<PAGE> 1
1933 Act Registration No. 33-14949
1940 Act File No. 811-5198
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 16 FN1 (X)
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 15
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G R A D I S O N C U S T O D I A N T R U S T
Exact Name of Registrant as Specified in Declaration of Trust)
580 Walnut Street, Cincinnati, Ohio 45202
Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (513) 579-5700
Copy to:
Bradley E. Turner RICHARD M. WACHTERMAN
Gradison Division of McDonald & Gradison Division of McDonald &
Securities, Inc. Company Securities, Inc. Company
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, l998, pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on ___________ pursuant to paragraph (a) of rule 485
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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
Form N-1A
Item Number Location in Prospectus
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,
Cover
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 .................... *
.................................................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
<PAGE> 3
GRADISON GOVERNMENT INCOME FUND
Prospectus dated May 1, 1998
Gradison 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 invests 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, 1998, has been filed with the
Securities and Exchange Commission ("SEC") 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, and may be accessed along with other related materials at the
internet web site of the SEC (http://www.sec.gov).
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.
<TABLE>
<CAPTION>
EXPENSE SUMMARY
Shareholder Transaction Expenses
Maximum sales load on purchases None
- ----------------------------------------------------------------------------
<S> <C>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees .50%
12b-1 Fees .25%
Other Expenses .15%
------
Total Fund Operating Expenses .90%
======
</TABLE>
- ----------------------------------------------------------------------------
Example: You would pay the following expenses on a $1,000 investment assuming a
5% annual return* and redemption at the end of each period:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$9 $29 $50 $111
- --------------------------------------------------------------------------------
</TABLE>
*The 5% annual return is a standardized rate prescribed for use by all mutual
funds for the purpose of this example and does not represent the past or future
return of the Fund.
<PAGE> 4
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly and
indirectly. (For more information about Fund expenses, see "Purchases and
Redemptions" and "Management of the Fund.")
The example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
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 unqualified 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. The Fund's Annual
Report to Shareholders contains additional performance information and is
available without charge by request to the telephone numbers listed on the cover
of this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
NET ASSET VALUE AT BEGINNING OF YEAR $12.884 $13.214 $12.018 $13.373 $13.327 $13.553 $12.933 $13.027 $12.654 $12.946
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .775 .778 .786 .755 .749 .856 .947 1.015 1.057 .991
Net realized and unrealized
gain (loss) on investments .256 (.340) 1.232 (1.244) .239 (.050) .785 .061 .481 (.094)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from investment
operations 1.031 .438 2.018 (.489) .988 .806 1.732 1.076 1.538 .897
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.776) (.768) (.787) (.779) (.738) (.859) (.946) (1.026) (1.050) (.990)
In excess of net investment income -- -- -- (.013) -- -- -- -- -- --
From realized capital gains -- -- -- (.053) (.204) (.173) (.166) (.144) (.115) (.199)
From paid-in capital -- -- (.035) (.021) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (.776) (.768) (.822) (.866) (.942) (1.032) (1.112) (1.170) (1.165) (1.189)
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
NET ASSET VALUE AT END OF YEAR $13.139 $12.884 $13.214 $12.018 $13.373 $13.327 $13.553 $12.933 $13.027 $12.654
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (1) 8.36% 3.51% 17.20% (3.69%) 7.52% 6.29% 14.08% 8.79% 12.75% 7.12%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Ratios/Supplemental data:
Net assets at end of year (in millions) $155.1 $162.9 $185.4 $184.0 $266.0 $210.9 $151.8 $78.0 $40.3 $25.3
Ratio of gross expenses to average net
assets (2) .90% .90% .92% -- -- -- -- -- -- --
Ratio of net expenses to average net
assets .90% .90% .92% .90% .90% .94% .99% 1.08% 1.22% 1.25%
Ratio of net investment income to
average net assets (3) 6.04% 6.06% 6.19% 6.03% 5.48% 6.39% 7.33% 8.13% 8.27% 8.12%
Portfolio turnover rate 12% 13% 16% 21% 134% 83% 108% 71% 174% 90%
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<FN>
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) Total return is based upon an initial investment purchased without a sales
charge. The Fund's sales charge was eliminated effective July 7, 1997.
(2) Effective with the fiscal year ended December 31, 1995, this ratio reflects
gross expenses before reduction for earnings credits on cash balances; such
reductions are included in the ratio of net expenses.
(3) For the year ended December 31, 1988, 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 ratio of net expenses to average net assets and net
investment income to average net assets would have been 1.58% and 7.78%,
respectively.
</TABLE>
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 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 will 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. Additionally, mortgage backed securities are subject to
prepayment risk and extension risk (see "Basic Investment Strategy"). 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, 1997, the
average weighted maturity of the Fund's portfolio was 4.4 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 of GNMA
security. GNMA provides its commitment to guarantee timely scheduled 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.
3
<PAGE> 6
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 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 30 year single-family dwelling mortgages at original issue have a
considerably shorter average life of approximately 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 faster
prepayments 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 or trading 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 or
prepayment may result in a loss of the premium. Conversely, rising interest
rates may cause prepayment rates to occur at a slower than expected rate. This
may effectively lengthen the life of a security. Longer term securities
generally fluctuate more widely in response to changes in interest rates than
shorter term securities; this is extension risk.
The Fund may invest in collateralized mortgage obligations (CMOs), including
Real Estate Mortgage Investment Conduit ("REMIC") securities, bonds that are
collateralized by mortgage pass-through securities. Only CMOs issued by GNMA
will be purchased. The bonds issued under a CMO structure are divided into
groups with varying maturities, and the cash flows generated by the mortgages or
mortgage pass-through securities in the collateral pool are used to first pay
interest and then pay principal to the CMO bondholders. Under the CMO structure,
the repayment of principal among the different groups is prioritized in
accordance with the terms of the particular CMO issuance. The "fastest-pay"
group of bonds, as specified in the prospectus for the bond issuance, would
initially receive all principal payments. When that group of bonds is retired,
the next group or groups, in the sequence, as specified in the prospectus,
receive all of the principal payments until all of the groups are retired. Aside
from market risk, the primary risk involved in any mortgage security, such as a
CMO issuance, is its exposure to prepayment risk. In order to provide security,
in addition to the underlying collateral, many CMO issues also include minimum
reinvestment rate and minimum sinking-fund guarantees. Typically, the Fund will
invest in those CMOs that most appropriately reflect its average maturities and
market risk profiles.
The maturity of some classes of CMOs may be very difficult to predict because
any such predictions are highly dependent upon assumptions regarding the
prepayments which the underlying collateral mortgages may experience. Deviations
in the actual prepayments experienced may significantly affect the ultimate
maturity of CMOs, and in such an event, the maturity and risk characteristics of
CMOs purchased by the Fund may be significantly greater or less than intended.
The possibility that rising interest rates may cause prepayments to occur at a
slower than expected rate is known as extension risk. This particular risk may
effectively change a CMO which was considered short or intermediate-term at the
time of purchase into a long-term security. Alternatively, there are certain
classes of CMOs that are by design constructed to have highly predictable
average maturities. Such CMOs will retain their relative predictability over a
broad range of prepayment experience. The Fund expects to control extension risk
by purchasing these specific classes of CMOs which, in the Adviser's opinions,
are reasonably predictable.
4
<PAGE> 7
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), 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), others (such as those of the Federal National Mortgage Association) by
discretionary authority of the U.S. Government to purchase certain obligations
of the agency or instrumentality, and others (such as those issued by the
Federal Farm Credit Bank System) only by the credit of the agency or
instrumentality. 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 invests 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 from the Fund 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 premium
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
5
<PAGE> 8
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 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.
6
<PAGE> 9
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
Thomas M. Seay, Executive Vice President of the Trust, has been primarily
responsible for the day-to-day management of the Fund's portfolio since April
21, 1998. Prior to that he was Vice President and Portfolio Manager for fixed
income assets with Lexington Management Corporation.
PURCHASES 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 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. The
minimum investment required to open an "Education IRA" is $500. 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 net asset value next determined after the Fund receives
your order.
HOW TO REDEEM SHARES
You may redeem shares of the Fund without charge 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. Redemption checks which are uncashed for any
reason, including non-receipt by the shareholder, will not earn interest and may
be reinvested in your account by the Fund. 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 with other immediately available funds.
7
<PAGE> 10
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 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 history.) 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 fund
for shares of any other Gradison 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.
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 Automatic Investment Plan form
from the Fund.
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<PAGE> 11
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. Dividend
checks which are uncashed for any reason, including non-receipt by the
shareholder, will not earn interest and may be reinvested in your account by 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.
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 reinvested in additional
shares at the net asset value of such shares on the date the distributions are
payable. 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 distributions of
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.
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<PAGE> 12
The foregoing is only a summary of some important tax consequences of an
investment in the Fund 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 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, as
amended, 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 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.
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, 1997, McDonald received: a fee of .50% of
average net assets of the Fund as compensation for investment advisory services
provided to the Fund; $53,667 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.
Registered broker-dealers, third party administrators of tax-qualified
retirement plans, and other entities which establish omnibus accounts with the
Fund may provide sub-transfer agency, recordkeeping, or similar services to
participants in the omnibus accounts which reduce or eliminate the need for
identical services to be provided on behalf of the participants by the Fund. In
such cases, the Fund may pay the entity a sub-transfer agency or recordkeeping
fee. Entities receiving such fees may also receive 12b-1 fees described in the
next paragraph.
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.
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<PAGE> 13
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by its investment adviser, sub-advisers and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." Gradison is
taking steps that it believes are reasonably designed to address the Year 2000
Problem with respect to the computer systems that it uses and to obtain
assurances that comparable steps are being taken by the Fund's other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on 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 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
at the beginning of a stated period to the ending redeemable value of the
investment. The Fund may also calculate 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
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 reinvestment 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.
11
<PAGE> 14
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
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 7
Net Asset Value 8
Optional Shareholder Services 8
Distributions 9
Taxes 9
General Information 10
Management of the Fund 10
Individual Retirement
Accounts 11
Performance Calculations 11
- --------------------------------------------------------------------------------
[GRADISON MUTUAL FUNDS LOGO]
580 Walnut Street, Cincinnati, Ohio 45202
(513) 579-5700 (800) 869-5999
12
<PAGE> 15
GRADISON 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, 1998 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, 1998.
<PAGE> 16
- -------------------------------------------------------------------------------
CONTENTS
- -------------------------------------------------------------------------------
Page Location in Prospectus
INVESTMENT POLICIES AND RESTRICTIONS . . . . 3 How the Fund Pursues Its
Objective
PURCHASE OF SHARES . . . . . . . . . . . . . 5 Purchases and Redemptions
REDEMPTION OF SHARES . . . . . . . . . . . . 5 How to Redeem Shares
DAILY DISTRIBUTIONS - ACCOUNTING PRINCIPLES . 6 Distributions
TAXES . . . . . . . . . . . . . . . . . . . . 6 Taxes
NET ASSET VALUE . . . . . . . . . . . . . . . 9 Net Asset Value
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 . . . . . . . . 14
Distribution Service Plan . . . . . . . 15
Data Processing Service Agreement . . . 16
PERFORMANCE CALCULATIONS . . . . . . . . . . 16 Performance Calculations
TRUSTEES AND OFFICERS OF THE TRUST. . . . . . 18
DESCRIPTION OF THE TRUST. . . . . . . . . . . 20 General Information
CUSTODIAN . . . . . . . . . . . . . . . . . . 22
ACCOUNTANT. . . . . . . . . . . . . . . . . . 22
LEGAL COUNSEL . . . . . . . . . . . . . . . . 22
SALES BROCHURE INFORMATION. . . . . . . . . . 23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT AND
FINANCIAL STATEMENTS Following Page 49 Financial Highlights
- -------------------------------------------------------------------------------
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<PAGE> 17
INVESTMENT POLICIES AND RESTRICTIONS
Gradison 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 Fund. (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;
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<PAGE> 18
(5) Purchase or sell real estate. The purchase of securities secured by real
estate which are otherwise allowed by the Fund's investment objective
and other Investment Restrictions shall not be prohibited by this
restriction;
(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.
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<PAGE> 19
If a percentage restriction set forth above is met at the time of
investment, a later movement above the restriction level resulting from a change
in the value of securities held by the Fund will not be considered a violation
of the investment restriction.
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").
REDEMPTION OF SHARES
The Fund may suspend the right of redemption or may delay payment (a)
during any period when the New York Stock Exchange("NYSE")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 by 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.
5
<PAGE> 20
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 $.065 per share, and if the Fund has a reserve of $.01 per
share of undistributed income, the daily distribution might be initially
established at $.07/31 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.
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 return of capital).
TAXES
The Fund has qualified and intends to qualify in the future as a
regulated investment company (RIC") 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
6
<PAGE> 21
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
reinvested in additional shares of the Fund.
Under the Taxpayer Relief Act of 1997 ("Tax Act"), if you redeem shares
of the Fund, different maximum tax rates apply to net capital gains depending on
your holding period and marginal rate of federal income tax (if you are a
noncorporate taxpayer) -- generally, 28% (15% for taxpayers in the 15% marginal
bracket) for gain recognized on capital assets held for more than one year but
not more than 18 months and 20% (10% for taxpayers in the 15% marginal tax
bracket) for gain recognized on capital assets held for more than 18 months. The
Fund, as a regulated investment company (see "Taxes - Federal" in the Statement
of Additional Information), may divide each net capital gains distribution into
a 28% rate gain distribution and a 20% rate gain distribution (in accordance
with the Fund's holding periods for the securities it sold that generated the
distributed gain), in which event you must treat those portions accordingly.
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.
The information regarding capital gain distributions designates the
portions thereof subject to the different maximum rates of tax applicable to
noncorporate taxpayers' net capital gain indicated above.
Your redemption of Fund shares may result in taxable gain or loss to
you. This depends on whether you receive more or less than your adjusted basis
for the shares. An exchange of Fund shares for shares of another fund (see
"Purchases and Redemptions - Exchanges") generally will have similar tax
consequences. In addition, if Fund shares are bought within thirty days before
or after selling other Fund shares at a loss, all or part of that loss may not
be deductible and instead will increase your basis for the newly purchased
shares.
7
<PAGE> 22
To continue to qualify for treatment as a RIC under the Code, the Fund
must distribute to its shareholders each year at least 90% of its investment
company taxable income (consisting generally of net investment income and net
short-term capital gains) ("Distribution Requirement") and must meet several
additional requirements. These requirements include the following: (1) the Fund
must derive at least 90% of its gross income each taxable year from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of securities, or other income (including gains from options)
derived with respect to its business of investing in securities ("Income
Requirement"); and (2) at the close of each quarter of the Fund's taxable year,
(a) at least 50% of the value of its total assets must be represented by cash
and cash items, U.S. Government securities, securities of other RICs and other
securities, with those other securities limited, in respect of any one issuer,
to an amount that does not exceed 5% of the value of the Fund's total assets,
and (b) not more than 25% of the value of its total assets may be invested in
securities other than U.S. Government securities or the securities of other RICs
of any one issuer.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
The Fund will be subject to a nondeductible 4% excise tax to the extent
it fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.
The use of hedging strategies, such as writing (selling) and purchasing
options, involves complex rules that will determine for income tax purposes the
amount, character and timing of recognition of the gains and losses the Fund
realizes in connection therewith. Gains from options derived by the Fund with
respect to its business of investing in securities will qualify as permissible
income under the Income Requirement.
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.
8
<PAGE> 23
The Fund will generally realize capital gain or loss for federal income
tax purposes upon the closing of an option, the expiration of an 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 when the New York Stock exchange is open for business. The Fund does not
calculate its net asset value on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day Observed, Independence Day, Labor
Day, Thanksgiving Day, Christmas Day, and Martin Luther King, Jr. 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.
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
9
<PAGE> 24
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, 1997, 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 judgment of their professional capability to provide the
service at reasonably competitive rates or prices. The Adviser's determination
of what constitutes reasonably competitive rates or prices 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.
10
<PAGE> 25
During the periods ending 12/31/96 and 12/31/97 the portfolio turnover
rates for the Fund were respectively 13% and 12%.
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.
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 and individual accounts. 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
11
<PAGE> 26
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 .50% of the Fund's net assets. For
the years ending December 31, 1995, l996, and 1997, the Adviser received
$918,897, $866,440, and $773,094 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 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, 1995, l996, and 1997, the Adviser
received $84,384, $59,036, and $53,667, 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
12
<PAGE> 27
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
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 any sales charge described in the Prospectus.
For the years ended December 31, 1995, 1996, and l997, the Distributor received
underwriting sales charges of $175,972, $110,078, and $30,601, respectively, and
retained all such amounts except for payments 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 amount of any 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
13
<PAGE> 28
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. McDonald pays such distribution
service fees to its employees and other dealers in connection with sales of Fund
shares. McDonald may pay additional compensation to its employees in connection
with sale of Fund shares. A portion of the compensation paid to its employees
may be subject to forfeiture in the event of redemption of shares on which
compensation was paid within certain time periods.
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 expenses
of shareholders' and Trustees' meetings; and fees and other expenses incurred by
the Fund in connection with its membership in any organization.
14
<PAGE> 29
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 or servicing of its shareholders, 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 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, 1995,
1996, and l997, the Fund paid $453,931, $427,632, and $380,694, 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.
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
15
<PAGE> 30
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, 1995, 1996, and l997, the total fees
paid by the Trust pursuant to the agreement were $49,804, $45,119, and $40,302,
respectively, plus shareholder statement printing costs.
PERFORMANCE CALCULATIONS
The Fund's yield for the 30 days ending December 31, 1997 was 5.78%.
16
<PAGE> 31
GRADISON GOVERNMENT INCOME FUND
<TABLE>
Total Return Statistics
-----------------------
<CAPTION>
Five Years Ten Years Since Inception* Cumulative
Ending ending 9/16/87 - Return
12/31/97 12/31/97 12/31/97 Since
(Average Annual (Average Annual (Average Annual Inception
Compounded Compounded Compounded 9/16/87 -
Rate of Return) Rate of Return) Rate of Return 12/31/97
- --------------- --------------- -------------- --------
<S> <C> <C> <C>
6.37% 8.05% 8.32% 127.85%(1)
7.30% 9.16% 9.37% 151.37%(2)
</TABLE>
<TABLE>
<CAPTION>
12 Mos. 12 Mos. 12 Mos. 12 Mos. 12 Mos.
Ended Ended Ended Ended Ended
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Gradison Gov.
Income Fund(1) 7.52% -3.69% 17.20% 3.51% 8.36%
Index of
Performance(2) 8.56% -2.44% 17.70% 4.12% 9.56%
<FN>
(1) When purchased at net asset value. The Fund was sold subject to a sales
charge until July 7, l997 namely, 2.00% decreasing to zero for purchases
of at least $500,000. Additionally, certain qualifying group retirement
fund purchases are made without a sales charge, as are all purchases
representing reinvestment of dividends. The effect of the sales charge
is not included in this performance.
2) 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.
</TABLE>
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.
17
<PAGE> 32
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 Cash Reserves Trust ("GCR"), Gradison Municipal Custodian
Trust ("GMCT"), 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 Funds, 580 Walnut Street,
Cincinnati, Ohio 45202. Each trustee is a trustee of each of the four Gradison
Investment Companies.
*DONALD E. WESTON (63), Trustee and Chairman of the Board of each of the four
Gradison Investment Companies; Chairman of Gradison and Director of McDonald &
Company Investments, Inc. Director of Cincinnati Milacron Commercial Corp.
(financing arm of capital goods manufacturer).
DANIEL J. CASTELLINI (58), 312 Walnut Street, Cincinnati, Ohio 45202, Trustee;
Senior Vice President/Finance and Administration of the E. W. Scripps Company
(communications).
THEODORE H. EMMERICH (71), 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), and Cincinnati Milacron
Commercial Corp.; Trustee of Summit Investment Trust and Carillon Investment
Trust (investment companies).
RICHARD A. RANKIN (56), 1717 Dixie Highway, Suite 600, Fort Wright, Kentucky
41011, Trustee; Partner, Rankin and Rankin (independent public accountants).
JEROME E. SCHNEE (57), 14 Walt Whitman, Morristown, NJ 07960, Trustee; Senior
Director, Health Economics, Johnson & Johnson (Pharmaceuticals) since August
1996; Professor of Management, College of Business Administration, University of
Cincinnati (currently on leave of absence).
18
<PAGE> 33
BRADLEY E. TURNER (39), President of each of the four Gradison Investment
Companies; Senior Managing Director and Director of McDonald.
THOMAS M. SEAY (42), Executive Vice President and Portfolio Manager (since
4/98); Senior Vice President of Gradison (since 4/98); previously Vice President
and Portfolio Manager for fixed income assets with Lexington Management
Corporation.
PAUL J. WESTON (58), Senior Vice President; Executive Vice President of GCR;
Senior Vice President of GMCT and GGT; Executive Vice President of Gradison. Mr.
Weston is the brother of Donald E. Weston.
C. STEPHEN WESSELKAMPER (47), Senior Vice President; Executive Vice President
and Portfolio Manager of GCR; First Vice President of Gradison.
RICHARD M. WACHTERMAN (51), Secretary of each of the four Gradison Investment
Companies; Senior Vice President and General Counsel of Gradison.
PATRICIA J. JAMIESON (44), Treasurer of each of the four Gradison Investment
Companies; Senior Managing Director, Treasurer and Chief Financial Officer of
McDonald.
MARK A. FRIETCH (39), Assistant Treasurer of each of the Gradison Investment
Companies (since May 1995); prior to that Controller of Gradison Mutual funds.
* Trustee who is an interested and affiliated person, as defined by the
Investment Company Act of l940, 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. As of March 31, 1998, 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.
19
<PAGE> 34
<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
12/31/97 year 12/31/97
-------- -------------
<S> <C> <C>
Theodore H. Emmerich $ 5,500 $25,000
Richard A. Rankin $ 5,500 $25,000
Jerome E. Schnee $ 5,500 $25,000
Daniel J. Castellini $ 5,500 $25,000
-------
$22,000
</TABLE>
The Trust maintains a deferred compensation plan which allows trustees to defer
receipt of trustee fees otherwise payable to them until a future date. Deferred
amounts are credited with interest at a rate equal to the yield of the Gradison
U.S. Government Reserves Fund. The Trust does not maintain any other pension or
retirement plans. There are currently no amounts owing to any current trustee
pursuant to the deferred compensation plan. As of December 31, l997, the amount
of $8,741 was payable by the Trust to the beneficiary of a former trustee who is
deceased and as of December 31, l997, the amount of $39,131 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 Government Income Fund. Prior to February 1, 1997, the
series was named 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."
20
<PAGE> 35
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 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.
21
<PAGE> 36
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 (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 45202 is the
independent public accountant of the Trust.
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP acts as legal counsel to the Trust.
22
<PAGE> 37
[Fact Sheet]
[Graphic: Gradison Logo] Symbol GGIFX
GRADISON MUTUAL FUNDS
GOVERNMENT INCOME FUND
Gradison Government Income Fund is designed for investors seeking high current
income from a portfolio of U. S. Government Securities. It is the Fund's current
policy to invest only in those Government securities that are guaranteed as to
principal and interest by the full faith and credit of the United States
Government and repurchase agreements collateralized by full faith and credit
obligations.
While one of the Fund's objectives is to produce monthly income, the Fund is
managed with an emphasis on total return, that is, the combined effect of both
income and principal value.
Although the securities in the Fund's portfolio are guaranteed as to principal
and interest by the U. S. Government, the market value of its shares will
fluctuate with changes in interest rates and market conditions. Mortgage backed
securities in which the Fund invests are subject to prepayment risk.
Average Annual Total Return Periods Ended 12/31/97
<TABLE>
<CAPTION>
Since
One Three Five Ten Inception
Year Years Years Years (9/16/87)
<S> <C> <C> <C> <C> <C>
+8.36% +9.54% +6.37% +8.05% +8.32%
</TABLE>
[Graphic: Value of $1,000 Since Inception]
The Value of a $1,000 Investment made
in the Fund at Inception
9/16/87 Effective July 7, 1997,
Inception all sales loads have
Date been eliminated.
[Graph: X axis shows years as indicated below with plot points as indicated
below:]
23
<PAGE> 38
With All Dividend and Capital Gain
Distributions Reinvested
<TABLE>
<S> <C>
Sep-1987 $ 1,000.00
Dec-1987 $ 1,049.96
Dec-1988 $ 1,124.84
Dec-1989 $ 1,268.34
Dec-1990 $ 1,379.90
Dec-1991 $ 1,574.29
Dec-1992 $ 1,673.43
Dec-1993 $ 1,800.48
Dec-1994 $ 1,734.16
Dec-1995 $ 2,032.48
Dec-1996 $ 2,060.62
Dec-1997 $ 2,278.45
</TABLE>
With All Dividend and Capital Gain Distributions
Paid Out
<TABLE>
<S> <C>
Sep-1987 $ 1,000.00
Dec-1987 $ 1,034.34
Dec-1988 $ 1,010.38
Dec-1989 $ 1,040.73
Dec-1990 $ 1,032.74
Dec-1991 $ 1,082.27
Dec-1992 $ 1,064.69
Dec-1993 $ 1,067.89
Dec-1994 $ 960.06
Dec-1995 $ 1,055.11
Dec-1996 $ 1,028.75
Dec-1997 $ 1,047.92
</TABLE>
The performance quoted on this document and any attachment represents past
performance. The investment return and principal value of an investment in the
Fund will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than the original cost. Total return includes changes in share
value and reinvestment of all distributions. A sales load of up to 2% was
charged until July 7, 1997, which is not reflected in any performance or value
figures. Past performance does not ensure future results.
COMPOSITION AND WEIGHTED AVERAGE MATURITY
The portfolio composition and maturity Pie Chart: Cash 5%
of the Fund is as of December 31, 1997 U. S. Treasuries 45%
24
<PAGE> 39
and is subject to change. GNMA's 48%
CMO's 1%
[Graphic:]
Bar Graph 4.40 years weighted average maturity
5 10 15 20 25 30
December 31, 1997
[Graphic: Photo of a Woman]
[Graphic: Photo of a Man,
Woman and Young Girl]
PORTFOLIO MANAGER PROFILES
[Graphic: Photo of Thomas Seay]
Thomas Seay
Senior Vice President/Portfolio Manager
Gradison McDonald Asset Management
With more than 17 years investment experience, Tom Seay joined Gradison McDonald
Asset Management in 1998 to assume portfolio management responsibility for the
Government Income Fund following eleven years at Lexington Global Asset
Managers. In his role as a Vice President at Lexington, Tom was responsible for
the active management of all institutional fixed income accounts. A cum laude
graduate of the University of Denver, Tom holds an MBA from the Colgate Darden
Graduate School of Business at the University of Virginia.
C. Stephen Wesselkamper [Graphic: Photo of Stephen Wesselkamper]
First Vice President/Portfolio Manager
Gradison McDonald Asset Management
With more than 18 years financial analysis and portfolio management experience,
the last 13 with Gradison, Stephen Wesselkamper carries primary responsibility
for short term fixed income management on the Gradison McDonald Asset Management
team. In addition to his responsibilities for the Government Income Fund, Steve
is portfolio manager of Gradison U. S. Government Reserves money market fund. A
magna cum laude graduate of the University of Cincinnati, Steve holds an MBA
from Xavier University.
PROFILE OF GRADISON MUTUAL FUNDS
Gradison Mutual Funds is a division of McDonald International
Fund
& Company, a leading regional investment firm Opportunity
25
<PAGE> 40
Value Fund
which acquired Gradison in 1991. As a Growth & Income
Fund
registered investment advisor since 1974 and Established
Value Fund
mutual fund advisors since 1976, Gradison Ohio Tax-Free
Income Fund
currently manages in excess of $4 billion in Government Income
Fund
Gradison Mutual Funds and individually Money Market
Funds
managed accounts.
A prospectus for the Government Income fund or any other Gradison Mutual Fund
may be obtained by calling 513/579-5700 or 800/869-5999. The prospectus contains
more complete information. Read it carefully before you invest.
McDonald & Company Securities, Inc. - Distributor
GMFS 1059 - GIF 12/97
[Graphic: Gradison Logo]
GRADISON MUTUAL FUNDS
<PAGE> 41
[Family of Funds Brochure]
COVER PAGE
YOUR FUTURE STARTS TODAY
[Graphic Photo of men, women, children and a dog]
Logo
Gradison
Mutual Funds
INSIDE COVER PAGE
YOUR FUTURE STARTS TODAY
Page 1
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 the goal. Whether it's starting a family, buying a house,
saving for education, or planning for retirement. Time is critical. Hesitate and
time will pass you by. Start today and the future is yours.
Page 2
THE MUTUAL FUND STORY
The first mutual fund company was established in
1924 as a private investment firm for its founders and is still in business
today. By 1980, there were fewer than 600 mutual funds open to investors. Today,
there are some 400 fund groups offering more than 6,000 mutual funds with
investments totaling more than $3
27
<PAGE> 42
trillion. Increasingly, mutual funds are the preferred vehicle for individual
investors who are starting and building an investment program. And today,
Gradison is a preferred name in mutual funds for a growing number of investors.
WHY MUTUAL FUNDS?
PROFESSIONAL MANAGEMENT
Mutual funds use investment professionals to manage the assets on a full-time
basis. In addition to their dedicated time and experience, these investment
advisers typically have access to extensive research and other analytical
resources not available to most individual investors.
DIVERSIFICATION
Because a mutual fund has significantly more assets to invest than any
individual participant, it can purchase and effectively manage a more
diversified portfolio than can most individual investors.
FLEXIBILITY
A mutual fund is usually part of a family of funds. Fund families offer an
exchange privilege that allow shareholders to reallocate assets quickly and
easily among the various funds within that family of funds. Shares in any fund
may be
28
<PAGE> 43
purchased or liquidated, often by a phone call, generally on any day that the
New York Stock Exchange is open for business.
Page 3
WHY GRADISON MUTUAL FUNDS?
A RESPECTED NAME FOR SEVEN DECADES
A respected name for seven decades Gradison has been a recognized name in
investment brokerage since 1925. The firm became a registered investment adviser
in 1974 and established its first mutual fund in 1976.
Today, Gradison offers seven mutual funds in a growing family of funds and
manages more than $4 billion in assets in both mutual funds and individually
managed accounts.
EXPERIENCED PORTFOLIO MANAGERS
Gradison portfolio managers average nearly 15 years of experience as
professional portfolio managers and more than 20 years of experience in the
investment field. We believe that this depth of first-hand experience, in both
favorable and unfavorable market environments, sets us apart from those other
fund managers who have yet to manage assets through a full market cycle.
SERVICE
Low Minimum Investment of $1,000
Convenient Automatic Dividend Reinvestment
Automatic Investment Plan
29
<PAGE> 44
Automatic Withdrawals and Payment Plans
Access To Funds
Free Exchange Privileges
Check Writing
Wire Transfers
Toll-Free Customer Service
24-Hour Account Information
Account Statements
Year-End summary
Quarterly Newsletter
Shareholder Reports
Internet Access
Page 4
REACHING YOUR INVESTMENT GOALS
FIGHTING INFLATION
Inflation, the increase in the cost of living, has averaged 4% since 1926. While
it has been lower in recent years, it has also been substantially
higher--reaching 14% in the early 1980s. The surest way of beating inflation is
to earn a rate of return on your investments that exceeds the rate of inflation.
Chart: WHAT INFLATION REALLY MEANS
1995 $139,000 Single Family Home
30
<PAGE> 45
2000 $177,403 Graphic: Picture of a
2010 $288,971 partially built home
2025 $600,750
Automobile 1995 $18,359
Graphic Picture of an 2000 $23,431
automobile 2010 $38,167
2025 $79,347
Four Year Public University Education
1995 $26,972 Graphic Picture of a
graduation cap and
2000 $34,424 a diploma.
2010 $58,073
2025 $116,571
Sources: National Association of Realtors; Department of Commerce; College
Board. Future prices are based on a hypothetical average annual inflation rate
of 5%.
EDUCATION
The cost of four years at a private college, including tuition, fees, books and
other miscellaneous expenses, now averages nearly $95,000. It is projected to
reach $170,000 in a decade. The cost of a public college is expected to nearly
double from an average of $45,000 to more than $80,000 over the next ten years.
31
<PAGE> 46
Most families realize that no matter when they start saving and investing for
this purpose, it usually is not soon enough.
BUILDING WEALTH
Many investors overlook the potential of investing in their most productive
years when their incomes are high enough to put aside investment assets and the
demands on their income are less than they inevitably will be later. Such assets
can be invaluable not only for retirement but as emergency assets for unforeseen
occurrences in life.
RETIREMENT
Given the national debate on Social Security and Medicare, the need for
investors to assure adequate retirement assets for both their active retirement
years, and the possibility of their inactive care years, should be apparent.
Many people look solely to their company retirement plans for such assurance and
only realize the need for supplemental assets much later.
YOUR FAMILY'S FUTURE
Providing for the education of a child or grandchild may only be a part of an
investor's concern for future generations. They may have achieved a sufficient
level of personal success to be able to consider investing in order to pass
along significant assets to provide these future generations with greater
assurance for their financial well-being in an uncertain world.
32
<PAGE> 47
[GRAPHIC Photo of two women embracing]
Page 5
INTELLIGENT INVESTING
Time is the essential ingredient
Experience has shown that there is no substitute for time in investing.
Historically, the sooner money has been put to work, and the longer it has been
invested, the more likely positive returns have resulted. Conversely, aggressive
investors are more likely to have volatile results for shorter periods. Clearly,
investing for the long-term is considered one of the keys to successfully
creating investment wealth.
THE RULE OF 72:
HELPING YOU IN TAXING TIMES
Certain measurements are well known rules in everyone's daily life. Most people
learn early in life, for example, that twelve inches equals a foot and that
three feet make a year. With investments, similar, but not as well known,
measurement rules apply.
The Rule of 72 allows potential investors to find out how long it will take to
double their money. All you have to do is divide 72 by the estimated interest
rate of an investment, and the answer
33
<PAGE> 48
is roughly the number of years needed to double an investment.
Here's the formal equation:
Number of years to double the original investment = 72/ Interest Rate
Using the Rule
Check the table below to see some examples of how the Rule of 72 works.
<TABLE>
<CAPTION>
Rate of Rule of 72 Years to Years to
Return (72/Interest Rate) Double Quadruple
<S> <C> <C> <C>
3% 72/3 24 48
6% 72/6 12 24
9% 72/9 8 16
12% 72/12 6 12
</TABLE>
The rates of return shown are for illustrative purposes only and are not
historical results or projections of the returns of any Gradison Mutual Fund.
(Pie Charts)
THE LONGER YOUR TIME FRAME, THE GREATER THE CHANCE OF REWARD
Percent of time stocks had positive results for rolling periods beginning
December 31, 1925, and ended December 31, 1995.
71% 89% 97% 100%
34
<PAGE> 49
1 year 5 year 10 year 15 Year
holding holding holding holding
periods periods periods periods
Stocks will often rise and fall in value over the short term. When investing for
growth, the longer your investment time frame, the greater the chance equity
investments will produce positive results.
Source: Ibbotson Associates, Chicago. Based on the performance of the S & P 500,
an unmanaged index of stocks. This information is historical and is not a
guarantee of future performance of the S & P 500 or any Gradison Mutual Funds.
THE POWER OF COMPOUNDING
The term "compounding" is usually applied to investment income that is
constantly reinvested to generate additional income. However, the concept of
compounding applies equally well to investment profits that are constantly
reinvested. The compounding of income and profits over long periods of time can
have a meaningful impact on overall investment results. Again, time invested is
invaluable.
(CHART) THE POWER OF COMPOUNDING IN A HYPOTHETICAL $10,000
INVESTMENT IN THE S&P 500
35
<PAGE> 50
$170,000 $168,820...................
$150,000 In the time frame illustrated here,
$130,000 reinvestment of all income and
$110,000 dividends resulted in $168,820,
$ 90,000 while not reinvesting income
$ 70,000 and dividends results in $59,304.
$ 50,000 $ 59,304...................
$ 30,000
$ 10,000
1/1/69 12/31/95
This chart is for illustrative purposes only. There is, of course, no
correlation between the total return for the S&P 500 and past or future
performance of any Gradison Mutual Fund. The S&P 500 is an unmanaged index
compiled by Standard & Poor's Corporation. Investors cannot invest in the S&P
500. Past performance cannot guarantee future results.
Source: The American Funds Group
Page 6
DISCIPLINED PERIODIC INVESTMENTS
It is our experience that the most difficult decision for most investors is not
whether to invest, but when to invest. It is this dilemma that causes many
investors to stay on the investment sidelines.
36
<PAGE> 51
Dollar cost averaging is a widely used investment concept in the purchase of
mutual funds that allows investors to overcome this difficult decision by
periodically investing(such as weekly, monthly, or quarterly) the same dollar
amount over a long period of time. Gradison Mutual Funds offer a periodic
investment plan to make the process easier and more systematic.
CHART DOLLAR COST AVERAGING CAN REDUCE YOUR AVERAGE COST PER SHARE
<TABLE>
<CAPTION>
Investment Share Shares
Amount Price Purchased
<S> <C> <C> <C>
March $ 500 $10.00 50
June $ 500 $12.50 40
September $ 500 $ 5.00 100
December $ 500 $10.00 50
$2,000 $37.50 240
</TABLE>
Average Price Per Share
($37.50 divided by 4) $9.38
Average Cost Per Share
($2,000 divided by 240) $8.33
Dollar cost averaging will never result in better performance than picking the
best times to invest, if you were able to do so. But dollar cost averaging
allows you invest the same amount periodically as the Fund's share price
fluctuates. You therefore will purchase more shares of the Fund in those months
when the
37
<PAGE> 52
price per share is low and less shares when the price is high. Most importantly,
dollar cost averaging can help investors make the commitment to invest.
Of course, dollar cost averaging does not assure a profit and does not protect
against loss in declining markets. And since dollar cost averaging involves
continuous, periodic investing, you should consider your ability to continue
purchases over an extended period of time.
[Graphic Photo of two men, two women, a boy, girl and a dog walking]
CONSIDER GRADISON MUTUAL FUNDS
Equity Funds Fixed Income Fund Money Market Funds
Established Value Fund Government Income Fund U. S. Government Reserves
Growth & Income Fund Ohio Tax Free Income Fund Municipal Cash Series 2
Opportunity Value Fund High Yield Fund 1 Ohio Municipal Cash Trust 2
International Fund Michigan Municipal Cash
Trust 2
38
<PAGE> 53
1. Planned for 1997-1998 and sold by prospectus only.
2. Federated Advisers acts as investment adviser for these funds and Federated
Securities Corp. acts as distributor.
PAGE 7
GRADISON EQUITY FUNDS
GRADISON ESTABLISHED VALUE FUND
The Established Value Fund invests for long-term capital growth using a
disciplined stock selection process to identify investments from the large
established companies that make up the Standard & Poor's 500 Composite Stock
Price Index, and other similar sized companies, which the investment adviser
considers to be undervalued. The stock selection process requires that companies
meet a number of objectively measured criteria of value including the companies'
relative book values, their price to earnings ratios, and other similar factors.
GRADISON GROWTH AND INCOME FUND
The Growth & Income Fund invests for long-term capital growth, as well as
current income and growth of income. The Fund puts particular emphasis on
identifying companies with higher than
39
<PAGE> 54
average growth rates, above average dividend returns, a history of paying
increasing dividends, and which the investment adviser considers to be
undervalued.
We believe that stocks meeting this criteria provide the opportunity for price
appreciation and current income while tending to moderate risk.
GRADISON OPPORTUNITY VALUE FUND
The Opportunity Value Fund uses a disciplined stock selection process to
identify smaller companies, generally with market capitalization of less than
$500 million that meet a number of objectively measured criteria of value
including the companies' growth rates, relative book value, their price to
earnings ratios, and other similar factors and which the investment adviser
considers to be undervalued. The securities of smaller companies generally are
more volatile than those of larger companies.
GRADISON INTERNATIONAL FUND
Blairlogie Capital Management of Edinburgh, Scotland, the subadviser to the
International Fund, employs a "hybrid strategy" that invests in both developed
international markets and in emerging international markets.
Using a disciplined methodology, Blairlogie first identifies the countries that
offer the most favorable investment environment,
40
<PAGE> 55
and then selects the individual investments in those countries. Generally the
amount invested in emerging markets will not exceed 30% of the Fund's assets.
International investing, particularly in emerging markets, involves greater
risks than U.S. investing, such as political instability and currency
fluctuation.
THE CASE FOR COMMON STOCKS
Stocks, more than most other types of investments, have historically shown the
ability to grow faster than inflation and to create wealth over long investment
periods. An investor who has long-term goals of ten years or more should
strongly consider equities as a significant part of his or her investment
portfolio. Historically, the longer an investor has held a well diversified
portfolio of stocks the better that investor has fared, as evidenced in the pie
chart on page 5.
THE ADVANTAGES OF BONDS
Although bond portfolios have not provided returns as high as stocks over long
periods of time (as illustrated in the graph on page 9), they have provided less
volatility and more reliable income than stocks. Investors with a relatively
short investment horizon, may need to avoid the volatility of stocks. For
example when an investor because near retirement, at a time when assets are
needed; or to add greater stability to a portfolio by
41
<PAGE> 56
combining both stocks and bonds. Importantly, bond mutual funds provide the
ability to reinvest these cash flows immediately and completely to take full
advantage of compounding.
Page 8
GRADISON FIXED INCOME FUNDS
GRADISON GOVERNMENT INCOME FUND
Designed to provide current monthly income from a portfolio of intermediate to
long-term U.S. Government securities, the Fund's policy is to invest only in
those Government securities that are guaranteed as to principal and interest by
the full faith and credit of the United States Government and in repurchase
agreements collateralized by such obligations.
The Fund is managed with an emphasis on total return, that is the combined
effect of both income and changes in share value. Although the securities in the
portfolio are guaranteed as to principal and interest by the U.S. Government,
the market value of the Fund's shares will fluctuate with changes in interest
rates and other market conditions. Mortgage backed securities may be subject to
prepayment risk.
[Graphic: Photo of two young girls each sitting on an adult's shoulder]
GRADISON OHIO TAX-FREE INCOME FUND
42
<PAGE> 57
Designed for Ohio investors who can benefit from a portfolio of long-term
municipal bonds that are exempt from both federal and Ohio income taxes, the
Fund provides monthly income by investing in Ohio municipal securities issued to
finance public institutions and public works, and in private activity municipal
bonds.
In order to gain favorable yields, the Fund invests up to 20% of its assets in
securities that may be subject to the alternative minimum tax for some
investors.
Page 9
INDICES OF INVESTMENTS
IN U. S. CAPITAL MARKETS
(Chart) Comparison of Investments in Small Company Stocks, Large Company Stocks,
Long-Term Government Bonds, U. S. Treasury Bills to Inflation for the period
beginning 1925 through 1995, $0 to $10,000. Ending values: Small Company Stocks
$3,822; Large Company Stocks $1,113; Long-Term Government Bonds $34; U. S.
Treasury Bills $13; Inflation $9.
1926-1995
(YEAR-END 1925 = $1.00)
This chart is intended to show the growth of one dollar invested in different
types of investments and the Consumer Price Index. It assumes reinvestment of
all dividend and interest payments. Past performance does not ensure further
results.
43
<PAGE> 58
SMALL COMPANY STOCKS are represented by the fifth capitalization quintile of
stocks on the NYSE for 1926-1981 and thereafter, the performance of the
Dimensional Fund Advisors (DFA) Small Company Fund;
LARGE COMPANY STOCKS are represented by the Standard & Poor's 500 Stock
Composite Index (S&P 500);
LONG-TERM GOVERNMENT BONDS are represented by a one-bond portfolio with a
maturity near twenty years;
U. S. TREASURY BILLS are represented by rolling over
each month a one-bill portfolio containing, at the beginning of each month, the
bill having the shortest maturity not less than one month. INFLATION is
represented by the Consumer Price Index for All Urban Consumers (CPI-U), not
seasonably adjusted.
Source: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1995, updated in Stocks, Bonds, Bills, and Inflation 1996(TM),
Ibbotson Associates, Chicago. All rights reserved.
The indices and securities in the chart above do not reflect the actual
portfolio composition, performance, or fees and expenses associated with
investing in any Gradison Mutual Fund. The chart is not intended to imply future
performance of any of these investments or any Gradison Mutual Fund. Performance
figures of Gradison Mutual Funds are available by request from Gradison. The
returns for stocks include reinvestment of dividends and interest. Government
bonds and Treasury Bills are guaranteed by
44
<PAGE> 59
the U.S. Government and, if held to maturity, offer a fixed rate of return and
fixed principal value.
In existing disclaimer replace "Past performance does not ensure future results"
with: "The performance shown in the above chart is historical and is not
intended to imply future performance of any of these investments or of any
Gradison fund.
Page 10
GRADISON MONEY MARKET FUNDS
The money market funds offered by the Gradison Mutual Funds provide a full
complement of services including checkwriting, high quality personalized checks,
and the convenience of automatic sweeping of dividends from the Gradison Funds.
The money market funds provide clear, monthly statements that include the name
of the payees of any checks written against the account, as well as a highly
useful year-end summary of all transactions. Graphic Photo of a man and woman
seated next to one another going through documents.
GRADISON U. S. GOVERNMENT RESERVES
A full service money market fund designed to provide current money market yields
by investing exclusively in securities issued by the U.S. Government, its
agencies or instrumentalities. The fund has tax benefits in that it invests, to
the greatest extent reasonable, only in selected U. S. Government securities
that are
45
<PAGE> 60
not taxable by the states or by local governments.
MUNICIPAL MONEY MARKET FUNDS
Gradison also makes available a general municipal money market fund that
provides income exempt from federal taxation and separate Ohio and Michigan
money market funds that provide income that is not taxable at the federal state
or local levels in those states. A portion of the income of both funds could be
subject to the Alternative Minimum Tax (AMT) for investors who are subject to
AMT.
For more complete information about the Gradison Funds, including sales charges
and expense, please obtain the appropriate prospectuses from your investment
consultant or call 800-869-5999. Please read the prospectuses carefully before
you invest or send money. Investment returns and principal of the funds will
fluctuate so that you may have a gain or a loss when you sell your shares. Money
market funds are neither insured nor guaranteed by the U.S. Government or any
other entity. There can be no assurance that these funds will maintain a
constant net asset value of $1.00 per share.
[Graphic] Man and woman sitting at a desk opposite each other]
Page 11
WORKING WITH YOUR PROFESSIONAL INVESTMENT CONSULTANT
We believe that your professional investment consultant is in the best position
to provide you with investment advice.
Your consultant has the training and experience to provide you with guidance in
making your investment decisions. We encourage you to share as much information
as possible about your
46
<PAGE> 61
investment goals and your current personal and financial situation.
Above all, we suggest you ask your investment consultant whatever you feel you
need to know to help you fully understand the investments you are making.
SERVICE YOU CAN COUNT ON
LOW MINIMUM INVESTMENT OF $1,000 Low subsequent investment minimums of $50.
CONVENIENT AUTOMATIC DIVIDEND REINVESTMENT of income dividends and/or capital
gain dividends into any Gradison fund.
AUTOMATIC INVESTMENT PLAN allows authorization of regular, systematic
investments from bank accounts, money market funds and automated payroll into
any Gradison fund.
AUTOMATIC WITHDRAWALS AND PAYMENT PLANS Can be set up to pay you or designated
payees a specified amount monthly or quarterly.
ACCESS Shares can be redeemed at the then-current market value on any business
day.
Page 12
47
<PAGE> 62
EXCHANGE PRIVILEGES Including convenient telephone exchanges allows investors to
move money from one Gradison Mutual Fund to another at any time.
CHECK WRITING For all money market funds includes high quality personalized
checks, check payee names on account statements, and return of canceled checks.
4
WIRE TRANSFERS Specified amounts can be transferred to pre-authorized accounts
at other financial institutions. 5 4. A fee applies to checks under $100.00 5. A
fee applies to wires.
TOLL-FREE CUSTOMER SERVICE Knowledgeable shareholder service representatives are
available during business hours at 800-869-5999.
24-HOUR ACCOUNT INFORMATION During non-business hours TeleFund 24 provides
touch-tone access to the most recent prices of Gradison Mutual Funds, current
money market yield, and balances on all Gradison Mutual Funds accounts.
ACCOUNT STATEMENTS Clear, concise and informative.
YEAR-END SUMMARY A highly useful summary of all activity.
48
<PAGE> 63
QUARTERLY NEWSLETTER Your Future provides Gradison shareholders with timely
information about investing, mutual funds and the Gradison family of funds.
SHAREHOLDER REPORTS Semiannual updates on fund strategy, performance and
portfolio holdings.
INTERNET World Wide Web site www.gradisonfunds.com provides quarterly updates on
Gradison Mutual Funds, as well as other information of interest to mutual fund
investors.
GETTING STARTED
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.
The most important thing is to get started. Call your Investment Consultant or
contact Gradison Mutual Funds at 800-869-5999.
START TODAY AND THE FUTURE IS YOURS.
[Graphic: Photo of a baby smiling]
Back Cover
Logo
Gradison
Mutual Funds
1997 Gradison Mutual Funds 580 Walnut Street Cincinnati, Ohio 45202
800/869-5999 513/579-5000
htt;:/WWW.gradisonfunds.com
49
<PAGE> 64
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PAR COUPON
AMOUNT MORTGAGE-BACKED SECURITIES - 49.13% RATE MATURITY VALUE
<S> <C> <C> <C> <C>
$ 700,776 Government National Mortgage Association 6.55% 11/15/13 $ 697,710
18,033,427 Government National Mortgage Association 7.00 4/15/23-9/15/23 18,174,313
18,870,532 Government National Mortgage Association 7.50 4/15/23-3/15/24 19,324,604
17,253,243 Government National Mortgage Association 8.00 7/15/02-7/15/26 17,884,064
7,254,960 Government National Mortgage Association 8.50 4/15/21-11/15/22 7,617,708
2,592,380 Government National Mortgage Association 8.75 4/15/22 2,787,214
1,829,866 Government National Mortgage Association 9.00 1/15/20-8/15/21 1,958,528
2,575,244 Government National Mortgage Association 9.50 10/15/02-6/15/21 2,769,030
2,324,614 Government National Mortgage Association 10.00 5/15/12-6/15/21 2,557,075
----------
Total Mortgage-Backed Securities (Cost $73,289,246) 73,770,246
----------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 65
GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
December 31, 1997
PORTFOLIO OF INVESTMENTS Continued
<TABLE>
<CAPTION>
PAR COUPON
AMOUNT U.S. TREASURY OBLIGATIONS - 45.10% RATE MATURITY VALUE
<S> <C> <C> <C> <C>
$10,000,000 U.S. Treasury Bond 5.88% 11/15/05 $ 10,050,000
20,000,000 U.S. Treasury Note 6.25 2/15/03 20,443,750
10,000,000 U.S. Treasury Note 6.38 1/15/00 10,131,250
5,000,000 U.S. Treasury Bond 6.38 3/31/01 5,093,750
10,000,000 U.S. Treasury Bond 7.63 2/15/07 10,612,500
10,000,000 U.S. Treasury Bond 8.75 11/15/08 11,381,250
----------
Total U.S. Treasury Obligations (Cost $67,517,734) 67,712,500
----------
- -------------------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.59%
876,310 Government National Mortgage Association GNR-94-6-L (Cost $892,330) 7.99 8/16/99 887,401
----------
- -------------------------------------------------------------------------------------------------------------------------------
FACE INTEREST
AMOUNT REPURCHASE AGREEMENT - 5.18% RATE (1)
7,770,000 First Chicago Capital, dated 12/31/97, collateral: U.S. Treasury
Note 6%; due 09/30/98, market value $4,243,662 and U.S. Treasury
Note 5.875%; due 10/31/98, market value $3,685,641 (repurchase
proceeds: $7,772,797) (Cost $7,770,000) 6.48% 1/2/98 7,770,000
------------
TOTAL INVESTMENTS, AT VALUE (NOTE 1) (COST $149,469,310) - 100% $150,140,147
============
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the Repurchase Agreement, the rate shown reflects the actual rate of
return to the Fund.
See accompanying notes to financial statements.
4
<PAGE> 66
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
12/31/97
<S> <C>
ASSETS
Investments in securities, at value (Note 1) (Cost $149,469,310) $150,140,147
Receivable for investments sold 4,053,877
Interest receivable 1,823,958
Receivable for Fund shares sold 61,614
Cash 9,318
Prepaid expenses and other assets 47,593
-----------
TOTAL ASSETS 156,136,507
-----------
LIABILITIES
Payable for Fund shares redeemed 869,377
Accrued investment advisory fee (Note 2) 65,571
Dividend payable 51,973
Other accrued expenses payable to adviser (Note 2) 37,883
Other accrued expenses and liabilities 40,095
-----------
TOTAL LIABILITIES 1,064,899
-----------
NET ASSETS $155,071,608
===========
NET ASSETS CONSIST OF:
Aggregate paid-in capital $160,464,435
Distributions in excess of net investment income (Note 1) (67,750)
Accumulated net realized loss (5,995,914)
Net unrealized appreciation of investments 670,837
-----------
NET ASSETS $155,071,608
===========
SHARES OF CAPITAL STOCK OUTSTANDING
(no par value - unlimited number of shares authorized) 11,802,228
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE (NOTE 1) $13.14
===========
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 67
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED 12/31/97
<S> <C> <C>
INTEREST INCOME $10,729,617
EXPENSES:
Investment advisory fees (Note 2) $ 773,094
Distribution (Note 2) 380,694
Personnel costs (Note 2) 53,667
Data processing fees (Note 2) 40,302
Professional fees 32,942
Custodian fees (Note 1) 25,250
Trustees' fees (Note 2) 22,623
Registration fees 19,668
Postage and mailing 17,372
Printing 10,285
ICI dues 6,848
Insurance 4,255
Other 12,021
---------
GROSS EXPENSES 1,399,021
LESS EARNINGS CREDITS ON CASH BALANCES (NOTE 1) (2,230)
---------
NET EXPENSES 1,396,791
----------
NET INVESTMENT INCOME 9,332,826
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (61,865)
Net change in unrealized appreciation/depreciation of investments 3,016,012
---------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 2,954,147
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $12,286,973
==========
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 68
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
12/31/97 12/31/96
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 9,332,826 $ 10,442,430
Net realized loss on investments/options (61,865) (536,544)
Net change in unrealized appreciation/depreciation of investments 3,016,012 (4,448,606)
----------- -----------
Net increase in net assets resulting from operations 12,286,973 5,457,280
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (9,341,253) (10,293,237)
----------- -----------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 31,526,924 28,763,172
Net asset value of shares issued in reinvestment of distributions 7,757,697 8,597,718
Payments for Fund shares redeemed (50,032,576) (55,084,613)
----------- -----------
Net decrease in net assets from Fund share transactions (10,747,955) (17,723,723)
----------- -----------
TOTAL DECREASE IN NET ASSETS (7,802,235) (22,559,680)
NET ASSETS:
Beginning of year 162,873,843 185,433,523
----------- -----------
End of year (including distributions in excess of net investment income of
($67,750) and ($59,323), respectively) (Note 1) $155,071,608 $162,873,843
=========== ===========
NUMBER OF FUND SHARES:
Sold 2,432,514 2,230,737
Issued in reinvestment of distributions to shareholders 600,948 670,451
Redeemed (3,872,131) (4,293,141)
----------- -----------
Net decrease in shares outstanding (838,669) (1,391,953)
Outstanding at beginning of year 12,640,897 14,032,850
----------- -----------
Outstanding at end of year 11,802,228 12,640,897
=========== ===========
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1997
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Gradison Custodian Trust (the "Trust") is registered under the Investment
Company Act of 1940 (the Act), 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 Government Income Fund (the Fund). The Fund's investment objective is
to seek high current income through investment in U.S. Government obligations
and obligations of agencies or instrumentalities of the U.S. Government.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amount of income and expenses for the
period. Actual results could differ from those estimates.
SECURITIES VALUATION
Portfolio securities 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 by management using procedures approved by the
Board of Trustees.
Repurchase agreements, which are collateralized by U.S. Government obligations,
are valued at cost which, together with accrued interest, approximates market.
Collateral for repurchase agreements is held in safekeeping in the customer-only
account of the Fund's custodian. At the time the Fund enters into a repurchase
agreement, the seller agrees that the value of the underlying security,
including accrued interest, will be equal to or exceed the face amount of the
repurchase agreement. In the event of a bankruptcy or other default of the
seller of a repurchase agreement, the Fund could experience both delays in
liquidating the underlying security and losses. These losses would not exceed an
amount equal to the difference between the liquidating value of the underlying
security and the face amount of the repurchase agreement and accrued interest.
To minimize the possibility of loss, the Fund enters into repurchase agreements
only with selected domestic banks and securities dealers which the Fund's
investment adviser believes present minimal credit risk. Refer to the Fund's
Portfolio of Investments for the face amount of repurchase agreements and
repurchase proceeds as of December 31, 1997.
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 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.
8
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
December 31, 1997
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, 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, 1997, the Fund had not committed to
the purchase of any when-issued or delayed delivery securities.
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 redemption price per share is equal to the net asset value per share.
Effective July 7, 1997 the sales charge on purchases of fund shares was
eliminated.
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.
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.
EXPENSE OFFSET ARRANGEMENT
The Fund has an arrangement with its custodian bank whereby the custodian's fees
are reduced by credits earned on the Fund's cash on deposit with the bank. This
deposit arrangement is an alternative to overnight investments. The credits are
shown as a reduction of expenses on the Statement of Operations.
TAXES
It is the Fund's policy to comply with the provisions of the Internal Revenue
Code applicable to regulated investment companies. As provided therein, in any
fiscal year in which the Fund so qualifies, and distributes at least 90% of its
taxable net income, the Fund will be relieved of federal income tax on the
income distributed. Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends in
each calendar year, at least 98% of its net investment income (earned during the
calendar year) and 98% of its net realized capital gains, if any (earned during
the twelve months ended October 31), plus
undistributed amounts from prior years.
The tax basis of investments is $149,718,496.
For financial reporting purposes, gross unrealized appreciation and gross
unrealized depreciation of securities at December 31, 1997 was $2,278,036 and
$1,607,199, respectively. For tax purposes, gross unrealized appreciation and
gross unrealized depreciation of securities at December 31, 1997 was $2,069,475
and $1,647,824, respectively.
As of December 31, 1997, the Fund had a capital loss carryforward for Federal
income tax purposes of approximately $5,948,000 which may be utilized to offset
future net realized capital gains through December 31, 2004 prior to
distributing such gains to shareholders.
9
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
December 31, 1997
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%.
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 Act, the Fund pays Gradison a distribution service fee at an annual
rate of .25% of average daily net assets.
During the year ended December 31, 1997, Gradison received sales charges
aggregating $30,601 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, 1997, purchases and proceeds from the sale of
securities, excluding short-term securities, amounted to $17,980,141 and
$25,934,039, respectively. There were no transactions in written options on U.S.
Treasury Notes and Bonds for the year ended December 31, 1997.
10
<PAGE> 72
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
ARTHUR
ANDERSEN
To the Shareholders and Board of Trustees
of the Gradison Government Income Fund
of the Gradison Custodian Trust:
We have audited the accompanying statement of assets and liabilities of the
Gradison Government Income Fund of the Gradison Custodian Trust (an Ohio
business trust), including the portfolio of investments, as of December 31,
1997, and the related statement of operations for the year then ended, the
statement of changes in net assets for the two years then ended and the
financial highlights for the five 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 on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Gradison Government Income Fund of the Gradison Custodian Trust as of December
31, 1997, the results of its operations for the year then ended, the changes in
its net assets for each of the two years then ended, and the financial
highlights for the five years then ended, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Cincinnati,Ohio,
January 30, 1998
11
<PAGE> 73
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, 1997 Statement of Assets and
Liabilities at December 31, l997 Statement of Operations for the year
ended December 31, 1997 Statement of Changes in Net Assets for the two
years ended
December 31, 1996 and December 31, l997
Notes to Financial Statements
Report of Independent Public Accountants
(b) Exhibits
( 1) Registrant's Declaration of Trust, as amended.*
( 2) Registrant's By-Laws.*
( 3) None.
( 4) None.
( 5) Investment Advisory Agreement dated October 4, 1991.*
( 6) Master Distribution Agreement dated October 4, 1991.*
( 7) None.
( 8) Custodian Agreement.*
( 9) Data Processing Services Agreement.*
(10) None
(11) Consent of Arthur Andersen LLP.*
(12) None.
(13) None
(14) Documents used in establishment of individual retirement
C-1
<PAGE> 74
accounts in conjunction with shares of Registrant.**
(15) Distribution Expense Plan.*
(16) None
(17) 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 N-1A filing of Gradison-McDonald Cash Reserves
Trust, File # 002-55297, January 29, l998.
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record Holders
Title of Class as of April 9, 1998
<S> <C>
Shares of beneficial interest, without
par value, of the Registrant 4,355
</TABLE>
C-2
<PAGE> 75
Item 28. Business and Other Connections of Investment Adviser
Reference is made to the captions "Management of the Fund" on page 10 of the
Prospectus that is Part A of this Registration Statement
and "Trustees and Officers of the Trust" on page 17 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.
Positions
Positions Business with
Name With Underwriter Address Registrant
- ---- ---------------- -------- ----------
Daniel F. Austin Vice Chairman 800 Superior Avenue None
Director Cleveland, OH 44114
Jack N. Aydin Managing Director One Evertrust Plaza None
Director Jersey City, NJ 07302
Eugene H. Bosart, Senior Managing 260 East Brown Street None
III Director, Director Birmingham, MI 48009
Thomas G. Clevidence Senior Managing 800 Superior Avenue None
Director, Director Cleveland, OH 44114
Robert T. Clutterbuck Director, President, 800 Superior Avenue None
Chief Operating Cleveland, OH 44114
Officer
Ralph Della Ratta, Jr. Senior Managing 800 Superior Avenue None
Director, Director
Leonard J. DeRoma Senior Managing 800 Superior Avenue None
Director, Director Cleveland, OH 44114
Dennis J. Donnelly Senior Managing 800 Superior Avenue None
Director, Director Cleveland, OH 44114
C-3
<PAGE> 76
David W. Ellis, III Director, Managing 580 Walnut Street None
Director Cincinnati, OH 45202
(Gradison Division)
Patricia J. Jamieson Treasurer, Secretary 800 Superior Avenue Treasurer
Managing Director Cleveland, OH 44114
Chief Financial
Officer
David W. Knall Senior Managing One American Square None
Director, Director Indianapolis, IN 46282
Thomas McDonald Senior Managing 800 Superior Avenue None
Director, Director Cleveland, OH 44114
John F. O'Brien Senior Managing 800 Superior Avenue None
Director, Director Cleveland, OH 44114
Lawrence T. Oakar Director and 800 Superior Avenue None
Managing Director Cleveland, OH 44114
James C. Redinger Senior Managing 800 Superior Avenue None
Director, Director Cleveland, OH 44114
William B. Summers,
Jr. Director, Chairman 800 Superior Avenue None
and Chief Executive Cleveland, OH 44114
Officer
David D. Sutcliffe Managing Director 800 Superior Avenue None
Director Cleveland, OH 44114
Bradley E. Turner Senior Managing 580 Walnut Street
Director, Director Cincinnati, Ohio 45202 President
C-4
<PAGE> 77
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.
Rule In Possession of:
----
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)
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
l933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction, the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
C-5
<PAGE> 78
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 27th day of
April, l998.
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.
Signature Title
*DONALD E. WESTON Chairman of the Board April 27, l998
(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
S-1
<PAGE> 79
Exhibit List
Exhibit Number Description
( 1) Registrant's Declaration of Trust, as amended.
( 2) Registrant's By-Laws.
( 5) Investment Advisory Agreement dated October 4, 1991.
( 6) Master Distribution Agreement dated October 4, 1991.
( 8) Custodian Agreement.
( 9) Data Processing Services Agreement.
(11) Consent of Arthur Andersen LLP.
(15) Distribution Expense Plan.
<PAGE> 1
Exhibit 1
AMENDMENT DATED OCTOBER 4, 1991
DECLARATION OF TRUST, AS AMENDED,
OF GRADISON CUSTODIAN TRUST
Paragraph 2.6 is restated as follows:
2.6 Officers. The Trustees shall annually elect a Chairman, a
President, a Secretary and a Treasurer and may elect a Vice Chairman, Vice
Presidents and such other officers as they deem necessary or appropriate. The
Trustees may authorize the Chairman or President to appoint such other officers
or agents with such powers as the Trustees may deem to be advisable. Any officer
of the Trust may be removed at any time, with or without cause, in such lawful
manner as may be provided in the By-Laws. The Chairman and Vice Chairman, if
any, shall be, and the President, Secretary and Treasurer may, but need not be,
a Trustee.
The undersigned hereby certifies that the foregoing amendment to the
Declaration of Trust, as amended, of Gradison Custodian Trust, was duly effected
by the Trustees of the Gradison Custodian Trust at a meeting held on July 16,
l991.
/s/ Kevin M. Sheehan
Secretary
Gradison Custodian Trust
<PAGE> 2
DECLARATION OF TRUST, AS AMENDED
OF
GRADISON CUSTODIAN TRUST
<PAGE> 3
INDEX
Page
Introduction 1
Article I - The Trust
1.1 Name and principal Office 2
1.2 Purpose 2
1.3 Definitions 2
Article II - Trustees
2.1 Number and Qualifications 5
2.2 Term and Election 5
2.3 Resignation and Removal 6
2.4 Vacancies 7
2.5 Meetings 7
2.6 Officers 9
2.7 By-Laws 9
Article III - Powers of Trustees
3.1 General 10
3.2 Investments 10
3.3 Legal Title 11
3.4 Issuance and Repurchase of Securities 12
3.5 Borrow Money 12
3.6 Delegation; Committees 12
3.7 Collection and payment 12
3.8 Expenses 13
3.9 Miscellaneous Powers 13
3.10 Further Powers 14
Article IV - Investment Adviser and Distributor
4.1 Investment Adviser 15
4.2 Distributor 16
4.3 Parties to contract l6
4.4 Provisions and Amendments 17
Article V -- Limitation of Liability and Indemnification
5.1 No Personal Liability of Shareholders.
Trustees, etc 18
5.2 Indemnification of Trustees, Officers,
Employees or Agents of the Trust 19
5.3 Payment of Expenses 20
5.4 Non-Exclusivity of Indemnification 20
5.5 No Bond Required of Trustees 21
5.6 No Duty of Investigation; Notice in
Trust Instruments. etc. 21
5.7 Reliance on Experts, etc. 22
<PAGE> 4
Article VI - Shares of Beneficial Interest
6.1 Beneficial Interest 23
6.2 Rights of Shareholders 24
6.4 Issuance of Shares 25
6.5 Register of Shares 25
6.6 Transfer Agent arid Registrar 26
6.7 Transfer of Shares 26
6.8 Notices 27
Article VII - Custodian
7.1 Appointment and Duties 28
7.2 Central Certificate System 29
Article VIII - Redemption
8.1 Redemptions 30
8.2 Redemption of Shares; Disclosure of
holding 30
8.3 Redemption of Small Accounts 31
Article IX -- Determination of Net Asset Value, Net Income and Distribution
9.1 Net Asset Value 33
9.2 Distributions to Shareholders 33
9.3 Power to Modify Forgoing Procedures 34
Article X - Shareholders
10.1 Meetings of Shareholders 35
10.2 Notice of Meetings 36
10.3 Record Date for Meetings 36
l0.4 Proxies, etc. 37
10.5 Reports 38
<PAGE> 5
10.6 Inspection of Records 38
10.7 Shareholder Action by Written Consent 38
10.8 Shareholder Communications 38
Article XI - Duration; Termination of Trust; Amendment
Mergers; Etc.
l1.1 Duration 40
11.2 Termination of Trust 40
11.3 Amendment Procedure 41
11.4 Merger, Consolidation and Sale of Assets 42
11.5 Incorporation 43
Articles XII - Miscellaneous
12.1 Filing 44
12.2 Governing Law 44
12.3 Counterparts 44
12.4 Gender 44
12.5 Name 44
12.6 Reliance by Third Parties 45
12.7 Provisions in Conflict with Law or
Regulations 45
<PAGE> 6
DECLARATION OF TRUST, AS AMENDED
OF GRADISON CUSTODIAN TRUST
THIS DECLARATION OF TRUST, AS AMENDED, of Gradison Custodian Trust is made the
__ day of ___, 1987 by the parties signatory hereto, as trustees (such persons,
so long as they shall continue in office in accordance with the terms of this
Declaration of Trust, and all other persons who at the time in question have
been duly elected or appointed as trustees in accordance with the provisions of
this Declaration of Trust and are then in office, being hereinafter called the
Trustees").
WITNESSETH:
WHEREAS, the Trustees desire to form a business trust under the law of
the State of Ohio for the investment and reinvestment of funds contributed
thereto; and
WHEREAS, it is proposed that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest as hereinafter
provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold in
trust all money and property contributed to the business trust to manage and
dispose of the same for the benefit of the holders from time to time of the
shares of beneficial interest issued hereunder and subject to the provisions
hereof, to wit:
<PAGE> 7
ARTICLE I
The Trust
1.1 Name and Principal Office. The name of the trust created hereby (the
"Trust") shall be "Gradison Custodian Trust", and so far as may be practicable
the Trustees shall conduct the Trust's activities, execute all documents and sue
or be sued under that name or a name or names that reflect one or more of the
Series of the Trust, which name(s) (and the word "Trust" wherever hereinafter
used) shall refer to the Trustees as Trustees, and not individually, and shall
not refer to the officers, agents, employees or shareholders of the Trust.
Should the Trustees determine that The use of a name of the Trust or any name of
a Series of the Trust is not advisable, they may use such other name for the
Trust or Series as they deem proper and the Trust or Series may hold its
property and conduct its activities under such other name. The principal office
of the Trust is located in Cincinnati, Ohio.
1.2 Purpose. The purpose for which the Trust is formed is to operate as an
investment company and to engage in any lawful act or activity for which a
business trust may be formed under Sections 1746.01 to 1746.20, inclusive, of
the Revised Code of Ohio, as now in effect or hereinafter amended.
1.3 Definitions. AS used in this Declaration, the following terms shall have the
following meaning: The terms "Affiliated Person", "Assignment", "Commission",
"Interested Person" and "Majority Shareholder Vote" (the 67% or 50% requirement
of the third sentence of Section 2(a)(42) of the Investment Company Act of 1940,
whichever may be applicable) shall have the meanings given them in said Act, as
amended from time to time.
- - 2 -
<PAGE> 8
"Declaration" shall mean this Declaration of Trust as amended from time
to time. References in this Declaration to "Declaration", "hereof", "herein" and
hereunder shall be deemed to refer to the Declaration rather than the article or
section in which such words appear.
"Investment Restrictions" shall mean the restrictions and fundamental
policies, if any, set forth in the Prospectus and related Statement of
Additional Information and designated as those which may not be changed without
Majority Shareholder Vote.
"Person" shall mean and include individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
"Prospectus" shall mean the currently effective Prospectus of the Trust
or any series of the Trust as filed with the Securities and Exchange Commission
in Part A of a Form N-IA filed under the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended.
"Shareholders" shall mean as of any particular time all holders of
record of outstanding Shares at such time.
"Shares" shall mean one class of transferable Units of interest into
which the beneficial interest in the Trust shall be divided from time to time
and shall include fractions of Shares as well as whole Shares and Shares issued
in series ("Series") as authorized by the Trustees.
"Statement of Additional Information" shall mean the currently
effective Statement of Additional Information of the Trust or any Series of the
Trust as filed with the Securities and Exchange Commission in Part B of a Form
N-lA filed under the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended.
- -3-
<PAGE> 9
"Trustees" shall mean the signatories to this Declaration, so long as
they shall continue in office in accordance with the terms hereof, and all other
persons who at the time in question have been duly elected or appointed and have
qualified as trustees in accordance with the provisions hereof and are then in
office, and reference in this Declaration to a Trustee or Trustees shall refer
to such person or persons in their capacity as Trustees hereunder.
"Trust Property" shall mean as of any particular time any and all
property, real or personal, tangible or intangible, which at such time is owned
or held by or for the account of the Trust or the Trustees, and allocated as
appropriate to any Series authorized by the Trustees.
The "1940 Act" refers to the Investment Company Act of 1940, as amended
from time to time, and the rules and regulations issued thereunder.
- -4-
<PAGE> 10
ARTICLE II
Trustees
2.1 Number and Qualification. The number of Trustees shall be fixed from time to
time by the Trustees then in office. The number of Trustees initially shall be
the number of Trustees signatory hereto. Subject to Section l6(a) of the 1940
Act, any vacancy created by an increase in the number of Trustees may be filled
by the appointment of a qualified individual by the Trustees then in office. No
reduction in the number of Trustees shall have the effect of removing any
Trustee from office prior to the expiration of his term. Whenever vacancy in the
number of Trustees shall occur, until such vacancy is filled as provided in
Section 2.4 hereof, the Trustees in office, regardless of their number, shall
have all the powers granted to the Trustees and shall discharge all the duties
imposed upon the Trustees by this Declaration. A Trustee shall be an individual
at least 21 years of age who is not under legal disability.
2.2 Term and Election. Each Trustee signatory hereto, or elected or appointed
prior to the first meeting of Shareholders, shall (except in the event of
resignations, removals, or other events creating a vacancy pursuant to Section
2.3 or 2.4 hereof) hold office until the first meeting of Shareholders and until
his successor has been elected at such meeting and has qualified to serve as
Trustee. Beginning with the Trustees elected at the first meeting of
Shareholders, subject to section 16(a) of the 1940 Act, each Trustee shall serve
as a Trustee of the Trust for an indefinite period, subject to death,
resignation or removal. Election of Trustees at any meeting of Shareholders
shall be by the affirmative vote of the holders of a majority of the Shares
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<PAGE> 11
entitled to vote present in person or by proxy. Trustees may succeed themselves
in office. The appointment or election of any Trustee (other than an individual
who was serving as a Trustee immediately prior thereto) shall not become
effective unless and until such person shall have in writing accepted his
election and agreed to be bound by the terms of this Declaration. Trustees may,
but are not required to, own shares.
2.3 Resignation and Removal. Any Trustee may resign his trust(without need for
prior or subsequent accounting) by an instrument in writing signed by him and
delivered or mailed to the Chairman, the President or the Secretary and such
resignation shall be effective upon such delivery, or at a later date according
to the terms of the instrument. Any Trustee may be removed with or without
cause, by the vote of two--thirds of the remaining Trustees. In addition, any
Trustee may be removed by the holders of record of not less than a majority of
the outstanding Shares of the Trust, either by a declaration in writing filed
with the custodian of the securities of the Trust or by votes cast in person or
by proxy at a meeting called for such purpose at which a quorum is present,
which meeting shall be called promptly by the Trustees when requested in writing
to do so by record holders of not less than ten percent of the outstanding
Shares of the Trust. Upon the resignation or removal of a Trustee, or his
otherwise ceasing to be a Trustee, he shall execute and deliver such documents
as the remaining Trustees shall require for the purpose of conveying to the
Trust or the remaining Trustees any Trust Property held in the name of the
resigning or removed Trustee. Upon the incapacity or death of any Trustee, his
legal representative shall execute and deliver on his behalf such documents as
the remaining Trustees shall require as provided in the preceding sentence.
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2.4 Vacancies. The term of office of a Trustee shall terminate and a
vacancy shall occur in the event of the death, resignation, bankruptcy,
adjudicated incompetence or other incapacity to perform the duties of the
office, or removal, of a Trustee. No such vacancy shall operate to annul this
Declaration or to revoke or terminate any existing agency or contract created or
entered into pursuant to the terms of this Declaration. In the case of an
existing vacancy (other than by reason of an increase in the number of Trustees)
a majority of the Trustees continuing in office may fill such vacancy subject to
Section 16(a) of the 1940 Act. Any Trustee so appointed or elected shall hold
office for the period described in Section 2.2 hereof.
2.5 Meetings. Meetings of the Trustees shall be held from time to time
upon the call of the Chairman, the President, the Secretary or a majority of the
Board or Trustees. Regular meetings of the Trustees may be held with- out call
or notice at a time and place fixed by the By--Laws or by resolution of the
trustees. Notice of any other meeting shall be mailed or otherwise given not
less than 24 hours before the meeting but may be waived in writing by the
Trustee either before or after such meeting. The attendance of a Trustee at a
meeting shall constitute a waiver of notice of such meeting except where a
Trustee attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting has not been lawfully
called or convened. The Trustees may act with or without a meeting. A quorum for
all meetings of the Trustees shall be a majority of the Trustees. If less than a
majority of the Trustees are present at any meeting, a majority of those present
may adjourn the meeting from time to time without further notice; and at such
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as
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originally notified. Unless provided otherwise by statute, this Declaration or
the By--Laws, any action of the Trustees may be taken at a meeting by vote of a
majority of the Trustees present (a quorum being present) or without a meeting
by written consent of a majority of the Trustees. Such consents shall be filed
with the records of the meetings of the Trustees and shall be treated for all
purposes as votes at the meeting.
Any committee of the Trustees, including an executive or audit committee, if
any, may act with or without a meeting. A quorum for all meetings or any such
committee shall be a majority of the members thereof. Unless provided otherwise
by statute, this Declaration or the By-Laws, any action of any such committee
may be taken at a meeting by vote of a majority of the members present (a quorum
being present) or without a meeting by written consent of a majority of the
members. Such consents shall be filed with the records of the meetings of such
committee and shall be treated for all purposes as votes at the meeting.
With respect to actions of the Trustees and any committee of the Trustees,
Trustees who are Interested Persons of the Trust within the meaning of Section
1.3 hereof or otherwise interested in any action to be taken may be counted for
quorum purposes under this Section and shall be entitled to vote to the extent
permitted by the 1940 Act.
All or any one or more Trustees may participate in a meeting of the Trustees or
any committee thereof by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other and participation in a meeting pursuant to such communications
systems shall constitute presence in person at such meeting.
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2.6 Officers. The Trustees shall annually elect a Chairman, a President, a
Secretary, and a Treasurer and may elect a Vice Chairman, Vice Presidents and
such other officers as they deem necessary or appropriate. The Trustees may
authorize the Chairman or President to appoint such other officers or agents
with such powers as the Trustees may deem to be advisable. Any officer of the
Trust may be removed at any time, with or without cause, in such lawful manner
as may be provided in the By--Laws. The Chairman, Vice Chairman, if any, and
President shall be, and the Secretary and Treasurer may, but need not be, a
Trustee.
2.7 By-Laws. The Trustees may adopt and from time to time amend or repeal
By-Laws for the conduct of the business of the Trust, except with respect to any
provisions of the By-Laws which by law or under this Declaration or the By--Laws
require adoption, amendment or repeal by the Shareholders.
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ARTICLE III
Powers of Trustees
3.1 General. The Trustees in all instances shall act as principals, and are and
shall be free from the control of the Shareholders. The Trustees shall have
exclusive and absolute control over the Trust Property and over the business of
the Trust to the same extent as if the Trustees were the sole owners of the
Trust Property and business in their own right, but with such powers of
delegation as may be permitted by this Declaration. The Trustees may perform
such acts as in their sole discretion are proper for conducting the business of
the Trust. The enumeration of any specific power herein shall not be construed
as limiting aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
3.2 Investments. The Trustees shall have power, subject to the Investment
Restrictions, to:
(a) conduct, operate and carry on the business of an investment
company; and
(b) with respect to each Series of Shares authorized by the
Trustees, subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute or
otherwise deal in or dispose of any type of security or financial
instrument except as limited by the Investment Restriction of any
Series. The Trustees may exercise any and all rights, powers and
privileges of ownership or interest in respect to any and all such
investments of every kind and description, including, without
limitation, the right to consent
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<PAGE> 16
and otherwise act with respect thereto, with power to designate one or
more persons, firms, associations or corporations to exercise any of
said rights, powers and privileges in respect of any of said
instruments; and may engage in any investment technique or transaction
set forth in the Prospectus and Statement of Additional Information.
The Trustees shall not be limited to investing in obligations maturing before
the possible termination of the Trust, nor shall the Trustees be limited by any
law limiting the investments which may be made by fiduciaries.
3.3 Legal Title. Legal title to all the Trust Property shall be vested in the
Trustees as joint tenants except that the Trustees shall have power to cause
legal title to any Trust Property to be held by or in the name of one or more of
the Trustees, or in the name of the Trust or any Series of the Trust, or in the
name of any other Person as nominee, on such terms as the Trustees may
determine, provided that the interest of the Trust therein is appropriately
protected.
The right, title and interest of the Trustees in the Trust Property shall vest
automatically in each person who may hereafter become a Trustee upon his due
election and qualification. Upon the death, resignation, bankruptcy, adjudicated
incompetence, or other incapacity to perform the duties of the office or removal
of a Trustee he shall automatically cease to have any right, title or interest
in any of the Trust Property, and the right, title and interest of such Trustee
in the Trust Property shall vest automatically in the remaining Trustees. Such
vesting and cessation of title shall be effective whether or not conveyancing
documents have been executed and delivered.
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<PAGE> 17
3.4 Issuance and Repurchase of Securities. The Trustees shall have the power to
issue, sell, repurchase, redeem, retire, cancel, acquire, hold, resell, reissue,
dispose of, transfer, and otherwise deal in Shares, including Shares in
fractional denominations, and, subject to the more detailed provisions set forth
in Articles VIII and IX, to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares any funds or property of the
Trust whether capital or surplus or otherwise, to the full extent now or
hereafter permitted by the laws of the State of Ohio governing business
corporations.
3.5 Borrow Money. Subject to the Investment Restrictions, the Trustees shall
have the power to borrow money or otherwise obtain credit and to secure the same
by hypothecating, mortgaging, pledging or otherwise subjecting as security the
assets of the Trust, including the lending of portfolio securities, and to
endorse guarantee, or undertake the performance of any obligation, contract or
engagement of any other person, firm, association or corporation.
3.6 Delegation; Committees. The Trustees shall have power, consistent with,
their continuing exclusive authority over the management of the Trust and the
Trust Property, to delegate from time to time to such of their number or to
officers, employees or agents of the Trust the doing of such things and the
execution of such instruments either in the name of the Trust or the names of
the Trustees or otherwise as the Trustees may deem expedient, to the same extent
as such delegation is permitted to directors of an Ohio business corporation and
not prohibited by the 1940 Act.
3.7 Collection and Payment. The Trustees shall have power to collect all
property due to the Trust; to pay all claims, including taxes,
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<PAGE> 18
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.
3.8 Expenses. The Trustees shall have power to incur and pay any expenses,
including those expenses permitted to be incurred and paid as provided in any
12b--l distribution expense plan adopted in accordance with the 1940 Act, which
in the opinion of the Trustees are necessary or incidental to carry out any of
the purposes of this Declaration, and to pay reasonable compensation from the
funds of the Trust to themselves as Trustees. The Trustees shall fix the
compensation of all officers, employees and Trustees of the Trust. The Trustees
may pay themselves or any firm of which any of them may be a member or officer
such compensation for special services, including legal, underwriting,
syndicating and brokerage services, as they in good faith may deem reasonable
and may reimburse themselves for expenses reasonably incurred by them on behalf
of the Trust.
3.9 Miscellaneous Powers. The Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem desirable for
the transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) purchase, and pay
for out of Trust Property, insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers, distributors,
selected dealers or independent contractors of the Trust against all claims
arising by reason of any such Person holding any such position or by reason of
any action taken or omitted by any such person in such capacity, whether or not
constituting negligence, or whether or not the Trust would have
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<PAGE> 19
the power to indemnify such Person against such liability; (d) establish
pension, profit-sharing, share purchase, deferred compensation and other
retirement, incentive and benefit plans for any Trustees, officers, employees
and agents of the Trust; (c) make donations, irrespective of benefit to the
Trust for charitable, religious, educational, scientific, civic or similar
purposes;(f) to the extent permitted by law, indemnify any Person with whom the
Trust has dealings, including without limitation the investment adviser, any
distributor and selected dealers, to such extent as the Trustees shall
determine; g) guarantee indebtedness on contractual obligations of others; (h)
determine and change the fiscal year of the Trust and the method by which its
accounts shall be kept; and (i) adopt a seal for the Trust, but the absence of
such seal, shall not impair the validity of any instrument executed on behalf of
the Trust.
3.10 Further Powers. The Trustees shall have power to conduct the business of
the Trust and carry on its operations in any and all of it branches and maintain
offices both within and without the State of Ohio in any and all states of the
United States of America, in the District of Columbia and in any and all
commonwealths, territories, dependencies, colonies, possessions, agencies or
instrumentalities of the United States of America and of foreign governments,
and to do all such other things and execute all such instruments as they deem
necessary, proper or desirable in order to promote the interests of the Trust
although such things are not herein specifically mentioned. Any determinations
as to what is in the interests of the Trust made by the Trustees in good faith
shall be conclusive. In construing the provisions of this Declaration, the
presumption shall be in favor of a grant of power to the Trustees. The Trustees
will not be required to obtain any court order to deal with the Trust Property.
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ARTICLE IV
Investment Adviser and Distributor
4.1 Investment Adviser. The Trustees may in their discretion from time to time
enter into an investment advisory, administration, or management contract
whereby the other party to such contract shall undertake to furnish the Trustees
such management, investment advisory, statistical and research facilities and
services, promotional activities, and such other facilities and services, if
any, as the Trustees shall from time to time consider desirable and all upon
such terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any provisions of this Declaration, the Trustees may authorize
such investment adviser (subject to such general or specific instructions as the
Trustees may from time to time adopt) to implement their investment powers on
behalf of the Trustees or may authorize any officer, employee or Trustee to
implement their investment powers pursuant to recommendations of such investment
adviser (and all without further action by the Trustees). Any such investments
shall be deemed to have been authorized by all of the Trustees. Subject to the
provisions of the 1940 Act, any investment adviser to the Trust may with the
consent of the Trustees, subcontract with another person for the performance of
investment advisory or other services on behalf of the Trust. The services
rendered by any such investment adviser to the Trust and by any person to whom
advisory services may be subcontracted shall be subject to the general
supervision and control of the Trustees. Any agreement or contract permitted to
be entered into pursuant to this Section 4.1 may, at the discretion of the
Trustees, be entered into with a Person who is an Affiliated Person of the Trust
or the Trust's investment advisor.
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<PAGE> 21
4.2 Distributor. The Trustees may in their discretion from time to time
enter into a contract providing for the sale Of the Shares whereby the Trust
i-may either agree to sell the Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. In either case, the
contract shall be on such terms and conditions as the Trustees may in their
discretion determine arid as are not inconsistent with the provisions of this
Article IV or the By-Laws. Any such contract may also provide for the repurchase
or sale of Shares by such other party as principal or as agent of the Trust and
may provide that such other party may enter into selected dealer agreements with
registered securities dealers to further the purpose of the distribution or
purchase of the Shares.
4.3 Parties to Contract. Any contract of the character described in Section
4.1 and 4.2 of this Article IV or in Article VII hereof may be entered into with
any corporation, firm, trust or association, although one or more of the
Trustees or officers of the Trust may be an officer, director, Trustee,
shareholder, or member Of such other party to the contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom provided that the contract when entered into was reasonable
and fair and not inconsistent with the provisions of this Article IV, the
By--Laws or applicable law. The same person (including a firm, corporation,
trust, or association) may be the other party to contracts entered into pursuant
to Sections 4.1 and 4.2 above or Article VII, and any individual may be
financially interested or otherwise affiliated with Persons who are parties to
any and all of the contracts mentioned in this Section 4.3.
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<PAGE> 22
4.4 Provisions and Amendments. Any contract entered into pursuant to Section 4.1
and 4.2 of this Article IV and any amendment thereto, shall be consistent with
and subject to the requirements of Section 15 of the 1940 Act With respect to
its continuance in effect, its termination, and the method of authorization and
approval of such contract, and amendment thereto or renewal thereof.
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ARTICLE V
Limitation of Liability and Indemnification
5.l No Personal Liability of Shareholders, Trustees, etc. No Shareholder shall
be subject to any personal liability whatsoever to any person in connection with
Trust Property or the acts, obligations or affairs of the Trust. The Trustees
shall have no power to bind any Shareholder personally or to call upon any
Shareholder for the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to pay by way of
subscription for any Shares or otherwise. Provided he has acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Trust, no Trustee, officer, employee or agent of the Trust
shall be subject to any personal liability whatsoever to the Trust, its
Shareholders or to any Trustee, officer, employee or agent thereof for any
action or failure to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of Trust) or to any
other Person in connection with Trust Property or the affairs of the Trust, but
nothing contained herein shall protect any Trustee, officer, employee or agent
of the Trust against any liability to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of his duty to the Trust or to any Shareholder, Trustee, officer, employee or
agent thereof or to any other such Person, and any Shareholder, Trustee,
officer, employee or agent of the Trust or any such Person shall look solely to
the Trust Property for satisfaction of claims of any nature arising in
connection with the affairs of the Trust. If any Shareholder, Trustee, Officer,
employee, or agent, as such, of
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<PAGE> 24
the Trust, is made a party to any suit or proceeding to enforce any such
liability, he shall not on account thereof, be held to any personal liability.
The Trust shall indemnify and hold each Shareholder harmless from and against
all claims and liabilities, to which such Shareholder may become subject by
reason of his being or having been a Shareholder, and shall reimburse such
Shareholder for all legal and other expenses reasonably incurred by him in
connection with any such claim or liability and shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the Trust and satisfy any judgment thereon. The rights accruing to a Shareholder
under this Section 5.1 shall not exclude any other right to which such
Shareholder may be lawfully entitled, or shall anything herein contained
restrict the right of the Trust to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided herein.
5.2 Indemnification of Trustees, Officers, Employees or Agents of the Trust.
Subject to the exceptions and limitations contained in Section 5.3 and to the
1940 Act;
(a) every person who is, or has been, a Trustee, officer, employee or agent of
the Trust shall be indemnified by the Trust to the full extent now or hereafter
permitted by law (including without limitation, Chapter 1701 of the Ohio Revised
Code against all liabilities and expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a
Trustee, officer, employee or agent of the Trust or serving or having served, at
the request of the Trust, as a director, officer, trustee, employee or agent of
any corporation, partnership, joint venture, trust or other enterprise and
against amounts paid or incurred by him in the settlement thereof; and
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<PAGE> 25
(b) the words "claim", "action," "suit" or "proceeding" shall apply to all
claims, actions, suits. or proceedings (civil, criminal, administrative,
investigative or other, including appeals), actual or threatened, including
claims, actions, suits or proceedings by or in the right of the Trust to procure
a judgment in its favor; and the words "liability" and "expenses" shall include
attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties
and reasonable expenses actually incurred in connection with the proceeding.
5.3 Payment of Expenses. Expenses (including attorneys' fees) incurred in
defending any claim, action, suit or proceeding shall be paid by the Trustees as
they are incurred in advance of the final disposition thereof upon (a)
authorization by a majority of a quorum of the Trustees who are neither
Interested Persons of the Trust nor parties to the claim, action, suit or
proceeding, and (b) receipt of an undertaking by the person to be indemnified
(i) to repay such amount if it is proved by clear and convincing evidence in a
court of competent jurisdiction that his action or failure to act involved an
act or omission undertaken with reckless disregard for the best interests of the
Trust, and (ii) to reasonably cooperate with the Trust concerning the action,
suit, or proceeding under Section 5.2.
5.4 Non--Exclusivity of Indemnification. The indemnification provided for herein
shall not be deemed to restrict the right of the Trust (i) to indemnify
employees, agents and others to the extent not prohibited by such law, (ii) to
purchase and maintain insurance or furnish similar protection on behalf of for
any person who is or was; a trustee, officer, employee or agent of the Trust, or
any person who is or was serving at the request of the Trust as a director,
officer, trustee, employee or agent of another business trust,
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<PAGE> 26
corporation, joint venture, partnership, trust or other enterprise against any
liability asserted against him or incurred by him in any such capacity or
arising out of his status as soon, and (iii) to enter into agreements with
persons of the class identified in clause (ii) above indemnifying them against
any and all liabilities (or such lesser indemnification as may be provided in
such agreements) asserted against or incurred by them in such capacities.
5.5 No Bond Required of Trustees. No Trustee shall, as such, be obligated to
give any bond or security or other security for the performance of any of his
duties hereunder.
5.6 No Duty of Investigation; Notice in Trust Instruments, etc. No purchaser,
lender, transfer agent or other person dealing with the Trustees or any officer,
employee or agent of the Trust shall be bound to make any inquiry concerning the
validity of any transaction purporting to be made by the Trustees or by said
officer, employee or agent or be liable for the application of money or property
paid, loaned, or delivered to or on the order of the Trustee or of said officer,
employee or agent. Every obligation, contract, instrument, certificate, Share,
other security of the Trust or undertaking, and every other act or thing
whatsoever executed in connection with the Trust shall be conclusively taken to
have been executed or done by the executors thereof only in their capacity as
Trustees under this Declaration or in their capacity as officer, employees or
agents of the Trust. Every material written obligation, contract, instrument, or
undertaking and all certificates, Shares, or other securities of the Trust made
or issued by the Trustees or by any officers, employees or agents of the Trust,
in their capacity as such, shall contain an appropriate recital to the effect
that the Shareholders, Trustees, officers, employees and agents of the Trust
shall not personally be bound by
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<PAGE> 27
or liable thereunder, nor shall resort be had to their private property for the
satisfaction of any obligation or claim thereunder, and appropriate references
shall be made therein to the Declaration, and may contain any further recital
which they may deem appropriate, but the omission of such recital shall not
operate to impose personal liability any of the Trustees, Shareholders,
officers, employees or agents of the Trust. The Trustees may maintain insurance
for the protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable.
5.7 Reliance on Experts, etc. Each Trustee and officer or employee of the Trust
shall, in the performance of his duties, be fully and completely justified and
protected with regard to any act or any failure to act resulting from reliance
in good faith upon the books of account or other records of the Trust, upon an
opinion of counsel, or upon reports made to the Trust by any of its Trustees,
officers or employees or by its investment adviser, distributor, selected
dealers, accountants, appraisers or other experts or consultants selected with
reasonable care by the Trustees, officers or employees of the Trust, regardless
of whether such counsel or expert may also be a Trustee.
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ARTICLE VI
Shares of Beneficial Interest
6.1 Beneficial Interest. The interest of the beneficiaries hereunder shall be
divided into transferable shares of beneficial interest without par value. The
Shares may be issued from time to time, in one or more Series, each such Series
to differ from every other Series then outstanding as may be determined from
time to time by the Trustees prior to the issuance of any Shares thereof, in any
or all of the following, but in no other respects; provided that the Trustees
shall not issue Shares of any Series that would constitute a "senior security"
prohibited under the 1940 Act or would otherwise violate any provision of the
1940 Act:
(a) The designation of such Series, by a distinguishing number, letter or
title as the Trustees may deem appropriate
(b) The assets, if any, to be specifically allocated to such Series;
(c) The method of calculating net investment income and expense attributable
to such Series;
(d) The right, if any, of the Shareholders of any Series to convert the same
into Shares of any other Series and the terms and conditions of such conversion;
and
(e) The rights of Shareholders of the Series to receive dividends and other
distributions.
All votes of Shareholders shall be conducted separately by each Series of the
Trust, except to the extent that the 1940 Act requires Shares to be voted in the
aggregate without regard to the separate Series.
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<PAGE> 29
All creditors, persons entering into contracts with the Trust, or persons
having any claim against the Trust shall look solely to the assets of the Series
of the Trust with which such person dealt for payment of such credit, contract
or claim; no other Series shall be held liable therefor. Likewise, Shareholders
of a Series are limited to the assets of that Series for the recovery of any
claim, liability or judgment.
All Shares shall be of equal rank, shall together constitute a single class of
shares of beneficial interest in the Trust and shall be identical in all
respects except as may be fixed by the Trustees as hereinabove provided. The
number of such shares of beneficial interest of any Series authorized hereunder
is unlimited. All Shares issued hereunder including, without limitation, Shares
issued in connection with a dividend in Shares or a split of Shares, shall be
fully paid and nonassessable.
6.2 Right of Shareholders. The ownership of the Trust Property of every
description and the right to conduct any business hereinbefore described are
vested exclusively in the Trustees, and the Shareholders shall have no interest
therein other than the proportionate beneficial interest conferred by their
shares, and they shall have no right to call for any partition or division of
any property, profits, rights or interests of the Trust nor can they be called
upon to share or assume any losses of the Trust or suffer an assessment of any
kind by virtue of their ownership of Shares. The Shares shall be personal
property giving only the rights in this Declaration specifically set forth. The
Shareholders shall have no preemptive or other right to subscribe to any
additional shares or other securities issued by the Trust or the Trustees and
shall have no preference, appraisal, conversion or exchange rights, except for
rights of conversion or exchange specified in Section 6.1.
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<PAGE> 30
6.3 Trust Only. It is the intention of the Trustees to create only the
relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.
6.4 Issuance of Shares. The Trustees, in their discretion, may from time to time
without vote of the Shareholders issue Shares, in addition to the then issued
and outstanding Shares and Shares held in the treasury, to such party or parties
and for such amount and type of consideration, including cash or property, at
such time or times and on such terms as the Trustees may deem best, and may in
such manner acquire other assets (including the acquisition of assets subject
to, and in connection with the assumption of liabilities) and businesses. In
connection with any issuance of Shares, the Trustees may issue fractional
Shares. The Trustees may vary from time to time divide or combine the Shares
into a greater or lesser number without thereby changing the proportionate
beneficial interests in the Trust. Contributions to the Trust may be accepted
for, and Shares shall be redeemed as, whole Shares and/or 1/l00 ths of a Share
or multiples thereof.
6.5 Register of Shares. A register shall be kept at the Trust or a transfer
agent duly appointed by the Trustees under the direction of the Trustees which
shall contain the names and addresses of the Shareholders and the number of
Shares held by them respectively and a record of all transfers thereof. Such
register shall be conclusive as to the holders of the Shares
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<PAGE> 31
and as to who shall be entitled to receive dividends or distributions or
otherwise exercise or enjoy the rights of Shareholders. No Shareholder shall be
entitled to receive payment of any dividend or distribution, nor to have notice
given to him as herein provided, until he has given his address to a transfer
agent or such other officer or agent of the Trustees as shall keep the said
register for entry thereon. Certification will not be issued for the Shares
unless the Trustees, in their discretion, approve such issuance for one or more
Series.
6.6 Transfer Agent and Registrar. The Trustees shall have power to employ a
transfer agent or transfer agents, and a registrar or registrars. The transfer
agent or transfer agents may keep the said register and record therein the
original issues and transfers, if any, of said Shares. Any such transfer agent
and registrars shall perform the duties usually performed by transfer agents and
registrars of certificates of stock in a corporation, except as modified by the
Trustees. At the discretion of the Trustees, any Person employed as a transfer
agent or registrar may be an Affiliated Person of the Trust or the Trust's
investment adviser.
6.7 Transfer of Shares. Share shall be transferable on the records of the Trust
only by the record holder thereof or by his agent thereto duly authorized in
writing, upon surrender and cancellation of certificates, if any, upon delivery
to the Trust or a transfer agent of the Trust of a duly executed instrument of
transfer, together with such evidence of the genuineness of each such execution
and authorization and of other matters as may reasonably be required. Upon such
delivery the transfer shall be recorded on the register of the Trust.
Until such record is made, the Shareholder of
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<PAGE> 32
record shall be deemed to be the holder of such Shares for all purposes hereof
and neither the Trust nor any transfer agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any person becoming entitled to any Shares in consequences of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trust or a transfer agent
of the Trust, but until such record is made, the Shareholder of record shall he
deemed to be the holder of such Shares for all purposes hereof and neither the
Trust nor any transfer agent or registrar nor any officer or agent of the Trust
shall be affected by any notice of such death, bankruptcy or incompetence, or
other operation of law.
6.8 Notices. Any and all notices to which any Shareholder hereunder may be
entitled and any and all communications shall be deemed duly served or given if
mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
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ARTICLE VII
Custodian
7.1. Appointment and Duties. The Trustees shall at all times employ a bank or
trust company organized under the laws of the United States or one of the states
thereof and having capital, surplus and undivided profits of at least two
million dollars ($2,000,030) as custodian with authority as its agent, but
subject to such restrictions, limitations and other requirements, if any, as may
be contained in the By--Laws of the Trust and the 1940 Act:
(a) to hold the securities owned by the Trust and deliver the same upon
written order;
(b) to receive and receipt for any moneys due to the Trust and deposit the
same in its own banking department or elsewhere as the Trustees may direct;
(c) to disburse such funds upon orders or vouchers and to employ such
custodian as its agent for such purpose;
(d) if authorized by the Trustees, to keep the books and accounts of the
Trust and to furnish clerical and accounting services; and
(e) if authorized by the Trustees, to compute the net income of the Trust
and the net income attributable to each Series, if any, of Shares of the Trust;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a Majority Shareholder Vote, the custodian
shall deliver and pay over all property of the Trust held by it as specified in
such vote.
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<PAGE> 34
The Trustees may also authorize the custodian to employ one or more
sub--custodians from time to time to perform such of the acts and services of
the custodian and upon such terms and conditions, as may be agreed upon between
the custodian and such sub-custodian and approved by the Trustees, provided that
in every case such sub--custodian shall be a bank or trust company organized
under the laws of the United States or one of the states thereof and having
capital, surplus and undivided profits of at least two million dollars
($2,000,000), or a company which is a member of a national securities exchange
as defined in the Securities Exchange Act of 1934, as amended. At the discretion
of the Trustees any Person employed as a custodian or subcustodian pursuant to
this Section 7.1 may be an Affiliated Person of the Trust or the Trust's
investment adviser.
7.2 Central Certificate System. Subject to such rules, regulations and orders as
the Commission may adopt, the Trustees may direct the custodian to deposit all
or any part of the securities owned by the Trust in a system for the central
handling of securities established by a national securities exchange or a
national securities association registered with the Commission under the
Securities Exchange Act of 1934, or such other Persons as may be permitted by
the Commission, or otherwise in accordance with the 1940 Act, pursuant to which
system all securities of any particular class or series of any issuer deposited
within the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities, provided that
all such deposits shall be subject to withdrawal only upon the order of the
Trust.
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<PAGE> 35
ARTICLE: VIII
Redemption
8.1 Redemptions. All outstanding Shares may be redeemed at the option of the
holders thereof, upon and subject to the terms and conditions provided in this
Article VIII. The Trust shall, upon application, of any Shareholder or pursuant
to authorization from any Shareholder, redeem or repurchase from such
Shareholder outstanding Shares for an amount per Share determined by the
application of a formula adopted for such purpose by resolution of the Trustees
(which formula shall be consistent with the 1940 Act, and the rules and
regulations promulgated thereunder); provided that (a) such amount per Share
shall not exceed the cash equivalent of the proportionate interest of each Share
in the assets at the Trust at the time of the repurchase or redemption; (b) if
the Shares to be redeemed or repurchased are Shares of a Series with interests
in assets specifically allocated to such Series, such amount per Share shall not
exceed the cash equivalent of the proportionate interest of each Share in the
assets of the Trust so allocated at the time of the redemption or repurchase;
(c) if so authorized by the Trustees, the Trust may, at any time and from time
to time, charge fees for effecting such redemption, at such rate as the Trustees
may establish, as and to the extent permitted under the 1940 Act, and the rules
and regulations promulgated thereunder, and may, at any time and from time to
time, pursuant to such Act and such rules and regulations, suspend such right of
redemption. The procedures for effecting redemption shall be as set forth in the
Prospectus and Statement of Additional Information.
8.2 Redemption of Shares Disclosure of Holding. If the Trustees shall at any
time and in good faith be of the opinion that direct or indirect
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ownership of Shares or other securities of the Trust has or may become
concentrated in any Person to an extent which would disqualify the Trust as a
regulated investment company under the Internal Revenue Code, then the Trustees
shall have the power by lot or other means deemed equitable by them (i) to call
for redemption a number, or principal amount, of Shares or other securities of
the Trust sufficient, in the opinion of the Trustees, to maintain or bring the
direct or indirect ownership of Shares or other securities of the Trust into
conformity with the requirements for such qualification and (ii) to refuse to
transfer or issue Shares or other securities of the Trust to any Person whose
acquisition of the Shares or other securities of the Trust in question would in
the opinion of the Trustees result in such disqualification. The redemption
shall be effected at a redemption price determined in accordance with Section
8.1.
The holders of Shares or other securities of the Trust shall upon demand
disclose to the Trustees in writing such information with respect to direct and
indirect ownership of Shares or other securities of the Trust to the Trustees
deem necessary to comply with the provisions of the Internal Revenue Code, or to
comply with the requirements of any other taxing authority.
8.3. Redemptions of Small Accounts. Due to the relatively high cost of
maintaining investment accounts, the Trustees shall have the power to redeem
shares at a redemption price determined in accordance with Section 8.1 if at any
time the total investment in such account does not have a value of at least $500
or such other amount as the Trustees may in their discretion from time to time
determine and as shall be set forth in the Prospectus and Statement of
Additional Information. In such event Shareholders will be notified
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that the value of their account is less than the designated minimum and allowed
60 days to make an additional investment before redemption is processed.
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<PAGE> 38
ARTICLE IX
Determination of Net Asset
Value, Net Income and Distributions
9.1 Net Asset Value. The net asset value of each outstanding Share of the Trust
shall be determined as required by the 1940 Act in accordance with the rules and
regulations of the Commission, and at such other times as the Trustees by
resolution may determine. The method of determination of net asset value shall
be determined by the Trustees and shall be as set forth in the Prospectus and
Statement of Additional Information. Separate determinations of net asset value
shall be made for Shares of each Series, if any, with respect to which specific
assets of the Trust have been allocated. The power and duty to make the daily
calculations may be delegated by the Trustees to the Investment Adviser, the
Distributor, the custodian, the transfer agent or such other person as the
Trustees by resolution may determine. The Trustees may suspend the daily
determination of net asset value to the extent permitted by the 1940 Act.
9.2 Distributions to Shareholders. The Trustees shall from time to time
distribute ratably among the holders of Shares or a Series of Shares, if any,
such proportion of the net profits, surplus (including paid--in surplus),
capital, or assets held by the Trustees and allocable to such Shares or such
Series of Shares, if any, as they may deem proper. Such distribution may be made
in cash or in property, subject to compliance with the 1940 Act (including
without limitation any type of obligations of the Trust or any assets thereof),
and the Trustees may distribute ratably among the Shareholders additional Shares
issuable hereunder in such manner, at such times, and on such terms as the
Trustees may deem proper. Such distribution
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<PAGE> 39
may be among the Shareholders of record at the time of declaring a distribution
or among the Shareholders of record at such later date as the Trustees shall
determine. The Trustees may always retain from the net profits attributable to
the Shares such amount as they may deem necessary to pay the debts or expenses
of the Trust or to meet obligations of the Trust, or as they may deem desirable
to use in the conduct of its affairs or to retain for future requirements or
extension of the Trust's business. The Trustee may adopt and offer to
Shareholders such dividend reinvestment plan, cash dividend payout plans or
related plans as the Trustees shall deem appropriate.
Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
9.3 Power to Modify Foregoing Procedures. Notwithstanding any of the foregoing
provisions of this Article IX, the Trustees may prescribe, in their absolute
discretion, such other bases and times for determining the per Share net asset
value of the Trust's Shares or net income, or the declaration and payment of
dividends and distributions as they may deem necessary or desirable to enable
the Trust to comply with any provision of the 1940 Act, or any rule or
regulation thereunder, including any rule or regulation adopted pursuant to
Section 22 the 1940 Act by the Commission or any securities association
registered under the Securities Exchange Act of 1934, or any order of exception
issued by said Commission, all as in effect now or hereafter amended or
modified.
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<PAGE> 40
ARTICLE X
Shareholders
10.1 Meetings of Shareholders. (a) Annual Meetings. The first meeting of the
Shareholders shall be held at such place within or without the State of Ohio on
such day and at such time as the Trustees shall designate. The presence in
person or by proxy of the holders of one--third of the outstanding Shares
entitled to vote shall constitute a quorum at any meeting of Shareholders.
Except as otherwise specified in this Declaration or by a specific superseding
statutory provision, any action may be taken or authorized by the Shareholders
(a quorum being present) upon the affirmative vote of the holders of a majority
of the Shares entitled to vote present in person or by proxy. A majority of such
Shares represented at any meeting (whether or not a quorum is present) may
adjourn the meeting from time to time without further notice; and at such
adjourned meeting at which a quorum is represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. Except as required by the 1940 Act or as provided herein, there shall
be no Annual Meetings of Shareholders.
(b) Special Meetings. Special meetings of the Shareholders (including meetings
involving the holders of Shares of less than all of the series) may be called at
any time by a majority of the Trustees and shall be promptly called by the
Secretary upon written request of Shareholders holding in the aggregate not less
than l0% of the outstanding Shares having voting rights with respect to the
matters to be brought before the meeting, such request specifying the purpose or
purposes for which such meeting is to be called. Any such meeting shall be held
within or without the State of Ohio on such day and at such time as the Trustee
shall designate. If the Secretary
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<PAGE> 41
fails to call or give notice of any special meetings of Shareholders within 30
days after such written application by the Shareholders, then Shareholders
holding in the aggregate not less than 10% of the outstanding Shares having
voting' rights with respect to the matters to be brought before the meeting may
call and give notice of a special meeting to be held in the manner otherwise
provided for herein.
10.2 Notice of Meeting. Written notice of all meetings of the Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder entitled to vote on the matters to be
brought before such meeting at such Shareholder's registered address, mailed at
least 7 days and not more than 60 days before the meeting. No notice of the
time, place or purpose of any meeting of Shareholders need be given to any
Shareholder who attends in person or by proxy or to any Shareholders who, in
writing executed and filed with the records of the meeting either before or
after the holding thereof, waives such notice. Only the business stated in the
notice of the meeting shall be considered at such meeting. Any adjourned meeting
may be held as adjourned without further notice.
10.3 Record Date for Meetings. For the purpose of determining the Shareholders
who are entitled to notice of and to vote at any meeting, or to participate in
any distribution, or for the purpose of any other action, the Trustees may from
time to time close the transfer books for such period, not exceeding 30 days, as
the Trustees may determine; or without closing the transfer books the Trustees
may fix a date not more than 60 days prior to the date of any meeting of
Shareholders, any distribution or any other action as a record date for the
determination of the Persons to be treated as Shareholders
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of record for such purposes, except for dividend payments which shall be
governed by Section 9.2 hereof.
10.4 Proxies, etc. At any meeting of Shareholders, any holder of Shares entitled
to vote thereat may vote by proxy, provided that no proxy shall be voted at any
meeting unless it shall have been placed on file with the Secretary, or with
such other officer or agent of the Trust as the Secretary may direct, for
verification prior to the time at which such vote shall be taken. Pursuant to a
resolution of a majority of the Trustees, proxies may be solicited in the name
of one or more Trustees or one or more of the officers of the Trust. Only
Shareholders of record shall be entitled to vote. Each Full Share shall be
entitled to one vote and fractional Shares shall be entitled to a vote of such
fraction. When any Share is held jointly by several persons, any one of them may
vote at any meeting in person or by proxy in respect of such Share, but if more
than one of them shall be present at such meeting in person or by proxy, and
such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Share. A proxy
purporting to be executed by or on behalf of a Shareholder shall be deemed valid
unless challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger. No appointment of a proxy shall be
valid after the expiration of eleven months after it is made unless the writing
specifies the date on which it is to expire or the length of time it is to
continue in force. If the holder of any Share is a minor or person of unsound
mind, and subject to guardianship or to the legal control of any other person as
regards the charge or management of such Share, he may vote by his guardian or
such other person appointed or having such control, and such vote may be given
in person or by proxy.
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<PAGE> 43
10.5 Reports. The Trustees shall cause to be prepared at least annually a report
of operations containing a balance sheet and statement of income and
undistributed income of the Trust (or of each Series) prepared in conformity
with generally accepted accounting principles and an opinion of an independent
public accountant on such financial statements. Copies of such reports shall be
mailed to all Shareholders of record within the time required by the 1940 Act
provided that such reports may be furnished as to each Series separately. The
Trustees shall, in addition, furnish to the Shareholders at least semi-annually
an interim report containing an unaudited balance sheet of the Trust as at the
end of such period and an unaudited statement of income and surplus for the
period from the beginning of the current fiscal year to the end of such period,
which report may be furnished as to each Series separately rather than the
entire Trust if deemed desirable.
l0.6 Inspection of Records. The records of the Trust shall be open to Inspection
by Shareholders to the same extent as is permitted shareholders of an Ohio
business corporation.
10.7 Shareholder Action By Written Consent. Any action which may be authorized
or taken at a meeting of the Shareholders may be authorized or taken without a
meeting with the affirmative vote or approval of, and in a writing or writings
signed by all the Shareholders who would be entitled to notice of a meeting of
the Shareholders held for such purpose, which writing or writings shall be filed
with or entered upon the records of the Trust.
10.8 Shareholder Communications. The Trustees shall comply with all of the
provisions of Section 11(c) under the 1940 Act in the event ten or more
Shareholders of record who have been such for at least six months preceding the
date of application, and who held in the aggregate either Shares having a
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<PAGE> 44
net asset value of at least $25,000 or at least one percent of the outstanding
Shares, whichever is less, shall apply to the Trustees in writing, stating that
they wish to communicate with other Shareholders with a view to obtaining
signatures for a request for a meeting pursuant to section 10.1 of this
Declaration.
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<PAGE> 45
Article. XI
Duration; Termination of Trust;
Amendment; Mergers; Etc.
11.1 Duration. Subject to possible termination in accordance with the provisions
of Section 11.2 hereof, the Trust created hereby shall continue without
limitations of time.
11.2 Termination of Trust. (a) The Trust may be terminated by the affirmative
vote of a majority of the Trustees then in office, without the vote or consent
of the Shareholders. Upon the termination of the Trust,
(i) The Trust shall carry on no business except for the purpose of
winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust and all
of the powers of the Trustees under this Declaration shall continue until the
affairs of the Trust shall have been wound up, including the power to fulfill or
discharge the contracts of the Trust, collect its assets, sell, convey, assign,
exchange, transfer or otherwise dispose of all or any part of the remaining
Trust Property to one or more Persons at public or private sale for
consideration which may consist in whole or in part of cash, securities or other
property of any kind, discharge or pay its liabilities, and do all other acts
appropriate to liquidate its business.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements, as they deem necessary for their protection, the Trustees may
distribute
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the remaining Trust Property, in cash or in kind or partly of each, among the
Shareholders according to the respective rights. Shareholders shall be entitled
to receive only their pro--rata portion of the remaining Trust property which is
allocable to the Series of which they hold Shares.
(b) After termination of the Trust and distribution to the Shareholders as
herein provided, a majority of the Trustees shall execute and lodge among the
records of the Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder, and the rights and interests of all
Shareholders shall thereupon cease.
(c) The provisions of Sections 11.2(a) and (b) shall further be applicable to
the termination of any one or more but less than all Series, in which case the
language of such Sections shall be applied and interpreted so as to relate only
to the Series being terminated rather than the entire Trust.
11.3 Amendment Procedure. (a) Subject to subsection (b) of this section and
applicable law, including the 1940 Act, the Declaration may be amended at any
time and for any reason by a majority of the Trustees then in office, without
the vote or consent of Shareholders, by an instrument in writing signed by a
majority of the then Trustees or by an officer of the Trust pursuant to a
majority vote of such Trustees.
(b) No amendment may be made, under Section ll.3(a) above, which would change
any rights with respect to any Shares of the Trust by reducing the amount
payable thereon upon liquidation of the Trust or by impairing or diminishing the
preferences, voting powers, restrictions, qualifications, special or relative
rights or privileges pertaining thereto, except with the
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<PAGE> 47
vote or consent of the holders of a majority of the Shares; if Shares have been
issued in Series and such amendment would not affect Shares of all Series
equally, no such amendment may be made except with the vote or consent of the
holders of a majority of the Shares of each Series affected by such amendment.
Nothing contained in this Declaration shall permit the amendment of this
Declaration to impair the exemption from personal liability of the Shareholders,
Trustees, officers, employees and agents of the Trust or to permit assessments
upon Shareholders.
(c) A certification in recordable form signed by a majority of the Trustees
setting forth an amendment and reciting that it was duly adopted by the Trustees
or by the Shareholders as aforesaid shall be conclusive evidence of such
amendment when lodged among the records of the Trust and filed in such
jurisdictions as may be required under applicable law.
Notwithstanding any other provision hereof, until such time as a Registration
Statement under the Securities Act of 1933, as amended, covering the initial
public offering of Shares shall have become effective, this Declaration may be
terminated or amended in any respect by the affirmative vote of a majority of
the Trustees or by an instrument signed by a majority of the Trustees.
11.4 Merger, Consolidation and Sale of Assets. To the extent permitted by law;
as now or hereafter in effect, the Trust or any Series may merge or consolidate
with any other corporation, association, trust, Series or other organization or
may sell, lease or exchange all or substantially all of the Trust Property (or
of the portion of the Trust Property allocated to such Series), including its
good will, upon such terms and conditions and for such consideration when and as
authorized by a majority of the Trustees then in
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<PAGE> 48
office. If the Trust will not be the surviving trust after such merger or
consolidation, then the merger or consolidation shall also be approved by the
vote or written consent of the holders of a majority of the Shares outstanding
and entitled to vote.
11.5 Incorporation. With the approval of the holders of a majority of the Shares
outstanding and entitled to vote, the Trustees may cause to be organized or
assist in organizing a corporation or corporations under the laws of any
jurisdiction or any other trust, partnership, association or other organization
to take over all of the Trust Property or to carry on any business in which the
Trust shall directly or indirectly have any interest, and to sell, convey and
transfer the Trust Property to any such corporation, trust, association or
organization in exchange for the shares or securities thereof or otherwise, and
to lend money to, subscribe for the shares or securities of, and enter into any
contracts with any such corporation, trust, partnership, association or
organization, or any corporation, partnership, trust, association or
organization in which the Trust holds or is about to acquire shares or any other
interest. The Trustees may also cause a merger or consolidation between the
Trust or any successor thereto and any such corporation, trust, partnership.
association or other organization if and to the extend permitted by law, as
provided under the law then in effect.
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<PAGE> 49
ARTICLE XII
Miscellaneous
12.1 Filing. This Declaration and any amendment hereto shall be filed with the
Office of the Secretary of State of Ohio pursuant to Ohio Revised Code, Section
1746.04 and in such other place or places as the Trustees deem appropriate.
12.2 Governing Law. The Trust created by this instrument is created under and is
to be construed and administered according to the laws of the State of Ohio
including, without limitation, Chapter 1746 of the Ohio Revised Code, and may
exercise all powers which are exercisable by a business trust organized
thereunder.
12.3 Counterparts. This Declaration may be simultaneously executed in several
counterparts, each of which shall be deemed to be an original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
12.4 Gender. Words denoting the male gender in this Declaration shall be
construed to denote either the male or female gender, or any Person, as
appropriate in any particular case.
12.5 Name. Gradison & Company Incorporated ("Gradison") has consented to the use
by the Trust of the identifying word "Gradison" in the name of the Trust. Such
consent is conditioned upon the employment of Gradison as investment adviser of
the Trust. As between the Trust and itself, Gradison controls the use of the
name of the Trust insofar as such name contains the identifying word "Gradison."
Gradison may from time to time use the identifying word "Gradison" in other
connections and for other purposes, including, without limitation , in the names
of other investment companies, corporations
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<PAGE> 50
or businesses which it may manage, advise, sponsor or own or in which it may
have a financial interest. Gradison may require the Trust to cease using the
identifying word "Gradison" in the name of the Trust if the Trust ceases to
employ Gradison or a subsidiary thereof as investment adviser of the Trust.
12.6 Reliance by Third Parties. Any certificate executed by an individual who,
according to the records of the Trust, appears to be a Trustee hereunder,
certifying to (a) the number of identity of Trustees or Shareholders, (b) the
due authorization of the execution of any instrument in writing, (c) the form of
any vote passed at a meeting of Trustees or Shareholders, (d) the fact that the
number of Trustees or Shareholders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration, (e) the form
of any By--Laws adopted by or the identity of any officers elected by the
Trustees, or (f) the existence of any fact or facts which in any manner relate
to the affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any person dealing with the Trustees and their successors.
l2.7 Provisions in Conflict With Law or Regulations. (a) The provisions of this
Declaration are severable, and if the Trustees shall determine, with the advice
of counsel, that any of such provisions is in conflict with the 1940 Act, the
regulated investment company provisions of the Internal Revenue Code or with
other applicable laws and regulations, the conflicting provision shall be deemed
never to have constituted a part of this Declaration provided, however, that
such determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
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<PAGE> 51
(b) If any provision of this Declaration shall be held invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall attach only to
such provision in such jurisdiction and shall not in any manner affect such
provision in any other jurisdiction or any other provision of this Declaration
in any jurisdiction.
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IN WITNESS WHEREOF, the undersigned have caused these presents to be executed as
of the day and year first written.
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<PAGE> 1
EXHIBIT (2)
Amendment to By-Laws of
Gradison Custodian Trust
The last sentence of Section 3.1 of the By-Laws is restated as follows:
The Chairman and the Vice Chairman, if any, shall be a Trustee, but no other
officer of the Trust need be a Trustee.
The undersigned hereby certifies that the foregoing amendment to the By-Laws was
duly effected by the Trustees of the Gradison Custodian Trust at a meeting held
on July 16, l991.
/s/Kevin M. Sheehan
Secretary
Gradison Custodian Trust
<PAGE> 2
BY-LAWS
OF
GRADISON CUSTODIAN TRUST
<PAGE> 3
GRADISON CUSTODIAN TRUST
BY--LAWS
These By-Laws are made and adopted pursuant to Section 2.7 of the Declaration of
Trust establishing GRADISON CUSTODIAN TRUST dated ________1987, as from time to
time amended (hereinafter called the Declaration).
All words and terms capitalized in these By-Laws shall have the meaning or
meanings set forth for such words or terms in the Declaration.
ARTICLE I
Shareholder Meetings
Section 1.1. Chairman. The Chairman shall act as chairman at all meetings of the
Shareholders; in his absence, the President shall act as chairman; and in the
absence of the Chairman and the President, the Trustee or Trustees present at
each meeting may elect a temporary chairman for the meeting, who may be one of
themselves.
Section 1.2. Proxies; Voting. Shareholders may vote either in person or by duly
executed proxy and each full and fractional share represented at the meeting
shall have one vote or a fractional vote, as the case may be, all as provided in
Section 10.4 of the Declaration. Cumulative voting shall be prohibited. No
appointment of proxy shall be valid after the expiration of eleven months after
it is made unless the writing specifies the date on which it is to expire or the
length of time it is to continue in force. Each proxy shall be revocable unless
expressly provided therein to be irrevocable or unless otherwise made
irrevocable by law.
Section 1.3. Closing of Transfer Books and Fixing of Record dates.
For the purpose of determining the Shareholders who are entitled to notice of or
to vote or act at any meeting, including any adjournment thereof, or for the
purpose of any other action, the Trustees may from time to time close the
transfer books or fix a record date in the manner provided in Section 10.3 of
the Declaration. If the Trustees do not, prior to any meeting of Shareholders,
so fix a record date or close the transfer books, then the date of mailing
notice of the meeting shall be the record date. For the purpose of determining
the Shareholders who are entitled to participate in any distribution, the
Trustees may from time to time close the transfer books or fix a record date in
the manner provided in Section 10.3 of the Declaration. If the Trustees do not,
in connection with any distribution, so fix a record date or close the transfer
books, then the date upon which the distribution is declared shall be the record
date.
Section 1.4. Inspectors of Election. In advance of any meeting of Shareholders,
the Trustees may appoint Inspectors of Election to act at the meeting or any
adjournment thereof. If Inspectors of Election are not so appointed, the
chairman of any meeting of Shareholders may, and on the request of any
Shareholder or his proxy shall, appoint Inspectors of Election of the meeting.
The number of Inspectors shall be either one or three. If appointed at the
meeting on the request of one or more Shareholders or proxies, a majority of
Shares present and entitled to vote shall determine whether one or three
Inspectors are to be appointed, but failure to allow such determination by the
Shareholders shall not affect the validity of the appointment of Inspectors of
Election. In case any person appointed as Inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment
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<PAGE> 4
made by the Trustees in advance of the convening of the meeting or at the
meeting by the person acting as chairman. The Inspectors of Election shall
determine the number of Shares outstanding, the voting rights with respect to
each, the Shares represented at the meeting, the existence of a quorum, the
authenticity, validity and effect of proxies; shall receive votes, ballots or
consents; shall hear and determine all challenges and questions in any way
arising in connection with the right to vote; shall count and tabulate all votes
or consents, determine the results; and shall do such other acts as may be
proper to conduct the election or vote with fairness to all Shareholders. If
there are three Inspectors of Election, the decision, act or certificate of a
majority is effective in all respects as the decision, act or certificate of
all. On request of the chairman of the meeting, or of any Shareholder or his
proxy, the Inspectors of Election shall make a report in writing of any
challenge or question or matter determined by them and shall execute a
certificate of any facts found by them. If no Inspectors of Election are
appointed, the duties set forth in this Section 1.4 shall be discharged by the
Secretary of the meeting.
Section 1.5. Records at Shareholder Meetings. At each meeting of the
Shareholders there shall be open for inspection the minutes of the last previous
Annual or Special Meeting of Shareholders of the Trust and a list of the
Shareholders of the Trust, certified to be true and correct by the Secretary or
other proper agent of the Trust, as of the record date of the meeting or the
date of closing of transfer books, as the case may be. Such list of Shareholders
shall contain the name of each Shareholder in alphabetical order and the address
and number of Shares owned by such Shareholder. Shareholders shall have such
other rights and procedures of inspection of the books
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<PAGE> 5
and records of the Trust as are granted to shareholders of an Ohio business
corporation or other applicable law including the 1940 Act.
ARTICLE II
Trustees
Section 2.1. Organizational, Annual and Regular Meetings. The Trustees shall
hold an organizational meeting for the election of officers and the transaction
of other business which may come before such meeting as soon as practicable
after the formation of the Trust. Thereafter, the Trustees shall hold an annual
meeting for the election of officers and the transaction of other business which
may occur before such meeting and may hold such regular meetings as they deem
desirable. The organizational, annual and regular meetings of the Trustees may
be held without call or notice at such time and place as the Trustees may
provide from time to time.
Section 2.2. Special Meetings of the Trustees shall be held upon the call of the
Chairman, the President, the Secretary or a majority of the Board of Trustees,
at such time, on such day and at such place, as shall be designated in the
notice of the meeting.
Section 2.3. Notice. Notice of a regular meeting may, and notice of a special
meeting shall, be given by mail or by telegram (which term shall include a
cablegram) or delivered personally. Neither the business to be transacted at,
nor the purpose of, any meeting of the Board of Trustees need be stated in the
notice or waiver of notice of such meeting. The attendance of a Trustee at a
meeting shall constitute a waiver of notice of such meeting except where a
Trustee attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting has not been lawfully
called or convened.
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<PAGE> 6
Section 2.4. Chairman; Records. The Chairman shall act as chairman at all
meetings of the Trustees; in the absence of the Chairman, the Trustees present
shall elect one of their number to act as temporary chairman. The results of all
actions taken at a meeting of the Trustees, or by unanimous written consent of
the Trustees, shall be recorded by the Secretary or other person designated by
the chairman of the meeting.
Section 2.5. Executive Committee. The Trustees may, by resolution adopted by a
majority of all of the Trustees, designate an Executive Committee consisting of
three or more Trustees at least one of whom shall not be an Interested Person of
the Trust or the investment adviser or portfolio manager to the Trust as defined
in Section 1.3 of the Declaration. The Trustees, by such affirmative vote, may
at any time change the number of and fill vacancies in the Committee. When the
Board of Trustees is not in session, the Executive Committee shall have and may
exercise any or all of the powers of such Board in the management of the
business and affairs of the Trust except (a) as provided by law, (b) the power
to increase or decrease the size of or fill vacancies on such Board or in its
own membership, and (c) the power to make, alter or amend the By--Laws. The
Executive Committee may fix its own rules of procedure and may meet when and as
provided by such rules or by resolution of the Trustees but in every case the
presence of a majority shall be necessary to constitute a quorum.
Section 2.6. Additional Committees. The Trustees, by the affirmative vote of a
majority of all of the Trustees, may appoint other committees which shall in
each case consist of not less than two members and shall have and may exercise
such powers as the Trustees may determine in the resolution appointing then. A
majority of all members of any such committee may deter-
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<PAGE> 7
mine its action and fix the time and place of its meetings, unless the Trustees
shall otherwise provide. The Trustees shall have the power at any time to change
the members and powers of any such committee, to fill vacancies and to discharge
any such committee.
ARTICLE III
Officers
Section 3.1. Officers of the Trust. The Officers of the Trust shall consist of a
Chairman, a President, a Secretary, a Treasurer and such other officers or
assistant officers, including a Vice Chairman and Vice Presidents, as may be
elected by the Trustees. Any two or more of the offices may be held by the same
person, except that the same person may not be both President and Secretary. The
Trustees may designate any Vice President as an Executive or Senior Vice
President and may designate the order in which the other Vice Presidents may
act. The Chairman and the Vice Chairman, if any, and the President shall be
Trustees, but no other officer of the Trust need be a Trustee.
Section 3.2. Election and Tenure. At the organizational meeting and thereafter
at each annual meeting of the Trustees, the Trustees may elect a Vice Chairman,
and shall elect a Chairman, a President, a Secretary, a Treasurer and such other
officers as the Trustees shall deem necessary or appropriate in order to carry
out the business of the Trust. Such officers shall hold office until the next
annual meeting of the Trustees and until their successors have been duly elected
and qualify. The Trustees may fill any vacancy in office or add any additional
officers at any time.
Section 3.3. Removal of Officers. Any officer may be removed at any time, with
or without cause, by action of two-thirds of the Trustees. If the
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<PAGE> 8
officer in such a case is a Trustee, he shall not participate in such vote or be
counted in the determination of whether a two-thirds majority is obtained. This
Section 3.3 shall not prevent the making of a contract of employment for a
definite term with any officer and shall have no effect upon any cause of action
which any officer may have as a result of removal in breach of a contract of
employment. Any officer may resign at any time by notice in writing signed by
such officer and delivered or mailed to the Chairman, President or Secretary,
and such resignation shall take effect immediately upon receipt by the Chairman,
President or Secretary, or at such later date agreed to in writing by the
recipient of the notice of resignation.
Section 3.4. Bonds and Surety. Any officer may be required by the Trustees to be
bonded for the faithful performance of his duties in such amount and with such
sureties as the Trustee may determine.
Section 3.5. Chairman, Vice Chairman, President and Vice Presidents. The
Chairman shall if present preside at all meetings of the Shareholders and of the
Trustees and shall exercise and perform such other powers and duties as may be
from time to time assigned to him by the Trustees. The Vice Chairman, if any,
shall exercise and perform such powers and duties as may be from time to time
assigned to him by the Trustees or the Chairman. The Trustees shall designate
the Chairman, Vice Chairman, if any, or the President to be the chief executive
officer of the Trust and, subject to the control of the Trustees, such chief
executive officer shall have general supervision, direction and control of the
business of the Trust and of its employees and shall exercise such general
powers of management as are usually vested in the office of president of a
corporation. Subject to direction of and policies established by the Trustees,
the Chairman and the President shall each have power
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<PAGE> 9
in the name and on behalf of the Trust to execute any and all documents,
contracts, agreements and other instruments in writing, and to employ and
discharge employees and agents of the Trust. Unless otherwise directed by the
Trustees, the Chairman and the President shall each have full authority and
power, on behalf of all of the Trustees, to attend and to act and to vote on
behalf of the Trust at any meetings of business organizations in which the Trust
holds an interest, or to confer such powers upon any other persons by executing
any proxies duly authorizing such persons. The President shall have such further
authorities and duties as the Trustees shall from time to time determine. In the
absence or disability of the President, the Vice Presidents in order of their
rank as fixed by the Trustees or, if more than one and not ranked, the Vice
President designated by the Trustees, shall perform all of the duties of the
President, and when so acting shall have all the powers of and be subject to all
of the restrictions upon the President. Subject to the direction of the Trustees
and of the President, each Vice President shall have the power in the name and
on behalf of the Trust to execute any and all documents, contracts, agreements
and other instruments in writing, and in addition, shall have such other duties
and powers as shall be designated from time to time by the Trustees or by the
President.
Section 3.6. Secretary. The Secretary, or any other person designated by the
chairman of any meeting, shall keep the minutes of all meetings of, and record
all votes of, Shareholders, Trustees and the Executive Committee, if any. The
Secretary shall be custodian of the seal of the Trust, if any, and he (together
with any other person so authorized by the Trustees) may affix the seal or, if
permitted, a facsimile thereof, to any instrument executed by the Trust which
would be sealed by an Ohio corporation executing the
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<PAGE> 10
same or a similar instrument, and may attest the seal and the signature or
signatures of the officer or officers executing such instrument on behalf of the
Trust. The Secretary shall also perform any other duties commonly incident to
such office in an Ohio corporation, and shall have such other authorities and
duties as the Trustees shall from time to time determine.
Section 3.7. Treasurer. Except as otherwise directed by the Trustees, the
Treasurer shall have the general supervision of the monies, funds, securities,
notes receivable and other valuable papers and documents of the Trust, and shall
have and exercise under the supervision of the Trustees and of the President all
powers and duties normally incident to his office. The Treasurer may endorse for
deposit or collection all notes, checks and other instruments payable to or to
the order of the Trust or any Series of the Trust. He shall deposit all funds of
the Trust in such depositories as the Trustees shall designate. He shall be
responsible for such disbursement of the funds of the Trust as may be ordered by
the Trustees or the President. The Treasurer shall keep accurate account of the
books of the Trust's transactions which shall be the property of the Trust, and
which, together with all other property of the Trust in his possession, shall be
subject at all times to the inspection and control of the Trustees. Unless the
Trustees shall otherwise determine, the Treasurer shall be the principal
accounting officer of the Trust and shall also be the principal financial
officer of the Trust. The Treasurer shall have such other duties and authorities
as the Trustees shall from time to time determine. Notwithstanding anything to
the contrary herein contained, the Trustees may authorize the Trust's investment
adviser or the Trust's transfer agent to maintain bank accounts and deposit and
disburse funds of the Trust on behalf of the Trust.
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<PAGE> 11
Section 3.8. Other Officers and Duties; Delegation. The Trustees may
elect such other officers and assistant officers as they shall from time to time
determine to be necessary or desirable in order to conduct the business of the
Trust. Assistant officers shall act generally in the absence of the officer whom
they assist and shall assist that officer in the duties of his office. Each
officer, employee and agent of the Trust shall have such other duties and
authority as may be conferred upon him by the Trustees or delegated to him by
the chief executive officer. Each officer may delegate to employees and agents
such duties and authority as he may deem appropriate.
ARTICLE IV
Investment Restrictions
Section 4.1. Investment Restrictions of the Trust. The Trust is subject to the
restrictions relating to the investment of its assets and its activities which
are set forth in the Prospectus and the Statement of Additional Information, and
which may not be changed unless assented to by a Majority Shareholder Vote.
ARTICLE V
Miscellaneous
Section 5.1. In accordance with Section 7.1 of the Declaration, the funds of the
Trust shall be deposited in such depositories as the Trustee shall designate and
shall be drawn out on checks, drafts or other orders signed by such officer,
officers, agent or agents (including the Trust's investment adviser) as the
Trustees may from time to time authorize.
Section 5.2. Signatures. All contracts and other instruments shall be executed
on behalf of the Trust by such officer, officers, agent or agents as provided in
these By-laws or as the Trustees may from time to time by resolution provide.
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<PAGE> 12
Section 5.3. Seal. The seal of the Trust, if any, may be affixed to any
document and the seal and its attestation may be lithographed, engraved or
otherwise printed on any document with the same force and effect as if it had
been imprinted and attested manually in the same manner and with the same effect
as if done by an Ohio corporation under Ohio law.
Section 5.4. Gender. Words denoting the male gender in these By-Laws shall be
construed to denote either the male or female gender as appropriate in any
particular case.
ARTICLE VI
Stock Transfers
Section 6.1. Certificates. Certificates representing Shares shall not be issued
except upon specific request by a Shareholder. The Trustees may determine the
conditions upon which a new certificate may be issued in place of a certificate
which is alleged to have been lost, stolen or destroyed and may, in their
discretion, require the owner of such certificate or his legal representative to
give bond with sufficient surety to the Trust and the transfer agent, if any, to
indemnify it and such transfer agent against any and all losses or claims which
may arise by reason of the issuance of a new certificate in the place of the one
allegedly lost, stolen or destroyed. The Trustees shall have power and authority
to make all such rules and regulations as they may deem expedient concerning the
issuance, transfer and registration or the replacement of certificates for
Shares or for any related matters.
Section 6.2. Transfer Agents, Registrars and the Like. As provided in
Section 6.6 of the Declaration, the Trustees shall have authority to employ and
compensate such transfer agents and registrars as the Trustees shall deem
necessary or desirable. In addition, the Trustees shall have power to employ
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<PAGE> 13
and compensate such dividend disbursing agents, warrant agents and agents for
the reinvestment of dividends as they shall deem it necessary or desirable. Any
of such agents shall have such power and authority as is delegated to any of
them by the Trustees.
Section 6.3. Transfer of Shares. The Shares shall be transferable on the books
of the Trust only upon delivery to the Trust or a transfer agent of the Trust of
proper documentation as provided in Section 6.7 of the Declaration- ration. The
Trust, or its transfer agent, shall be authorized to refuse any transfer unless
and until presentation of such evidence as may be reasonably required to show
that the requested transfer is proper.
Section 6.4. Registered Shareholders. The Trust may deem and treat the holder of
record of any Share as the absolute owner thereof for all purposes and shall not
be required to take any notice of any right or claim of right of any other
person.
ARTICLE VII
Amendment of By-Laws
Section 7.1. Amendment and Repeal of By-Laws. In accordance with Section 2.7 of
the Declaration the Trustees shall have the power to alter, amend or repeal the
By-Laws or adopt new By-Laws at any time. Action by the Trustees with respect to
the By-Laws shall be taken by an affirmative vote of a majority of the Trustees.
The Trustees shall in no event adopt By--Laws which are in conflict with the
Declaration, and any apparent inconsistency shall be construed in favor of the
related provisions in the Declaration. The Declaration establishing Gradison
Custodian Trust dated ________ 1987, a copy of which, together with all
amendments thereto, is on file in the principal business office of the Trust,
provides that the name
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<PAGE> 14
"Gradison Custodian Trust" refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder, officer, employee or agent of Gradison Custodian Trust shall be
held to any personal liability, nor shall resort be had to their private
property for the satisfaction of any obligation or claim or otherwise in
connection with the affairs of said Gradison Custodian Trust but the Trust
Property only shall be liable.
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<PAGE> 1
Exhibit 5
INVESTMENT ADVISORY AGREEMENT
BETWEEN
McDONALD & COMPANY SECURITIES, INC. AND GRADISON CUSTODIAN TRUST
THIS AGREEMENT is made as of the 4th day of October, 1991, between McDonald &
Company Securities, Inc. an Ohio corporation (the "Adviser"), and Gradison
Custodian Trust, an Ohio business trust (the "Trust").
In consideration of the mutual covenants hereinafter contained, the parties
hereto agree as follows:
1.a. The Trust hereby employees the Adviser to manage the investment and
reinvestment of the assets of the Gradison Government Income Fund (the "Fund")
of the Trust in accordance with the Fund's investment objective and policies,
and to perform certain other services herein set forth and administer the
Trust's affairs to the extent requested subject to the supervision of the board
of trustees of the Trust, for the period and on the terms herein set forth.
b. The Adviser hereby accepts such employment, and agrees to render such
services and to assume the obligations herein set forth.
2. Should the Trust establish any additional series subsequent to the date
hereof and wish to retain the Adviser to serve as such series' investment
adviser under the terms of this Agreement, the Trust shall provide the Adviser
with a written notice to such effect which shall include the advisory fee
payable with respect to each such series. If the Adviser is willing to render
such services, it shall provide the Trust with a written notice to such effect,
whereupon each such series shall be included with Gradison Government Income
Fund in the term "Fund" hereunder.
3. The Adviser shall:
a. Manage the investment of the Fund's assets including the placing of orders
for purchases and sales and other investment transactions;
b. Report periodically to the Trust with respect to the Trust's investment
programs and with respect to the Adviser's activities in connection with the
administration of the Trust.
c. Provide shareholder services for the Trust (other than services to be
performed by any transfer agent, dividend disbursing agent, registrar,
distributor, custodian or depository appointed by the Trust). Such shareholder
services shall include, without limitation, responses to inquiries from
shareholders and processing of purchase orders and redemption requests; and
<PAGE> 2
d. Provide persons satisfactory to the board of trustees of the Trust to act as
officers of the Trust.
4. Any investment program undertaken by the Adviser pursuant to this Agreement,
and any other activities undertaken by the Adviser on behalf of the Trust, shall
at all times be subject to any directives of the board of trustees of the Trust,
or of any duly constituted committee of the board, or of any officer of the
Trust acting pursuant to authority granted by the board or by any such
committee.
5. In addition to performing the obligations set forth in Paragraph 3 hereof,
the Adviser shall assume and bear expenses incurred with respect to the
following:
a. Trustees who are affiliated with the Adviser; and
b. Officers who are necessary for the management, operations, administration and
investments of the Trust.
6. All expenses not specifically assumed by the Adviser under this Agreement or
the distributor under the Master Distribution Agreement which may be incurred in
the operation of the Trust will be borne by the Trust. These include:
a. Expenses incurred by the Trust for office space, office facilities, business
equipment and utilities (including communications expenses);
b. Costs of preparing, printing and mailing, and expenses incurred in connection
with furnishing of information and administrative assistance with respect to the
preparation of; registration statements and prospectuses, including amendments
and revisions thereto, and annual, semi-annual and other periodic reports
furnished to shareholders of the Trust's Funds or to regulatory authorities; and
other documents required by regulatory authorities; and notices and proxy
solicitation materials furnished to shareholders of the Trust's Funds;
c. Such distribution expenses as may be contemplated by an effective plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940, provided,
however, that any such payment by the Trust of distribution expenses shall be in
the amounts, and in accordance with the procedures, set forth in such plan;
d. Registration, filing and other fees in connection with requirements of
regulatory authorities;
e. Expenses of issue, sale, redemption and repurchase of shares of the Trust's
Funds;
f. Expenses incurred by the Trust in connection with the provision of
shareholder services by the Adviser or others;
g. compensation of trustees of the Trust who are not affiliated with the
Adviser;
<PAGE> 3
h. Compensation and expenses of any transfer agent, dividend disbursing agent,
registrar, custodian or depository appointed by the Trust;
i. Charges and expenses of independent accountants retained by the Trust;
j. Brokers' commissions and issue or transfer taxes chargeable to the Trust in
connection with securities transactions to which the Trust or a Fund of the
Trust is a party;
k. Taxes and other fees payable by the Trust to federal, state, or other
governmental agencies.
l. Costs of share certificates representing shares of the Trust's Funds;
m. Legal fees and expenses (including reimbursement to the Adviser for legal
services provided to the Trust, subject to review by the Trust's outside
counsel) in connection with the operations of the Trust, including the
registration or qualification of its shares with federal or state regulatory
authorities;
n. Expenses of the Trust, including expenses incurred in connection with
shareholders' or trustees' meetings; and
o. Fees and other expenses incurred by the Trust in connection with its
membership in any organization.
7. Expenses borne by the Trust pursuant to Paragraph 6 hereof and attributable
to a specific Fund of the Trust shall be allocated to that Fund. Expenses borne
by the Trust pursuant to Paragraph 6 hereof that are not attributable to a Fund
shall be allocated to each Fund in a manner and on a basis determined in good
faith by the Adviser to be fair and equitable, subject to review by the board of
trustees of the Trust.
8. The Trust shall reimburse the Adviser for all costs (direct and indirect)
which are fairly allocable to the shareholder services performed by the
Adviser's employees under this Agreement on behalf of the Trust, including,
without limitation, appropriate portions of employee salaries, benefits and
expenses. In the event of disagreement between the Trust and the Adviser as to a
fair basis for allocating such costs, such basis shall be fixed by the
independent public accountants for the Trust, and the parties shall be bound
thereby.
9. The services of the Adviser to the Trust are not to be deemed exclusive, and
the Adviser shall be free to render similar services to other persons so long as
the services to be rendered hereunder are not impaired thereby. Nothing in this
Agreement shall limit or restrict the right of any director, officer or employee
of the Adviser to engage in any other business or to devote his time and
attention in part to any other business.
<PAGE> 4
10. The Adviser assumes no responsibility or obligation under this Agreement
other than to render in good faith the services provided for herein; provided
that nothing herein shall be deemed to protect or purport to protect the Adviser
against any liability to the Trust or its shareholders to which the Adviser
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties hereunder, or by reason of reckless
disregard of its obligations and duties hereunder. The Adviser shall not be
responsible or liable for any action or inaction of the board of trustees of the
Trust or any committee thereof.
11. In addition to all other charges and expenses to be paid hereunder, the
Trust shall pay to the Adviser compensation for its services and facilities
furnished hereunder, at an annual rate computed in accordance with the
appropriate portion of Schedule A attached hereto. The fee shall be computed and
accrued daily. The fee so computed and accrued during each calendar month shall
be paid to the Adviser on the first day of the next month.
12. The Adviser shall reimburse the Trust if and to the extent that expenses
(excluding brokerage commissions, taxes, interest and extraordinary items) borne
by the Trust in any fiscal year exceed any expense limitation applicable to a
Fund of the Trust imposed by any regulatory authority (as such limitations may
be established from time to time). During any fiscal year, the Adviser shall be
bound, in calculating the amount of any such excess, by the most stringent
applicable requirements of any state in which the shares of the Trust's Funds
are qualified for sale. Such excess expenses, if any, shall be determined and
paid on a monthly basis, subject to annual adjustment so that the aggregate of
reimbursements, if any, by the Adviser to the Trust for the fiscal year are in
the amount necessary to limit such expenses to the applicable expense
limitation.
13. Subject to compliance with the provisions of the 1940 Act, the Trust hereby
agrees that the Adviser may subcontract for the performance of any of the
services contemplated to be rendered by the Adviser hereunder.
14. It is mutually understood that trustees, officers, shareholders, employees
and agents of the Trust are or may be interested in the Adviser as directors,
officers, stockholders, employees, agents or in other capacities; that
directors, officers, stockholders, employees and agents of the Adviser are or
may be interested in the Trust as trustees, officers, shareholders, employees,
agents or in other capacities; that the Adviser may be interested in the Trust
as a shareholder or otherwise, and that the existence of any such dual interest
shall not affect the validity of this Agreement or of any transactions made
hereunder, except as may otherwise be provided in the Declaration of Trust of
the Trust or the Articles of Incorporation of the Adviser, or by any specific
provision of any applicable statute, rule or regulation.
<PAGE> 5
15. This Agreement shall become effective as of the date first set forth above
and shall continue in effect until September 30, 1992. Thereafter, it shall
continue in effect from year to year, provided such continuance is specifically
approved at least annually, at meetings called for the purpose of voting upon
such approvals, by the vote of a majority of the outstanding voting securities
of that Fund or by the vote of a majority of the board of trustees of the Trust,
and in either event by the vote cast in person of a majority of the trustees of
the Trust who are not interested persons (as defined in the Investment Company
Act of 1940, as amended) of either party to this Agreement.
16. The Trust may at any time and without the payment of any penalty terminate
this Agreement as to a Fund upon 60 days' written notice to the Adviser, either
by action of the board of trustees of the Trust or by the vote of a majority of
the outstanding voting securities of that Fund, and the Adviser may at any time
and without the payment of any penalty terminate this Agreement upon 60 days'
written notice to the Trust. This Agreement shall automatically terminate in the
event of its assignment (within the meaning of the Investment Company Act of
1940, as amended) by the Adviser, unless such automatic termination shall be
prevented by an order of exemption from the Securities and Exchange Commission.
17. This Agreement may be amended at any time by the mutual consent of the
parties, provided that such consent on the part of the Trust shall have been
approved, at meetings called for the purpose of voting upon such consent, by the
vote of a majority of the outstanding voting securities of the affected Fund,
and by the vote of a majority of the board of trustees of the Trust, including
the vote cast in person by a majority of the trustees of the Trust who are not
interested persons (as defined in the Investment Company Act of 1940, as
amended)of either party to this Agreement.
18. The parties to this Agreement acknowledge that the Adviser has an exclusive
proprietary interest in the use of the names "Gradison" and "McDonald" and
further acknowledge that the Adviser has consented to the use of such names by
the Trust subject to withdrawal of such consent upon 30 days written notice to
the Trust. The Trust agrees that the names "Gradison" and "McDonald" will be
used by it only in connection with the business of an open-end diversified
management investment company; that such names will be used only in such forms,
styles and contexts as may be approved by the Adviser, and that the Trust will
not do or cause to be done any act or undertaking which has the effect of
contesting, challenging or in any way impairing the Adviser's right, title or
interest in or to such names. The Trust agrees that it will not represent that
it has any right, title or interest in such names, and that the Trust's use of
such names shall not create any right, title or interest in its favor therein.
Within 30 days after the termination of this Agreement for any reason, or after
the written withdrawal of such consent of the Adviser (with or without cause and
within the Adviser's sole discretion)the Trust (a) will cease and desist from
every use of the names "Gradison" and "McDonald" and will
<PAGE> 6
deliver to the Adviser all prospectuses, sales literature and other advertising
materials bearing such names; (b) will cause its name to be changed so as to
eliminate the word "Gradison" or "McDonald" therefrom; and (c) will not at any
time thereafter adopt or use any name, mark or other trade designation which is
confusingly similar to the names "Gradison" or "McDonald" or likely to mislead
the public.
19. Any notice required by or permitted to be given in connection with this
Agreement shall be in writing, addressed and delivered in person, or mailed
postage prepaid, to addresses designated by the respective parties for the
receipt of such notice. Until further written notice, it is agreed that the
addresses of the Adviser and the Trust respectively shall be:
McDonald & Company Securities, Inc. Gradison Custodian Trust
Attention: Gordon Price Attention: Jerome A. Stricker
2100 Society Building The 580 Building
Cleveland, Ohio 44114 Cincinnati, Ohio 45202
Gradison Custodian Trust
Attention: Kevin M. Sheehan
The 580 Building
Cincinnati, Ohio 45202
20. The shareholders, trustees, officers, employees and agents of the Trust
shall not personally be bound by or liable under this Agreement, nor shall
resort be had to their private property for the satisfaction of any obligation
or claim hereunder, as more fully provided under the terms of the Declaration of
Trust.
IN WITNESS WHEREOF, the parties have executed this Investment Advisory Agreement
as of the date first written above.
McDONALD & COMPANY SECURITIES, INC. GRADISON CUSTODIAN TRUST
BY: /s/ [Illegible] /s/Donald E. Weston
[Illegible] Chairman
Schedule A
Investment Advisory Fee
Series Fee
Gradison Government Income Fund .5 of 1% of the average
daily net assets of the series
<PAGE> 1
Exhibit 6
GRADISON CUSTODIAN TRUST
AMENDMENT TO MASTER DISTRIBUTION AGREEMENT
Agreement made this 19th day of April, 1994, by and between Gradison Custodian
Trust and McDonald & Company Securities, Inc.
The terms of the agreement of September 16, 1987 between the Trust and Gradison
& Company Incorporated, as modified on October 4, 1991, are hereby modified as
follows:
The following is substituted for the first sentence of Section 2(e) of the
Agreement:
In addition to the above, the Distributor shall also receive compensation
for personal services rendered to shareholders of the Portfolio including
providing shareholder liaison services such as responding to shareholder
inquiries and providing information to shareholders about their accounts. Such
compensation shall be in an amount equal to a percentage (annual rate) of the
assets of Portfolio accounts which are attributable to the Distributor during
the preceding month, as provided in Schedule A to this Agreement.
Agreed this 19th day of April, 1994.
GRADISON CUSTODIAN TRUST
by:/s/Donald E. Weston
Chairman
MCDONALD & COMPANY SECURITIES, INC.
by: /s/Bradley E. Turner
<PAGE> 2
GRADISON CUSTODIAN TRUST
GRADISON GOVERNMENT INCOME FUND
MASTER DISTRIBUTION AGREEMENT
Agreement made as of this 4th day of October 1991 by and between Gradison
Custodian Trust (the `Trust"), an Ohio business trust, and McDonald & Company
Securities, Inc., an Ohio corporation.
The terms of the agreement of September 16, 1987 between the Trust and Gradison
& Company Incorporated are hereby incorporated by reference herein except that
the Distributor shall be McDonald & Company Securities, Inc., the term of this
Agreement shall commence on the date set forth hereinabove, and any notice
required to be given pursuant to the Agreement shall be given to the Distributor
at Gradison Division McDonald & Company Securities, Inc. 580 Walnut Street,
Cincinnati, Ohio 45202.
GRADISON CUSTODIAN TRUST
BY: /s/Donald E. Weston
Chairman
MCDONALD & COMPANY SECURITIES, INC.
BY:[Illegible]
Chairman
<PAGE> 3
GRADISON CUSTODIAN TRUST
GRADISON GOVERNMENT INCOME FUND
MASTER DISTRIBUTION AGREEMENT
-----------------------------
AGREEMENT made this 16th day of September, 1987 by and between Gradison
Custodian Trust (the "Trust"), an Ohio business trust, and Gradison &
Company Incorporated (the "Distributor"), a Delaware corporation.
W I T N E S S E T H:
In consideration of the mutual convenants hereinafter contained, the
parties hereto agree as follows:
Section 1. Appointment of the Distributor.
-------------------------------
(a) The Trust hereby appoints the Distributor as its agent to arrange for
the sale of shares of beneficial interest (the `Shares") of the Gradison
Government Income Fund (the "Series") on the terms and for the period set forth
in this Agreement, and the Distributor hereby accepts such appointment and
agrees to act hereunder.
(b) Should the Trust establish any additional series subsequent to the
date hereof for which the Trust wishes to appoint the Distributor as its agent
to arrange for the sale of the shares thereof under the terms of this Agreement,
the Trust shall provide the Distributor with a written notice to such effect. If
the Distributor is willing to serve in such capacity, it shall provide the Trust
with a written notice to such effect, whereupon the shares of such series,
together with the shares of the Series named in Section 1(a) hereunder, shall be
included in the term "Shares" hereunder, and such series, together with the
Series named in Section 1(a) hereunder, shall be included in the term "Series"
hereunder.
(C) It is understood that purchases of Shares of the Series may be made through
other broker--dealers entering into agreements with either the Trust or the
Distributor and directly through the Trust in the manner set forth in the
Prospectus. As used in this Agreement, the term "Prospectus" shall mean the
prospectus(es) and statement(s) of additional information included in the
Trust's Registration Statement and relating to the Series for which the
Distributor serves in such capacity hereunder, and the term "Registration
Statement" shall mean the Registration Statement(s) most recently filed by the
Trust with the Securities and Exchange Commission and effective under the
Securities Act of 1933, as amended (the `1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), as such Registration Statement is
amended by any amendments thereto at the time in effect.
<PAGE> 4
Section 2. Services and Duties of the Distributor.
---------------------------------------
(a) The Distributor agrees to arrange to sell, as agent for the Trust and from
time to time during the term of this Agreement, the Shares of the Series upon
the terms described in the Prospectus.
(b) During the continuous public offering of the Shares of the Series, the
Distributor will hold itself available to receive orders, satisfactory to the
Distributor, for the purchase of such Shares and will accept such orders on
behalf of the Trust as of the time of receipt of such orders and will transmit
such orders as are so accepted to the Trust as promptly as practicable. Purchase
orders shall be deemed effective at the time and in the manner set forth in the
Prospectus.
(c) The Distributor, as agent for the Trust and in its discretion, may
enter into agreements with such registered and qualified retail broker-- dealers
as it may select pursuant to which such broker-dealers may also arrange for the
sale or sell Shares of the Series. The Distributor, as a retail broker--dealer
may also sell shares of the Series. When it does so, it shall do so pursuant to
the Form of "Dealer's Agreement" attached hereto and as may be modified in the
future.
(d) The offering price of the Shares of each Series shall be the net
asset value per share of each such Series next determined following receipt of
an order plus the sales charge, if any, as stated in the Prospectus. The Trust
shall furnish the Distributor, with all possible promptness, advice of each
computation of each Series' net asset value. The Trust may at any time withdraw
offerings of the Shares of one or more Series by notice to the Distributor. The
Distributor shall receive the entire amount of the sales charge (except to the
extent that sales are made at net asset value) as compensation for its services
under this Agreement; however, the Distributor may reallow all or any portion of
such charge to broker-dealers entering into agreements with the Distributor to
sell Shares of the Series.
(e) In addition to the above, the Distributor shall also receive compensation
for services rendered in an amount equal to a percentage (annual rate) of the
assets of a Series' accounts which are attributable to the Distributor during
the preceding month, as provided in Schedule A to this Agree- ment. Such amount
shall be paid by the Trust at the end of each calendar month. The Trust's
obligation to make payments described in this paragraph (e) is contingent upon
the continuance of the Trust's Distribution Expense Plan, and in that connection
it is understood that:
(i) such Plan shall remain in effect for one year from its adoption date and may
be continued from year to year thereafter only if the Plan and any related
agreements are approved at least annually by a majority vote of the Trustees of
the Trust, including a majority of the Trustees who are not "interested persons"
of the Trust and who have no direct or indirect financial interest
<PAGE> 5
in the operation of the Plan or in any related agreement ("Independent
Trustee"), cast in person at a meeting called for the purpose of voting on such
Plan and agreements; and
(ii) the Plan may be terminated with respect to any Series at any time by a
majority vote of the Independent Trustees or by vote of a majority of the
outstanding voting securities of the Series. In the event the Plan is not
continued or is terminated, this Agreement shall automatically terminate.
(f) The Distributor hereby agrees to use its best efforts to find purchasers who
shall purchase the Shares of the Series; it shall not be obligated to sell any
certain number of such Shares and nothing herein contained shall prevent the
Distributor from entering into like distribution arrangements with other
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
(g) The Distributor is authorized on behalf of the Trust to purchase Shares of
the Series presented to it by dealers at the price determined in accordance
with, and in the manner set forth in, the Prospectus.
Section 3. Duties of the Trust.
--------------------
(a) The must agrees to sell the Shares of the Series so long as it has such
Shares available for sale and to issue, if requested by the purchaser,
certificates for the Shares of the Series, registered in such names and amounts
as the Distributor has requested in writing, as promptly as practicable after
receipt by the Trust of the net asset value thereof and written request of the
Distributor therefor.
(b) The Trust shall keep the Distributor fully informed with regard to its
affairs and the affairs of the Series and shall furnish to the Distributor
copies of all information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the distribution
of the Shares. This shall include, without limitation, one certified copy of all
financial statements of the Trust and the Series prepared by independent
accountants and such reasonable number of copies of its roast current
Prospectus, and annual and interim reports as the Distributor may request. The
Trust shall cooperate fully in the efforts of the Distributor to arrange for the
sale of the Shares and in the performance of the Distributor's duties under this
Agreement.
(c) The Trust shall take, from time to time, all necessary action b fix the
number of authorized Shares of the Series and such steps, including, payment of
the related filing fees, as may be necessary to register the same under the 1933
Act so that there will be available for sale such number o4 Shares of the Series
as the Distributor may be expected to sell. The Trust agrees to file from time
to time such amendments, reports and other documents
<PAGE> 6
as may be necessary in order that there may be no untrue statement of a material
fact in a Registration Statement or Prospectus, or necessary in order that there
may be no omission to state a material fact in the Registration Statement or
Prospectus which omission would make the statements therein, in light of the
circumstances under which they were made, misleading.
(d) The Trust shall use its best efforts to qualify and maintain the
qualification of an appropriate number of the Shares of the Series for sale
under the securities laws of such states as the Distributor and the Trust may
approve, and, if necessary or appropriate in connection therewith, to qualify
and maintain the qualification of the Trust as a broker, dealer or agent in such
states; provided that the Trust shall not be required to amend the Declaration
of Trust or its By--Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of the Shares of the
Series in any state from the terms set forth in its Registration Statement or
Prospectus, to qualify as a foreign corporation, business trust or similar
entity in any state or to consent to service of process in any state other than
with respect to claims arising out of the offering of the Shares of the Series.
The Distributor shall furnish such information and other material relating to
its affairs and activities as may be required by the Trust in connection with
such qualifications.
Section 4. Expenses.
---------
(a) The Trust shall bear all costs and expenses of the continuous
offering of the Shares of the Series in connection with: (i) fees and
disbursements of counsel and auditors, (ii) the preparation, filing and printing
of any registration statements and/or prospectuses required by and under the
Federal securities laws, (iii) the preparation and mailing of annual and interim
reports and proxy materials to shareholders and (iv) the qualification of the
Shares for sale and of the Trust as a broker-dealer under the securities laws of
such states or other jurisdictions as shall be selected by the Trust and the
Distributor pursuant to Section 3(d) hereof and the cost and expenses payable to
each such state for continuing qualification therein. Any such costs and
expenses borne by the Trust which are attributable only to one Series will be
allocated to that Series; expenses which are not specifically allocable will be
allocated to each Series in a manner and on a basis determined in good faith by
the Trustees (including a majority of the Trustees who are not "interested
persons (as defined in the 1940 Act) of the Trust, the Adviser or the
Distributor) to be fair and equitable.
(b) The Distributor shall bear the following expenses (on a Series by Series
basis, where applicable): (i) the costs and expenses of preparing, printing and
distributing any materials not prepared by the Trust and other materials used by
the Distributor in connection with the offering of the Shares of the Series for
sale to the public, including the additional cost of printing copies of the
Prospectus and of annual and interim reports to shareholders other than the
copies thereof required for distribution to existing shareholders or for filing
with any federal and state securities authorities, (ii) the expenses of
registration or qualification of the Distributor as a dealer or broker under
federal or state laws and the expenses of continuing
<PAGE> 7
such registration or qualification; and (iii) any other distribution or
promotional expenses incurred by the Distributor in connection with such
offering, except for any such distribution or promotional expenses as are paid
by one or more Series pursuant to a Rule 12b--l distribution expense plan.
Section 5. Indemnification.
----------------
The Trust agrees to indemnify, defend and hold the Distributor, its officers and
directors and any person who controls the Distributor within the meaning of
Section 15 of the 1933 Act or Section 20 of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which the Distributor, its officers, directors or any
such controlling person may incur under the 1933 Act, the 1934 Act, or under
common law or otherwise, arising out of or based upon any untrue statement of a
material fact contained in the Registration Statement or Prospectus or arising
out of or based upon any alleged omission to state a material fact required to
be stated in either thereof or necessary to make the statements in either
thereof not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by the Distributor to the Trust for use in
the Registration Statement or Prospectus; provided, however, that this indemnity
agreement, to the extent that it might require indemnity of any person who is
also an officer or director of the Trust or who controls the Trust within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, shall not
inure to the benefit of such officer, director or controlling person unless a
court of competent jurisdiction shall determine, or it shall have been
determined by controlling precedent, that such result would not be against
public policy as expressed in the 1933 Act; and further provided, that in no
event shall anything contained herein be so construed as to protect the
Distributor against any liability to the Trust or to its security holders to
which the Distributor would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
by reason of its reckless disregard of its obligations under this Agreement. The
Trust's agreement to indemnify the Distributor, its officers and directors and
any such controlling person as aforesaid is expressly conditioned upon the Trust
being promptly notified of any action brought against the Distributor, its
officers or directors, or any such controlling person, such notification to be
given by letter or telegram addressed to the Trust at its principal business
office. The Trust agrees promptly to notify the Distributor of the commencement
of any litigation or proceedings against it or any of its officers or directors
in connection with the issue and sale of any of its Shares. The Distributor
agrees to indemnify, defend and hold the Trust, its trustees and officers and
any person who controls the Trust, if any, within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Trust, its trustees or officers
or any such controlling person may
<PAGE> 8
incur under the 1933 Act, and the 1934 Act, or under common law or otherwise,
but only to the extent that such liability or expense incurred by the Trust, its
trustees or officers or such controlling person resulting from such claims or
demands shall arise out of or be based upon (i) any alleged untrue statement of
a material fact contained in information furnished in writing by the Distributor
to the Trust for use in the Registration Statement or Prospectus; (ii) any
failure of the Distributor or any investor purchasing Shares of a Series through
the Distributor to timely transmit good payment for the purchase of such Shares;
or (iii) any breach of the obligations of the Distributor under Section 6 of
this Agreement. The Distributor's agreement to indemnify the Trust, its trustees
and officers and any such controlling person as aforesaid, is expressly
conditioned upon the Distributor being promptly notified of any event giving
rise to rights of indemnification hereunder, including any action brought
against the Trust, its trustees or officers or any such controlling person, such
notification being given to the Distributor at its principal business office.
Section 6. COMPLIANCE WITH SECURITIES LAWS. The Trust represents that it is
registered as a diversified, open--end management investment company under the
1940 Act, and agrees that it will comply with all, of the provisions of the 1940
Act and of the rules and regulations thereunder. The Trust and the Distributor
each agree to comply with all of the applicable terms and provisions of the 1940
Act, the 1933 Act and, subject to the provisions of Section 3(d), all applicable
state "Blue Sky" laws. The Distributor agrees to comply with all of the
applicable terms and provisions of the 1934 Act.
Section 7. TERM OF AGREEMENT. This Agreement shall commence on the date
first set forth above. This Agreement shall continue in effect for a period more
than one year from the date hereof only so long as such continuance is
specifically approved at least annually in conformity with the requirements of
the 1940 Act.
Section 8. TERMINATION. This Agreement may be terminated with respect
to any Series at any time, without the payment of any penalty, by vote of a
majority of the outstanding voting securities of the respective Series on not
more than sixty days' written notice to the Distributor- This Agreement may also
be terminated by the Distributor upon not more than twenty--four hours' written
notice to the Trust. Any such notices shall be by delivery in person or by
registered or certified mail to the addresses of the parties as specified below.
In the event of termination, any sums due the Distributor for itself for
accounts serviced prior to termination will be paid within ten days after the
end of the month of such termination.
This Agreement shall terminate automatically in the event of its
assignment (within the meaning of the Investment Company Act of 1940, as
amended) unless such automatic termination shall be prevented by an order of
exemption from the Securities and Exchange Commission.
Section 9. NOTICES. Any notice required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered
<PAGE> 9
mail, postage prepaid, (1) to the Distributor at Gradison & Company
Incorporated, The 580 Building, Cincinnati, Ohio 45202 or (2) to the Trust at
Gradison Custodian Trust, The 580 Building, Cincinnati, Ohio 45202.
Section 10. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Ohio.
Section 11. NON--LIABILITY OF SHAREHOLDERS, TRUSTEES, OFFICERS,
EMPLOYEES, REPRESENTATIVES AND AGENTS. A copy of the Declaration of Trust, as
amended, establishing the Trust is on file with the Secretary of the State of
Ohio, and notice is hereby given that this Agreement is executed on behalf of
the Trust by the Officers of the Trust as officers, and not individually, and
that the shareholders, trustees, officers, employees, representatives or agents
of the Trust shall not personally be bound by or liable under this Agreement,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim thereunder, as more fully provided under the terms of the
Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
GRADISON CUSTODIAN TRUST
By:/s/ David Ellis
President
GRADISON & COMPANY INCORPORATED
By:/s/Donald E. Weston
President
<PAGE> 10
Master Distribution Agreement
between
Gradison Custodian Trust
and
Gradison Government Income Fund
Schedule A
----------
Distribution Expense Fee
------------------------
Series Fee
Gradison Government Income Fund .25% of 1% of the
average
daily net assets of
the Series
<PAGE> 1
Exhibit 8
CUSTODY AGREEMENT
-----------------
Agreement made as of the 24th day of August, 1987, between The Gradison
Custodian Trust (the "Trust", a business trust organized under the laws of Ohio
and having its office at The 580 Building, Cincinnati, Ohio 45202 acting for and
on behalf of Gradison Government Income Fund (the "Fund"), which Is operated and
maintained by the Trust for the benefit of the holders of shares of the Fund,
and The First National Bank of Cincinnati (the "Custodian"), a national banking
association having its principal office and place of business at First National
Bank Center, 425 Walnut Street, Cincinnati, Ohio 45202, which Agreement
provides, for the furnishing of custodian services to the Fund.
WITNESSETH:
that for and in consideration of the mutual promises hereinafter set forth the
Trust, on behalf of the Fund, and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever used in this Agreement, the following words and phrases, unless the
context otherwise requires, shall have the following meanings:
1. "Authorized Person" shall be deemed to include the
Chairman, President, Secretary, Treasurer, and the Senior Vice
President, or any other person, whether or not any such person is an
officer or employee of the Trust, duly authorized by the Board of
Trustees of the Trust to give Oral Instructions and Written
Instructions on behalf of the Fund and listed in the Certificate
annexed hereto as Appendix A or such other Certificate as may be
received by the Custodian from time to time, subject in each case to
any
<PAGE> 2
limitations on the authority of such person as set forth in Appendix A
or any such Certificate.
2. "Book-Entry System" shall mean the Federal
Reserve/Treasury book-entry system for United States and federal
agency securities, its successor or successors and its nominee or
nominees, provided the Custodian has received a certified copy of a
resolution of Board of Trustees of the Trust specifically approving
deposits in the Book-Entry System.
3. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be
given to the Custodian which is signed on behalf of the Fund by an
officer of the Trust and is actually received by the Custodian.
4. "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission, its
successor or successors and its nominee or nominees. The term "Depository" shall
further mean and include any other person or clearing agency authorized to act
as a depository under the Investment Company Act of 1940, its successor or
successors and its nominee or nominees, provided that the Custodian has received
a certified copy of a resolution of the Board of Trustees of the Trust
specifically approving such other person or clearing agency as a depository.
5. "Dividend and Transfer Agent" shall mean the dividend and transfer
agent active, from time to time, in such capacity pursuant to a written
Agreement with the Fund, changes in which the Trust shall immediately report
to the Custodian in writing.
6. "Money Market Security" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to principal and/or
Interest by the government of the United States or agencies or
<PAGE> 3
instrumentalities thereof, commercial paper, obligations (including
certificates of deposit, bankers' acceptances, repurchase and reverse
repurchase agreements with respect to the same) and bank time deposits
of domestic banks that are members of Federal Deposit Insurance
Corporation, and short--term corporate obligations where the purchase
and sale of such securities normally require settlement in federal
funds or their equivalent on the same day as such purchase or sale.
7. "Officers" shall be deemed to include the Chairman, the President,
the Secretary, the Treasurer and Senior Vice President of the Trust as
listed in the Certificate annexed hereto as Appendix B or such other
Certificate as may be received by the Custodian from time to time.
8. "Oral Instructions" shall mean oral instructions actually received
by the Custodian from an Authorized Person (or from a person which the
Custodian reasonably believes in good faith to be an Authorized Person)
and confirmed by Written Instructions from Authorized Persons in such
manner so that such Written Instructions are received by the Custodian
on the next business day.
9. "Prospectus" shall mean the Trust's currently effective prospectus
and Statement of Additional Information, as filed with and declared effective by
the Securities and Exchange Commission.
10. "Security or Securities" shall mean Money Market Securities, common
or preferred stocks, options, bonds, debentures, corporate debt
securities, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing
rights to receive, purchase or subscribe for the same, or evidencing or
representing any other rights or interest therein, or any property or
assets.
<PAGE> 4
11. "Written Instructions" shall mean communications actually received
by the Custodian from one Authorized Person or from one person which
the Custodian reasonably believes in good faith to be an Authorized
Person in writing or by telex or any other such system whereby the
receiver of such communications is able to verify by codes or otherwise
with a reasonable degree of certainty the authenticity of the senders
of such communication.
ARTICLE II
APPOINTMENT OF CUSTODIAN
------------------------
1. The Trust, acting for and on behalf of the Fund, hereby constitutes
and appoints the Custodian as custodian of all the Securities and monies at any
time owned by the Fund during the period of this Agreement (the "Fund Assets").
2. The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
DOCUMENTS TO BE FURNISHED BY THE TRUST
--------------------------------------
1. The Trust hereby agrees to furnish to the Custodian the following
documents:
1. A copy of its Agreement and Declaration of Trust (the
"Declaration of Trust") certified by its Secretary.
2. A copy of its By--Laws certified by its Secretary.
3. A copy of the resolution of its Board of Trustees
appointing the Custodian certified by its Secretary.
4. A copy of the most recent Prospectus of the Trust.
5. A Certificate of the President and Secretary setting forth
the names and signatures of the present officers of the Trust.
<PAGE> 5
ARTICLE IV
CUSTODY OF CASH AND SECURITIES
------------------------------
1. The Trust will deliver or cause to be delivered to the Custodian all
Fund Assets owned by it, including cash received for the issuance of its shares,
at any time during the period of this Agreement. The Custodian will not be
responsible for such Fund Assets until actually received by it. Upon such
receipt, the Custodian shall hold in safekeeping and physically segregate at all
times from the property of any other persons, firms or corporations all Fund
Assets received by it from or for the account of the Fund. The Custodian will be
entitled to reverse any credits made on the Fund's behalf where such credits
have been previously made and monies are not finally collected within 90 days of
the making of such credits. The Custodian is hereby authorized by the Trust,
acting on behalf of the Fund, to actually deposit any Fund Assets in the
Book-Entry System or in a Depository, provided, however, that the Custodian
shall always be accountable to the Trust for the Fund Assets so deposited. Fund
Assets deposited in the Book-Entry System or the Depository will be represented
in accounts which include only assets held by the Custodian for customers,
including but not limited to accounts in which the Custodian acts in a fiduciary
or representative capacity.
2. The Custodian shall credit to a separate account or accounts in the
name of the Fund all monies received by it for the account of the Fund, and
shall disburse the same only:
(a) In payment for Securities purchased for the Account of the
Fund, as provided in Article V;
(b) In payment of dividends or distributions, as provided in
Article VI hereof;
<PAGE> 6
(c) In payment of original issue or other taxes, as provided
in Article VII hereof;
(d) In payment for shares of the Fund redeemed by it, as
provided in Article VII hereof;
(e) Pursuant to Certificates (i) directing payment and setting
forth the name and address of the person to whom the payment is to be made) the
amount of such payment and the purpose for which payment is to be made(the
Custodian not being required to question such direction) or (ii) if reserve
requirements are established for the Fund by law or by valid regulation,
directing the Custodian to deposit a specified amount of collected funds in the
form of U.S. dollars at a specified Federal Reserve Bank and stating the purpose
of such deposit; or
(f) In reimbursement of the expenses and liabilities of the
Custodian, as provided in Article IX hereof.
3. Promptly after the close of business on each day the Custodian shall furnish
the Trust with a detailed statement of monies held for the Fund under this
Agreement and with confirmations and a summary of all transfers to or from the
account of the Fund during said day. Where Securities are transferred to the
account of the Fund without physical delivery, the Custodian shall also identify
as belonging to the Fund a quantity of Securities in a fungible bulk of
Securities registered in the name of the Custodian (or its nominee) or shown on
the Custodian's account on the books of the Book-Entry System or the
Depository. At least monthly and from time to time, the Custodian shall furnish
the Trust with a detailed statement of the Securities held for the Fund under
this Agreement.
4. All Securities held for the Fund, which are issued or issuable only in bearer
form, except such Securities as are held in the Book-Entry
<PAGE> 7
System, shall be held by the Custodian in that form; all other Securities held
for the Fund may be registered in the name of the Fund, in the name of any duly
appointed registered nominee of the Custodian as the Custodian may from time to
time determine, or in the name of the Book-Entry System or the Depository or
their successor or successors, or their nominee or nominees. The Trust agrees to
furnish to the Custodian appropriate instruments to enable the Custodian to hold
or deliver in proper form for transfer, or to register in the name of its
registered nominee or in the name of the Book-Entry System or the Depository,
any Securities which it may hold for the account of the Fund and which may from
time to time be registered in the name of the Fund. The Custodian shall hold all
such Securities which are not held in the Book-Entry System or the Depository
in a separate account or accounts in the name of the Fund physically segregated
at all times from those of any other fund maintained and operated by the Trust
and from those of any other person or persons.
5. Unless otherwise instructed to the contrary by a Certificate, the Custodian
shall with respect to all Securities held for the Fund in accordance with this
Agreement:
(a) Collect all income due or payable to the Fund with respect
to the Fund Assets;
(b) Present for payment and collect the amount payable upon
all Securities which may mature or be called, redeemed or retired, or otherwise
become payable;
(c) Surrender Securities in temporary form for definitive
Securities;
(d) Execute, as Custodian, any necessary declarations or
certificates of ownership under the Federal income tax laws or the laws or
<PAGE> 8
regulations of any other taxing authority, including any foreign taxing
authority, now or hereafter in effect; and
(e) Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the account of the
Fund all rights and similar securities issued with respect to any Securities
held by the Custodian hereunder.
6. Upon receipt of a Certificate and not otherwise, the Custodian directly or
through the use of the Book-Entry System or the Depository shall:
(a) Execute and deliver to such persons as may be designated
in such Certificate proxies, consents, authorizations, and any other instruments
whereby the authority of the Fund as owner of any Securities may be exercised;
(b) Deliver any Securities held for the Fund in exchange for
other Securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(c) Deliver any Securities held for the account of the Fund to
any protective committee, reorganization committee or other person in connection
with the reorganization, refinancing, merger, consolidation, recapitalization or
sale of assets of any corporation, and receive and hold under the terms of this
Agreement such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery; and
(d) Make such transfers or exchanges of the assets of the Fund
and take such other steps as shall be stated in said Certificate to be for the
purpose of effectuating any duly authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Fund.
<PAGE> 9
7. The Custodian shall promptly deliver to the Trust all notices, proxy material
and executed but unvoted proxies pertaining to shareholder meetings of
Securities held by the Fund. The Custodian shall not vote or authorize the
voting of any Securities or give any consent, waiver or approval with respect
thereto unless so directed by a Certificate or Written Instruction.
8. The Custodian shall promptly deliver to the Trust all material received by
the Custodian and pertaining to Securities held by the Fund with respect to
tender or exchange offers, calls for redemption or purchase, expiration of
rights, names changes, stock splits and stock dividends, or any other activity
involving ownership rights in such Securities.
ARTICLE V
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
--------------------------------------------
1. Promptly after each purchase of Securities by the Fund, the Trust
shall deliver to the Custodian (i) with respect to each purchase of Securities
which are not Money Market Securities, a Certificate or Written Instructions,
and (ii) with respect to each purchase of Money Market Securities, Written
Instructions, a Certificate or Oral Instructions, specifying with respect to
each such purchase: (a) the name of the issuer and the title of the Securities,
(b) the principal amount purchased and accrued interest, if any, (c) the date of
purchase and settlement, (d) the purchase price per unit, (e) the total amount
payable upon such purchase and (f) the name of the person from whom or the
broker through whom the purchase was made. The Custodian shall upon receipt of
Securities purchased by or for the Fund, pay out of the monies held for the
account of the Fund the total amount payable to the person from whom or the
broker through whom the purchase was made, provided that the same conforms to
the total amount
<PAGE> 10
payable as set forth in such Certificate, Written Instructions or Oral
Instructions.
2. Promptly after each sale of Securities by the Trust for the account of the
Fund, the Trust shall deliver to the Custodian (i) with respect to each sale of
Securities which are not Money Market Securities, a Certificate or Written
Instructions, and (ii) with respect to each sale of Money Market Securities,
Written Instructions, a Certificate or Oral Instructions, specifying with
respect to each such sale: (a) the name of the issuer and the title of the
Security, (b) the principal amount sold, and accrued interest, if any, (c) the
date of sale, (d) the sale price per unit, (e) the total amount payable to the
Fund upon such sale and (f) the name of the broker through whom or the person to
whom the sale was made. The Custodian shall deliver the Securities upon receipt
of the total amount payable to the Fund upon such sale, provided that the same
conforms to the total amount payable as set forth in such Certificate, Written
Instructions or Oral Instructions. Subject to tie foregoing, the Custodian may
accept payment in such form as shall be satisfactory to it, and may deliver
Securities and arrange for payment in accordance with the customs prevailing
among dealers in Securities.
3. Promptly after the time as of which the Trust, on behalf of the
Fund, either -
(a) writes an option on Securities or writes a covered put
option in respect of a Security, or
(b) notifies the Custodian that its obligations in respect of
any put or call option, as described in the Trust's Prospectus, require that the
Fund deposit Securities or additional Securities with the Custodian, specifying
the type and value of Securities required to be so deposited, or
<PAGE> 11
(c) notifies the Custodian that its obligations in respect of
any other Security, as described in the Trust's Prospectus, require that the
Fund deposit Securities or additional Securities with the Custodian, specifying
the type and value of Securities required to be so deposited, the Custodian will
cause to be segregated or identified as deposited, pursuant to the Fund's
obligations as set forth in the Prospectus, Securities of such kinds and having
such aggregate values as are required to meet the Fund's obligations in respect
thereof.
The Trust will provide to the Custodian, as of the end of each trading
day, the market value of the Fund's option liability and the market value of its
portfolio of common stocks.
4. On contractual settlement date, the account of the Fund will be
charged for all purchases settling on that day, regardless of whether or not
delivery is made. On contractual settlement date, sale proceeds will likewise be
credited to the account of the Fund irrespective of delivery.
In the case of "sale fails,' the Custodian may request the assistance of the
Fund in making delivery of the failed Security.
ARTICLE VI
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
-------------------------------------
1. The Trust shall furnish to the Custodian a copy of the resolution of the
Board of Trustees, certified by the Secretary, either (i) setting forth the date
of the declaration of any dividend or distribution in respect of shares of the
Fund, the date of payment thereof, the record date as of which Fund shareholders
entitled to payment shall be determined, the amount payable per share to Fund
shareholders of record as of that date and the total amount to be paid by the
Dividend and Transfer Agent of the Fund on the
<PAGE> 12
payment date, or (ii) authorizing the declaration of dividends and distributions
in respect of shares of the Fund on a daily basis and authorizing the Custodian
to rely on Written Instructions or a Certificate setting forth the date of the
declaration of any such dividend or distribution, the date of payment thereof,
the record date as of which Fund shareholders entitled to payment shall be
determined, the amount payable per share to Fund shareholders of record as of
that date and the total amount to be paid by the Dividend and Transfer Agent on
the payment date.
2. Upon the payment date specified in such resolution, Written Instructions or
Certificate, a the case may be, the Custodian shall arrange for such payments to
be made by the Dividend and Transfer Agent out of monies held for the account of
the Fund.
ARTICLE VII
SALE AND REDEMPTION OF SHARES OF THE FUND
-----------------------------------------
1. The Custodian shall receive and credit to the account of the Fund
such payments for shares of the Fund issued or sold from time to time as are
received from the distributor for the Funds shares, from the Dividend and
Transfer Agent of the Fund, or from the Trust.
2. Upon receipt of Written Instructions from the Trust, on behalf of
the Fund, the Custodian shall arrange for payment of redemption proceeds to be
made by the Dividend and Transfer Agent out of the monies held for the account
of the Fund in the total amount specified in the Written Instructions.
3. Notwithstanding the above provisions regarding the redemption of any
shares of the Fund, whenever shares of the Fund are redeemed pursuant to any
check redemption privilege which may from time to time be offered by the Fund,
the Custodian, unless otherwise subsequently instructed by Written Instructions
shall, upon receipt of any Written Instructions from the Trust
<PAGE> 13
setting forth bat the redemption is in good form for redemption in accordance
with the check redemption procedure, honor the check presented as part of such
check redemption privilege out of the money held in the account of the Fund for
such purposes.
ARTICLE VIII
INDEBTEDNESS
------------
The Trust, on behalf of the Fund, will cause to be delivered to the
Custodian by a bank or broker (including the Custodian, if the borrowing is from
the Custodian), requiring Securities as collateral for such borrowings, a notice
or undertaking in the form currently employed by any such bank or broker setting
forth the amount which such bank or broker will loan to the Fund against
delivery of a stated amount of collateral. The Trust shall promptly deliver to
the Custodian a Certificate specifying with respect to each such borrowing: (a)
the name of the bank or broker, (b) the amount and terms of the borrowing, which
may be set forth by incorporating by reference an attached promissory note, duly
endorsed by the Trust, acting on behalf of the Fund, or other loan agreement, (c
the date and time, if known, on which the loan is to be entered into, (d) the
date on which the loan becomes due and payable, (e) the total amount payable to
the Fund on the borrowing date, (f) the market value of Securities
collateralizing the loan, including the name of the issuer, the title and the
number of shares or the principal amount of any particular Securities and (g) a
statement that such loan is in conformance with the Investment Company Act of
1940 and the Trust's then current Prospectus. The Custodian shall deliver on the
borrowing date specified in a Certificate the specified collateral and the
executed promissory note, if any, against delivery by the lending bank or broker
of the total amount of the loan payable provided that the same conforms to the
<PAGE> 14
total amount payable as set forth in the certificate. The Custodian may, at the
option of the lending bank or broker, keep such collateral in its possession,
but such collateral shall be subject to all rights therein given the lending
bank or broker, by virtue of any promissory note or loan agreement. The
Custodian shall deliver in the manner directed by the Trust from time to time
such Securities as additional collateral as may be specified in a Certificate to
collateralize further any transaction described in this paragraph. The Trust
shall cause all Securities released from collateral status to be returned
directly to the Custodian and the Custodian shall receive from time to time such
return of collateral as may be tendered to it. In the event that the Trust fails
to specify in a Certificate or Written Instructions the name of the issuer, the
title and number of shares or the principal amount of any particular Securities
to be delivered as collateral by the Custodian, the Custodian shall not be under
any obligation to deliver any Securities. The Custodian may require such
reasonable conditions with respect to such collateral and its dealings with
third-party lenders as it may deem appropriate.
ARTICLE IX
CONCERNING THE CUSTODIAN
------------------------
1. Except as otherwise provided herein, the Custodian shall not be
liable for any loss or damage, including counsel fees, resulting from its action
or omission to act or otherwise, except for any such loss or damage arising out
of its own negligence or willful misconduct. The Trust, on behalf of the Fund
and only from Fund Assets (or insurance purchased by the Trust with respect to
its liabilities on behalf of the Fund hereunder), shall defend, indemnify and
hold harmless the Custodian and its directors, officers, employees and agents
with respect to any loss, claim, liability or
<PAGE> 15
cost (including reasonable attorneys' fees) arising or alleged to arise from or
relating to the Trust's duties with respect to the Fund hereunder or any other
action or inaction of the Trust or its Trustees, officers, employees or agents
as to the Fund, except such as may arise from the negligent action, omission or
willful misconduct of the Custodian, its directors, officers, employees or
agents. The Custodian shall defend, indemnify and hold harmless the Trust and
its Trustees, officers, employees or agents with respect to any loss, claim,
liability or cost (including reasonable attorneys' fees) arising or alleged or
arise from or relating to the Custodian's duties with respect to the Fund
hereunder or any other action or inaction of the Custodian or its directors,
officers, employees, agents, nominees or Sub-Custodians as to the Fund, except
such as may arise from the negligent action, omission or willful misconduct of
the Trust, its Trustees, officers, employees or agents. The Custodian may, with
respect to questions of law apply for and obtain the advice and opinion of
counsel to the Trust at the expense of the Fund, or of its own counsel at its
own expense, and shall be fully protected with respect to anything done or
omitted by it in good faith in conformity with the advice or opinion of counsel
to the Trust, and shall be similarly protected with respect to anything done or
omitted by it in good faith in conformity with advice or opinion of its counsel,
unless counsel to the Fund shall, within a reasonable time after being notified
of legal advice received by the Custodian, have a differing Interpretation of
such question of law. The Custodian shall be liable to the Trust for any
proximate loss or damage resulting from the use of the Book-Entry System or any
Depository arising by reason of any negligence, misfeasance or misconduct on the
part of the Custodian or any of Its employees, agents, nominees or
Sub-Custodians but not for any special, Incidental, consequential, or punitive
damages; provided,
<PAGE> 16
however, that nothing contained herein shall preclude recovery by the Trust, on
behalf of the Fund, of principal and interest to the date of recovery on
Securities incorrectly omitted from the Fund's account or penalties imposed on
the Trust, in connection with the Fund, for any failures to deliver Securities.
In any case in which one party hereto may be asked to indemnify the other or
hold the other harmless, the party from whom indemnification is sought (the
"Indemnifying Party") shall be advised of all pertinent facts concerning the
situation in question, and the party claiming a right to indemnification (the
"Indemnified Party's) will use reasonable care to identify and notify the
Indemnifying Party promptly concerning any situation which presents or appears
to present a claim for indemnification against the Indemnifying Party. The
Indemnifying Party shall have the option to defend the Indemnified Party against
any claim which may be the subject of the indemnification, and in the event the
Indemnifying Party so elects, such defense shall be conducted by counsel chosen
by the Indemnifying Party and satisfactory to the Indemnified Party and the
Indemnifying Party will so notify the Indemnified Party and thereupon such
Indemnifying Party shall make over the complete defense of the claim and the
other party shall sustain no further legal or other expenses in such situation
for which indemnification has been sought under this paragraph, except the
expenses of any additional counsel retained by such Indemnified Party. In no
case shall any party claiming the right to indemnification confess any claim or
make any compromise in any case in which the other party has been asked to
indemnify such party (unless such confession or compromise is made with such
other party's prior written consent).
<PAGE> 17
The obligations of the parties hereto under this paragraph shall survive the
termination of this Agreement.
2. Without limiting the generality of the foregoing, the Custodian,
acting in the capacity of Custodian hereunder, shall be under no obligation to
inquire into, and shall not be liable for:
(a) The validity of the issue of any Securities purchased by
or for the account of the Fund, the legality of the purchase thereof, or the
propriety of the amount paid therefor;
(b) The legality of the sale of any Securities by or for the
account of the Fund, or the propriety of the amount for which the same are sold;
(c) The legality of the issue or sale of any shares of the
Fund, or the sufficiency of the amount to be received therefor;
(d) The legality of the redemption of any shares of the Fund,
or the propriety of the amount to be paid therefor;
(e) The legality of the declaration or payment of any dividend
by the Trust in respect of shares of the Fund;
(f) The legality of any borrowing by the Trust, on behalf of
the Fund, using Securities as collateral;
(g) The sufficiency of any deposit made pursuant to a
Certificate described in clause (ii) of paragraph 2(e) of Article IV herein; or
(h) The genuineness of any Certificate, Written Instructions
or other writing herein described.
3. The Custodian shall not be liable for any money or collected funds
in U.S. dollars deposited in a Federal Reserve Bank in accordance with a
Certificate described in clause (ii) of paragraph 2(e) of Article IV herein, nor
be liable for or considered to be the Custodian of any money,
<PAGE> 18
whether or not represented by any check, draft, or other instrument for the
payment of money, received by it on behalf of the Fund until the Custodian
actually receives and collects such money directly or by the final crediting of
the account representing the Fund's interest at the Book-Entry System or
Depository.
4. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to the Fund from the Dividend and
Transfer Agent of the Fund nor to take any action to effect payment or
distribution by the Dividend and Transfer Agent of the Fund of any amount paid
by the Custodian to the Dividend and Transfer Agent of the Fund in accordance
with this Agreement.
5. Income due or payable to the Fund with respect to Fund Assets will
be credited to the account of the Fund as follows:
(a) Dividends will be credited on the first business day following
payable date irrespective of collection.
(b) Interest on fixed rate municipal bonds and debt securities issued
or guaranteed as to principal and/or interest by the government of the United
States or agencies or instrumentalities thereof (excluding securities Issued by
the Government National Mortgage Association) will be credited on payable date
irrespective of collection.
(c) Interest on fixed rate corporate debt securities will be credited
on the first business day following payable date irrespective of collection.
(d) Interest on variable and floating rate debt securities and debt
securities issued by the Government National Mortgage Association will be
credited upon the Custodian's receipt of funds.
<PAGE> 19
(e) Proceeds from options will be credited upon the Custodian's receipt
of funds.
6. Notwithstanding paragraph 5 of this Article IX, the Custodian shall
not be under any duty or obligation to take action to effect collection of any
amount, if the Securities upon which such amount is payable are in default, or
if payment is refused after due demand or presentation, unless and until (i) it
shall be directed to take such action by a Certificate and (ii) it shall be
assured to its satisfaction of reimbursement of its costs and expenses in
connection with any such action or, at the Custodian's option, prepayment.
7. The Custodian may appoint one or more financial or banking
institutions, approved by the Board of Trustees of the Trust, as Depository or
Depositories or as Sub-Custodian or Sub-Custodians, including, but not limited
to, banking institutions located in foreign countries, of Securities and monies
at any time owned by the Fund, upon terms and conditions approved in a
Certificate. Current Depository(s) and Sub-Custodian(s) are noted in Appendix
C. The Custodian shall not be relieved of any obligation or liability under this
Agreement in connection with the appointment or activities of such Depositories
or Sub-Custodians.
8. The Custodian shall not be under any duty or obligation to ascertain
whether any Securities at any time delivered to or held by it for the account of
the Fund are such as properly may be held by the Fund under the provisions of
the Declaration of Trust and the Fund By-Laws.
9. The Custodian shall treat all records and other information relating
to the Trust, the Fund and the Fund Assets as confidential and shall not
disclose any such records or information to any other person unless (a)
<PAGE> 20
the Trust shall have consented thereto in writing or (b) such disclosure is
compelled by law.
10. The Custodian shall be entitled to receive and the Trust agrees to
pay to the Custodian, for the Fund's account from Fund Assets only, such
compensation as shall be determined pursuant to Appendix D attached hereto, or
as shall be determined pursuant to amendments to such Appendix approved by the
Custodian and the Trust, on behalf of the Fund. The Custodian shall be entitled
to charge against any money held by it for the account of the Fund the amount of
any loss, damage, liability or expense, including counsel fees, for which it
shall be entitled to reimbursement under the provisions of this Agreement as
determined by agreement of the Custodian and the Trust or by the final order of
any court or arbitrator having jurisdiction and as to which all rights of appeal
shall have expired. The expenses which the Custodian may charge against the
account of the Fund include, but are not limited to, the expenses of
Sub-Custodians incurred in settling transactions involving the purchase and sale
of Securities of the Fund.
11. The Custodian shall be entitled to rely upon any Certificate. The
Custodian shall be entitled to rely upon any Oral Instructions and any Written
Instructions actually received by the Custodian pursuant to Article IV or V
hereof. The Trust agrees to forward to the Custodian Written Instructions from
Authorized Persons confirming Oral Instructions in such manner so that such
Written Instructions are received by the Custodian, whether by hand delivery,
telex or otherwise, on the first business day following the day on which such
Oral Instructions are given to the Custodian. The Trust agrees that the fact
that such confirming instructions are not received by the Custodian shall in no
way affect the validity of the transactions or enforceability of the
transactions hereby authorized by the
<PAGE> 21
Trust. The Trust agrees that the Custodian shall incur no liability to the Fund
in acting upon Oral Instructions given to the Custodian hereunder concerning
such transactions.
12. The Custodian will (a) set up and maintain proper books of account
and complete records of all transactions in the accounts maintained by the
Custodian hereunder and (b) preserve for the periods prescribed by applicable
Federal statute or regulation all records required to be so preserved. The books
and records of the Custodian shall be open to inspection and audit at reasonable
times and with prior notice by Officers and auditors employed by the Trust
13. The Custodian and its Sub-Custodians shall promptly send to the
Trust, for the account of the Fund, any report received on the systems of
internal accounting control of the Book-Entry System or the Depository and with
such reports on their own systems of internal accounting control as the Trust
may reasonably request from time to time.
14. The Custodian performs only the services of a custodian and shall
have no responsibility for the management, investment or reinvestment of the
Securities from time to time owned by the Fund. The Custodian is not a selling
agent for shares of the Fund and performance of its duties as a custodial agent
shall not be deemed to be a recommendation to the Custodian's depositors or
others of shares of the Fund as an investment.
ARTICLE X
TERMINATION
-----------
1. Either of the parties hereto may terminate this Agreement for any
reason by giving to the other party a notice in writing specifying the date of
such termination, which shall be not less than ninety (90) days after the date
of giving of such notice. If such notice Is given by the Trust, on
<PAGE> 22
behalf of the Fund, it shall be accompanied by a copy of a resolution of the
Board of Trustees of the Trust, certified by the Secretary or any Assistant
Secretary, electing to terminate this Agreement and designating a successor
custodian or custodians, each of which shall be a bank or trust company having
not less than $2,000,000 aggregate capital, surplus and undivided profits. In
the event such notice is given by the Custodian, the Trust shall, on or before
the termination date, deliver to the Custodian a copy of a resolution of its
Board of Trustees, certified by the Secretary, designating a successor custodian
or custodians to act on behalf of the Fund. In the absence of such designation
by the Trust, the Custodian may designate a successor custodian which shall be a
bank or trust company having not less than $2,000,000 aggregate capital,
surplus, and undivided profits. Upon the date set forth in such notice this
Agreement shall terminate, and the Custodian, provided that it ha; received a
notice of acceptance by the successor custodian, shall deliver, on that date,
directly to the successor custodian all Securities and monies then owned by the
Fund and held by it as Custodian. Upon termination of this Agreement, the Trust
shall pay to the Custodian on behalf of the Fund such compensation as may be due
as of the date of such termination. The Trust agrees on behalf of the Fund that
the Custodian shall be reimbursed for its reasonable costs in connection with
the termination of this Agreement.
2. If a successor custodian is not designated by the Trust, on behalf
of the Fund, or by the Custodian in accordance with the preceding paragraph, or
the designated successor cannot or will not serve, the Trust shall upon the
delivery by the Custodian to the Trust of all Securities (other than Securities
held in the Book-Entry System which cannot be delivered to the Trust) and
monies then owned by the Fund, other than monies
<PAGE> 23
deposited with a Federal Reserve Bank pursuant to a Certificate described in
clause (ii) of paragraph 2(e) of Article IV, be deemed to be the custodian for
the Fund, and the Custodian shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement, other than the duty with respect to
Securities held in the Book-Entry System which cannot be delivered to the Trust
to hold such Securities hereunder in accordance with this Agreement.
ARTICLE XI
MISCELLANEOUS
-------------
1. Appendix A sets forth the names and the signatures of all present
Authorized Persons. The Trust agrees to furnish to the Custodian, on behalf of
the Fund, a new Appendix A in form similar to the attached Appendix A, if any
present Authorized Person ceases to be an Authorized Person or if any other or
additional Authorized Persons are elected or appointed. Until such new Appendix
A shall be received, the Custodian shall be fully protected in acting under the
provisions of this Agreement upon Oral Instructions or signatures of the present
Authorized Persons as set forth in the last delivered Appendix A.
2. No recourse under any obligation of this Agreement or for any claim
based thereon shall be had against any organizer, shareholder, Officer, Trustee,
past, present or future as such, of the Trust or of any predecessor or
successor, either directly or through the Trust or any such predecessor or
successor, whether by virtue of any constitution, statute or rule of law or
equity, or by the enforcement of any assessment or penalty or otherwise; it
being expressly agreed and understood that this Agreement and the obligations
thereunder are enforceable solely against Fund Assets, and that no such personal
liability whatever shall attach to, or is or shall be incurred by, the
organizers, shareholders, Officers, Trustees of the Trust or of any
<PAGE> 24
predecessor or successor, or any of them, as such, because of the obligations
contained in this Agreement or implied therefrom and that any and all such
liability is hereby expressly waived and released by the Custodian as a
condition of, and as a consideration for, the execution of this Agreement.
3. The obligations set forth in this Agreement as having been made by
the Trust have been made by the Trustees of the Trust, acting as such Trustees
for and on behalf of the Fund, pursuant to the authority vested in them under
the laws of the State of Ohio, the Declaration of Trust and the By-Laws of the
Trust. This Agreement has been executed by Officers of the Trust as officers,
and not individually, and the obligations contained herein are not binding upon
any of the Trustees, Officers, agents or holders of shares, personally, out bind
only the Trust and then only to the extent of Fund Assets.
4. Such provisions of the Prospectus of the Trust and any other
documents (including advertising material) specifically mentioning the Custodian
shall be reviewed with the Custodian by the Trust.
5. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices at First
National Bank Center, 425 Walnut Street, Cincinnati, Ohio 45202, attention
Corporate Trust Services Department, or at such other place as the Custodian may
from time to time designate in writing.
6. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Trust shall be sufficiently given when
delivered to the Trust or on the second following the time such notice is
deposited in the U.S. mail postage prepaid and addressed to the Trust at its
<PAGE> 25
office at The 580 Building, Cincinnati, Ohio 45202, or at such other place as
the Trust may from time to time designate in writing.
7. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality as this
Agreement, and authorized and approved by a resolution of the Board of Trustees
of the Trust.
8. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Trust or by the Custodian, and no
attempted assignment by the Trust or the Custodian shall be effective without
the written consent of the other party hereto.
9. This Agreement shall be construed in accordance with the laws of the
State of Ohio.
10. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized as of the day
and year first above written.
ATTEST:
/s/Thomas W. Bowers By: Donald E. Weston
Chairman
Gradison Custodian Trust
ATTEST: The First National Bank of Cincinnati
By:
--------------------------------
<PAGE> 26
APPENDIX A
Authorized Persons Specimen Signatures
------------------ -------------------
Chairman: Donald E. Weston /s/ Donald E. Weston
President: David W. Ellis /s/ David W. Ellis
Treasurer: Thomas Bowers /s/ Thomas Bowers
Secretary: Thomas Bowers /s/ Thomas Bowers
Senior Vice President: Paul J. Weston /s/ Paul J. Weston
Adviser Employees: Michael Link /s/ Michael Link
<PAGE> 27
APPENDIX B
Officers
--------
Chairman: Donald E. Weston
President: David W. Ellis
Treasurer: Thomas Bowers
Secretary: Thomas Bowers
Senior Vice President: Paul J. Weston
Adviser Employees: Michael Link
<PAGE> 28
APPENDIX C
As required by Article IX, Paragraph 7, it is hereby noted that the
following Depository(s) and Sub-Custodian(s) are employed currently by The
First National Bank of Cincinnati for securities processing and control...
The Bank of New York
Wall Street Trust Division
P.0. Box 555
Bowling Green Station
New York, NY 10004
The Depository Trust Company (New York)
7 Hanover Square
New York, NY 10004
The Federal Reserve Bank
Cincinnati and Cleveland Branches
Manufacturers Hanover Trust Company
270 Park Avenue
New York, NY 10017
...and have been approved by the Board of Trustees of the Trust.
<PAGE> 29
APPENDIX D
Fee quotation for Gradison Custodian Trust, Gradison Government Income Fund
Base Fee: $300.00 per month
Annual Charge on Average
Net Asset Value of: $150.00 per $1 million
GNMA Book Entry
---------------
Transaction Fee: $40.00/transaction
Collection Fee: $25.00 income
$25.00 principal
Maintenance Fee: $5.00/issue/month
Income for Book Entry GNMA's will be credited on
Treasuries and GNMA Non-Book Entry
----------------------------------
Transaction Fee: $15.00/transaction
Options:
Transaction Fee: $30.00 to open
$20.00 to close, exercise
or upon expiration
<PAGE> 1
Exhibit 9
DATA PROCESSING SERVICES AGREEMENT
BETWEEN
GRADISON & COMPANY INCORPORATED
AND
GRADISON CUSTODIAN TRUST
This Agreement is made this 16th day of September 1987 between Gradison
& Company Incorporated (the "Data Processing Provider"), a Delaware corporation,
and Gradison Custodian Trust, an Ohio business trust, with respect to the
Gradison Government Income Fund, a series thereof, (the "Fund"), and shall be
effective immediately.
The parties agree as follows:
1. The Data Processing Provider agrees to provide the Fund with data
processing services, together with equipment appropriate to provide such
services as set forth in this Agreement.
2. The Data Processing Provider will:
(a) Maintain a data base reflecting all shareholder
transactions, including purchases, redemptions, transfers,
exchanges, dividends, dividend reinvestments and
distributions, and, to the extent that information is input by
the Fund, keep such data base current;
(b) Provide the Fund with input access to such data base,
during normal business hours and at such other times as is
required by the Fund;
(c) Calculate the amounts to be paid to shareholders who have
elected the monthly distribution option or the automatic
payment option;
(d) Calculate the Fund's net asset value and net asset value
per share, in accordance with the Fund's currently effective
Prospectus and utilizing information furnished by the Fund
respecting current portfolio transactions, expenses and market
prices;
(e) Maintain information relative to sales in states;
(f) Maintain information relative to dealer accounting;
(g) Maintain all information and produce all reports required
by the Internal Revenue Service as respects individual
retirement accounts;
(h) Maintain shareholder lists and information required for
federal and state tax purposes;
(i) Address and tabulate proxies utilized in connection with
the annual meeting of shareholders;
(j) Provide all personnel required for computer operation in
connection with the data processing services rendered in
accordance with this Agreement; and
<PAGE> 2
(k) Provide a tape in order to generate microfiche of
shareholder statements, daily transactions and daily proof
run.
The Fund will be responsible for providing the personnel required to
handle all data input functions and will provide at its own expense forms for
monthly statements, confirmations and envelopes.
3. The Data Processing Provider shall store a duplicate set of
shareholder account records and programs in data form in an off-site
fire-protected facility each day.
4. The Data Processing Provider shall perform the duties set forth in
this Agreement on each day that the Fund is open for business and otherwise as
required under the Investment Company Act of 1941, as amended, (the "1940
Act").
5. In consideration for the set vices to be performed by the Data
Processing Provider pursuant to this Agreement, Pie Data Processing Provider
shall be entitled to receive such compensation as may be agreed upon from time
to time between the Fund and the Data Processing Provider as set forth in
Schedule A hereto. The Data Processing Provider may provide additional data
processing services to the Fund that are beyond the scope of this Agreement as
agreed upon by the parties.
6. The services of the Data Processing Provider to the Fund are not to
be deemed exclusive, and the Data Processing Provider shall be free to render
similar services to other persons so long as the services to be rendered
hereunder are not impaired thereby. Nothing in this Agreement shall limit or
restrict the right of any director, officer or employee of the Data Processing
Provider to engage in any other business or to devote his time and attention in
part to any other business.
7. The Data Processing Provider assumes no responsibility or obligation
under this Agreement other than to render in good faith the services provided
for herein; provided that nothing herein shall be deemed to protect or purport
to protect the Data. Processing Provider against any liability to the Fund or it
shareholders to which the Data Processing Provider would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of its duties hereunder, or by reason of reckless disregard of its obligations
and duties hereunder.
8. This Agreement shall continue until for one year from the date of
its effectiveness and thereafter continue in effect from year to year so long as
such continuance is specifically approved at least annually by the Trustees and
by a vote of the majority of the Trustees who are not interested persons of the
Fund or the Data Processing Provider (as defined under the 1940 Act).
9. This Agreement may not be amended or modified in any manner except
by a written agreement, executed by both parties and authorized by a vote of the
Trustees and by a vote of the majority of the Trustees who are not interested
persons of the Fund or the Data Processing Provider (as defined in the "1940
Act").
10. This Agreement may be terminated without penalty on not less than
one hundred and fifty (150) days' notice in writing by the Data Processing
Provider or upon not less than sixty (60) days' notice in writing by the Fund.
Termination by the Fund may be made by a majority of the Trustees who are not
interested persons of the Data Processing Provider or the Fund.
<PAGE> 3
11. This Agreement shall extend to and shall be binding upon
the parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by either party hereto
without the written consent of the other party.
12. It is understood that the Data Processing Provider is the
investment adviser of the Fund and that certain of the Trustees, and all of the
officers, of the Fund are interested persons of the investment adviser.
13. The data processing records of the Fund maintained by the Data
Processing Provider pursuant to this Agreement are the property of the Fund and
such records shall be delivered to the Fund upon request at any time in such
form as specified by the Fund.
14. Any notice required by or permitted to be given in connection with
this Agreement shall be in writing, addressed and delivered in person, or mailed
postage prepaid, to the addresses designated by the respective parties for the
receipt of such notice. Until further written notice, it is agreed that the
addresses of the Data Processing Provider and of the Fund, respectively, shall
be:
Gradison & Company Incorporated
Attention: Donald F. Weston
The 580 Building
Cincinnati, Ohio 45202
Gradison Custodian Trust
Attention: David W. Ellis
The 580 Building
Cincinnati, Ohio 45202
15. The shareholders, trustees, officers, employees and agents of the
Trust shall not personally be bound by or liable under this Agreement, nor shall
resort be had to their private property for the satisfaction of any obligation
or claim hereunder, as more fully provided under the terms of the Declaration of
the Trust.
16. This Agreement shall be governed by and construed in accordance
with the laws of the State of Ohio.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
GRADISON & COMPANY INCORPORATED
By:/s/Donald E. Weston
Donald E. Weston
Chairman of the Board
GRADISON CUSTODIAN TRUST
By: /s/David W. Ellis
David W. Ellis
President
<PAGE> 4
Schedule A to Data Processing Services
Agreement Between Gradison & Company Incorporated
and Gradison Custodian Trust
Effective upon initiation of the Agreement, the monthly fee for
services shall be $.6875 per shareholder account based upon the number of
non-zero balance shareholder accounts on the transfer agency master file at
month--end payable within ten days after the end of each month. In addition the
Fund shall pay any applicable sales or use taxes.
Gradison & Company Incorporated
Dated: 9/16/87 By:/s/Donald E. Weston
------- Name
Chairman
Title
Gradison Custodian Trust
Dated: 9/16/87 By:/s/David W. Ellis
------- Name
------------------------------
Title
<PAGE> 5
AMENDMENT TO DATA PROCESSING
AGREEMENT OF SEPTEMBER 16, 1987 BETWEEN
GRADISON CUSTODIAN ("GCT") AND
GRADISON & COMPANY INCORPORATED ("GRADISON")
It is hereby agreed that, as of April 1, 1990, GCT will pay fees to
Gradison for laser printing of GCT's statements at a rate equal to the
lesser of $.028 per page or Gradison's costs of providing this
service, plus applicable sales tax. Gradison's costs of providing the
service shall include reasonable amortization of the cost of equipment
utilized in providing the service.
GRADISON & COMPANY INCORPORATED
By:
---------------------------------
GRADISON CUSTODIAN TRUST
By:
---------------------------------
<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. 16 of our report dated January 30, 1998 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 27, 1998
<PAGE> 1
Exhibit 15
GRADISON CUSTODIAN TRUST
AMENDMENT TO DISTRIBUTION EXPENSE PLAN
The Distribution Expense Plan of the Trust is hereby amended this 19th
day of April, 1994.
1- The DISTRIBUTION EXPENSE PLAN shall be renamed the DISTRIBUTION SERVICE PLAN.
2- In Section 1 the words "finance the distribution" replace the words "act as
the distributor of."
3- In Section 2 the words "expend funds at" replace the words "but only to the
extent such expenses with respect to the Portfolio do not exceed." In Section 2
the following replaces the last sentence of Section 2:
Expenditures pursuant to this Section 2 may be made for service fees to
broker-dealers or other persons (including the Portfolio's Distributor) for
providing personal services to shareholders of the Portfolio, including
shareholder liaison services such as responding to shareholder inquiries and
providing information to customers about their Portfolio accounts.
<PAGE> 2
GRADISON CUSTODIAN TRUST
DISTRIBUTION EXPENSE PLAN
Section 1. Gradison Custodian Trust (the "Trust"), pursuant to Section 12(b) of
the Investment Company act of 1940, as amended (the "1940 Act"), and the rules
and regulations promulgated thereunder as the same may be from time to time
issued or amended, and specifically pursuant to Rule 12b-l (the "Rule")
promulgated under the 1940 Act, may act as the distributor of securities of
which it is the issuer, including shares of its Gradison Government Income Fund
(the "Portfolio") in accordance with the terms of this Distribution Expense Plan
(the "Plan").
Section 2. In addition to those expenses incurred as described in
Sections 3 and 4 below, while this Plan is in effect, the Trust may incur
expenses in respect of the distribution of securities of which it is the issuer,
including shares of the Portfolio, but only to the extent such expenses with
respect to the Portfolio do not exceed an annual rate of .25 of 1% of the
average daily net assets of that Portfolio. A majority of the Trustees who are
not "interested persons" of the Trust and have no direct or indirect financial
interest in the operation of the Plan or any agreements related to the Plan ("
Independent Trustees") may from time to time reduce the amount of such expenses
or may suspend the operation of this Section 2 for such period or periods of
time as they may determine. Expenses permitted to be paid by the Trust pursuant
to this Section 2 shall include, and be limited to, payments to broker-dealers
or other persons (including the Trust's Distributor) for their assistance with
respect to the distribution of the shares of the Portfolio.
Section 3. The Trust's investment adviser (the "Adviser") incurs or may
incur certain expenses in connection with the Portfolio. To the extent that any
advisory fees paid by the Trust pursuant to the Investment Advisory Agreement
might be considered to be indirectly financing any activity which is "primarily
intended to result in the sale of shares" issued by the Trust within the meaning
of the Rule, the payment of such advisory distribution fees is authorized under
this Plan.
Section 4. Pursuant to the Investment Advisory Agreement between the
Trust and its Adviser, the Trust bears all expenses incurred in the operation of
the Trust and not specifically assumed by the Adviser under the Investment
Advisory Agreement or by its distributor under a certain Master Distribution
Agreement, including the costs of preparing, printing and mailing registration
statements, prospectuses, annual, semi-annual and other periodic reports
furnished to shareholders of the Trust's Portfolios and to regulatory
authorities; registration, filing and other fees in connection with the
requirements of regulatory authorities; expenses of issue, sale, redemption and
repurchase of shares of the Portfolios; expenses incurred in connection with the
provision of shareholder services; and legal and accounting expenses incurred in
connection with the foregoing. To the extent that any payments made by the Trust
pursuant to the Investment Advisory Agreement are considered to be "primarily
intended to result in the sale of shares" issued by the Trust within
<PAGE> 3
the meaning of the Rule, such payments when made by the Trust pursuant to the
Investment Advisory Agreement are authorized under this Plan.
Section 5. While this Plan is in effect, the selection and nomination
of those Trustees who are not "interested persons" of the Trust shall be
committed to the discretion of the disinterested Trustees then in office.
Section 6. While this Plan is in effect, any person authorized to
direct the disposition of monies paid or payable by the Trust pursuant to this
Plan or any related agreement shall furnish at least quarterly to the Board of
Trustees of the Trust, and the Trustees shall review, a written report as to the
amounts expended during each quarter and the purposes for which such amounts
were expended.
Section 7. This Plan shall not take effect as to the Portfolio until it
has been approved by a majority of the Board of Trustees of the Trust and by a
majority of the Independent Trustees, by votes cast in person at a meeting
called for the purpose of voting on the Plan, and by a vote of a majority of the
outstanding voting securities of the Portfolio. This Plan shall continue in
effect as to the Portfolio for so long as such continuance is specifically
approved at least annually by a majority of the Board of Trustees and a majority
of the Independent Trustees, by votes cast in person at a meeting called for the
purpose of voting on such continuance. This Plan may be terminated as to the
Portfolio at any time by a vote of a majority of the Independent Trustees or by
a vote of a majority of the outstanding voting securities of the Portfolio. This
Plan may not be amended to materially increase the amount of distribution
expenses incurred as to the Portfolio without the approval of a majority of the
outstanding voting securities of the Portfolio, and all material amendments to
the Plan must be approved by a majority of the Board of Trustees and a majority
of the Independent Trustees, by votes cast in person at a meeting called for the
purpose of voting on such amendment.
Section 8. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide (a) that such agreement may be terminated at any time, without 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 Portfolio, on not more
than sixty days' notice to any other party to the agreement, and (b)that such
agreement shall terminate automatically in the event of its assignment.
Section 9. Should the Trust establish any additional series subsequent
to the date hereof, and retain the Adviser and the Distributor to serve such
series under the terms of the Investment Advisory Agreement and the Master
Distribution Agreement, respectively, the Trust may, subject to approval of the
shareholders of each such series pursuant to Section 7 hereof, implement the
Plan with respect to any such series by attaching to the Plan a written notice
to such effect which shall include the Distribution Fee payable with respect to
such series and the purposes for which such Distribution Fee may be used by the
Distributor, whereupon each such series shall be included with the Gradison
Government Income Fund in the term "Portfolio" hereunder.
<PAGE> 4
Section 10. The adoption of this Plan shall not constitute any
admission that any payments made by the Trust and authorized by the Plan
pursuant to Section 4 constitute distribution expenses within the meaning of the
tile, or that payments of distribution expenses by the Trust's Adviser would
constitute the indirect payment of distribution expenses by the Trust or the
Portfolio.
Section 11. As used in this Plan, the terms "assignment", "interested
person" and "vote of a majority of the outstanding voting securities" shall have
the respective meanings specified in the 1940 Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission.
Section 12. The Trust shall preserve copies of this Plan and any
related agreements and all reports made pursuant to Section 6 hereof for a
period of not Less than six years from the date of execution of this Plan, or of
the agreements or of any such reports, as the case may be, the first two years
in an easily accessible place.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 149,469,310
<INVESTMENTS-AT-VALUE> 150,140,147
<RECEIVABLES> 5,939,499
<ASSETS-OTHER> 56,911
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 156,136,507
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,064,899
<TOTAL-LIABILITIES> 1,064,899
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 160,464,435
<SHARES-COMMON-STOCK> 11,802,228
<SHARES-COMMON-PRIOR> 12,640,897
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 67,750
<ACCUMULATED-NET-GAINS> (5,995,914)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 670,837
<NET-ASSETS> 155,071,608
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,729,617
<OTHER-INCOME> 0
<EXPENSES-NET> 1,396,791
<NET-INVESTMENT-INCOME> 9,332,826
<REALIZED-GAINS-CURRENT> (61,865)
<APPREC-INCREASE-CURRENT> 3,016,012
<NET-CHANGE-FROM-OPS> 12,286,973
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,341,253
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,432,514
<NUMBER-OF-SHARES-REDEEMED> 3,872,131
<SHARES-REINVESTED> 600,948
<NET-CHANGE-IN-ASSETS> (7,802,235)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (5,934,049)
<OVERDISTRIB-NII-PRIOR> 59,323
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 773,094
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,399,021
<AVERAGE-NET-ASSETS> 154,618,848
<PER-SHARE-NAV-BEGIN> 12.884
<PER-SHARE-NII> .775
<PER-SHARE-GAIN-APPREC> .256
<PER-SHARE-DIVIDEND> .776
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.139
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
