<PAGE> 1
As filed with the Securities and Exchange Commission on April __ 1996
1933 Act Registration No. 33-14949
1940 Act File No. 811-5198
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 13 FN1 (X)
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 13
------------
GRADISON CUSTODIAN TRUST
(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 RICHARD M. WACHTERMAN
Gradison Division of McDonald & Gradison Division of McDonald
Company Securities, Inc. Company Securities, Inc.
580 Walnut Street 580 Walnut Street
Cincinnati, Ohio 45202 Cincinnati, Ohio 45202
(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)
/X/ on May 1, 1996, pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on ___________ pursuant to paragraph (a) of rule 485 Registrant has
heretofore registered an indefinite number of shares of beneficial interest,
without par value, pursuant to Rule 24f-2 under the Investment Company Act of
1940, as amended. Registrant's Rule 24f-2 Notice was filed on February 26, 1996.
================================================================================
FN1 Amendment #1, which was filed on March 11, 1988, was erroneously identified
as Post-Effective Amendment #4. All subsequent Post-Effective Amendments were
consecutively numbered beginning with #5. No Post-Effective Amendments numbered
1 through 3 were filed.
<PAGE> 2
GRADISON CUSTODIAN TRUST
Cross-Reference Sheet
Pursuant to Item 501(b) of Regulation S-K
Under the Securities Act of 1933
<TABLE>
<CAPTION>
Form N-1A
Item Number Location in Prospectus
<S> <C>
1. Cover Page . . . . . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . . . . . Expense Summary
3. Condensed Financial Information . . . . . Financial History Summary;
Performance Calculations
4. General Description of Registrant. . . . . How the Fund Invests;
General Information
5. Management of Fund . . . . . . . . . . . . Management of the Fund,
6. Capital Stock and Other Securities . . . . Distributions; Taxes
7. Purchase of Securities Being Offered . . . How to Purchase Shares
8. Redemption or Repurchase . . . . . . . . . How to Redeem Shares;
Redemptions Through
Gradison and Other
Dealers
9. Pending Legal Proceedings. . . . . . . . . *
<CAPTION>
Location in Statement
of Additional Information
10. Cover Page . . . . . . . . . . . . . . . . Cover Page
11. Table of Contents. . . . . . . . . . . . . Table of Contents
12. General Information and History . . . . . *
13. Investment Objectives and Policies . . . . Investment Policies and
Restrictions; Portfolio
Transactions
14. Management of the Fund . . . . . . . . . . Trustees and Officers of
the Trust
15. Control Persons and Principal Holders
of Securities . . . . . . . . . . . . . . *
16. Investment Advisory and Other Services . . Investment Adviser
17. Brokerage Allocation and Other Practices . Portfolio Transactions
18. Capital Stock and Other Securities . . . . *
19. Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . . Purchase of Shares;
Redemption of Shares;
Net Asset Value
20. Tax Status . . . . . . . . . . . . . . . . Taxes
21. Underwriters . . . . . . . . . . . . . . . Master Distribution
Agreement
22. Calculation of Yield Quotations of Money
Market Funds. . . . . . . . . . . . . . . *
23. Financial Statements . . . . . . . . . . . Financial Statements and
Accountants
</TABLE>
<PAGE> 3
GRADISON MCDONALD
GOVERNMENT INCOME FUND
PROSPECTUS DATED MAY 1, 1996
Gradison-McDonald Government Income Fund (the "Fund") seeks high current income
through investment in U.S. Government obligations and obligations of agencies or
instrumentalities of the U.S. Government. The Fund currently intends to invest
only in securities which are guaranteed by the full faith and credit of the U.S.
Government, and repurchase agreements collateralized by such securities. The
Fund will notify shareholders of any change in this policy at least 30 days
prior to such a change. McDonald & Company Securities, Inc. ("McDonald"),
through its Gradison Division ("Gradison"), is the investment adviser and
principal underwriter for the Fund. THE NET ASSET VALUE AND YIELD OF THE FUND
WILL FLUCTUATE DEPENDING ON MARKET CONDITIONS AND OTHER FACTORS.
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 May 1, 1996, 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 all information (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.
EXPENSE SUMMARY
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
<S> <C>
Maximum sales load imposed on purchases 2.00%
====
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .50%
12b-1 Fees .25%
Other Expenses .17%
----
TOTAL FUND OPERATING EXPENSES .92%
====
</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:
---------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------
$29 $49 $70 $131
---------------------------------------------------------------------
*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," "Distribution Service Plan," 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.
<PAGE> 4
FINANCIAL HIGHLIGHTS
The table below presents the financial highlights of the Fund's operations. It
expresses the information in terms of a share outstanding throughout each
period. The financial highlights for the years ended December 31, 1992 and
thereafter have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report which appears in the Statement of
Additional Information. The financial highlights for periods ended prior to
December 31, 1992 were audited by other accountants.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1995 1994 1993 1992
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 12.018 $ 13.373 $ 13.327 $ 13.553
-------- -------- -------- --------
Income from investment operations:
Net investment income .786 .755 .749 .856
Net realized and unrealized gain
(loss) on investments 1.232 (1.244) .239 (.050)
-------- -------- -------- --------
Total income (loss) from
investment operations 2.018 (.489) .988 .806
-------- -------- -------- --------
Distributions to shareholders:
Dividends from net
investment income (.787) (.779) (.738) (.859)
Distributions in excess of net
investment income -- (.013) -- --
Distributions from realized
capital gains -- (.053) (.204) (.173)
Distributions from paid-in capital (2) (.035) (.021) -- --
-------- -------- -------- --------
Total distributions to shareholders (.822) (.866) (.942) (1.032)
-------- -------- -------- --------
Net asset value at end of period $ 13.214 $ 12.018 $ 13.373 $ 13.327
======== ======== ======== ========
Total return (3) 17.20% (3.69%) 7.52% 6.29%
======== ======== ======== ========
Ratios/Supplemental data:
Net assets at end of period (in millions) $ 185.4 $ 184.0 $ 266.0 $ 210.9
Ratio of expenses to average net assets (4) .92% .90% .90% .94%
Ratio of net investment income to
average net assets (4) 6.19% 6.03% 5.48% 6.39%
Portfolio turnover rate 15.84% 20.91% 133.88% 83.36%
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1991 1990 1989 1988 1987(1)
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 12.933 $ 13.027 $ 12.654 $ 12.946 $ 12.500
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income .947 1.015 1.057 .991 .184
Net realized and unrealized gain
(loss) on investments .785 .061 .481 (.094) .457
-------- -------- -------- -------- --------
Total income (loss) from
investment operations 1.732 1.076 1.538 .897 .641
-------- -------- -------- -------- --------
Distributions to shareholders:
Dividends from net
investment income (.946) (1.026) (1.050) (.990) (.181)
Distributions in excess of net
investment income -- -- -- -- --
Distributions from realized
capital gains (.166) (.144) (.115) (.199) (.014)
Distributions from paid-in capital (2) -- -- -- -- --
-------- ------- -------- -------- --------
Total distributions to shareholders (1.112) (1.170) (1.165) (1.189) (.195)
-------- ------- -------- -------- --------
Net asset value at end of period $ 13.553 12.933 $ 13.027 $ 12.654 $ 12.946
======== ======= ======== ======== ========
Total return (3) 14.08% 8.79% 12.75% 7.12% 4.99%
======== ======= ======== ======== ========
Ratios/Supplemental data:
Net assets at end of period (in millions) $ 151.8 78.0 $ 40.3 $ 25.3 $ 6.7
Ratio of expenses to average net assets (4) .99% 1.08% 1.22% 1.25% 1.25%(5)
Ratio of net investment income to
average net assets (4) 7.33% 8.13% 8.27% 8.12% 7.74%(5)
Portfolio turnover rate 108.08% 70.98% 173.86% 89.63% 25.09%
- --------------------------------------------------------------------------------------------------------
</TABLE>
On October 4, 1991, McDonald & Company Securities, Inc. became investment
adviser of the Fund as a result of a merger with Gradison & Company
Incorporated.
(1) The Fund commenced operations on September 16, 1987.
(2) During the years ended December 31, 1994, and December 31, 1995, the Fund
made distributions to shareholders in excess of net realized gains resulting in
a distribution from paid-in capital.
(3) Total return is based upon an initial investment purchased without a sales
charge. Total return for the year ended December 31, 1987 represents the actual
return from September 16, 1987, the date of the Fund's initial public offering,
through December 31, 1987 and has not been annualized.
(4) For each of the periods prior to January 1, 1989, the Fund's investment
adviser reimbursed the Fund for the amount by which aggregate expenses for the
period exceeded 1.25% of the Fund's average daily net assets. Without such
reimbursement, the ratios of expenses to average net assets and net investment
income to average net assets would have been 1.58% and 7.78%, respectively, for
the year ended December 31, 1988, and 2.98% and 6.01%, respectively, for the
period ended December 31, 1987.
(5) Annualized.
2
<PAGE> 5
INVESTMENT OBJECTIVE
The investment objective of the Fund is high current income through investment
in U.S. Government obligations and obligations of agencies or instrumentalities
of the U.S. Government. This objective cannot be changed without the approval of
a majority of the Fund's outstanding shares. The Fund is not intended to be a
complete investment program and there is no assurance that the Fund will achieve
its objective.
RISK FACTORS AND FOR WHOM THE FUND MAY BE APPROPRIATE
Gradison-McDonald Government Income Fund is designed for investors seeking high
current income from a portfolio of U.S. Government securities. Although the
securities in the Fund's portfolio are guaranteed as to principal and interest
by the U.S. Government or its agencies or instrumentalities, the market value of
these securities upon which the daily net asset value of the Fund is based may
fluctuate because of such factors as changing interest rates. In general, prices
of fixed income debt obligations fall when interest rates rise and vice versa.
As a result, the price per share you receive upon redemption may be more or less
than the price you paid for the shares. The dividends per share paid by the Fund
will also vary.
The Fund may be appropriate for investors seeking income from U.S. Government
securities who can accept the fluctuations in the value of Fund shares inherent
in investment in the intermediate and long-term debt securities in which the
Fund invests, as described below. The Fund has a higher risk level and
yield/return potential than fixed income funds of shorter maturity, including
money market funds. The Fund has a lower risk level and yield/return potential
than fixed income investments with lower grade securities and/or longer
maturities, and as compared to equity investments.
HOW THE FUND PURSUES ITS OBJECTIVE
BASIC INVESTMENT STRATEGY
The Fund invests in securities issued by the U.S. Government or its agencies or
instrumentalities. The Fund may also hold a portion of its assets in cash and
repurchase agreements collateralized by securities eligible for purchase by the
Fund. The Fund invests in U.S. Treasury bonds, notes and bills, and securities
issued by various agencies or instrumentalities of the U.S. Government.
Depending on Gradison's assessment of market conditions, the Fund may invest a
substantial portion of its assets in obligations of the Government National
Mortgage Association, called "GNMAs" or "Ginnie Maes." On December 31, 1995, the
average weighted maturity of the Fund's portfolio was 5.25 years.
GNMAs are mortgage-backed securities representing part ownership of a pool of
mortgage loans. GNMA Certificates differ from bonds in that principal is
scheduled to be paid back by the borrower over the length of the loan rather
than returned in a lump sum at maturity. The Fund will primarily purchase
"modified pass-through" type GNMA Certificates, but may also purchase "variable
rate" GNMA Certificates, project note GNMA's, or any other type GNMA security.
GNMA provides its commitment to guarantee timely payment of principal and
interest on the GNMA Certificates secured by the mortgages included in the pool.
This commitment is backed by the full faith and credit of the U.S. Government.
When mortgages in the pool underlying a GNMA Certificate are prepaid by
mortgagors or as a result of foreclosure, such principal payments are passed
through to the Certificate holders (such as the Fund). Accordingly, the
3
<PAGE> 6
life of a GNMA Certificate is likely to be substantially shorter than the stated
maturity of the mortgages in the underlying pool. Because of such variation in
prepayments, it is not possible to predict with certainty the life of a
particular GNMA Certificate, but Federal Housing Administration statistics
indicate that 25 to 30 year single-family dwelling mortgages have a considerably
shorter average life of approximately 8 to 12 years.
GNMA securities may offer yields higher than those available from other kinds of
government securities, but because of the risk of prepayment of the underlying
mortgages, they may be less effective than other types of securities as a means
of "locking in" attractive long-term interest rates. This is generally caused by
the need to reinvest prepayments of principal and the possibility of unscheduled
payments resulting from a decline in mortgage rates. As a result, GNMA
securities may have less potential for capital appreciation during periods of
declining interest rates as compared with other U.S. Government securities with
comparable stated maturities, while having a comparable risk of decline during
periods of rising interest rates. Since GNMAs purchased at a premium pay a fixed
rate of interest which exceeds the prevailing level of yields in the
marketplace, the premium is not guaranteed and a decline in the value to par may
result in a loss of the premium.
The Fund also invests in other obligations issued or guaranteed by the U.S.
Government or by its agencies or instrumentalities with maturities generally in
the range of 2 to 30 years. These instruments may be either direct obligations
of the Treasury (such as U.S. Treasury notes or bonds) or securities issued or
guaranteed by U.S. Government agencies or instrumentalities. Of the obligations
issued or guaranteed by agencies or instrumentalities of the U.S. Government,
some are backed by the full faith and credit of the U.S. Government (such as
obligations of the Farmers' Home Administration and Maritime Administration
Title XI Ship Financing bonds) and others are backed only by the limited right
of the issuer to borrow from the U.S. Treasury (such as Federal Home Loan Bank
bonds). No assurance can be given that the U.S. Government will provide
financial support to such agencies or instrumentalities in the future, to the
extent it is not obligated to do so by law. The Fund will invest in such
obligations only when it is satisfied that the credit risk is minimal. The Fund
currently intends to invest only in securities which are guaranteed by the full
faith and credit of the U.S. Government and repurchase agreements collateralized
by such securities. The Fund will notify shareholders of any change in this
policy at least 30 days prior to such a change.
Gradison seeks to maintain a portfolio that will be responsive to changes in
economic trends and developments. Gradison actively makes portfolio adjustments
that reflect this investment strategy, but does not trade securities for the
Fund for the purpose of seeking short-term profits. It will, however, trade the
Fund's securities, regardless of how long they have been held, when it believes
doing so will further the Fund's investment objective.
OTHER INVESTMENT PRACTICES
The Fund may engage to a limited extent in the following investment practices,
each of which may involve certain special risks. Except as specifically noted,
these practices are not fundamental policies and may be changed without a
shareholder vote.
WRITING OPTIONS: The Fund may write covered call options, that is sell options
on securities the Fund owns, as a means of increasing the yield on its
portfolio. A person buying a call option has the right to buy the security on
which the option is written for a specified period of time at a price agreed to
when the Fund sells the option, even though that price may be less than the
value of the security at the time the option is exercised. When the Fund writes
a call option on one of its portfolio securities, if the underlying securities
do not reach a price level that would make the exercise of the option profitable
to the holder of the option, the option will generally expire without being
exercised. Whenever an option is exercised, the Fund will not participate in any
increase in the price of the underlying securities beyond the exercise price of
that option. When the Fund sells covered call options, it receives a cash
pre-
4
<PAGE> 7
mium which can be applied in whatever way is deemed to be most advantageous
to the Fund. The Fund does not engage in options transactions for speculative
purposes.
CLOSING OPTIONS TRANSACTIONS: In order to avoid the exercise of an option
written by it, the Fund may purchase an option having the same terms as the
option written by it. The Fund will not purchase options in an amount in excess
of 5% of the Fund's total assets. In the case of an option purchased on an
exchange, this is called a "closing purchase transaction" and has the effect of
extinguishing the option writer's obligation under the option. Depending on the
price which the Fund pays to purchase the option and the premium it received to
write the option, it may realize a profit or loss on the transaction. In the
case of an option purchased over-the-counter, such a transaction does not
actually extinguish the Fund's obligation under the option unless the
transaction is with the same broker-dealer as the original option. The economic
effect is the same, except that the Fund bears the risk that the broker-dealer
which wrote the option the Fund purchased will fail to meet its obligations.
There can be no assurance that the Fund will always be able to close out option
positions at acceptable prices. In such a case the Fund will deliver the
underlying securities from its portfolio.
WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS: The Fund may purchase and sell
securities on a "when issued" and "delayed delivery" basis, that is, obligate
itself to purchase or sell securities with delivery and payment to occur at a
later date. When the Fund engages in when issued and delayed delivery
transactions, the Fund relies on the buyer or seller, as the case may be, to
consummate the sale. Failure to do so may result in the Fund missing the
opportunity of obtaining a price or yield considered to be advantageous. No
interest accrues to the Fund with respect to securities purchased on a when
issued or delayed delivery basis until delivery and payment take place. Such
securities are subject to market fluctuation and the yields on securities so
purchased may be lower than those available in the market at the time of
delivery. No payment or delivery is made by the Fund until it receives delivery
or payment from the other party to the transaction. The Fund will maintain, in a
segregated account with its custodian, cash, Treasury bills, or other U.S.
Government securities having an aggregate value equal to the amount of such
purchase commitments until payment is made. To the extent the Fund engages in
when issued and delayed delivery transactions, it will do so for the purpose of
acquiring securities for the Fund's portfolio consistent with the Fund's
investment objective and policies and not for the purpose of investment
leverage.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements with
domestic banks and investment securities dealers which Gradison believes present
minimal credit risks. The difference between the amount the Fund pays for the
securities and the amount it receives upon resale is accrued as interest and
reflected in the Fund's net income. When the Fund enters into repurchase
agreements, it relies on the seller to repurchase the securities. Failure to do
so may result in a loss for the Fund if the market value of the securities is
less than the repurchase price. At the time the Fund enters into a repurchase
agreement, the value of the underlying security including accrued interest will
be equal to or exceed the value of the repurchase agreements and, for repurchase
agreements that mature in more than one day, the seller will have agreed that
the value of the underlying security including accrued interest will continue to
be at least equal to the value of the repurchase agreement. The Fund will
monitor this value on a daily basis, and the securities subject to repurchase
will be held by the Fund's custodian (or subcustodian) in a segregated account.
In determining whether to enter into a repurchase agreement, the Fund will take
into account the credit-worthiness of the other party to the transaction. In the
event of default by such party, the Fund may not have a right to the underlying
security and there may be possible delays and expenses in liquidating the
security purchased, resulting in a decline in its value and loss of interest.
The Fund will use repurchase agreements as a means of making short-term
investments, and will invest in repurchase agreements of duration of seven days
or less in an amount not exceeding 25% of the net assets of the Fund. The Fund's
ability to invest in repurchase agreements that mature
5
<PAGE> 8
in more than seven days is subject to an investment restriction that limits the
Fund's investment in "illiquid" securities, including such repurchase
agreements, to 10% of the Fund's assets.
BORROWING: The Fund may not borrow money except from banks as a temporary
measure for extraordinary purposes or emergency purposes, and then only in
amounts not exceeding 10% of the total assets of the Fund. While any borrowing
of greater than 5% of the assets occurs, the Fund will not purchase additional
portfolio securities. This restriction may not be changed without the approval
of the holders of a majority of the outstanding shares of the Fund.
PORTFOLIO MANAGER
Michael J. Link, Executive Vice President of the Fund, has been primarily
responsible for the day-to-day management of the Fund's portfolio since the
Fund's inception. He is also Senior Vice President of Gradison with
responsibility for fixed income trading and investment management.
PURCASES AND REDEMPTIONS
HOW TO PURCHASE SHARES
You may purchase shares of the Fund by bringing or mailing funds to Gradison or
McDonald. Checks should be made payable to the order of "Gradison-McDonald
Government Income Fund" and should be accompanied by your account name and
account number (if the number has been assigned). 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 minimums may, however, be waived for certain group
purchases. Purchase orders become effective when the Fund receives the necessary
information about your account and provision for payment has been made.
Provision for payment is made either when payment to the Fund has been made or
when Gradison or McDonald has placed a purchase order for an investor. Shares
begin earning dividends on the business day after the Fund receives payment for
shares purchased. No share certificates will be issued. Share purchases are
confirmed by issuance of account statements. Shares are sold at the public
offering price based on the net asset value next determined after the Fund
receives your order. The Fund receives the net asset value from purchases. The
sales charge is retained by McDonald.
The Fund sells shares without a sales charge to: the trustees (and their
families) of any investment company as to which Gradison or McDonald acts as
investment adviser, current and retired employees of Gradison or McDonald and
affiliates (and their families). The Fund's shares are available without a sales
charge to individual employee accounts of 401(k) retirement plans, Simplified
Employee Pension ("SEP") Individual Retirement Accounts ("IRA") or other
employer sponsored individual employee account plans with 10 or more employees
investing in the Fund, and SEP IRA "Salary Reduction" plans. The Fund also sells
shares without a sales charge to investment advisory accounts managed by
Gradison or McDonald, to IRA rollover accounts directly and simultaneously
transferred from qualified retirement plans in connection with a company
sponsored group presentation to 10 or more qualified employees, and to bank or
trust company trust accounts.
Investors may purchase shares of the Fund without payment of a sales charge to
the extent that the investment represents the proceeds of a redemption of any
other mutual fund's shares, the purchase of which involved an initial sales
charge. Additionally, investors may purchase shares of the Fund without payment
of a sales charge to the extent that the investment represents the proceeds of a
redemption of any other mutual fund, except a Gradison-McDonald fund or a money
market fund, so long as the investor has been invested in such fund for at least
one year prior to the purchase of Fund shares. Investors must inform Gradison or
McDonald of their eligibility for these no sales charge purchases and provide
appropriate documentation to demonstrate their eligibility. Call Gradison or
McDonald for details.
6
<PAGE> 9
The public offering price is the net asset value plus a sales charge. The sales
charge varies depending on the size of the purchase. The current sales charges
are:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE AMOUNT OF SALES
---------------------------------- CHARGE REALLOWED TO
AS PERCENTAGE AS PERCENTAGE DEALERS
SIZE OF TRANSACTION OF OFFERING OF NET ASSET AS A PERCENTAGE OF
AT OFFERING PRICE PRICE VALUE OFFERING PRICE
<S> <C> <C> <C>
Less than $100,000 2.00% 2.04% 2.00%
$100,000 or more but less than $250,000 1.50% 1.52% 1.50%
$250,000 or more but less than $500,000 1.00% 1.01% 1.00%
$500,000 or more 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Within six months of a redemption of shares of the Fund, shareholders may
reinvest all or part of the redemption proceeds in shares of the Fund without
the payment of a sales charge. The amount which may be reinvested is limited to
an amount up to the redemption proceeds. In order to exercise this privilege,
you must make a written request for reinstatement which must accompany the
reinvestment. Gradison, McDonald and the Fund do not assume any responsibility
for your receipt of the reinvestment privilege in the absence of such written
notice from you, or for ensuring that you provide such written notice. This
reinstatement privilege can be exercised only once for all or a portion of the
shares redeemed. The tax treatment of a gain realized on a redemption will not
be affected by exercise of the reinstatement privilege, but a loss may be
nullified by a reinvestment in the Fund within 30 days before or after the
redemption. Under the Internal Revenue Code, if the redemption proceeds of Fund
shares on which a sales charge was paid are reinvested in shares of the Fund
within 90 days of the payment of the sales charge, the shareholder's basis in
the Fund shares redeemed may not include the amount of the sales charge paid,
thereby reducing the loss or increasing the gain recognized from the redemption.
The Fund may amend or cease offering this privilege at any time as to shares
redeemed after the date of such amendment or change.
QUANTITY DISCOUNTS
You may be entitled to reduced sales charges through a combination of
investments, rights of accumulation, or a Letter of Intent, even if you do not
make an investment of a size that would normally qualify you for a quantity
discount. YOU MUST NOTIFY GRADISON OR MCDONALD IN WRITING WHENEVER A QUANTITY
DISCOUNT IS APPLICABLE TO YOUR PURCHASE AND, IF NECESSARY, PROVIDE SUFFICIENT
INFORMATION TO VERIFY THAT YOUR PURCHASE QUALIFIES FOR A DISCOUNT. UPON SUCH
NOTIFICATION, YOU WILL RECEIVE THE LOWEST APPLICABLE SALES CHARGE. GRADISON,
MCDONALD, AND THE FUND WILL NOT BE RESPONSIBLE FOR FAILURE TO OBTAIN SUCH A
QUANTITY DISCOUNT IN THE ABSENCE OF SUCH NOTIFICATION. Quantity discounts may be
modified or terminated at any time. The purchases and share balances of all
accounts managed by a particular investment adviser may be aggregated for
purposes of determining the quantity discounts described below. For more
information about quantity discounts, contact Gradison or McDonald.
1. COMBINATION OF INVESTMENTS. You may combine your purchase of shares of the
Fund on any day with purchases of shares of the Fund or any other
Gradison-McDonald fund sold with a sales charge made by you, your spouse and
your children under the age of 21 to qualify for a quantity discount. The
aggregate investments of a trustee or custodian of any qualified pension or
profit sharing plan or IRA, or the aggregate investment of a trustee or other
fiduciary, established for the benefit of you or any of the individuals
described above may also be considered in determining whether a reduced sales
charge is available.
2. RIGHTS OF ACCUMULATION. In determining the sales charge to be paid for your
current purchase, you may combine your current purchase with the current public
offering price of shares of the Fund or any other Gradison-McDonald fund sold
with a sales charge (or the original amount invested, whichever is greater) that
are owned by you, your
7
<PAGE> 10
spouse, your children under the age of 21, or a trustee or custodian of any
qualified pension or profit sharing plan or IRA, or the aggregate investment of
a trustee or other fiduciary, established for the benefit of you or any of the
individuals described above.
3. LETTER OF INTENT. You may qualify for a reduced sales charge immediately by
stating your intention to invest, during a 13-month period, an amount that would
qualify for a reduced sales charge. You may do this by signing a nonbinding
Letter of Intent, which may be signed at any time within 90 days after the first
investment you want included under your Letter of Intent. Each investment you
make after signing the Letter of Intent will be entitled to the sales charge
applicable to the total investment indicated in the Letter of Intent. A Letter
of Intent will apply to all GradisonoMcDonald funds sold with a sales charge.
When you sign a Letter of Intent, Fund shares purchased by you with a value of
3% of the amount you specify in the Letter of Intent will be restricted, that
is, these shares cannot be sold or redeemed until the Letter of Intent is
satisfied or the additional sales charges have been paid. If the total purchases
you make under the Letter of Intent, less redemptions, equal or exceed the
amount you specify in the Letter of Intent, the shares will no longer be
restricted. If the total purchases, less redemptions, exceed the amount you
specify, and qualify you for further quantity discount, Gradison will, at your
request, make a retroactive sales charge adjustment and will apply the
adjustment amount to purchase additional shares of the Fund for your account at
the next computed price. (See "Letters of Intent" in the Statement of Additional
Information for an example of the operation of this feature.) If you do not
complete your purchases under the Letter of Intent, your sales charge will be
adjusted upward, and if after written notice you do not pay the increased sales
charge, restricted shares will be redeemed to pay such charge.
HOW TO REDEEM SHARES
You may redeem shares of the Fund without charge or penalty by sending a written
redemption request to the Fund identifying the account name and number and the
number of shares or dollar amount to be redeemed. You may redeem shares by
telephone and have the proceeds of your redemption mailed to the address on the
Fund's records. All redemptions are effected at the next net asset value
calculated after the Fund receives the redemption request in good order. The
Fund normally makes payment for redeemed shares within one business day, and,
except in extraordinary circumstances, within seven days after receipt of a
properly executed redemption request. Shareholders may make special arrangements
for wire transfer of redemption proceeds by contacting the Fund in advance of a
contemplated share redemption. The Fund reserves the right to delay payment for
the redemption of shares where the shares were purchased with a personal check,
but only until the purchase payment has cleared, which may take up to 15 days
from the day the check is received by the Fund. If you need more immediate
access to your investment, you should consider purchasing shares by wire, cash,
or other immediately available funds.
The Fund, Gradison, McDonald, and their trustees, directors, officers and
employees will not be 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. Investors who maintain brokerage accounts with
Gradison or McDonald may redeem shares of the Fund through their Gradison or
McDonald Investment Consultants. Telephone transactions are available to all
shareholders automatically.
All redemption information and authorizations (except those effected by Gradison
or McDonald) should be mailed or delivered to Gradison-McDonald Mutual Funds,
580 Walnut Street, Cincinnati, Ohio 45202.
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. (This situation has never occurred in the
Fund's his-
8
<PAGE> 11
tory.) In the event of such a situation, you can mail or personally
deliver a written redemption request to the Fund's offices. The telephone
redemption feature may be terminated or modified upon 30 days' notice to
shareholders.
EXCHANGES
As a shareholder, you have the privilege of exchanging shares of a
Gradison-McDonald fund for shares of any other Gradison-McDonald fund and for
shares of certain other Federal and Federal/Ohio tax-free or municipal income
money market funds. There is presently no fee for exchanges. If you exchange
into a fund with a sales charge, you pay the percentage difference between the
fund's sales charge and any sales charge you have previously paid in connection
with the shares you are exchanging.
Before making an exchange, you should read the prospectus of the fund in which
you are investing, which is available upon request. An exchange may not be made
to a fund unless the shares of such fund are registered for sale in the state in
which you reside. The terms of the exchange feature are subject to change and
the exchange feature is subject to termination, both upon 60 days' notice.
NET ASSET VALUE
The net asset value per share of the Fund is determined by calculating the total
value of the Fund's assets, deducting its total liabilities, and dividing the
result by the number of shares outstanding. The net asset value is computed once
daily as of the close of regular trading on the New York Stock Exchange,
currently 4:00 p.m. Eastern time, on each day when the New York Stock Exchange
is open for business.
Fixed-income securities are valued by using market quotations, prices provided
by market makers or pricing services, or estimates of market values obtained
from yield data relating to instruments or securities with similar
characteristics in accordance with procedures established by the Board of
Trustees. Short-term securities with remaining maturities of less than 60 days
are valued at amortized cost. Other assets are valued at fair value as
determined pursuant to procedures approved by the Board of Trustees.
OPTIONAL SHAREHOLDER SERVICES
AUTOMATIC INVESTMENT PLAN
You may arrange for a fixed amount of money to be transferred automatically on a
regular basis from your bank or other depository account to your Fund account.
For additional information, obtain the Gradison-McDonald Automatic Investment
Plan form from the Fund.
MONTHLY DISTRIBUTION PLAN
You may elect (on the Account Information Form) to automatically receive cash
payments of dividends and/or capital gains distributions. (For this purpose,
short-term capital gains distributions are considered dividends.) You may change
or terminate this option at any time by written notice to the Fund.
AUTOMATIC PAYMENT PLAN
If your account has a value of at least $10,000, you may elect (on the Account
Information Form) to have monthly or quarterly payments of a specified amount
(but not less than $50) mailed to you or anyone specified on the form. You may
change or terminate this option at any time by written notice to the Fund.
Because the Fund cannot guarantee that payments will be made on the date
specified, the Plan should not be used for time-sensitive payments. Investors
utilizing the Automatic Payment Plan should be aware that each payment
constitutes a redemption for tax purposes.
9
<PAGE> 12
DISTRIBUTIONS
The Fund declares dividends from net investment income daily, immediately prior
to the close of business. These dividends are credited to fully paid shares of
record at the time of declaration. (Fund shares begin earning dividends on the
business day after the Fund receives payment for the purchase of such shares.)
Dividends representing the amounts credited to Fund shares are paid monthly.
Distributions of all or a portion of net realized short-term capital gains, if
any, will be declared and paid on a monthly basis on all shares of record on
established record dates. Net realized long-term capital gains, if any, will be
distributed at least annually. The Fund distributes substantially all of its net
investment income and capital gains, if any, to shareholders each year.
Unless you select the Monthly Distribution Plan, all income dividends and net
realized capital gain distributions are automatically paid in additional shares
at the net asset value of such shares on the date the distributions are payable.
THERE IS NO SALES CHARGE FOR SHARES ISSUED IN THIS MANNER. The Fund acts as its
own transfer and dividend disbursing agent.
TAXES
If your account is not a tax-deferred retirement account or exempt from
taxation, the dividends you receive from the Fund, including any net realized
short-term capital gains, will be taxable to you as ordinary income. Long-term
capital gain distributions are taxable to you as long-term capital gains,
regardless of how long you have held shares of the Fund. The taxability of
distributions is not affected by whether you receive the distributions in
additional shares or have them sent to you in cash. Each shareholder will
receive, on an annual basis, a statement of the federal tax consequences of all
distributions.
Fund distributions that represent interest income from certain U.S. Government
securities are tax-exempt at most state and local levels. Since the taxability
of the Fund's distributions at state and local levels will vary, prospective
shareholders are urged to consult their own tax advisers regarding state and
local tax consequences.
The foregoing is only a summary of some important generally applicable Federal
and State income tax provisions in effect as of the date of this Prospectus; see
the Statement of Additional Information for a further discussion. There may be
other Federal, state, or local tax considerations applicable to a particular
investor.
GENERAL INFORMATION
Gradison-McDonald Government Income Fund is a diversified series of the Gradison
Custodian Trust (the "Trust"), which is an Ohio business trust organized under
the laws of the State of Ohio by a Declaration of Trust dated June 3, 1987, and
is registered with the Securities and Exchange Commission as an open-end
management investment company. Each share of the Fund has one vote and
represents an equal pro rata interest in the Fund. As an Ohio business trust,
the Trust is not required to hold annual shareholder meetings, although special
shareholder meetings may be called for purposes such as electing or removing
trustees. Special meetings shall be called upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust. At the
present time, the Gradison-McDonald Government Income Fund is the only series of
the Trust authorized. Shareholder inquiries should be directed to the phone
numbers or address of the Fund listed on the first page of this Prospectus.
10
<PAGE> 13
MANAGEMENT OF THE FUND
The Trust's Board of Trustees is responsible for the direction and supervision
of the Fund's operations. McDonald is a wholly owned subsidiary of McDonald &
Company Investments, Inc., McDonald Investment Center, 800 Superior Avenue,
Cleveland, Ohio 44114. 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. McDonald is an investment adviser and a
securities broker-dealer. McDonald, through Gradison, has been an investment
adviser since 1976.
For the year ended December 31, 1995, McDonald received: a fee of .50% of
average net assets of the Fund as compensation for investment advisory services
provided to the Fund; $84,384 as cost reimbursement for shareholder and other
services provided to the Fund; and a fee of $.6875 per month per shareholder
account for providing data processing services to the Fund, plus charges for
shareholder statement printing.
Under the terms of a distribution service plan adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund pays McDonald a service fee
at the annual rate of .25% of the average daily net assets of the Fund. Such fee
is calculated on a daily basis and paid monthly. The service fee is paid as
compensation to McDonald for providing personal services to shareholders of the
Fund, including responding to shareholder inquiries and providing information to
shareholders about their Fund accounts. McDonald may use the fee to make
payments to authorized dealers or other financial intermediaries, including
itself, for providing these services to Fund shareholders. McDonald may also
make other payments to dealers or other financial intermediaries in connection
with their clients' investments in the Fund.
INDIVIDUAL RETIREMENT ACCOUNTS
Shares of the Fund may be purchased in conjunction with an IRA which may also be
used with a Gradison or McDonald self-directed brokerage account. Detailed
information concerning IRA accounts is available from the Fund by calling the
phone number listed on the first page of this Prospectus.
PERFORMANCE CALCULATIONS
From time to time the Fund may advertise its "yield", and "total return." Both
yield and total return figures are based on historical figures and are not
intended to indicate future performance. The yield of the Fund is computed by
dividing the net investment income per share during the period stated in the
advertisement by the maximum offering price per share on the last day of the
period (using the average number of shares entitled to receive dividends). The
yield formula provides for semi-annual compounding which assumes that net
investment income is earned and reinvested at a constant rate and annualized at
the end of the six-month period.
The total return of the Fund (including the effect of deduction of the maximum
2% sales charge) refers to the average annual compounded rate of return over
specified time periods (which periods will be stated in the advertisement) that
would equate an initial amount of money invested in the Fund (prior to deduction
of the sales charge) at the beginning of a stated period to the ending
redeemable value of the investment. The Fund may also calculate total returns
which assume that no sales charge was paid on the initial investment, total
returns for single-year time periods, aggregate total returns over various time
periods, and the aggregate value of an investment made in the Fund over various
time periods. The Fund may also compare its performance with the performance of
various securities indices
11
<PAGE> 14
or combinations of indices. Any of the calculations may be presented in tabular
or graph formats. The calculations of total return and aggregate values assume
the receipt of all dividends and distributions in additional Fund shares.
The Fund may also advertise performance rankings assigned to it by organizations
which evaluate mutual fund performance such as Lipper Analytical Securities
Corp. It may also advertise "ratings" assigned to it by organizations such as
Morningstar, Inc.
The Fund's Annual Report to Shareholders contains additional performance
information and will be made available without charge upon request by telephone
to the phone number listed on the cover of this Prospectus.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
------------------------------------------
<S> <C>
Expense Summary 1
Financial Highlights 2
Investment Objective 3
Risk Factors and for Whom the
Fund May be Appropriate 3
How the Fund Pursues
its Objective 3
Purchases and Redemptions 6
Net Asset Value 9
Optional Shareholder Services 9
Distributions 10
Taxes 10
General Information 10
Management of the Fund 11
Individual Retirement Accounts 11
Performance Calculations 11
------------------------------------------
</TABLE>
GRADISON-MCDONALD
MUTUAL FUNDS
580 Walnut Street, Cincinnati, Ohio 45202
(513) 579-5000 (800) 869-5999
<PAGE> 15
GRADISON-McDONALD
Mutual Funds
580 Walnut Street, Cincinnati, Ohio 45202
(513) 579-5076 (800) 869-5999
GRADISON - MCDONALD GOVERNMENT INCOME FUND
GRADISON CUSTODIAN TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL
INFORMATION
- --------------------------------------------------------------------------------
For information, call:
579-5700 from Cincinnati, Ohio
Toll free (800) 869-5999 from 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 May 1, 1996, 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 May 1, 1996.
<PAGE> 16
CONTENTS
<TABLE>
______________________________________ Page Location in Prospectus
<S> <C> <C>
INVESTMENT POLICIES AND RESTRICTIONS . . . . 3 How the Fund Pursues Its
Objective
PURCHASE OF SHARES . . . . . . . . . . . . . 5 Purchases and Redemptions
LETTERS OF INTENT . . . . . . . . . . . . . 5 How to Purchase Shares
REDEMPTION OF SHARES . . . . . . . . . . . . 5 How to Redeem Shares;
DAILY DISTRIBUTIONS - ACCOUNTING PRINCIPLES . 6 Distributions
TAXES . . . . . . . . . . . . . . . . . . . . 7 Taxes
NET ASSET VALUE . . . . . . . . . . . . . . . 8 Net Asset Value
SALES CHARGE REDUCTIONS . . . . . . . . . . . 8 How to Purchase Shares
PORTFOLIO TRANSACTIONS . . . . . . . . . . . 9
INVESTMENT ADVISER . . . . . . . . . . . . . 11 Management of the Fund
Advisory Agreement . . . . . . . . . . . 11
Master Distribution Agreement . . . . . 12
Payment and Reimbursement of
Expenses by the Fund . . . . . . . . 13
Distribution Service Plan . . . . . . . 14
Data Processing Service Agreement . . . 15
PERFORMANCE CALCULATIONS . . . . . . . . . . 15 Performance Calculations
TRUSTEES AND OFFICERS OF THE TRUST . . . . . . 17
DESCRIPTION OF THE TRUST . . . . . . . . . . . 19 General Information
CUSTODIAN . . . . . . . . . . . . . . . . . . 21
ACCOUNTANT. . . . . . . . . . . . . . . . . . 21
LEGAL COUNSEL . . . . . . . . . . . . . . . . 21
SALES BROCHURE INFORMATION . . . . . . . . . 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT AND
FINANCIAL STATEMENTS . . . . Following Page 29 Financial Highlights
</TABLE>
2
<PAGE> 17
INVESTMENT POLICIES AND RESTRICTIONS
Gradison-McDonald Government Income Fund (the "Fund") invests in
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. 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 shares of the Trust. (See "Description of the
Trust.") The Fund will not:
(1) Borrow money, except from banks or through reverse repurchase agreements
as a temporary measure 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 10% of the total assets
of the Fund, taken at the lower of acquisition cost or market value.
While any borrowing of greater than 5% of the assets occurs, the Fund
will not purchase additional portfolio securities;
(2) Make loans, except loans of portfolio securities not in excess of 25% of
the value of the Fund's total assets (taken at market value) made in
accordance with the guidelines of the Securities and Exchange Commission
and with any standards established from time to time by the Board of
Trustees, including the maintenance of collateral in the form of cash or
securities which would be eligible for purchase by the Fund from the
borrower at all times in an amount at least equal to the current market
value of the securities loaned. The purchase of securities as allowed by
the Fund's investment objective and other Investment Restrictions shall
not be prohibited by this restriction;
(3) Mortgage, pledge or hypothecate securities, except in connection with a
permissible borrowing as set forth in investment restriction (1) above,
and then only in amounts not exceeding 15% of the value of the assets of
the Fund (taken at market value). Notwithstanding this restriction the
Fund may enter into "when issued" and "delayed delivery" transactions.
The deposit of underlying securities and other assets in escrow or other
collateral arrangements in connection with the writing of options or
margin for futures contracts or options on futures contracts are not
deemed to be pledges or hypothecations subject to this restriction;
(4) Make short sales of securities or purchase securities on margin;
(5) Purchase or sell real estate. The purchase of securities secured by real
estate which are otherwise allowed by the Fund's investment
3
<PAGE> 18
objective and other Investment Restrictions shall not be prohibited by
this restriction;
(6) Purchase the securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition
of assets;
(7) Invest in companies for the purpose of exercising control or management;
(8) Purchase securities subject to restrictions on disposition under the
Securities Act of 1933;
(9) Purchase securities for which no readily available market quotation
exists, if at the time of acquisition more than 10% of the total assets
of the Fund would be invested in such securities (included within this
restriction are repurchase agreements maturing in more than seven days,
as well as options purchased and underlying securities for call options
written by the Fund, but in either case only if such options are not
tradable on an exchange);
(10) 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;
(11) Purchase or sell commodities or commodity contracts or interests in oil,
gas or other mineral exploration or development programs. The purchase
or sale of financial futures contracts or options on financial futures
contracts shall not be prohibited by this restriction;
(12) Participate on a joint, or a joint and several, basis in any securities
trading account; or
(13) Purchase any securities (other than obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities) if immediately
after such purchase, more than 5% of the value of a Fund's total assets
would be invested in securities of any one issuer or more than 10% of
the outstanding securities of any one issuer would be owned by the Trust
and held in the Fund. There is no limit on the amount of the Fund's
assets which may be invested in the securities of any one issuer of
obligations issued or guaranteed by the United States Government or by
its agencies or instrumentalities.
If a percentage restriction set forth above is met at the time of
investment, a later movement above the restriction level resulting from
4
<PAGE> 19
a change in the value of securities held by the Fund will not be considered a
violation of the investment restriction.
At the present time the Fund does not engage in futures or options on
futures transactions but may do so in the future upon appropriate disclosure in
the Prospectus.
PURCHASE OF SHARES
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.
The Fund reserves the right to limit the amount of any purchase and to
reject any purchase order. Shares of the Fund are offered continuously; however,
the offering of shares of the Fund may be suspended at any time and resumed at
any time thereafter. The Fund intends to waive the initial and subsequent
purchase minimums for employees of McDonald & Company Securities, Inc.
("McDonald") which through its Gradison Division ("Gradison") acts as the Fund's
investment adviser and distributor (the "Adviser" and "Distributor").
LETTERS OF INTENT
If the total purchases, less redemptions, exceed the amount you specify,
and qualify you for a further quantity discount, Gradison will, at your request,
make a retroactive sales charge adjustment and will apply the adjustment amount
to purchase additional shares of the Fund for your account at the next computed
price. For example:
1. You executed a letter of intent for $100,000 of Fund shares and
were, therefore, charged a $1,500 sales charge on purchases in that
amount;
2. During the existence of the Letter of Intent you subsequently
purchased an additional $400,000 of shares, thereby qualifying for
purchases at $0 sales charge;
3. You will receive an adjustment of $1,500, the sales charge you
paid on the $100,000 purchase, since you reached the $500,000
purchase level during the existence of the Letter of Intent. The
$1,500 will be applied to purchase additional shares for your
account at the next computed price.
REDEMPTION OF SHARES
5
<PAGE> 20
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 securities held in the Fund or determination
of the net asset value of the Fund 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.
By Telephone - 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), and requires identification from individuals picking up checks
at its office.
DAILY DISTRIBUTIONS - ACCOUNTING PRINCIPLES
The distribution declared by the Fund each day will normally be in an
amount equal to the estimated net investment income for the applicable monthly
period, plus for certain periods undistributed amounts of such income from prior
periods, minus for certain periods amounts to provide a reserve of undistributed
income which could be paid in subsequent months, divided by the number of days
in that period. The amount of the daily distribution will generally differ from
the Fund's daily book net investment income computed in accordance with
generally accepted accounting principles. Estimated net investment income for
any period will be based on the Adviser's projections of accrued interest income
during such period less projected expenses of the Fund to be accrued for such
period. This procedure may enable the Fund to avoid fluctuations in the total
daily distributions from period to period and to minimize the possibility of
making distributions from paid-in capital or other capital sources. The reserve
may increase the net asset value of the Fund's shares, thereby causing
shareholders to realize higher capital gains or lower capital losses upon
redemption. The Fund may also make distributions which are in excess of net
investment income and distributions from paid-in capital.
For example, if the Adviser estimates that net investment income for a
31-day month will be $.085 per share, and if the Fund has a reserve of $.01 per
share of undistributed income, the daily distribution might be initially
established at $.09/31 per share for each day during such month, leaving a
reserve of $.005 per share available for distributions in subsequent months if
such estimates are accurate. The Adviser may revise its estimates of the monthly
amounts of such income, in which case the subsequent daily distributions during
such month may be revised accordingly.
6
<PAGE> 21
Each month a shareholder will receive a notice setting forth the source
of all distributions paid that month (i.e., net investment income, accumulated
undistributed net profits from the sale of securities or paid in capital).
TAXES
The Fund has qualified and intends to qualify in the future as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). By so qualifying, the Fund will not be taxed on
net investment income and net realized capital gains distributed to
shareholders. Dividends from net investment income and distributions from net
realized short-term capital gains are taxable to shareholders as ordinary
income, whether paid in cash or in additional shares of the Fund.
Distributions of any net realized long-term capital gains are taxable to
shareholders as long-term capital gains, whether paid in cash or in additional
shares of the Fund and regardless of the length of time a shareholder has owned
shares of the Fund. The Fund will furnish shareholders with written notification
as to the amount of any long-term capital gains or return of capital
concurrently with any distribution that includes long-term capital gains or
return of capital.
Investors should be aware of the tax implications of purchasing shares
shortly before a record date for a capital gains distribution. To the extent
that the net asset value of the Fund at the time of purchase reflects
undistributed capital gains, or net unrealized appreciation of securities held
by the Fund, a subsequent distribution to the shareholder of such amounts,
although in effect constituting a return of his or her investment, would be
taxable as described above. Correspondingly, for Federal income tax purposes, a
shareholder's tax basis in his or her shares continues to be his or her original
cost, so that upon redemption of shares, capital gain or loss will be realized
in the amount of the difference between the redemption price and the
shareholder's original cost.
Federal law may require the Fund or your broker to withhold and remit to
the U.S. Treasury 31% of (i) dividend and capital gain distributions and (ii)
the proceeds of any redemptions if you fail to furnish the Fund or your broker
with your correct taxpayer identification number, under-report dividend or
interest income, or fail to certify to the Fund or your broker that you are not
subject to such withholding.
The Fund will generally realize capital gain or loss for federal income
tax purposes upon the closing of an option, the expiration of an
7
<PAGE> 22
option without exercise and the exercise of an option. Generally, any gains or
losses realized with respect to over-the-counter options will be treated as
short-term for federal income tax purposes.
The Federal income tax matters summarized above are subject to change by
legislation, administrative action and judicial decision. In addition,
shareholders may be subject to state and local taxes with respect to their
ownership of shares or distributions from the Fund. Shareholders should consult
their tax adviser as to their personal tax situation.
NET ASSET VALUE
The net asset value of the Fund is calculated once daily Monday through
Friday except on days on the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day Observed, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
The assets and liabilities of the Fund are determined in accordance with
generally accepted accounting principles and the applicable rules and
regulations of the Securities and Exchange Commission.
Occasionally, trading in U. S. Government securities is substantially
completed each day prior to the close of the NYSE. The values of securities used
in computing the net asset value is computed as of that time, prior to the close
of the NYSE. It is possible that events affecting the value of the Fund's
securities may occur between the time at which the values of the securities are
determined and the close of the NYSE which will not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith pursuant to procedures
approved by the Board of Trustees.
SALES CHARGE REDUCTIONS
The difference in the price at which the Fund's shares are offered due
to scheduled variations in sales charges as a percentage of both offering price
and amount invested, as described in the Prospectus under the caption "How To
Purchase Shares", result from cost savings inherent in economy of size.
Management of the Fund believes that the costs and expenses of sales efforts of
the Fund's principal underwriter and broker-dealers tend to decrease as the size
of the purchase order increases. It is for this reason that the sales charges as
a percentage of the offering price and of the amount invested are reduced with
respect to "breakpoint" purchases, Combination of Investments, and Letter of
Intent and Rights of Accumulation privileges, all as stated in the Prospectus.
In addition, because the exchange privilege is available to all investors whose
objectives may have changed and because
8
<PAGE> 23
it is such investors who initiate the exchange, no additional sales expenses are
incurred, and accordingly, these savings are passed on to the investor in the
form of a net asset value purchase. Likewise, no significant sales effort is
necessary for sales of shares at net asset value to trustees of mutual funds as
to which Gradison acts as an investment adviser (and their families), current
and retired employees of the Fund's investment adviser, and investment advisory
accounts managed by Gradison or McDonald. With respect to IRA rollover accounts
directly and simultaneously transferred from retirement plans in connection with
a company sponsored group presentation to 10 or more qualified employees,
individual employee accounts of 401(k) retirement plans, Simplified Employee
Pension ("SEP") Individual Retirement Accounts ("IRA") and other employer
individual employee account plans with 10 or more employees investing in the
Fund, and SEP IRA Salary Reduction plans, sales efforts required are
significantly reduced to the extent that the continuing distribution expense fee
compensation to the principal underwriter and broker dealers is sufficient
compensation to motivate them to be willing to effect such sales without payment
of sales charges. With respect to sales at net asset value to investors who
purchase Fund shares with the proceeds of redemptions from other mutual funds as
to which they have previously paid a sales charge, such waiver of the Fund's
charge is necessary to compensate such investors for the fact that they have
previously paid a sales load on their investment. With respect to sales at net
asset value to bank or trust company trust accounts, such sales are necessary
because potential clients are paying fees to banks or trust companies.
PORTFOLIO TRANSACTIONS
The Adviser is responsible for making the Fund's portfolio decisions,
including allocation of the Fund's brokerage business and negotiation of
brokerage commissions, subject to policies established by the Board of Trustees.
The Fund places orders for transactions with a number of brokers and dealers.
Most of the Fund's purchases and sales of portfolio securities are principal
transactions with securities dealers and underwriters. During the three years
ended December 31, 1995, the Fund incurred no brokerage commissions. Purchases
of securities from underwriters, however, include a concession paid by the
issuer to the underwriter and purchases or sales of securities from/to a dealer
include a spread between the bid and ask prices.
In purchasing and selling portfolio securities, it is the policy of the
Fund to select brokers and dealers so as to obtain the most favorable net
results, taking into account various factors, including the price of the
security, the commission rate, the size of the transaction, the difficulty of
execution and other services offered by brokers and dealers which are of benefit
to the Fund. The Adviser selects brokers and dealers to execute transactions on
the basis of its
9
<PAGE> 24
judgment of their professional capability to provide the service at reasonably
competitive rates. The Adviser's determination of what constitutes reasonably
competitive rates is based upon its professional judgment and knowledge as to
rates paid and charged for similar transactions throughout the securities
industry. The Adviser may consider sales by brokers or dealers of shares of the
Fund when selecting brokers or dealers to execute portfolio transactions as long
as the most favorable net results are obtained.
The Adviser may receive commissions from the Fund for effecting
transactions only in accordance with procedures adopted by the Board of
Trustees. Any procedures adopted by the Trustees will incorporate the standard
contained in Rule 17e-1 under the Investment Company Act of 1940 that the
commissions paid must be "reasonable and fair compared to the commission, fee or
other remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities during a comparable
period of time." Pursuant to Rule 17e-1, the Board of Trustees must determine no
less frequently than quarterly that all transactions effected pursuant to this
Rule were effected in compliance with such procedures and the Fund must maintain
records in connection with such reviews. The Adviser has assured the Fund that
in all transactions placed with the Adviser, the Fund will be charged a
commission that is at least as favorable as the rate the Adviser charges to its
other customers in similar transactions. No commission charged to the Fund by
the Adviser or any broker affiliated with the Adviser will include compensation
for research services provided by the Adviser or any such affiliated broker.
Since inception of the Fund, the Adviser has not received any commissions for
effecting portfolio transactions for the Fund.
During the periods ending 12/31/94 and 12/31/95 the portfolio turnover
rates for the Fund were respectively 20.91% and 15.84%.
Brokers who provide supplemental investment research to the Adviser may
receive orders for agency transactions in portfolio securities of the Fund. Such
supplemental research services ordinarily consist of assessments and analyses of
the business or prospects of a company, industry, or economic sector.
Information so received is in addition to and not in lieu of the services
required to be performed by the Adviser under the Investment Advisory Agreement
with the Fund. If in the judgment of the Adviser the commission is reasonable in
relation to the brokerage and research services provided, the Adviser is
authorized to pay brokerage commissions in excess of commissions another broker
would have received for effecting the same transaction, subject to the review of
the Board of Trustees. Not all such research services may be used by the Adviser
in connection with managing the Fund. The expenses of the Adviser will not
necessarily be reduced as a result of the receipt of such supplemental
information, and the Adviser may use such information in servicing its other
accounts.
10
<PAGE> 25
Because of its affiliation with the Adviser, the Fund is prohibited from
engaging in certain transactions involving the Adviser except in compliance with
the provisions of the Investment Company Act of 1940, as amended, and the rules
and regulations thereunder. Accordingly, the Fund will not purchase or sell
portfolio securities from or to the Adviser in any transaction in which the
Adviser acts as principal.
The Adviser also serves as the investment adviser to other investment
companies as to which the Adviser acts as investment adviser and furnished
investment advice to other clients. Purchases and sales of particular securities
may be effected simultaneously for such entities and clients. In such instances,
the transactions will be allocated as to price and amount in a manner the
Adviser considers equitable to each of the affected entities or clients, which
could have a detrimental effect upon the price or amount of the securities
purchased or sold for 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.
INVESTMENT ADVISER
The Adviser manages the investment and reinvestment of the assets of the
Fund in accordance with the Fund's investment objective, policies and
restrictions, subject to the general supervision and control of the Board of
Trustees and pursuant to the terms of the Investment Advisory Agreement
("Agreement") between the Trust and Adviser.
ADVISORY AGREEMENT
The Agreement provides that the Adviser will provide to the Trust at its
own expense the executive officers who are necessary for the management and
operations of the Fund and manage the investments of the Fund, subject to review
by the Board of Trustees. The Adviser also compensates the Trustees who are
affiliated with the Adviser.
As compensation for its services under the Agreement, the Adviser
receives from the Fund a monthly fee based upon the average value of the daily
net assets for the month at an annual rate of .5 of 1% of the Fund's net assets.
For the years ending December 31, 1993, and 1994, and 1995, the Adviser received
$1,257,522, $1,176,225, and $918,897 respectively, as advisory fees.
The Adviser furnishes directly to the Fund, at cost, personnel to
perform shareholder services, such as responding to inquiries from shareholders
and processing purchase orders and redemption requests delivered to the Fund.
Certain of the costs attributable to services
11
<PAGE> 26
provided to the Fund, such as occupancy expenses, telephone service, computer
service and equipment costs, depreciation and interest, may require allocation
among the Fund, the other investment companies for which the Adviser acts as
investment adviser, and other activities of the Adviser. Such allocations are
made on the basis of reasonable approximations calculated by the Adviser and
periodically reviewed by the Trustees. For the years ending December 31, 1993,
and 1994, and 1995, the Adviser received $112,201, $109,573 and $84,384
respectively, as cost reimbursement from the Fund for personnel performing
shareholder services.
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, 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
of or 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.
MASTER DISTRIBUTION AGREEMENT
12
<PAGE> 27
Shares of the Fund are continuously offered and distributed through the
principal underwriter of the Fund, McDonald & Company Securities, Inc.,
operating through its Gradison Division (the "Distributor"). Under the terms of
the Master Distribution Agreement, the Distributor, as agent of the Fund,
accepts orders for the purchase of shares of the Fund and, as compensation
therefore, receives the amount of the sales charge described in the Prospectus.
For the years ended December 31, 1993, 1994, and 1995, the Distributor received
underwriting sales charges of $924,905, $319,287, and $175,972 respectively, and
retained all such amounts except for payments to be made to its own sales
representatives. The Distributor is not obligated to sell any certain number of
shares of the Fund. The Distributor may enter into dealer agreements with other
dealers, pursuant to which such dealers will also sell shares of the Fund. The
Master Distribution Agreement between the Fund and the Distributor permits the
Distributor to reallow up to the full sales charge to the other dealers entering
into dealer agreements with the Distributor; accordingly, such dealers may be
deemed to be underwriters of the Fund, as that term is defined in the Securities
Act of 1933, as amended (the "1933 Act"). The Fund has agreed to indemnify the
Distributor to the extent permitted by applicable law against certain
liabilities under the 1933 Act. The Agreement also provides for the payment of
Distribution Service fees to McDonald in the annual amount of .25% of the Fund's
average daily net assets.
PAYMENT AND REIMBURSEMENT OF EXPENSES BY THE FUND
All expenses not specifically assumed by the Adviser under the
Investment Advisory Agreement or the Distributor under the Master Distribution
Agreement and incurred in the operation of the Fund are borne by the Fund
pursuant to these agreements. Some of these expenses may be paid by the Adviser
or the Distributor subject to reimbursement by the Fund. These expenses include
expenses for office space, facilities and equipment and utilities; cost of
preparing, printing and mailing registration statements, prospectuses, periodic
reports and other documents furnished to shareholders and regulatory
authorities; such distribution expenses as may be incurred pursuant to an
effective plan under Rule 12b-1 under the Investment Company Act of 1940;
registration, filing and similar fees; legal (including reimbursement to the
Adviser for legal services provided to the Fund, subject to review by the Fund's
outside counsel), auditing and accounting expenses; taxes and other fees;
brokers' commissions and issue or transfer taxes chargeable to the Fund in
connection with securities transactions; expenses of issue, sale, redemptions
and repurchase of shares; expenses incurred by the Fund relating to shareholder
services (such as responding to inquiries from shareholders and processing
purchase orders and redemption requests) provided by the Adviser, or others;
fees of Trustees who are not affiliated with the Adviser; charges and expenses
of any transfer and dividend disbursing agent, registrar, custodian or
depository appointed by the Fund; other expenses of the Fund, including
13
<PAGE> 28
expenses of shareholders' and Trustees' meeting's; and fees and other expenses
incurred by the Fund in connection with its membership in any organization.
DISTRIBUTION SERVICE PLAN
The Fund has adopted a Distribution Service Plan (the "Plan") under Rule
12b-1 of the Investment Company Act of 1940. 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 at an efficient level. 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 distribution expenses up to an amount that does not
exceed an annual rate of .25 of 1% of its average daily net assets. Distribution
expenses that may be incurred by the Fund under the Plan within the limitation
described above are limited to payments to broker-dealers (including the
Distributor) as compensation for personal services rendered to shareholders of
the Fund including providing shareholder liaison services such as responding to
shareholder inquiries and providing information to shareholders about their
accounts. For the years ending December 31, 1993, 1994, and 1995, the Fund paid
$628,183, $582,335 and $453,931 respectively, to McDonald and Gradison.
The Plan also specifically authorizes the payment of those operational
expenses enumerated as being incurred by the Fund pursuant to the Agreement, as
described under the caption "Payment and Reimbursement of Expenses by the Fund"
above, to the extent that such payments might be considered to be primarily
intended to result in the sale of shares of the Fund. It further specifically
authorizes the payment of advisory fees pursuant to the Advisory Agreement to
the extent that the Fund might be deemed to be indirectly financing the
distribution activities through payment of advisory fees. The Board of Trustees
does not believe that the payment of such operational expenses by the Fund or
payment of the advisory fee constitute the direct or indirect financing of
activities primarily intended to result in the sale of shares of the Fund. Thus,
although such payments are authorized by the Plan as a protective measure, they
are not restricted by the .25 of 1% limitation included in the Plan.
14
<PAGE> 29
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 was last approved by the Fund's shareholders on September 22, 1988. The
Plan (together with any agreements relating to implementation of the Plan) shall
continue 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
votes 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
Investment Company Act of 1940) of the Trust shall be committed to the
discretion of the disinterested Trustees then in office.
DATA PROCESSING SERVICE AGREEMENT
Pursuant to a data processing service agreement, Gradison provides data
processing services to the Trust with respect to shareholder servicing
activities. The fee for these services is $.6875 per shareholder account per
month. For the years ending December 31, 1993, 1994, and 1995, the total fees
paid by the Trust pursuant to the agreement were $57,334, $57,575, and $49,804
respectively, plus shareholder statement printing costs.
PERFORMANCE CALCULATIONS
The Fund's yield for the 30 days ending December 31, 1995 was 5.87%. The
yield for this period was increased by the temporary reduction of expenses at
year end.
15
<PAGE> 30
GRADISON GOVERNMENT INCOME FUND
Total Return Statistics
-----------------------
<TABLE>
<CAPTION>
Five Years Since Inception* Cumulative
Ending 9/16/87 - Return
12/31/95 12/31/95 Since
(Average Annual (Average Annual Inception
Compounded Compounded 9/16/87 -
Rate of Return) Rate of Return) 12/31/95
- --------------- --------------- --------
<S> <C> <C>
8.05% 8.92% 103.15% (1)
7.62% 8.65% 99.01% (2)
9.13% 9.99% 120.24% (3)
</TABLE>
<TABLE>
<CAPTION>
12 Mos. 12 Mos. 12 Mos. 12 Mos. 12 Mos. 12 Mos.
Ended Ended Ended Ended Ended Ended
12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gradison Gov.
Income Fund(1) 8.79% 14.08% 6.29% 7.52% -3.69% 17.20%
Gradison Gov.
Income Fund(2) 6.58% 11.83% 4.14% 5.40% -5.59% 14.81%
Index of
Performance(3)
9.56% 15.68% 7.32% 8.56% -2.44% 17.70%
</TABLE>
* During the period 9/16/87 through 12/31/88 the investment adviser paid
certain Fund expenses which had the effect of increasing return.
(1) When purchased at net asset value. The Fund is sold subject to a sales
charge; namely, 2.00% decreasing to zero at $500,000. Additionally,
certain qualifying group retirement fund purchases are made without a
sales charge, as are all purchases representing reinvestment of
dividends. Please see the following performance data which reflects the
effect of a maximum sales charge.
(2) When purchased at maximum offering price (i.e., 2% sales charge).
16
<PAGE> 31
(3) Average of performance of the Lehman Brothers U.S. Treasury and the
Lehman Brothers GNMA Index. No cost/expense computation of performance
of a diversified unmanaged portfolio comprised of 50% U.S. Treasury and
50% GNMA bonds.
The performance quoted above represents past performance and assumes
reinvestment of all distributions. The investment return and value of an
investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than the original cost.
Total return is comprised of changes in net asset value and the reinvestment of
all distributions.
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and officers of the Fund, together with information as to
their principal occupations during the past five years and positions currently
held with Gradison-McDonald Cash Reserves Trust ("GMCR"), Gradison-McDonald
Municipal Custodian Trust ("GMMCT"), Gradison Growth Trust ("GGT"), Gradison and
McDonald, are listed below. All principal occupations have been held for at
least five years unless otherwise indicated. Positions held with Gradison were
formerly held with Gradison & Company Incorporated. The mailing address for the
affiliated trustee and for all officers of the Trust is c/o Gradison-McDonald
Funds, 580 Walnut Street, Cincinnati, Ohio 45202. Each trustee is a trustee of
each of the four Gradison-McDonald Investment Companies.
*DONALD E. WESTON, Trustee and Chairman of the Board of each of the four
Gradison-McDonald Investment Companies; Chairman of Gradison and Director of
McDonald & Company Investments, Inc. (since October 1991). Director of
Cincinnati Milacron Commercial Corp. (financing arm of capital goods
manufacturer).
DANIEL J. CASTELLINI, 312 Walnut Street, Cincinnati, Ohio 45202, Trustee; Senior
Vice President/Finance and Administration of the E. W. Scripps Company
(communications).
THEODORE H. EMMERICH, 1201 Edgecliff Place, Cincinnati, Ohio 45206, Trustee;
Retired; Until 1986, managing partner (Cincinnati office) Ernst & Young
(independent public accountants); Director of Carillon Fund, Inc.(investment
company), American Financial Group Inc.(insurance), Citicasters, Inc.
(broadcasting), and Cincinnati Milacron Commercial Corp.; Trustee of Summit
Investment Trust and Carillon Investment Trust (investment companies).
RICHARD A. RANKIN, 1717 Dixie Highway, Suite 600, Fort Wright, Kentucky 41011,
Trustee; Partner, Rankin and Rankin (independent public accountants).
17
<PAGE> 32
JEROME E. SCHNEE, 11558 Stablewatch Court, Cincinnati, Ohio 45249. Trustee;
Professor of Management, College of Business Administration, University of
Cincinnati.
BRADLEY E. TURNER, President of each of the four Gradison-McDonald Investment
Companies; Senior Managing Director and Director of McDonald.
MICHAEL J. LINK. Executive Vice President and Portfolio Manager; Senior Vice
President of Gradison.
PAUL J. WESTON. Senior Vice President; Executive Vice President of GMCR; Senior
Vice President of GMMCT and GGT; Executive Vice President of Gradison. Mr.
Weston is the brother of Donald E. Weston.
RICHARD M. WACHTERMAN. Secretary of each of the four Gradison-McDonald
Investment Companies; Senior Vice President and General Counsel of Gradison.
PATRICIA J. JAMIESON. Treasurer of each of the four Gradison-McDonald Investment
Companies; Treasurer and Chief Accounting Officer of McDonald.
MARK A. FRIETCH. Assistant Treasurer of each of the Gradison-McDonald Investment
Companies (since May 1995); prior to that Controller of Gradison-McDonald Mutual
funds (since August 1992); prior to that Financial Consultant and Assistant
Controller Union Central Life Insurance Company.
* 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 Fund who are affiliated with the Adviser
receive no remuneration from the Fund. The aggregate of fees paid to the
Trustees by the Trust for the year ending December 31, 1995 was $24,856. As of
1996, the trustees and officers of the Fund owned, of record and beneficially,
an aggregate of less than 1% of the outstanding shares of the Fund and no person
was known to own more than 5% of the outstanding shares of the Fund.
18
<PAGE> 33
<TABLE>
Trustee Compensation Table
--------------------------
<CAPTION>
Name of Trustee Aggregate Total Compensation
- --------------- Compensation From Fund and fund
From Fund complex (3 additional
for fiscal Trusts) paid to
year ended trustee for calendar
12/31/95 year 12/31/95
<S> <C> <C>
Theodore H. Emmerich $ 5,500 $23,250
Richard A. Rankin $ 5,000 $22,000
Jerome E. Schnee $ 5,500 $23,250
Daniel J. Castellini $ 5,500 $25,000
</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-McDonald 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 December 31,
1995, the amount of $10,069 was payable by the Trust to the beneficiary of a
former trustee who is deceased and as of December 31, 1995, the amount of
$45,076 was payable to that beneficiary by the fund complex.
DESCRIPTION OF THE TRUST
The Trust is a diversified, open-end management investment company
organized under the laws of the State of Ohio by a Declaration of Trust dated
June 3, 1987, which was amended on August 20, 1987. The Declaration of Trust
provides for an unlimited number of full and fractional shares of beneficial
interest, without 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 Gradison - McDonald Government Income Fund. Upon issuance and
sale in accordance with the terms set forth in the prospectus, each share will
be fully paid and nonassessable. Shares have no preemptive, subscription or
conversion rights and are redeemable as set forth under "How to Redeem Shares."
Holders of shares 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 if they choose
to do so, in which event the holders 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
19
<PAGE> 34
by the shareholders. Shareholders' meetings will be held only when required
pursuant to the Declaration of Trust or the Investment Company Act of 1940, and
when called by the Fund or shareholders pursuant to the Declaration of Trust.
Pursuant to the Declaration of Trust, shareholders of record of not less than a
majority of the outstanding shares of the Fund may remove a Trustee through a
declaration in writing or by vote cast in person or by proxy at a meeting called
for that purpose. The Trustees are required to call a meeting of shareholders
for the purpose of voting upon the questions of removal of any Trustee when
requested in writing to do so by shareholders of record of not less than 10
percent of the Fund's outstanding shares. The Fund or any Series may be
terminated by a vote of a majority of the Trustees. Whenever the approval of a
majority of the outstanding shares of a Fund is required in connection with
shareholder approval of the Investment Advisory Agreement, the Master
Distribution 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 assets of the Fund received upon the issuance of the shares of the
Fund and all income, earnings, profits and proceeds thereof, subject only to the
rights of creditors, are especially allocated to the Fund and constitute the
underlying assets of the Fund. The underlying assets of the Fund are segregated
on the books of account and are to be charged with the liabilities in respect to
the Fund and with a share of the general liabilities of the Trust. If more than
one series was authorized by the Trust and one series were unable to meet its
obligations, the assets of the other series(s) would be available to creditors
for that purpose, in which case the assets of the other series(s) could be used
to meet liabilities which are not otherwise chargeable to it. In the event of
the termination and liquidation of the Fund, the holders of the shares of any
series are entitled to receive, as a class, the underlying assets of the related
series available for distribution to shareholders.
The Trust is currently operating, and intends to continue to operate, in
compliance with the Ohio law relating to business trusts. Under Ohio law, the
shareholders of a complying business trust have no liability to third persons
for obligations of the Fund, which are to be satisfied solely from the Fund's
property. The Declaration of Trust provides that no Trustee, officer or agent of
the Fund 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 matters as to which he
did not act in good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the Fund, or
20
<PAGE> 35
(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 purchase or
sell securities from or to Star Bank. The Fund acts as its own transfer agent
and dividend disbursing agent.
ACCOUNTANT
Arthur Andersen LLP, 425 Walnut Street, Cincinnati, Ohio is the
independent public accountant of the Trust.
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP acts as legal counsel to the Trust.
21
<PAGE> 36
Cover Page
GOVERNMENT INCOME
FUND
GRADISON - McDONALD
[Graphic of table with wedding gifts on a table including text "Your Future
Starts Today]
A FUND INVESTING IN U.S. GOVERNMENT SECURITIES
22
<PAGE> 37
INSIDE COVER PAGE
FAMILY OF MUTUAL FUNDS
GOVERNMENT
INCOME
INTERMEDIATE OHIO TAX-FREE
MUNICIPAL INCOME
INTERNATIONAL ESTABLISHED
VALUE
MONEY MARKET OPPORTUNITY
VALUE
GROWTH
INCOME
23
<PAGE> 38
PAGE 1
[Graphic of portion of previous graphic showing table and "Your Future Starts
Today.]
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 college education,
or planning for retirement. Hesitate and
time will pass you by.
Increasingly, MUTUAL FUNDS are the
PREFERRED VEHICLE for starting and building
and investment program.
And today, GRADISON-McDONALD is a
preferred name in mutual funds
for a GROWING number of investors.
1-800-869-5999 [Call for information logo]
24
<PAGE> 39
PAGE 2
GOVERNMENT INCOME
FUND
GRADISON-McDONALD GOVERNMENT INCOME FUND SEEKS TO PROVIDE HIGH CURRENT INCOME
CONSISTENT WITH A HIGH DEGREE OF SAFETY BY INVESTING IN SECURITIES ISSUED BY THE
U.S. GOVERNMENT, AS WELL AS FEDERAL AGENCIES. THE FUND IS PROFESSIONALLY MANAGED
BY EXPERIENCED GRADISON - McDONALD PORTFOLIO MANAGERS.
HIGHER YIELDS
Historically, intermediate to longer-term U.S. government securities have
produced higher yields than either money market funds or certificates of
deposit. However, money market fund share prices are generally stable and bank
certificates of deposit are backed by the FDIC while the value of U.S.
Government securities and Fund shares will vary with market conditions and Fund
shares are not insured.
CHART
YIELDS -- GOV'T BONDS VS. MONEY MARKET FUNDS & CD'S
A yield comparison line chart comparing the yields of money market funds,
6-month cd's, 10 yr. Govt. Bonds and 30 yr. Govt. Bonds from 1983-1993.
THE INDICES (SECURITIES) IN THE CHART ABOVE DO NOT REFLECT THE FUND'S ACTUAL
PORTFOLIO, COMPOSITION, OR THE FEES AND EXPENSES ASSOCIATED WITH INVESTING IN
THE FUND. THE CHART IS NOT INTENDED TO IMPLY FUTURE PERFORMANCE OF THESE
INVESTMENTS OR THE FUND. PERFORMANCE FIGURES OF THE FUND, WHICH BEGAN OPERATIONS
ON 9/16/87 ARE AVAILABLE UPON REQUEST FROM GRADISON-McDONALD. THE FIGURES IN THE
CHART REPRESENT YEAR-END YIELDS AND DO NOT REFLECT CHANGES IN PRINCIPAL VALUES
OF THE SECURITIES SHOWN.
25
<PAGE> 40
PAGE 3
[Graphic of crystal glasses and rings on table.]
THE REWARDS OF COMPOUNDING
Gradison-McDonald Government Income Fund pays a dividend each month which can be
paid directly to you or reinvested to purchase additional shares of the Fund.
The following chart illustrates the growth of a $10,000 investment at various
assumed, dividend returns when dividends are reinvested.
CHART - A LINE CHART SHOWING A $10,000 INVESTMENT FROM 1984 - 1993 ASSUMING A 5%
YIELD, 6% YIELD AND 7% YIELD AND REINVESTED DIVIDENDS.
The accompanying fixed-rate illustration assumes no change in the value of
principal and is not a projection of investment results of the Fund.
STABILITY
While the Gradison-McDonald Government Income Fund produces monthly income, it
is managed with an emphasis on total return. Consequently, the Fund has had a
track record of maintaining relative price stability since its inception in
1987. There can, of course, be no assurance of the future performance of the
Fund.
UNDERLYING SAFETY
Securities issued by the U.S. Government are backed by the full faith and credit
of the United States as to the timely payment of principal and interest and are
among the safest of all investments. However, government backing of individual
portfolio holdings does not guarantee the value of Fund shares, which will
fluctuate. The fund also enters into repurchase agreements for government
securities and engages to a limited extent in the writing of covered call
options. The use of options involves possible risks.
1-800-869-5999 [Call for information logo]
26
<PAGE> 41
PAGE 4
PROFESSIONAL MANAGEMENT
Gradison-McDonald Government Income Fund is actively managed by experienced
fixed income professionals who are aware of the fluctuations in value that can
occur within the large universe of government securities. This active,
professional management helps the Fund attempt to take advantage of changes in
market conditions.
LOW MINIMUM INVESTMENT
The Gradison-McDonald Government Income Fund has a low minimum initial
investment of $1,000. Additional investments can be made for as little as $50.
MONTHLY PAYMENT & REINVESTMENT
Dividends are paid monthly. You may choose to receive or have direct deposit of
a check or elect to have your monthly dividends automatically reinvested in the
Fund.
EXCHANGES
You can move money from one Gradison - McDonald fund to another at any time. The
Gradison-McDonald funds currently include:
Opportunity Value Fund
Established Value Fund
U.S. Government Reserves
Ohio Tax-Free Income Fund
Intermediate Municipal Income Fund
Gradison - McDonald funds planned for 1995 by prospectus only include:
Growth & Income Fund
International Fund
[Graphic of two rings]
ACCESS
You can redeem shares on any business day at their current net asset value.
27
<PAGE> 42
INSIDE BACK COVER
A TRUSTED NAME
Gradison-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 [Call for information logo]
28
<PAGE> 43
BACK COVER
[Graphic of portable phone and envelopes]
To find out more about the
GRADISON-McDONALD
GOVERNMENT INCOME FUND
or other funds in the family
CALL
1-800-869-5999
OR WRITE
GRADISON-McDONALD MUTUAL FUNDS
580 WALNUT STREET
CINCINNATI, OHIO 45202
GRADISON-McDONALD
You may obtain a prospectus containing complete information about the funds from
a Gradison-McDonald Mutual Funds representative or your Investment Consultant.
Read it carefully before investing. Upon redemption, the value of an investment
in Fund may be worth more or less than its cost.
McDonald & Company Securities, Inc. -- Distributor.
29
<PAGE> 44
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995
<TABLE>
<CAPTION>
PAR MORTGAGE-BACKED SECURITIES - 61.28% COUPON MATURITY VALUE
AMOUNT RATE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 9,755,973 Government National Mortgage Association 6.50% 11/15/08- 12/15/23 $ 9,844,387
21,608,551 Government National Mortgage Association 7.00% 4/15/23- 9/15/23 21,858,400
23,784,708 Government National Mortgage Association 7.50% 4/15/23- 3/15/24 24,461,085
24,620,797 Government National Mortgage Association 8.00% 7/15/02- 4/15/23 25,659,829
3,780,179 Government National Mortgage Association 8.25% 6/15/35 3,953,831
11,908,910 Government National Mortgage Association 8.50% 4/15/21- 12/15/24 12,504,355
2,646,509 Government National Mortgage Association 8.75% 4/15/22 2,791,240
2,530,566 Government National Mortgage Association 9.00% 1/15/20- 8/15/21 2,680,818
4,126,855 Government National Mortgage Association 9.50% 10/15/02- 6/15/21 4,413,719
3,922,562 Government National Mortgage Association 10.00% 5/15/12- 6/15/21 4,317,270
-------------
TOTAL MORTGAGE-BACKED SECURITIES
(COST $111,590,878) 112,484,934
-------------
<CAPTION>
U.S. TREASURY OBLIGATIONS - 35.02%
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10,000,000 U.S. Treasury Notes 5.75% 8/15/03 10,128,125
20,000,000 U.S. Treasury Notes 6.25% 2/15/03 20,881,250
10,000,000 U.S. Treasury Notes 6.38% 1/15/00 10,368,750
10,000,000 U.S. Treasury Bonds 7.63% 2/15/07 10,990,625
10,000,000 U.S. Treasury Bonds 8.75% 11/15/08 11,903,125
-------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $63,062,500) 64,271,875
-------------
<CAPTION>
FACE
AMOUNT REPURCHASE AGREEMENT - 3.70%
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6,800,000 1st National Bank of Chicago, dated 12/29/95, 5.70% 1/02/96 6,800,000
collateral: U.S. Treasury Notes, 6.125% due 9/30/00 -------------
with a market value of $6,947,433 (repurchase
proceeds: $6,804,307)
(COST $6,800,000)
TOTAL INVESTMENTS, AT VALUE (NOTE 1)
(COST $181,453,378) - 100% $ 183,556,809
-------------
</TABLE>
See accompanying notes to financial statements.
Financial Statement Page 1
<PAGE> 45
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C>
ASSETS
Investments in securities, at value (Note 1) (Cost $181,453,378) $183,556,809
Cash 58,768
Receivable for Fund shares sold 270,357
Interest receivable 2,093,719
Prepaid expenses 15,609
------------
TOTAL ASSETS 185,995,262
------------
LIABILITIES
Payable for Fund shares redeemed 409,342
Accrued investment advisory fee (Note 2) 78,378
Other accrued expenses payable to adviser (Note 2) 54,461
Other accrued expenses and liabilities 19,558
------------
TOTAL LIABILITIES 561,739
------------
NET ASSETS $185,433,523
============
Net assets consist of:
Aggregate paid-in capital $188,936,113
Distributions in excess of net investment income (Note 1) (208,516)
Accumulated net realized loss (5,397,505)
Net unrealized appreciation of investments 2,103,431
------------
Net Assets $185,433,523
============
Shares of capital stock outstanding
(no par value - unlimited number of shares authorized) 14,032,850
============
Net asset value and redemption price per share (Note 1) $ 13.21
============
Maximum offering price per share (Note 1) $ 13.48
============
- ---------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
Financial Statement Page 2
<PAGE> 46
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------
<S> <C> <C>
INTEREST INCOME $13,059,273
EXPENSES
Investment advisory fees (Note 2) $ 918,897
Distribution (Note 2) 453,931
Personnel costs (Note 2) 84,384
Data processing fees (Note 2) 49,804
Professional fees 31,884
Trustees' fees (Note 2) 24,856
Registration fees 21,679
Postage and mailing 21,298
Custodian fees 19,093
ICI dues 12,288
Printing 10,089
Other 36,624
-----------
Total expenses 1,684,827
-----------
NET INVESTMENT INCOME 11,374,446
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments (3,220,413)
Net increase in unrealized appreciation of investments 21,179,573
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 17,959,160
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $29,333,606
===========
- ----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
Financial Statement Page 3
<PAGE> 47
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994
------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 11,374,446 $ 14,175,683
Net realized loss on investments (3,220,413) (1,433,534)
Net increase in unrealized
appreciation (depreciation) of investments 21,179,573 (22,746,207)
------------ ------------
Net increase (decrease) in net assets resulting from operations 29,333,606 (10,004,058)
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (11,374,395) (14,639,911)
In excess of net investment income -- (208,567)
Net realized capital gains -- (985,474)
Paid-in capital (Note 1) (495,716) (329,703)
------------ ------------
Decrease in net assets from distributions to shareholders (11,870,111) (16,163,655)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 32,626,195 51,282,890
Net asset value of shares issued as distributions 9,872,425 13,705,725
Payments for Fund shares redeemed (58,557,288) (120,783,811)
------------ ------------
Net decrease in net assets from Fund share transactions (16,058,668) (55,795,196)
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 1,404,827 (81,962,909)
NET ASSETS:
Beginning of year 184,028,696 265,991,605
------------ ------------
End of year (including distributions in excess of net investment
income of $208,516 and $208,567, respectively) (Note 1) $185,433,523 $184,028,696
============ ============
NUMBER OF FUND SHARES:
Sold 2,562,741 4,021,604
Issued as distributions to shareholders 774,962 1,090,718
Redeemed (4,618,139) (9,688,819)
------------ ------------
Net decrease in shares outstanding (1,280,436) (4,576,497)
Outstanding at beginning of year 15,313,286 19,889,783
------------ ------------
Outstanding at end of year 14,032,850 15,313,286
============ ============
</TABLE>
See accompanying notes to financial statements.
Financial Statement Page 4
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Gradison Custodian Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust was created under Ohio law by a Declaration of
Trust dated June 3, 1987; it commenced investment operations and the public
offering of its shares on September 16, 1987. There is currently one series, the
Gradison-McDonald Government Income Fund (the "Fund"). The following is a
summary of the Trust's significant accounting policies:
SECURITIES VALUATION - Portfolio securities for which over-the-counter market
quotations are readily available are valued at the latest bid price. Debt
securities maturing within 60 days are valued at amortized cost, which
approximates market value. Portfolio securities for which market quotations are
not readily available are valued at their fair value as determined in good faith
by the Board of Trustees.
Repurchase agreements, which are collateralized by U.S. Government obligations,
are valued at cost which, together with accrued interest, approximates market.
Collateral for repurchase agreements is held in safekeeping in the customer-only
account of the Fund's custodian. At the time the Fund enters into a repurchase
agreement, the seller agrees that the value of the underlying security,
including accrued interest, will be equal to or exceed the face amount of the
repurchase agreement. In the event of a bankruptcy or other default of the
seller of a repurchase agreement, the Fund could experience both delays in
liquidating the underlying security and losses. These losses would not exceed an
amount equal to the difference between the liquidating value of the underlying
security and the face amount of the repurchase agreement and accrued interest.
To minimize the possibility of loss, the Fund enters into repurchase agreements
only with selected domestic banks and securities dealers which the Fund's
investment adviser believes present minimal credit risk. Refer to the Fund's
Portfolio of Investments for the face amount of repurchase agreements and
repurchase proceeds as of December 31, 1995.
OPTION ACCOUNTING PRINCIPLES - When the Fund writes a call option, an amount
equal to the premium received by the Fund is recorded as an asset and as an
equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the written option. The
current market value of a traded option is the last ask price on the principal
exchange on which such option is traded. If the option expires on its stipulated
expiration date or if the Fund enters into a closing purchase transaction, the
Fund will realize a gain or loss without regard to any unrealized gain or loss
on the underlying security and the liability related to such option will be
extinguished.
The risk in writing a call option on a security which the Fund owns is that the
Fund limits the profit potential from an increase in the market price of the
security. The Fund may also be subject to the additional risk of not being able
to enter into a closing transaction if a liquid secondary market does not exist.
The Fund also writes over-the-counter options where the Fund's ability to
successfully extinguish its obligation is dependent upon the credit standing of
the other party.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME - Securities transactions are
accounted for on the trade date (the date the order to buy or sell is executed).
Interest income is accrued as earned. Gains and losses on sales of investments
are calculated on the identified cost basis for financial reporting and tax
purposes.
SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS - When the Fund
purchases securities on a when-issued or delayed delivery basis, the
transaction may be entered into a month or more before delivery and payment are
made. Such securities are subject to market fluctuation during this period. In
the event that the seller fails to deliver the securities, the Fund could
experience a loss to the extent of any appreciation, or a gain to the extent of
any depreciation, in the price of the securities.
The Fund will maintain, in a segregated account with its custodian, cash or U.S.
Government securities having an aggregate value at least equal to the amount of
such purchase commitments. At December 31, 1995, the Fund had not committed to
the purchase of any when-issued or delayed delivery securities.
Financial Statement Page 5
<PAGE> 49
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995
TAXES - It is the Fund's policy to comply with the provisions of the Internal
Revenue Code available to regulated investment companies. As provided therein,
in any fiscal year in which the Fund so qualifies, and distributes at least 90%
of its taxable net income, the Fund will be relieved of federal income tax on
the income distributed. Accordingly, no provision for income taxes has been
made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends in
each calendar year, at least 98% of its net investment income (earned during the
calendar year) and 98% of its net realized capital gains, if any (earned during
the twelve months ended October 31), plus undistributed amounts from prior
years.
The tax basis of investments is substantially equal to the cost as shown on the
Statement of Assets and Liabilities.
For both financial reporting and tax purposes, gross unrealized appreciation and
gross unrealized depreciation of securities at December 31, 1995 was $3,535,251
and $1,431,820, respectively.
As of December 31, 1995, the Fund had capital loss carryforwards for Federal
income tax purposes of approximately $5,350,000 which may be utilized to offset
net realized capital gains through December 31, 2003 prior to distributing such
gains to shareholders.
FUND SHARE VALUATION - The net asset value per share is computed by dividing the
net asset value of the Fund (total assets less total liabilities) by the number
of shares outstanding. The maximum offering price per share is equal to the net
asset value per share plus 2.04% of net asset value (or 2% of the offering
price). The offering price per share is reduced on sales of $100,000 or more.
The redemption price per share is equal to the net asset value per share.
DISTRIBUTIONS TO SHAREHOLDERS - Dividends arising from net investment income are
declared daily and paid monthly. Distributions of net realized short-term
capital gains, if any, are declared and paid monthly on all shares of record on
established record dates. Net realized long-term capital gains, if any, are
distributed at least annually. During the year ended December 31, 1995, the Fund
made distributions to shareholders of $495,716 from paid-in capital.
RECLASSIFICATION OF CAPITAL ACCOUNTS - The Fund has adopted Statement of
Position 93-2 "Determination, Disclosure, and Financial Statement Presentation
of Income, Capital Gain, and Return of Capital Distributions by Investment
Companies" ("SOP"). The purpose of this SOP is to report the undistributed net
investment income (loss) and accumulated net realized capital gain (loss)
accounts in such a manner as to approximate amounts available for future
distributions (or to offset future realized capital gains) and to achieve
uniformity between generally accepted accounting principles and tax
distributions by investment companies. The SOP also requires that differences in
the recognition or classification of income between the presentation of
generally accepted accounting principles and tax rules which result in temporary
overdistributions for financial statement purposes are classified as
distributions in excess of net investment income or accumulated net realized
gains.
NOTE 2 - TRANSACTIONS WITH AFFILIATES
The Fund's investments are managed, subject to the general supervision and
control of the Fund's Board of Trustees, by the Gradison Division of McDonald &
Company Securities, Inc. (Gradison), 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 Fund pays Gradison a fee
computed and accrued daily and paid monthly based upon the Fund's daily net
assets at the annual rate of .50%.
Financial Statement Page 6
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995
Under the terms of the Agreement, the Fund reimburses Gradison for the cost of
furnishing personnel to perform shareholder and certain other services for the
Fund. The Agreement also provides that Gradison bear the costs of salaries and
related expenses of executive officers of the Fund who are necessary for the
management and operations of the Fund. In addition, Gradison bears the costs of
preparing, printing and mailing sales literature and other advertising
materials, and compensates the Fund's trustees who are affiliated with Gradison.
All expenses not specifically assumed by Gradison are borne by the Fund.
Under the terms of a Data Processing Agreement between the Trust and Gradison,
the Fund pays Gradison a monthly fee at an annual rate of $8.25 per shareholder
non-zero balance account for data processing services provided to the Fund.
In accordance with the terms of a Distribution Service Plan adopted under Rule
12b-1 of the Investment Company Act of 1940, the Fund pays Gradison a
distirbution service fee at an annual rate of .25% of average daily net assets.
During the year ended December 31, 1995, Gradison received sales charges
aggregating $175,972 on sales of shares of the Fund.
The officers of the Trust are also officers of McDonald & Company Securities,
Inc.
Each trustee of the Trust who is not affiliated with Gradison receives fees from
the Trust for services as a trustee. The amounts of such fees for each trustee
are as follows: (a) an annual fee of $3,500 payable in quarterly installments
for service during each fiscal quarter and (b) $500 for each Board of Trustees
or committee meeting attended.
NOTE 3 - SUMMARY OF SECURITIES TRANSACTIONS
For the year ended December 31, 1995, purchases and proceeds from the sale of
securities, excluding short-term securities, amounted to $28,313,101 and
$46,176,735, respectively. There were no transactions in written options on U.S.
Treasury Notes and Bonds for the year ended December 31, 1995.
NOTE 4 - SHORT-TERM BORROWINGS
The Fund has available a Line of Credit Promissory Note (the "Note") from Star
Bank (the "Bank"), the Fund's custodian, whereby borrowings may not exceed
either $15,000,000 (in accordance with the Note), or 10% of total assets (in
accordance with the Fund's investment restrictions).
Information regarding borrowings on the Note by the Fund during the year ended
December 31, 1995 is as follows:
<TABLE>
<S> <C>
Balance outstanding at December 31, 1995 $ 0
==========
Maximum amount outstanding during the year $9,174,000
==========
Average amount outstanding during the year $ 671,756
==========
Weighted average interest rate during the year 6.24%
==========
Interest expense on borrowings during the year $ 41,927
==========
</TABLE>
The average amount outstanding during the year was calculated by aggregating
borrowings at the end of each day and dividing by the total number of days in
the year. The weighted average interest rate during the year was calculated by
dividing the interest on borrowings during the year by the average amount of
borrowings outstanding during the year.
Financial Statement Page 7
<PAGE> 51
[ARTHUR ANDERSEN & CO, SC LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of the
Gradison Custodian Trust:
We have audited the accompanying statement of assets and liabilities of the
Gradison-McDonald Government Income Fund of the Gradison Custodian Trust (an
Ohio business trust), including the portfolio of investments, as of December 31,
1995, and the related statement of operations for the year then ended, the
statements of changes in net assets for the two years then ended and the
financial highlights for the four years 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 upon our audits. The financial highlights for the
year ended December 31, 1991, of the Gradison-McDonald Government Income Fund of
the Gradison Custodian Trust, was audited by other auditors whose report dated
January 16, 1992, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and broker. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Gradison-McDonald Government Income Fund of the Gradison Custodian Trust as of
December 31, 1995, 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 the four years then ended, in conformity with generally accepted
accounting principles.
/s/ Arthur Anderson LLP
Cincinnati, Ohio,
February 2, 1996
Financial Statement Page 8
<PAGE> 52
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a)(1) Financial Statements (included in Prospectus)
Selected Per Share Data and Ratios
(a)(2) Financial Statements (included in Statement of Additional
Information)
Portfolio of Investments at December 31, 1995
Statement of Assets and Liabilities at December 31, 1995
Statement of Operations for the year ended December 31, 1995
Statement of Changes in Net Assets for the two years ended
December 31, 1995 and December 31, 1994
Notes to Financial Statements
Report of Independent Accountants
(b) Exhibits
( 1)(a) Registrant's Declaration of Trust, as amended.**
(b) Amendment dated October 4, 1991 to Registrant's
Declaration
Trust (Amending Paragraph 2.6).****
( 2)(a) Registrant's By-Laws.*
(b) Amendment to Registrant's By-Laws dated July 16, 1991
(Amending Section 3.1).****
( 3) None.
( 4) None.
( 5) Investment Advisory Agreement dated October 4, 1991.****
( 6)(a) Master Distribution Agreement dated October 4, 1991.****
(b) Form of Dealer's Agreement.*
( 7) None.
( 8) Custodian Agreement.**
( 9)(a) Data Processing Services Agreement.**
(b) Amendment to Data Processing Agreement.***
(10) Opinion of Counsel is filed yearly with Registrant's
Rule 24f-2 Notice and was most recently filed on February 26,
1996.
(11) Consent of Arthur Andersen LLP (included herein).
(12) None.
(13) None
(14) Documents used in establishment of individual retirement
C-1
<PAGE> 53
accounts in conjunction with shares of Registrant.**
(15) Distribution Expense Plan.*
(15)(a) Amendments to Distribution Expense Plan and Master
Distribution Agreement. +
(16)(a) Schedule of Yield and Total Return Computations.****
(16)(b) Powers of Attorney of Bradley E. Turner, Daniel J.
Castellini, Richard Rankin, Theodore Emmerich, Jerome
Schnee, Donald Weston, Michael Link, Patricia Jamieson.
(included herein).
* Incorporated by reference to Exhibits 2, 6b, and 15 to Registrant's Form N-1A
Registration Statement No. 33-14949 previously filed with the Securities and
Exchange Commission on June 10, 1987.
** Incorporated by reference to Exhibits 1, 8, 9(a), 13, and 14 to Registrant's
Form N-1A Registration Statement No. 33-14949 previously filed with the
Securities and Exchange Commission on September 9, 1987.
*** Incorporated by reference to Exhibit 9 to Registrant's Form N-1A
Registration Statement No. 33-14949 previously filed with the Securities and
Exchange Commission on April 26, 1990
**** Incorporated by reference to Exhibits 2(b), 5, and 6 to
Registrant's Form N-1A Registration Statement No. 33-14949 previously
filed with the Securities and Exchange Commission on February 28, 1992
+ Incorporated by reference to Exhibit 15(a) to Registrant's Form N-1A
Registration Statement No. 33-14949 previously filed with the Securities and
Exchange Commission on April 29, 1994.
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record Holders
Title of Class as of April 19, 1996
<S> <C>
Shares of beneficial interest, without
par value, of the Registrant 5,301
</TABLE>
C-2
<PAGE> 54
Item 28. Business and Other Connections of Investment Adviser
Reference is made to the captions "Management of the Trust" on page 10 of the
Prospectus that is Part A of this Registration Statement and "Trustees and
Officers of the Trust" on page 18 of the Statement of Additional Information
that is Part B of this Registration Statement and to Item 29(b) of this Part C
of the Registration Statement.
Item 29. Principal Underwriters
(a) The principal underwriter of the Registrant is McDonald & Company
Securities, Inc., which also serves as the principal underwriter and
investment adviser for Gradison-McDonald Cash Reserves Trust, Gradison
Growth Trust, and Gradison-McDonald Municipal Custodian Trust.
(b) Information pertaining to its directors and officers is contained in
the following table.
<TABLE>
<CAPTION>
Positions
Positions Business with
Name With Underwriter Address Registrant
- ---- ---------------- -------- ----------
<S> <C> <C> <C>
Daniel F. Austin Senior Managing 260 East Brown Street None
Director Birmingham, MI 48009
Jack N. Aydin Managing Director One Evertrust Plaza None
Director Jersey City, NJ 07302
Eugene H. Bosart, Managing Director 260 East Brown Street None
III Director Birmingham, MI 48009
Thomas G. Clevidence Managing Director 800 Superior Avenue None
Director Cleveland, OH 44114
Robert T. Clutterbuck Director, President, 800 Superior Avenue None
Chief Operating Cleveland, OH 44114
Officer, Chief
Financial Officer
Dennis J. Donnelly Senior Managing 800 Superior Avenue None
Director Cleveland, OH 44114
</TABLE>
C-3
<PAGE> 55
<TABLE>
<S> <C> <C> <C>
David W. Ellis, III Director, and Senior 580 Walnut Street None
Vice President Cincinnati, OH 45202
(Gradison Division)
David W. Knall Managing Director One American Square None
Director Indianapolis, IN 46282
Thomas McDonald Managing Director 800 Superior Avenue None
Director Cleveland, OH 44114
John F. O'Brien Senior Managing 800 Superior Avenue None
Director Cleveland, OH 44114
Thomas M. O'Donnell Director 800 Superior Avenue None
Cleveland, OH 44114
Lawrence T. Oakar Director and 800 Superior Avenue None
Senior Vice Cleveland, OH 44114
President
James C. Redinger Senior Managing 800 Superior Avenue None
Director Cleveland, OH 44114
William B. Summers,
Jr. Director, President, 800 Superior Avenue None
and Chief Executive Cleveland, OH 44114
Officer
David D. Sutcliffe Senior Vice President 800 Superior Avenue None
Director Cleveland, OH 44114
Francis S. Tobias Managing Director 800 Superior Avenue None
Director Cleveland, OH 44114
Bradley E. Turner Managing Director 580 Walnut Street
Director Cincinnati, Ohio 45202 President
</TABLE>
C-4
<PAGE> 56
Item 30. LOCATION OF ACCOUNTS AND RECORDS
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 to the aforesaid Rules.
<TABLE>
<CAPTION>
Rule In Possession of:
<S> <C>
31a-1(b)(1), 31a-1(b)(2)(i)(a)-(f), Star Bank, N.A., Star Bank Center,
31a-1(b)(2)(ii), 31a-1(b)(5) and Cincinnati, Ohio 45202.
31a-1(b)(8)
</TABLE>
Item 31. MANAGEMENT SERVICES
Not applicable.
Item 32. UNDERTAKINGS
The Registrant hereby undertakes to provide, without cost, a copy of its most
recent annual report upon request.
Insofar as indemnification for liability arising under the Securities Act of
1933 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> 57
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 26th day of
April 1996.
Registrant hereby certifies that this Amendment to Registration Statement
meets all of the requirements for effectiveness pursuant to paragraph (b) of
Rule 485.
GRADISON CUSTODIAN TRUST
By /S/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.
<TABLE>
<CAPTION>
Signature Title
<S> <C> <C>
*DONALD E. WESTON Chairman of the Board April 26, 1996
(Principal Executive Officer)
*BRADLEY E. TURNER President "
*PATRICIA JAMIESON Secretary and Treasurer "
(Principal Financial
and Accounting Officer)
*DANIEL J. CASTELLINI Trustee "
*RICHARD A. RANKIN Trustee "
*JEROME E. SCHNEE Trustee "
*THEODORE H. EMMERICH Trustee "
*By /S/RICHARD M. WACHTERMAN
Richard M. Wachterman, Attorney-in-fact
April 26, 1996
</TABLE>
S-1
<PAGE> 58
Exhibit List
Exhibit Number Description
11 Consent of Arthur Andersen LLP
16(b) Power of Attorney of Powers of Attorney of Bradley E.
Turner, Daniel J. Castellini, Richard Rankin, Theodore
Emmerich, Jerome Schnee, Donald Weston, Michael Link,
Patricia Jamieson.
<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. 13 of our report dated February 2, 1996 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,
April 25, 1996
<PAGE> 1
Exhibit 16(b)
GRADISON CUSTODIAN TRUST
Power of Attorney of Trustees and Officers
The undersigned, an officer or Trustee, or both an officer and Trustee, of
Gradison Custodian Trust, an Ohio business trust (the "Trust"), which has filed
with the Securities and Exchange Commission under the provisions of the
Securities Act of 1933, as amended, and the provisions of the Investment Company
Act of 1940, as amended, a Registration Statement on Form N1 or N-1A (which
together with any and all subsequent amendments, including post-effective
amendments, thereto is hereinafter called the "Registration Statement") for the
principal purpose of registering the public offering by the Trust of shares of
beneficial interest without par value of its series, hereby constitutes and
appoints Paul J. Weston, Richard M. Wachterman, Donald E. Weston and Robert
Zutz, and each of them, with full power and substitution or resubstitution, the
attorney or attorneys to execute and file on behalf of the undersigned in his
capacity as an officer and/or trustee of the trust, the Registration Statement
as aforesaid, and any and all exhibits, applications and other documents to be
filed with the Securities and Exchange Commission pertaining thereto, with full
power and authority to do and perform any and all acts and things whatsoever
required or necessary to be done in the premises, as fully to all intents and
purposes as he could do if personally present, hereby ratifying and approving
the acts of said attorneys or any of them and any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
23rd day of May, 1995.
/S/ Patricia J. Jamieson
------------------------
<PAGE> 2
GRADISON CUSTODIAN TRUST
Power of Attorney of Trustees and Officers
The undersigned, an officer or Trustee, or both an officer and Trustee, of
Gradison Custodian Trust, an Ohio business trust (the "Trust"), which has filed
with the Securities and Exchange Commission under the provisions of the
Securities Act of 1933, as amended, and the provisions of the Investment Company
Act of 1940, as amended, a Registration Statement on Form N1 or N-1A (which
together with any and all subsequent amendments, including post-effective
amendments, thereto is hereinafter called the "Registration Statement") for the
principal purpose of registering the public offering by the Trust of shares of
beneficial interest without par value of its series, hereby constitutes and
appoints Paul J. Weston, Richard M. Wachterman, Donald E. Weston and Robert
Zutz, and each of them, with full power and substitution or resubstitution, the
attorney or attorneys to execute and file on behalf of the undersigned in his
capacity as an officer and/or trustee of the trust, the Registration Statement
as aforesaid, and any and all exhibits, applications and other documents to be
filed with the Securities and Exchange Commission pertaining thereto, with full
power and authority to do and perform any and all acts and things whatsoever
required or necessary to be done in the premises, as fully to all intents and
purposes as he could do if personally present, hereby ratifying and approving
the acts of said attorneys or any of them and any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
31st day of October, 1994.
/S/ Daniel J. Castellini
------------------------
<PAGE> 3
GRADISON CUSTODIAN TRUST
Power of Attorney of Trustees and Officers
The undersigned, an officer or Trustee, or both an officer and Trustee, of
Gradison Custodian Trust, an Ohio business trust (the "Trust"), which has filed
with the Securities and Exchange Commission under the provisions of the
Securities Act of 1933, as amended, and the provisions of the Investment Company
Act of 1940, as amended, a Registration Statement on Form N1 or N-1A (which
together with any and all subsequent amendments, including post-effective
amendments, thereto is hereinafter called the "Registration Statement") for the
principal purpose of registering the public offering by the Trust of shares of
beneficial interest without par value of its series, hereby constitutes and
appoints Paul J. Weston, Richard M. Wachterman, Donald E. Weston and Robert
Zutz, and each of them, with full power and substitution or resubstitution, the
attorney or attorneys to execute and file on behalf of the undersigned in his
capacity as an officer and/or trustee of the trust, the Registration Statement
as aforesaid, and any and all exhibits, applications and other documents to be
filed with the Securities and Exchange Commission pertaining thereto, with full
power and authority to do and perform any and all acts and things whatsoever
required or necessary to be done in the premises, as fully to all intents and
purposes as he could do if personally present, hereby ratifying and approving
the acts of said attorneys or any of them and any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
7th day of November, 1994.
/S/ Bradley E. Turner
------------------------
<PAGE> 4
GRADISON CUSTODIAN TRUST
Power of Attorney of Trustees and Officers
The undersigned, an officer or Trustee, or both an officer and Trustee, of
Gradison Custodian Trust, an Ohio business trust (the "Trust"), which has filed
with the Securities and Exchange Commission under the provisions of the
Securities Act of 1933, as amended, and the provisions of the Investment Company
Act of 1940, as amended, a Registration Statement on Form N1 or N-1A (which
together with any and all subsequent amendments, including post-effective
amendments, thereto is hereinafter called the "Registration Statement") for the
principal purpose of registering the public offering by the Trust of shares of
beneficial interest without par value of its series, hereby constitutes and
appoints Paul J. Weston, Donald E. Weston, Michael J. Link, David W. Ellis,
Richard M. Wachterman, and Jeffrey J. Margulies, and each of them, with full
power and substitution or resubstitution, the attorney or attorneys to execute
and file on behalf of the undersigned in his capacity as an officer and/or
trustee of the trust, the Registration Statement as aforesaid, and any and all
exhibits, applications and other documents to be filed with the Securities and
Exchange Commission pertaining thereto, with full power and authority to do and
perform any and all acts and things whatsoever required or necessary to be done
in the premises, as fully to all intents and purposes as he could do if
personally present, hereby ratifying and approving the acts of said attorneys or
any of them and any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
11th day of February, 1992.
/S/ Jerome E. Schnee
------------------------
<PAGE> 5
GRADISON CUSTODIAN TRUST
Power of Attorney of Trustees and Officers
The undersigned, an officer or Trustee, or both an officer and Trustee, of
Gradison Custodian Trust, an Ohio business trust (the "Trust"), which has filed
with the Securities and Exchange Commission under the provisions of the
Securities Act of 1933, as amended, and the provisions of the Investment Company
Act of 1940, as amended, a Registration Statement on Form N1 or N-1A (which
together with any and all subsequent amendments, including post-effective
amendments, thereto is hereinafter called the "Registration Statement") for the
principal purpose of registering the public offering by the Trust of shares of
beneficial interest without par value of its series, hereby constitutes and
appoints Paul J. Weston, Donald E. Weston, Michael J. Link, David W. Ellis,
Richard M. Wachterman, and Jeffrey J. Margulies, and each of them, with full
power and substitution or resubstitution, the attorney or attorneys to execute
and file on behalf of the undersigned in his capacity as an officer and/or
trustee of the trust, the Registration Statement as aforesaid, and any and all
exhibits, applications and other documents to be filed with the Securities and
Exchange Commission pertaining thereto, with full power and authority to do and
perform any and all acts and things whatsoever required or necessary to be done
in the premises, as fully to all intents and purposes as he could do if
personally present, hereby ratifying and approving the acts of said attorneys or
any of them and any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
13th day of February, 1992.
/S/ Theodore H. Emmerich
-------------------------
<PAGE> 6
GRADISON CUSTODIAN TRUST
Power of Attorney of Trustees and Officers
The undersigned, an officer or Trustee, or both an officer and Trustee, of
Gradison Custodian Trust, an Ohio business trust (the "Trust"), which has filed
with the Securities and Exchange Commission under the provisions of the
Securities Act of 1933, as amended, and the provisions of the Investment Company
Act of 1940, as amended, a Registration Statement on Form N1 or N-1A (which
together with any and all subsequent amendments, including post-effective
amendments, thereto is hereinafter called the "Registration Statement") for the
principal purpose of registering the public offering by the Trust of shares of
beneficial interest without par value of its series, hereby constitutes and
appoints Paul J. Weston, Donald E. Weston, Michael J. Link, David W. Ellis,
Richard M. Wachterman, and Jeffrey J. Margulies, and each of them, with full
power and substitution or resubstitution, the attorney or attorneys to execute
and file on behalf of the undersigned in his capacity as an officer and/or
trustee of the trust, the Registration Statement as aforesaid, and any and all
exhibits, applications and other documents to be filed with the Securities and
Exchange Commission pertaining thereto, with full power and authority to do and
perform any and all acts and things whatsoever required or necessary to be done
in the premises, as fully to all intents and purposes as he could do if
personally present, hereby ratifying and approving the acts of said attorneys or
any of them and any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
2nd day of April, 1993.
/S/ Michael J. Link
-------------------
<PAGE> 7
GRADISON CUSTODIAN TRUST
Power of Attorney of Trustees and Officers
The undersigned, an officer or Trustee, or both an officer and Trustee, of
Gradison Custodian Trust, an Ohio business trust (the "Trust"), which has filed
with the Securities and Exchange Commission under the provisions of the
Securities Act of 1933, as amended, and the provisions of the Investment Company
Act of 1940, as amended, a Registration Statement on Form N1 or N-1A (which
together with any and all subsequent amendments, including post-effective
amendments, thereto is hereinafter called the "Registration Statement") for the
principal purpose of registering the public offering by the Trust of shares of
beneficial interest without par value of its series, hereby constitutes and
appoints Paul J. Weston, Donald E. Weston, Michael J. Link, David W. Ellis,
Richard M. Wachterman, and Jeffrey J. Margulies, and each of them, with full
power and substitution or resubstitution, the attorney or attorneys to execute
and file on behalf of the undersigned in his capacity as an officer and/or
trustee of the trust, the Registration Statement as aforesaid, and any and all
exhibits, applications and other documents to be filed with the Securities and
Exchange Commission pertaining thereto, with full power and authority to do and
perform any and all acts and things whatsoever required or necessary to be done
in the premises, as fully to all intents and purposes as he could do if
personally present, hereby ratifying and approving the acts of said attorneys or
any of them and any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
21st day of May, 1992.
/S/ Richard A. Rankin
---------------------
<PAGE> 8
GRADISON CUSTODIAN TRUST
Power of Attorney of Trustees and Officers
The undersigned, an officer or Trustee, or both an officer and Trustee, of
Gradison Custodian Trust, an Ohio business trust (the "Trust"), which has filed
with the Securities and Exchange Commission under the provisions of the
Securities Act of 1933, as amended, and the provisions of the Investment Company
Act of 1940, as amended, a Registration Statement on Form N1 or N-1A (which
together with any and all subsequent amendments, including post-effective
amendments, thereto is hereinafter called the "Registration Statement") for the
principal purpose of registering the public offering by the Trust of shares of
beneficial interest without par value of its series, hereby constitutes and
appoints Paul J. Weston, Donald E. Weston, Michael J. Link, David W. Ellis,
Richard M. Wachterman, and Jeffrey J. Margulies, and each of them, with full
power and substitution or resubstitution, the attorney or attorneys to execute
and file on behalf of the undersigned in his capacity as an officer and/or
trustee of the trust, the Registration Statement as aforesaid, and any and all
exhibits, applications and other documents to be filed with the Securities and
Exchange Commission pertaining thereto, with full power and authority to do and
perform any and all acts and things whatsoever required or necessary to be done
in the premises, as fully to all intents and purposes as he could do if
personally present, hereby ratifying and approving the acts of said attorneys or
any of them and any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
10th day of February, 1992.
/S/ Donald E. Weston
--------------------
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000815913
<NAME> GRADISON CUSTODIAN TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 181453378
<INVESTMENTS-AT-VALUE> 183556809
<RECEIVABLES> 2364076
<ASSETS-OTHER> 74377
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 185995262
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 561739
<TOTAL-LIABILITIES> 561739
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 188936113
<SHARES-COMMON-STOCK> 14032850
<SHARES-COMMON-PRIOR> 15313286
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 208516
<ACCUMULATED-NET-GAINS> (5397505)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2103431
<NET-ASSETS> 185433523
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13059273
<OTHER-INCOME> 0
<EXPENSES-NET> 1684827
<NET-INVESTMENT-INCOME> 11374446
<REALIZED-GAINS-CURRENT> (3220413)
<APPREC-INCREASE-CURRENT> 21179573
<NET-CHANGE-FROM-OPS> 29333606
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11374395
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 495716
<NUMBER-OF-SHARES-SOLD> 2562741
<NUMBER-OF-SHARES-REDEEMED> 4618139
<SHARES-REINVESTED> 774962
<NET-CHANGE-IN-ASSETS> 1404827
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2177092)
<OVERDISTRIB-NII-PRIOR> 208567
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 918897
<INTEREST-EXPENSE> 41927
<GROSS-EXPENSE> 1684827
<AVERAGE-NET-ASSETS> 183779437
<PER-SHARE-NAV-BEGIN> 12.018
<PER-SHARE-NII> 0.786
<PER-SHARE-GAIN-APPREC> 1.232
<PER-SHARE-DIVIDEND> 0.787
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.035
<PER-SHARE-NAV-END> 13.214
<EXPENSE-RATIO> 0.92
<AVG-DEBT-OUTSTANDING> 671756
<AVG-DEBT-PER-SHARE> 0.046
</TABLE>
