our report dated October 23, l998 and to all
references to our Firm included in or made a part of this Post-Effective
Amendment.
|S| Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
November 23, l998
<PAGE> 1
Exhibit 15(b)
GRADISON-McDONALD CASH RESERVES TRUST
MASTER DISTRIBUTION AGREEMENT
-----------------------------
AGREEMENT made this 23rd day of October, 1998_ by and between
Gradison-McDonald Cash Reserves Trust (the "Trust"), a Massachusetts business
trust, and BISYS Fund Services Limited Partnership (the "Distributor"), an Ohio
limited partnership.
W I T N E S S E T H:
In consideration of the mutual convenants hereinafter contained,
the parties hereto agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR.
(a) The Trust hereby appoints the Distributor as its agent to
arrange for the sale of shares of beneficial interest (the "Shares") of the
Gradison U.S. Government Reserves Fund, on the terms and for the period set
forth in this Agreement, and the Distributor hereby accepts such appointment and
agrees to act hereunder.
(b) Should the Trust establish any additional series subsequent to
the date hereof for which the Trust wishes to appoint the Distributor as its
agent to arrange for the sale of the shares thereof under the terms of this
Agreement, the Trust shall provide the Distributor with a written notice to such
effect. If the Distributor is willing to serve in such capacity, it shall
provide the Trust with a written notice to such effect, whereupon the shares of
such series, together with the shares of the Series named in Section 1(a)
hereunder, shall be included in the term "Shares" hereunder, and such series,
together with the Series named in Section 1(a) hereunder, shall be included in
the term "Series" hereunder.
(c) It is understood that purchases of Shares of the Series may be
made through other broker-dealers entering into agreements with either the Trust
or the Distributor and directly through the Trust in the manner set forth in the
Prospectus. As used in this Agreement, the term "Prospectus" shall mean the
prospectus(es) and statement(s) of additional information included in the
Trust's Registration Statement and relating to the Series for which the
Distributor serves in such capacity hereunder, and the term "Registration
Statement" shall mean the Registration Statement(s) most recently filed by the
Trust with the Securities and Exchange Commission and effective under the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), as such Registration Statement is
amended by any amendments thereto at the time in effect.
Section 2. SERVICES AND DUTIES OF THE DISTRIBUTOR.
(a) The Distributor agrees to arrange to sell, as agent for the
Trust and from time to time during the term of this Agreement, the Shares of the
Series upon the terms described in the Prospectus.
<PAGE> 2
(b) During the continuous public offering of the Shares of the
Series, the Distributor will hold itself available to receive orders,
satisfactory to the Distributor, for the purchase of such Shares and will accept
such orders on behalf of the Trust as of the time of receipt of such orders and
will transmit such orders as are so accepted to the Trust as promptly as
practicable. Purchase orders shall be deemed effective at the time and in the
manner set forth in the Prospectus.
(c) The Distributor, as agent for the Trust and in its discretion,
may enter into agreements with such registered and qualified retail
broker-dealers as it may select pursuant to which such broker-dealers may also
arrange for the sale or sell Shares of the Series. The Distributor, as a retail
broker-dealer may also sell shares of the Series. When it does so, it shall do
so pursuant to a standard form of "Dealer's Agreement" as may be modified in the
future.
(d) The offering price of the Shares of each Series shall be the
net asset value per share of each such Series next determined following receipt
of an order plus the sales charge, if any, as stated in the Prospectus. The
Trust shall furnish the Distributor, with all possible promptness, advice of
each computation of each Series' net asset value. The Distributor shall receive
the entire amount of any sales charge as compensation for its services under
this Agreement; however, the Distributor shall reallow the portion of such
charge set forth in the Prospectus to broker-dealers entering into agreements
with the Distributor to sell Shares of the Series.
(e) In addition to the above, the Distributor shall collect fees in an
amount equal to a percentage (annual rate) of the assets of a Series' accounts
during the preceding month, as provided in Schedule A to this Agreement and
shall pay such fees to broker-dealers with which it has executed dealer
agreements as compensation for personal services rendered to shareholders of the
Trust, including providing shareholder liaison services such as responding to
shareholder inquiries and providing information to shareholders about their
Trust accounts, and/or as fees for other distribution services. Such amounts
shall be paid by the Trust at the end of each calendar month. The Trust's
obligation to make payments described in this paragraph (e) is contingent upon
the continuance of the Trust's Distribution Service Plan, and in that connection
it is understood that:
(i) such Plan shall remain in effect for one year from its
adoption date and may be continued from year to year
thereafter only if the Plan and any related agreements
are approved at least annually by a majority vote of the
Trustees of the Trust, including a majority of the
Trustees who are not "interested persons" of the Trust
and who have no direct or indirect financial interest in
the operation of the Plan or in any related agreement
("Independent Trustee"), cast in person at a meeting
called for the purpose of voting on such Plan and
agreements; and
(ii) the Plan may be terminated with respect to any Series at
any time by a majority vote of the Independent Trustees
or by vote of a majority of the outstanding voting
securities of the Series. In the event the Plan is not
continued or is terminated with respect to a Series, the
provisions of this Agreement pursuant to which fees are
paid to the Distributor shall automatically terminate
with respect to that Series.
<PAGE> 3
(f) The Distributor hereby agrees to use its best efforts to find
purchasers who shall purchase the Shares of the Series; it shall not be
obligated to sell any certain number of such Shares and nothing herein contained
shall prevent the Distributor from entering into like distribution arrangements
with other investment companies so long as the performance of its obligations
hereunder is not impaired thereby.
(g) The Distributor is authorized on behalf of the Trust to
purchase Shares of the Series presented to it by dealers at the price determined
in accordance with, and in the manner set forth in, the Prospectus.
Section 3. SERVICES NOT EXCLUSIVE. The services furnished by the
Distributor hereunder are not to be deemed exclusive and the Distributor shall
be free to furnish similar services to others so long as its services under this
Agreement are not impaired thereby. Nothing in this Agreement shall limit or
restrict the right of any director, officer or employee of the Distributor, who
may also be a Trustee, officer or employee of the Trust, to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any other business, whether of a similar or dissimilar nature.
Section 4. DUTIES OF THE TRUST.
(a) The Trust agrees to sell the Shares of the Series so long as it
has such Shares available for sale and to issue, if requested by the purchaser
and if provided for by the Trust, certificates for the Shares of the Series,
registered in such names and amounts as the Distributor has requested in
writing, as promptly as practicable after receipt by the Trust of the net asset
value thereof and written request of the Distributor therefor. The Trust may at
any time withdraw offerings of the Shares of one or more Series by notice to the
Distributor.
(b) The Trust shall keep the Distributor fully informed with regard
to its affairs and the affairs of the Series and shall furnish to the
Distributor copies of all information, financial statements and other papers
which the Distributor may reasonably request for use in connection with the
distribution of the Shares. This shall include, without limitation, one copy of
all financial statements of the Trust and the Series prepared by independent
accountants and such reasonable number of copies of its most current Prospectus,
and annual and interim reports as the Distributor may request. The Trust shall
cooperate fully in the efforts of the Distributor to arrange for the sale of the
Shares and in the performance of the Distributor's duties under this Agreement.
(c) The Trust shall take, from time to time, all necessary action
to fix the number of authorized Shares of the Series and such steps, including
payment of the related filing fees, as may be necessary to register the same
under the 1933 Act so that there will be available for sale such number of
Shares of the Series as the Distributor may be expected to sell. The Trust
agrees to file from time to time such amendments, reports and other documents as
may be necessary in order that there may be no untrue statement of a material
fact in a Registration Statement or Prospectus, or necessary in order that there
may be no omission to state a material fact in the Registration Statement or
Prospectus which omission would make the statements therein, in light of the
circumstances under which they were made, misleading.
(d) The Trust shall use its best efforts to qualify and maintain
the qualification of an appropriate number of the Shares of the Series for
<PAGE> 4
sale under the securities laws of such states as the Distributor and the Trust
may approve, and, if necessary or appropriate in connection therewith, to
qualify and maintain the qualification of the Trust as a broker, dealer or
agent in such states; provided that the Trust shall not be required to amend
the Declaration of Trust or its By-Laws to comply with the laws of any state,
to maintain an office in any state, to change the terms of the offering of the
Shares of the Series in any state from the terms set forth in its Registration
Statement or Prospectus, to qualify as a foreign corporation, business trust or
similar entity in any state or to consent to service of process in any state
other than with respect to claims arising out of the offering of the Shares of
the Series. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Trust in
connection with such qualifications.
Section 5. EXPENSES.
(a) The Trust shall bear all costs and expenses of the continuous
offering of the Shares of the Series in connection with: (i) fees and
disbursements of counsel and auditors, (ii) the preparation, filing and printing
of any registration statements and/or prospectuses required by and under the
federal securities laws, (iii) the preparation and mailing of annual and interim
reports and proxy materials to shareholders and (iv) the qualification of the
Shares for sale and of the Trust as a broker-dealer under the securities laws of
such states or other jurisdictions as shall be selected by the Trust and the
Distributor pursuant to Section 4(d) hereof and the cost and expenses payable to
each such state for continuing qualification therein. Any such costs and
expenses borne by the Trust which are attributable only to one Series will be
allocated to that Series; expenses which are not specifically allocable will be
allocated to each Series in a manner and on a basis determined in good faith by
the Trustees (including a majority of the Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Trust, the Adviser or the
Distributor) to be fair and equitable.
(b) The Distributor shall bear the following expenses (on a Series
by Series basis, where applicable): (i) the costs and expenses of preparing,
printing and distributing any materials not prepared by the Trust and other
materials used by the Distributor in connection with the offering of the Shares
of the Series for sale to the public, including the additional cost of printing
copies of the Prospectus and of annual and interim reports to shareholders other
than the copies thereof required for distribution to existing shareholders or
for filing with any federal and state securities authorities, (ii) the expenses
of registration or qualification of the Distributor as a dealer or broker under
federal or state laws and the expenses of continuing such registration or
qualification; and (iii) any other distribution or promotional expenses incurred
by the Distributor in connection with such offering, except for any such
distribution or promotional expenses as are paid by one or more Series pursuant
to a Rule 12b-1 distribution plan.
Section 6. INDEMNIFICATION. The Trust agrees to indemnify, defend
and hold the Distributor, its officers , partners, and employees, and any person
who controls the Distributor within the meaning of Section 15 of the 1933 Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "1934 Act"),
free and harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its officers, partners,
<PAGE> 5
employees, or any such controlling person may incur under the 1933 Act, the
1934 Act, or under common law or otherwise, arising out of or based upon any
untrue statement of a material fact contained in the Registration Statement or
Prospectus or arising out of or based upon any alleged omission to state a
material fact required to be stated in either thereof or necessary to make the
statements in either thereof not misleading, except insofar as such claims,
demands, liabilities or expenses arise out of or are based upon any such untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with information furnished in writing by the Distributor
to the Trust for use in the Registration Statement or Prospectus; provided,
however, that this indemnity agreement, to the extent that it might require
indemnity of any person who is also an officer or director of the Trust or who
controls the Trust within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act, shall not inure to the benefit of such officer, director or
controlling person unless a court of competent jurisdiction shall determine, or
it shall have been determined by controlling precedent, that such result would
not be against public policy as expressed in the 1933 Act; and further
provided, that in no event shall anything contained herein be so construed as
to protect the Distributor against any liability to the Trust or to its
security holders to which the Distributor would otherwise be subject by reason
of willful misfeasance, bad faith, or gross negligence in the performance of
its duties, or by reason of its reckless disregard of its obligations under
this Agreement. The Trust's agreement to indemnify the Distributor, its
officers and directors and any such controlling person as aforesaid is
expressly conditioned upon the Trust being promptly notified of any action
brought against the Distributor, its officers or directors, or any such
controlling person, such notification to be given by letter or telegram
addressed to the Trust at its principal business office. The Trust agrees
promptly to notify the Distributor of the commencement of any litigation or
proceedings against it or any of its officers or directors in connection with
the issue and sale of any of its Shares. The Trust shall be entitled to
participate at its own expense in the defense or, if it so elects, to assume
the defense of any suit brought to enforce any claims subject to this indemnity
agreement. If the Trust elects to assume the defense of any such claim, the
defense shall be conducted by counsel chosen by the Trust and satisfactory to
indemnified defendants in the suit whose approval shall not be unreasonably
withheld. In the event that the Trust elects to assume the defense of a suit,
it will reimburse the indemnified defendants for the reasonable fees and
expenses of any counsel retained by the indemnified defendants.
The Distributor agrees to indemnify, defend and hold the Trust, its
trustees and officers and any person who controls the Trust, if any, within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Trust, its trustees or officers or any such controlling person may incur under
the 1933 Act, and the 1934 Act, or under common law or otherwise, but only to
the extent that such liability or expense incurred by the Trust, its trustees or
officers or such controlling person resulting from such claims or demands shall
arise out of or be based upon (i) any alleged untrue statement of a material
fact contained in information furnished in writing by the Distributor to the
Trust for use in the Registration Statement or Prospectus; (ii) any failure of
the Distributor or any investor purchasing Shares of a Series through the
Distributor to timely transmit good payment for the purchase of such Shares;
(iii) any material breach of the obligations of the Distributor under Section 7
of this Agreement; or (iv) any agreement between the Distributor and any retail
<PAGE> 6
dealer or any supplemental sales literature or advertising used by the
Distributor in connection with its duties under this Agreement except insofar
as such claims, demands, liabilities or expenses arise out of or are based upon
any such untrue statement or omission or alleged untrue statement or omission
made in reliance upon and in conformity with information furnished in writing
by the Trust to the Distributor for use in the Registration Statement or
Prospectus. The Distributor's agreement to indemnify the Trust, its trustees
and officers and any such controlling person as aforesaid, is expressly
conditioned upon the Distributor being promptly notified of any event giving
rise to rights of indemnification hereunder, including any action brought
against the Trust, its trustees or officers or any such controlling person,
such notification being given to the Distributor at its principal business
office. The Distributor shall be entitled to participate, at its own expense,
in the defense or, if it so elects, to assume the defense of any suit brought
to enforce the claim, but if the Distributor elects to assume the defense, the
defense shall be conducted by counsel chosen by the Distributor and
satisfactory to the indemnified defendants whose approval shall not be
unreasonably withheld. In the event the Distributor elects to assume the
defense of any suit and retain counsel, the defendants in the suit shall bear
the fees and expenses of any additional counsel retained by them. If the
Distributor does not elect to assume the defense of any suit, it will reimburse
the indemnified defendants in the suit for the reasonable fees and expenses of
any counsel retained by them.
Section 7. COMPLIANCE WITH SECURITIES LAWS. The Trust represents
that it is registered as an open-end management investment company under the
1940 Act, and agrees that it will comply with all of the provisions of the 1940
Act and of the rules and regulations thereunder. The Trust and the Distributor
each agree to comply with all of the applicable terms and provisions of the 1940
Act, the 1933 Act and, subject to the provisions of Section 4(d), all applicable
state "Blue Sky" laws. The Distributor agrees to comply with all of the
applicable terms and provisions of the 1934 Act.
Section 8. TERM OF AGREEMENT. This Agreement shall commence on the
date first set forth above. This Agreement shall continue in effect for a period
more than one year from the date hereof only so long as such continuance is
specifically approved at least annually in conformity with the requirements of
the 1940 Act.
Section 9. TERMINATION. This Agreement may be terminated with
respect to any Series at any time, without the payment of any penalty, by vote
of a majority of the outstanding voting securities of the respective Series or
by a vote of a majority of the members of the board of trustees of the Trust who
are not interested persons of the Trust and have no direct or indirect financial
interest in the operation of the plan or in any agreements related to the plan
on not less than sixty days' written notice to the Distributor. This Agreement
may also be terminated by the Distributor upon not less than sixty days' written
notice to the Trust. Any such notices shall be by delivery in person or by
registered or certified mail to the addresses of the parties as specified below.
In the event of termination, any sums due the Distributor for
itself for accounts serviced prior to termination will be paid within ten days
after the end of the month of such termination.
This Agreement shall terminate automatically in the event of its
assignment (within the meaning of the 1940 Act) unless such automatic
termination shall be prevented by an order of exemption from the Securities and
Exchange Commission.
<PAGE> 7
Section 10. NOTICES. Any notice required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid, (1) to the Distributor 3435 Steizer Road, Columbus, Ohio
43219 (2) to the Trust at 580 Walnut Street, Cincinnati, Ohio 45202.
Section 11. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Ohio.
Section 12. AMENDMENT OF THIS AGREEMENT. No provision of this
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
Section 13. NON-LIABILITY OF SHAREHOLDERS, TRUSTEES, OFFICERS,
EMPLOYEES, REPRESENTATIVES AND AGENTS. A copy of the Declaration of Trust, as
amended, establishing the Trust is on file with the Secretary of the State of
Massachusetts, and notice is hereby given that this Agreement is executed on
behalf of the Trust by the Officers of the Trust as officers, and not
individually, and that the shareholders, trustees, officers, employees,
representatives or agents of the Trust shall not personally be bound by or
liable under this Agreement, nor shall resort be had to their private property
for the satisfaction of any obligation or claim thereunder, as more fully
provided under the terms of the Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first above written.
GRADISON-McDONALD CASH RESERVES TRUST
By:_/s/ Richard M. Wachterman
-----------------------------------
Secretary____________________
----------------------
BISYS FUND SERVICES LIMITED PARTNERSHIP
DBA BISYS FUND SERVICES
BY: BISYS FUND SERVICES INC., GENERAL PARTNER
By:_[illegible]____________________
----------------------
<PAGE> 8
Master Distribution Agreement
between
Gradison-McDonald Cash Reserves Trust
and
BISYS Fund Services Limited Partnership
Schedule A
----------
Service Fee
-----------
<TABLE>
<CAPTION>
Series Fee
------ ---
<S> <C>
Gradison U.S. Government Reserves .10% of 1% of the
average daily net
assets of the Series
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000042895
<NAME> GRADISON CASH RESERVES TRUST
<SERIES>
<NUMBER> 1
<NAME> GRADISON U.S. GOVERNMENT RESERVES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 1,946,230,163
<INVESTMENTS-AT-VALUE> 1,946,230,163
<RECEIVABLES> 7,293,972
<ASSETS-OTHER> 6,743,161
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,960,267,296
<PAYABLE-FOR-SECURITIES> 25,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,443,600
<TOTAL-LIABILITIES> 26,443,600
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,933,823,696
<SHARES-COMMON-STOCK> 1,933,823,696
<SHARES-COMMON-PRIOR> 1,610,058,135
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,933,823,696
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 100,139,720
<OTHER-INCOME> 0
<EXPENSES-NET> 12,974,220
<NET-INVESTMENT-INCOME> 87,165,500
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 87,165,500
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 87,165,500
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,220,288,201
<NUMBER-OF-SHARES-REDEEMED> 8,981,894,940
<SHARES-REINVESTED> 85,372,300
<NET-CHANGE-IN-ASSETS> 323,765,561
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,875,357
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,141,182
<AVERAGE-NET-ASSETS> 1,793,839,364
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .049
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .049
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> .723
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
