<PAGE> 1
As filed with the Securities and Exchange Commission on October 29, 1997
1933 Act Registration No. 33-48613 1940 Act File No. 811-6705
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 10 (X)
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 11 (X)
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G R A D I S O N - M C D O N A L D M U N I C I P A L
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:
Richard M. Wachterman Bradley J. Turner
Gradison-McDonald Gradison-McDonald
Municipal Municipal
Custodian Trust Custodian Trust
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)
----- of Rule 485.
X on November 1, l997 pursuant to paragraph (b) of Rule
----- 485.
60 days after filing pursuant to paragraph (a)
----- of Rule 485.
on ___________ l99_ pursuant to paragraph (a) of
Rule 485
----------
Registrant's most recent Rule 24f-2 Notice was filed on August 22, 1997.
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<PAGE> 2
GRADISON-McDONALD MUNICIPAL CUSTODIAN TRUST
CONTENTS OF POST-EFFECTIVE AMENDMENT
The post-effective amendment to the registration statement of Gradison-McDonald
Municipal Custodian Trust contains the following documents all with respect to
the Gradison Ohio Tax-Free Income Fund:
Facing Sheet
Contents of Post-Effective Amendment
Cross-Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
<PAGE> 3
GRADISON-MCDONALD MUNICIPAL 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 of Prospectus
2. Synopsis . . . . . . . . . . . . . . .Expense Summary
3. Condensed Financial Information . . .Performance Calculations
4. General Description of Registrant . .Investment Objective and
Policies; Hedging; Quality
(Ratings); Maturity;
Concentration; Other
Investment Restrictions;
Ohio Economic Considerations;
General Information
5. Management of Fund . . . . . . . . . .Management of the Trust,
Distributions; Cover Page of
the Prospectus
6. Capital Stock and Other Securities .Cover Page of Prospectus;
Distributions; Taxes; General
Information
7. Purchase of Securities Being Offered .Purchases and Redemptions; Net
Asset Value; Optional
Shareholder Services;
Management of the Fund
8. Redemption or Repurchase . . . . . . .Purchases and Redemptions
9. Pending Legal Proceedings . . . . . .Not Applicable
Location in Statement
of Additional Information
-------------------------
10. Cover Page . . . . . . . . . . . .. Cover Page
11. Table of Contents . . . . . . . . . .Table of Contents
12. General Information and History . . Description of the Trust
13. Investment Objectives and Policies . .Investment Restrictions;
Factors
Relating to Ohio; 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; Custodian
17. Brokerage Allocation and Other
Practices . . . . . . . . . . . . Portfolio Transactions
18. Capital Stock and Other Securities Description of the Trust
19. Purchase, Redemption and Pricing of
Securities Being Offered . . . . . .Purchase of Shares;
Redemption of Shares; Net
Asset Value
<PAGE> 4
20. Tax Status . . . . . . . . . . . . . Taxes
21. Underwriters . . . . . . . . . . . . Investment Adviser
22. Calculation of Performance Data
. . . . . . . . . . . Performance Calculations
(Prospectus)
23. Financial Statements . . . . . . . . Financial Statements and
Accountants
<PAGE> 5
GRADISON OHIO TAX-FREE FUND
PROSPECTUS DATED NOVEMBER 1, 1997
The Gradison Ohio Tax-Free Income Fund ("Fund") is a diversified open-end
management investment company which seeks to provide as high a level of
after-tax current income exempt from Federal income tax and Ohio state personal
income tax as is consistent with preservation of capital by investing primarily
in municipal securities. The Gradison Division of McDonald & Company Securities,
Inc. ("Gradison" or the "Adviser") is the investment adviser and principal
underwriter for the Fund and acts as transfer agent of the Fund.
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 November 1, 1997 has been filed with
the Securities and Exchange Commission and is incorporated herein by reference.
This Statement is available upon request without charge from the Fund at 580
Walnut Street, Cincinnati, Ohio 45202 or by calling the phone numbers provided
below.
For all information (including purchases, redemptions, and most recent yield),
call 579-5700 from Cincinnati, Ohio or 1-800-869-5999 toll free.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK OR OTHER
DEPOSITORY INSTITUTION AND ARE NOT GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
EXPENSE SUMMARY
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
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 .21%
------
TOTAL FUND OPERATING EXPENSES .96%
======
</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>
$10 $31 $53 $118
</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> 6
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. The
information is expressed in terms of a single share outstanding throughout the
period and has been audited by Arthur Andersen LLP, independent public
accountants, whose unqualified report appears in the Statement of Additional
Information.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 11 MONTHS FOR THE PERIOD
-------------------------------------- ENDED 9/18/92 TO
1997 1996 1995 6/30/94(1) 7/31/93(2)
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 12.899 $ 12.773 $ 12.466 $ 13.316 $ 12.500
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .640 .648 .661 .593 .599
Net realized and unrealized gain (loss)
on investments .467 .126 .308 (.743) .813
---------- ---------- ---------- ---------- ----------
Total income (loss) from investment operations 1.107 .774 .969 (.150) 1.412
---------- ---------- ---------- ---------- ----------
Total income (loss) from investment operations 1.107 .774 .969 (.150) 1.412
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (.639) (.648) (.662) (.594) (.596)
Distributions from realized capital gains -- -- -- (.106) --
---------- ---------- ---------- ---------- ----------
Total distributions to shareholders (.639) (.648) (.662) (.700) (.596)
---------- ---------- ---------- ---------- ----------
Net asset value at end of period $ 13.367 $ 12.899 $ 12.773 $ 12.466 $ 13.316
========== ========== ========== ========== ==========
Total return (3) 8.80% 6.17% 8.00% (1.27%) 11.56%
========== ========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in millions)$ $ 76.2 $ 70.6 $ 70.0 $ 77.6 $ 69.6
RATIOS NET OF EXPENSES WAIVED AND
REIMBURSED BY THE ADVISER:
Ratio of expenses to average net assets .96% .97% .97% .90%(4)(5) .75%(4)(5)
Ratio of net investment income to
average net assets 4.87% 4.99% 5.26% 4.94%(4)(5) 5.25%(4)(5)
Portfolio turnover rate 134.33% 99.68% 80.19% 55.84% 45.04%
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The Fund changed its fiscal year end to June 30, effective with the June 30, 1994 Annual Report.
(2) No income was earned or expenses incurred from the date the initial shares were purchased by the Adviser (August 21, 1992)
through the date of public offering (September 18, 1992).
(3) Total returns are based upon an initial investment purchased without the applicable sales charge which was in effect prior to
July 7, 1997, represent the actual returns over those periods, and have not been annualized.
(4) During each of the periods ending June 30, 1994 and July 31, 1993, the adviser absorbed expenses of the Fund through waiver of
a portion of the investment advisory fee. Assuming no waiver of expenses, the ratio of expenses to average net assets was .99%
and 1.14% and the ratio of net investment income to average net assets was 4.85% and 4.86%, respectively.
(5) Annualized.
</TABLE>
2
<PAGE> 7
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide as high a level of after-tax
current income as is consistent with preservation of capital through investment
primarily in obligations the interest from which is exempt from Federal income
tax and from Ohio state personal income tax. There can be no assurance that the
objective of the Fund will be achieved.
RISK FACTORS AND FOR WHOM THE FUND MAY BE APPROPRIATE
The net asset value and yield of the Fund's shares will fluctuate depending on
market conditions and other factors, with the value of shares normally
fluctuating inversely with changes in interest rates. There are risks associated
with investment in municipal securities, options, and financial futures
transactions, including changes by rating services of the rating of portfolio
securities and in the ability of issuers to make payment of principal and
interest. See "Investment Policies" at pages 3-8 of this Prospectus. There can
be no assurance that the investment objective of the Fund will be achieved.
The Fund may be appropriate for investors seeking income free of regular Federal
income tax and Ohio income tax who can accept the fluctuations in the value of
Fund shares inherent in investment in long-term debt securities. The Fund
focuses on longer-term investment grade Ohio municipal securities. The Fund has
a higher risk level and yield/return potential than fixed income investments of
shorter maturity and/or higher-grade securities and may have a higher risk level
than investments in more diversified municipal securities. The Fund has a lower
risk level and yield/return potential than fixed income investments with lower
grade securities and as compared to equity investments.
INVESTMENT POLICIES
The Fund normally invests substantially all (at least 80%) of the value of its
net assets in securities, the interest from which is exempt from Federal income
tax and Ohio state personal income tax and is not a tax preference item for
purposes of the Federal alternative minimum tax ("AMT"). Although the Fund does
not anticipate that it will ordinarily invest in securities subject to Federal
income tax or the Ohio personal income tax, it may do so on a temporary basis
when it is considered necessary because of the unavailability of Federal or Ohio
tax-free securities. From the commencement of its operations (September 18,
1992) through June 30, 1997, 100% of the Fund's income dividends were free of
Federal income and Ohio personal income taxes. Investment in securities,
interest from which is an AMT tax preference item, normally will not exceed 20%
of the value of the net assets of the Fund. During the fiscal year ending June
30, 1997, 12.9% of the Fund's income dividends were AMT tax preference items. At
times, the Fund's Trustees or the Adviser may determine that conditions in the
markets for tax-exempt securities make pursuing the Fund's basic investment
strategy inconsistent with the best interests of its shareholders. At such
times, the Fund may invest more than 20% of its assets in investments the
interest from which is subject to Federal income tax or Ohio personal income
tax, or an AMT tax preference item, for temporary defensive purposes to reduce
3
<PAGE> 8
fluctuations in the value of the Fund's assets. The investment objective of the
Fund and the policy set forth in the first sentence of this paragraph cannot be
changed without the approval of a "majority of the outstanding voting
securities" of the Fund as defined in the Investment Company Act of 1940 (the
"1940 Act"). See "Description of the Trust" in the Statement of Additional
Information.
The Fund invests in municipal bonds issued by or on behalf of states,
territories or possessions of the U.S. and their political subdivisions,
agencies and instrumentalities. Municipal bonds are generally issued to finance
public works such as airports, bridges, highways, schools and housing. Municipal
bonds are also used to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions and
facilities. Certain types of "private activity" municipal bonds are issued to
obtain funding for privately operated facilities. There are two general
categories of municipal bonds: general obligation and revenue. General
obligation bonds are backed by the taxing power of the issuing municipality.
Revenue bonds are backed by the revenue of a project or facility. Payment of
principal and interest on such bonds is dependent solely on the revenue
generated by the facility financed by the bond or other specified sources of
revenue or collateral. Private activity bonds are typically one type of revenue
bond.
Interest from obligations of the governments of the U.S. Virgin Islands, Puerto
Rico, and Guam ("Territorial Obligations") is exempt from Ohio personal income
taxation as well as Federal income taxation. The Fund will not invest more than
5% of its net assets in the obligations of each of the Virgin Islands, Puerto
Rico and Guam.
The Fund may also invest in short-term tax-exempt securities, usually for
temporary purposes. Short-term tax-exempt securities are generally issued as
interim financing in anticipation of tax collections, revenue receipts or bond
sales to finance public purposes. From time to time, the Fund may also invest up
to 10% of its assets in tax-exempt mutual funds, including tax-exempt money
market funds, which have investment criteria equal to or higher than those of
the Fund, subject to the requirements of applicable law. Such investments will
result in shareholders, in effect, paying duplicate or multiple fees, since such
mutual funds incur expenses similar to those of the Fund. The 1940 Act limits
the Fund's investment in any other mutual fund to a maximum of 3% of the
outstanding voting stock of that mutual fund and an amount which may not
represent more than 5% of the total assets of the Fund. The Adviser will only
invest in such funds when it believes that the yields on such funds are
advantageous.
The Fund may invest in participations in lease obligations or installment
purchase contract obligations of municipal authorities or entities ("Municipal
Leases"). Certain Municipal Leases contain "nonappropriation" clauses, which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Although Nonappropriation Municipal Leases are secured by the
leased property, disposition of the property in the event of foreclosure might
prove difficult. Nonappropriation Municipal Leases may present special risks
because the municipality's obligation to make future lease or installment
payments depends on money being appropriated in the future. The Fund will limit
its investment in Nonappropriation Municipal Leases to a maximum of 10% of its
total assets. The Fund invests in such leases according to guidelines of the
Fund as set forth in the "Municipal Leases" section of the Statement of
Additional Information.
With respect to unrated Municipal Leases, credit quality will be determined by
the Adviser (pursuant to procedures established by the Board of Trustees
("Board"), and subject to review by the Board) on an ongoing basis, including an
assessment of the likelihood that a lease will be cancelled. For further
information, see "Municipal Leases" in the Statement of Additional Information.
The Fund may invest in floating or variable rate instruments, which provide for
interest rate adjustments at specified
4
<PAGE> 9
intervals. Rate adjustments on such securities are usually set at the issuer's
discretion, in which case the Fund would normally have the right to resell the
security to the issuer or its agent. Alternatively, rate revisions may be
determined in accordance with a prescribed formula or other contractual
procedure. Generally, these interest rate adjustments cause the market value of
floating rate and variable rate municipal securities to fluctuate less than the
market value of fixed rate obligations. Accordingly, as interest rates decrease
or increase the potential for capital appreciation or depreciation is less than
for fixed rate obligations.
The Fund may also acquire put options in combination with the purchase of
underlying securities or may separately acquire put options that relate to
securities held in the Fund's portfolio. Such put options would give the Fund
the right to require the issuer or some other person to purchase the underlying
security at an agreed upon price. There is no assurance that the issuer of a put
bond acquired by the Fund will be able to repurchase the bond upon the exercise
date if the Fund chooses to exercise its right to put the bond back to the
issuer.
The Fund may invest in zero coupon municipal bonds. Such bonds are debt
obligations, which do not require the periodic payment of interest and are
issued at a significant discount from face value. The discount approximates the
total amount of interest the bonds will accrue and compound over the period
until maturity at a rate of interest reflecting the market rate of the security
at the time of issuance. Zero coupon bonds benefit the issuer by reducing its
need to use cash for debt service, but also require a higher rate of return to
attract investors who are willing to defer receipt of such cash. Such bonds
experience greater volatility in market value due to changes in interest rates
than debt obligations, which provide for regular payments of interest. The Fund
will take into account income on such bonds for tax and accounting purposes, in
accordance with applicable law, which income is distributable to shareholders.
Because no cash is received at the time such income is accrued, the Fund may be
required to liquidate other portfolio securities to satisfy its distribution
obligations. The Fund does not intend to invest more than 25% of its total
assets in zero coupon bonds.
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. 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. When issued and delayed
delivery transactions may be expected to occur a month or more before delivery
is due. The Fund will maintain, in a segregated account with its custodian, cash
or liquid high-grade debt securities having an aggregate value equal to the
amount of such purchase commitments until payment is made. To the extent the
Fund acquires securities in when-issued and delayed delivery transactions, it
will do so for the purpose of acquiring securities for the Fund's portfolio and
not for the purpose of investment leverage. The Fund does not accrue income on
securities purchased on a when-issued or delayed delivery basis until delivery
occurs. The Fund may enter into delayed delivery sales of securities in order to
accommodate purchasers of portfolio securities from the Fund in transactions
effected at an advantageous price to the Fund. The Fund will limit its
outstanding purchases of securities on a when-issued or delayed delivery basis
to no more than 331/3% of its total assets.
The Fund may also hold cash that is not earning interest and may invest in
short-term obligations issued or guaranteed by the U.S. Government and its
agencies or its instrumentalities. The Fund may engage in short-term trading,
that is, the sale of securities held for a short time, ranging from several
months to less than a day. The object of such short-term trading is to take
advantage of what the Adviser believes are temporary disparities in prices
between secu-
5
<PAGE> 10
rities, or to take advantage of what the Adviser believes are changes in market,
industry, or individual issuer's conditions or outlook. Such trading may be
expected to increase the Fund's turnover rate. High turnover will generally
result in higher transaction costs and may result in net capital gains which,
when distributed to shareholders, will be subject to tax. See "Taxes" in this
Prospectus and "Portfolio Transactions" in the Statement of Additional
Information. For the fiscal year ending June 30, 1997, the Fund's portfolio
turnover was 134%.
HEDGING
The Fund may engage in certain hedging transactions involving the use of
financial futures contracts, options on financial futures, or options based on
either an index of tax-exempt securities or on debt securities the prices of
which, in the opinion of the Adviser, correlate with the prices of the Fund's
investments. These hedging transactions are designed to limit the risk of price
fluctuations of the Fund's investments. In the past, the Fund has made extremely
limited use of these techniques and may or may not utilize them in the future.
If utilized, there can be no assurance that they will be successful.
The Fund may purchase and sell financial futures contracts and related options.
Futures contracts on a Municipal Bond Index are traded on the Chicago Board of
Trade. This Index is designed to represent a numerical measure of market
performance for long-term tax-exempt bonds. The Fund may purchase and sell
futures contracts on this Index or any other tax-exempt bond index approved for
trading by the Commodity Futures Trading Commission to hedge against general
changes in market values of portfolio securities which the Fund owns or expects
to purchase. The Fund may also purchase and sell put and call options on index
futures for hedging purposes. The Adviser believes that, under certain market
conditions, price movements in U.S. Treasury security futures and related
options may correlate closely with price movements in tax-exempt securities and
may as a result provide significant hedging opportunities for the Fund. The Fund
may also purchase and sell futures contracts and related options with respect to
such U.S. Treasury securities when the Adviser believes that the price movements
of Treasury securities will correlate with price movements in tax-exempt
securities.
The Fund will enter into hedging transactions only when it either owns an
offsetting position in the underlying securities, options or futures contracts
or maintains cash or liquid high-grade debt securities with a value sufficient
at all times to cover its obligations. The use of these strategies involves
certain special risks, including (1) the fact that the skills needed to use
hedging instruments are different from those needed to select the Fund's
securities, (2) possible imperfect correlation, or even no correlation, between
price movements of the investments being hedged, (3) the fact that, while
hedging strategies can reduce the risk of loss, they can also reduce the
opportunity for gain, or even result in losses, by offsetting favorable price
movements in hedged investments and (4) the possible inability of the Fund to
purchase or sell a portfolio security at a time that otherwise would be
favorable to do so, or the possible need for the Fund to sell a portfolio
security at a disadvantageous time, due to the need for the Fund to segregate
securities in connection with hedging transactions and the possible inability of
the Fund to close out or liquidate its hedged position. New financial products
and risk management instruments and techniques continue to be developed. The
Fund may use these instruments and techniques to the extent consistent with its
investment objective and regulatory and tax considerations.
The Fund may purchase options on debt securities only if the value of the
premiums does not exceed 5% of the
6
<PAGE> 11
Fund's total assets and will not purchase or sell futures contracts or related
options if the sum of the amount of initial margin deposits on the Fund's
existing futures positions and initial margin deposits and premiums paid for
related options would exceed 5% of the market value of the Fund's total assets.
These respective guidelines cannot be guaranteed to limit the percentage of the
Fund's assets at risk to 5% as to each type of transaction.
See the Statement of Additional Information for further information about
futures and options and associated risks.
QUALITY (RATINGS)
The Fund invests in municipal bonds judged by the Adviser to be of investment
grade quality. Investment grade bonds are those rated Baa or better by Moody's
Investors Service, Inc. ("Moody's"), or BBB or better by Standard & Poor's
("S&P") or Fitch Investor Services, Inc. ("Fitch"). Investment grade bonds have
adequate to strong protection of principal and interest payments. Bonds rated
Baa are considered by Moody's to be medium grade obligations which lack
outstanding investment characteristics and, in fact, have speculative
characteristics as well, while municipal obligations rated BBB are regarded by
S&P and Fitch as having an adequate capacity to pay principal and interest.
Bonds rated BBB or Baa are at the lower end of the investment grade category and
may be more sensitive to economic changes and changes in the financial condition
of issuers.
The Fund may also invest in unrated obligations determined by the Adviser to be
of equivalent quality to the rated securities in which it is permitted to
invest. See the Statement of Additional Information for more detailed
information concerning securities ratings. If the rating of a bond held by the
Fund drops below investment grade or if an unrated bond deemed by the Adviser to
be of equivalent quality to investment grade ceases to be considered investment
grade, the Fund will normally sell such bond in a reasonable period of time.
In the case of short-term notes, the Fund will invest in notes rated SP-1
through SP-2 by S&P or MIG 1 through MIG 3 by Moody's. In the case of tax-exempt
commercial paper, the Fund will invest in such obligations when rated A-1+
through A-2 by S&P or Prime-1 or Prime-2 by Moody's.
MATURITY
The Fund intends to emphasize investments in obligations with long-term
maturities in order to maintain an average weighted maturity of 20 to 30 years
but will also invest in shorter-term obligations. The average weighted maturity
may be shortened from time to time depending on market conditions in order to
limit market risks. On June 30, 1997, the average weighted maturity of the
Fund's portfolio was 17 years.
DIVERSIFICATION
The Fund will not, as a fundamental policy, with respect to 75% of its assets,
invest more than 5% of its assets in securities of any one issuer or acquire
more than 10% of the voting securities of any issuer, except securities issued
by the U.S. Government or its agencies or instrumentalities. The Fund does not
intend to invest in securities backed by letters of credit of any one bank to
the extent that such securities constitute more than 10% of the assets of the
Fund. For this purpose, the "issuer" of a security is deemed to be the entity
whose assets and revenues are committed to the payment of principal and interest
on that security, provided that the guarantee of an instrument will be
considered a separate security except when the value of all securities issued or
guaranteed by the guarantor, and owned by the Fund, does not exceed 10% of the
value of the total assets of the Fund.
7
<PAGE> 12
CONCENTRATION
It is possible that the Fund will invest more than 25% of its assets in a
particular segment of the municipal bond market such as Hospital Revenue Bonds,
Housing Agency Revenue Obligations or Airport Revenue Obligations. This would
only be the case if the Adviser determined that the yields available from such
obligations justified the additional risks associated with such concentration.
Economic, business, political and other developments generally affecting the
revenue of such users (for example, proposed legislation or pending court
decisions affecting the financing of such projects and market factors affecting
the demand for their services or products) may have a general adverse effect on
all obligations in such a market segment.
OTHER INVESTMENT RESTRICTIONS
The Fund may not borrow money, except from banks as a temporary measure or for
extraordinary or emergency purposes, and then only in amounts not exceeding 10%
of its total assets or one third of the value of the Fund's total assets
including the amount borrowed. While any borrowing of greater than 5% of assets
occurs, the Fund will not purchase additional portfolio securities. This
restriction may not be changed without shareholder approval. The Fund may not
invest more than 15% of its assets in securities that are not readily marketable
nor may it pledge more than 15% of its assets.
PORTFOLIO MANAGER
Stephen C. Dilbone, Executive Vice President of the Trust, has been primarily
responsible for the day-to-day management of the Fund's portfolio since the
Fund's inception. Mr. Dilbone is a Senior Vice President of Gradison with
responsibility for tax-exempt securities trading.
OHIO ECONOMIC CONSIDERATIONS
Because the Fund invests primarily in securities of Ohio issuers, political and
economic factors affecting Ohio could affect the creditworthiness and the value
of the securities in its portfolio. The Ohio economy, while diversifying more
into the service and other non-manufacturing areas in recent years, continues to
rely in part on durable goods manufacturing largely concentrated in motor
vehicles and equipment, steel, rubber products and household appliances. As a
result, general economic activity in Ohio, as in many other industrially
developed states, tends to be more cyclical than in some other states and in the
nation as a whole. Agriculture is an important segment of the economy, with over
half the State's area devoted to farming and approximately 16% of total
employment involved in agriculture and agribusiness. The State's overall
unemployment rate is commonly somewhat higher than the national figure although
in recent years the reverse has been true. The unemployment rate and its effects
vary among particular geographic areas of the State. Future statewide or
regional economic difficulties, and the resulting impact on State or local
government finances generally, could adversely affect the market value of Ohio
obligations held in the portfolio of the Fund or the ability of particular
obligors to make timely payments of debt service on those obligations. See the
Statement of Additional Information for additional information about Ohio
economic considerations.
8
<PAGE> 13
PURCHASES AND REDEMPTIONS
HOW TO PURCHASE SHARES
You may purchase shares of the Fund by bringing or mailing funds to Gradison,
the principal underwriter of the Fund or your investment dealer. The minimum
investment required to open an account is $1,000 and additional investments must
be at least $50. These minimums may, however, be waived for certain group
purchases. Purchase orders become effective when the Fund receives the necessary
information about your account and provision for payment has been made. 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 or its agent receives your order. Shares of the Fund may be purchased
through brokers other than Gradison and McDonald and other financial
intermediaries. Such brokers (other than Gradison and McDonald) may charge you a
fee for this service. When purchased through certain brokers or intermediaries,
certain features of the Fund, such as minimum investments, may be modified and
administrative charges may be imposed for the services rendered.
HOW TO REDEEM SHARES
You may redeem shares of the Fund without charge or penalty by sending a written
redemption request to the Fund identifying the name of the Fund, 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 or its agent receives the redemption
request in good order. The Fund normally makes payment for redeemed shares
within one business day, and, except in extraordinary circumstances, within
seven days after receipt of a properly executed redemption request. Shareholders
may make special arrangements for wire transfer of redemption proceeds by
contacting the Fund in advance of a contemplated share redemption. The Fund
reserves the right to delay payment for the redemption of shares where the
shares were purchased with a personal check, but only until the purchase payment
has cleared, which may take up to 15 days from the day the check is received by
the Fund. If you need more immediate access to your investment, you should
consider purchasing shares by wire, cash, or other immediately available funds.
Redemption proceeds checks, which are not cashed for any reason, including
non-receipt, will not earn interest.
All redemption information and authorizations (except those effected by your
investment dealer) 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. In the event of such a situation, you can mail
or personally deliver a written redemption request to the Fund's offices.
Shareholders who have brokerage accounts with McDonald & Company Securities,
Inc. ("McDonald") or Gradison can also request that their Investment Consultant
arrange the redemption. The telephone redemption feature may be terminated or
modified upon 30 days' notice to shareholders.
The Fund, Gradison, McDonald, and their 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, in
the view of the Securities and Exchange Commission, it may be liable for any
losses resulting from unauthorized instructions. Telephone transactions are
available to all shareholders automatically.
9
<PAGE> 14
REDEMPTIONS THROUGH MCDONALD AND GRADISON
Investors who maintain brokerage accounts with McDonald or Gradison may redeem
shares of the Fund through their Investment Consultant.
EXCHANGES
Shares of the Fund may be exchanged, without administrative fees, for shares of
any other Gradison fund and for shares of certain Federal and/or Ohio tax-free
or municipal income money market funds.
You may request exchanges by telephoning or writing the Fund. 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 from the Fund to
the fund in which you are investing 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' written notice, except that no notice shall be
required under certain circumstances provided for by rules of the Securities and
Exchange Commission.
PURCHASES AND SALES THROUGH INTERMEDIARIES
The Fund has authorized one or more intermediaries (who, in turn, have been
authorized by the Fund to designate intermediaries ("sub-intermediaries")) to
accept on its behalf purchase and redemption orders. The Fund will be deemed to
have received a purchase or redemption when an authorized intermediary or
sub-intermediary accepts the order and customer orders will be priced at the
Fund's net asset value next computed after they are accepted by such an
intermediary or sub-intermediary.
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 generally
computed once daily as of the close of regular trading on the New York Stock
Exchange, normally 4:00 p.m. Eastern time, on each day when the New York Stock
Exchange is open for business.
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 which approximates market value. Other assets are valued at fair
value as determined pursuant to procedures approved by the Board.
10
<PAGE> 15
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.
MONTHLY DISTRIBUTION PLAN
You may elect (on the Account Information Form) to automatically receive cash
payments of dividends and/or capital gain distributions. (For this purpose,
short-term capital gain distributions are considered dividends.) You may change
or terminate this option at any time by written notice to the Fund. Dividend
checks which are not cashed for any reason, including non-receipt, will not earn
interest.
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. Shareholders
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. Net
realized 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 dividends or other distributions are payable.
11
<PAGE> 16
TAXES
Federally tax-free interest earned by the Fund is federally tax-free when
distributed to you as income dividends. Any taxable income earned on the Fund's
investments will be distributed to you as a taxable dividend. If the Fund
invests in "private activity" obligations, individuals who are subject to the
AMT must report a portion of the Fund's dividends as a tax preference item in
determining their Federal income tax liability. Distributions of net short-term
capital gains are taxable for Federal income tax purposes as dividends, and
distributions of net capital gain (the excess of net long-term capital gain over
net short-term capital loss), when designated as such, are taxable for those
purposes as long-term capital gains, regardless of the length of time you have
owned your shares. Distributions of any taxable dividends or realized capital
gains are taxable when they are paid, whether you take them in cash or
additional Fund shares, except that any distributions declared in December and
paid in January are treated as if paid on December 31.
The Fund's income dividends will be exempt from the Ohio personal income tax and
excluded from the net income base of the Ohio corporation franchise tax except
to the extent that such dividends consist of interest from obligations that are
neither debt obligations issued by or on behalf of the State of Ohio and its
political subdivisions, agencies, and instrumentalities ("Ohio Obligations") or
Territorial Obligations. Distributions of net short-term and long-term capital
gains will also be exempt from the Ohio personal income tax and the net income
base of the Ohio corporation franchise tax to the extent that they represent
gain from the sale of Ohio Obligations.
Each year, the Fund will provide a statement informing you of the Federal and
state income tax status of dividends and other distributions paid during the
previous year.
If you purchase Fund shares just before the record date of a distribution of
capital gains, you will pay the full price for shares and then receive a portion
of the price back as a taxable distribution. Congress may propose to restrict or
eliminate the Federal income tax exemption for interest on municipal securities.
If such a proposal were enacted, the availability of municipal securities for
investment by the Fund and the value of its portfolio would be adversely
affected. In such event, the Fund would reevaluate its investment objective and
policies. The Fund is required to withhold 31% of all taxable dividends, capital
gain distributions, and redemption proceeds if you do not furnish the Fund with
a correct taxpayer identification number and in certain other circumstances.
Your redemption of Fund shares will result in taxable gain or loss to you,
depending on whether the redemption proceeds are more or less than your adjusted
basis for the redeemed shares (which normally includes any sales charge paid).
An exchange of Fund shares for shares of any other fund generally will have
similar tax consequences. If you purchase Fund shares within 30 days after
redeeming other Fund shares at a loss, that loss will not be deductible and will
increase the basis of the newly purchased shares.
The foregoing is only a summary of some important generally applicable Federal
and state income tax provisions in effect as of the date of this Prospectus; see
the Statement of Additional Information for a further discussion. There may be
other Federal, state or local tax considerations applicable to a particular
investor.
12
<PAGE> 17
GENERAL INFORMATION
The Fund is a series of the GradisonoMcDonald Municipal 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 11, 1992. The Fund is a diversified
portfolio of the Trust which 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
Fund. Shareholder inquiries should be directed to the telephone number or
address of the Fund listed on the first page of this Prospectus.
MANAGEMENT OF THE FUND
The Board is responsible for the direction and supervision of the Fund's
operations. Gradison acts as the Fund's investment adviser and principal
underwriter. 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, Gradison manages the
investment and reinvestment of the assets of the Fund, and provides its
employees to act as the officers of the Fund who are responsible for the overall
management of the Fund. Gradison is an investment adviser and a securities
broker-dealer. Gradison including its predecessor, has served as investment
adviser to investment companies since 1976.
The Fund pays the Adviser a fee of .50% of its average daily net assets for
acting as its investment adviser. Gradison acts as the Fund's transfer agent,
dividend disbursing agent, and accounting services provider. For providing such
services, Gradison receives an annual fee of $23.00 per shareholder non-zero
balance account ($5.00 for closed or zero balance accounts) plus out of pocket
costs for acting as transfer agent and dividend disbursing agent and an
accounting services fee of .035% of the first $100 million of average daily net
assets, .025% of the next $100 million of average daily net assets, and .015% of
average daily net assets in excess of $200 million, with a minimum fee of
$48,000 per year. Gradison's address is 580 Walnut Street, Cincinnati, Ohio
45202.
All expenses not specifically assumed by the Adviser, Transfer Agent, or
Distributor and incurred in the operation of the Fund are borne by the Fund.
These include expenses for: printing and mailing registration statements,
prospectuses, periodic reports and other documents furnished to shareholders and
regulatory authorities; registration, filing and similar fees; legal expenses;
auditing and accounting expenses; taxes and other fees; brokers' commissions
chargeable to the Fund in connection with securities transactions; expenses of
Trustees who are not affiliated with the Adviser; expenses of Shareholders' and
Trustees' meetings; and fees and other expenses incurred by the Fund in
connection with its membership in any organization. The Fund reimburses the
Adviser for all costs, direct and indirect, which are fairly allocable to
services performed by the Adviser's employees for which the Fund is responsible.
Gradison may, from time to time, agree to waive the receipt of management or
transfer agent fees from the Fund
13
<PAGE> 18
and/or reimburse the Fund for other expenses in order to limit the Fund's
expenses to a specified percentage of average net assets. Waiver and
reimbursement arrangements, which may be terminated at any time without notice,
will increase the Fund's return. If Gradison discontinues a waiver or
reimbursement arrangement, the Fund's expenses will increase and its yield will
be reduced. Gradison retains the ability to be repaid by the Fund for fees
waived and expenses reimbursed if expense ratios fall below the specified limit
prior to the end of the fiscal year. Gradison may waive or reimburse fees in a
greater amount than is required by an applicable fee waiver arrangement.
Under the terms of a distribution service plan adopted pursuant to Rule 12b-1
under the 1940 Act, the Fund pays to Gradison as Distributor 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 to the Distributor monthly. The service fee
is paid as compensation to the Distributor for providing personal services to
shareholders of the Fund, including responding to shareholder inquiries and
providing information to shareholders about their Fund accounts. The service fee
is a fixed fee which may be more or less than the Distributor's expenses for
rendering these services. The Distributor may use the fee to make payments to
authorized dealers for providing these services to Fund shareholders.
PERFORMANCE CALCULATIONS
From time to time the Fund may advertise its "yield," "taxable equivalent
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 net asset value on the last
day of the period (using the average number of shares entitled to receive
dividends). The yield formula provides for semiannual 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 Fund's taxable equivalent
yield is the yield that a taxable investment would have to generate in order to
equal the Fund's yield for an investor in a stated tax bracket.
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 aggregate total returns over various
periods of time. The calculations of total return assume the reinvestment of all
dividends and other distributions in additional Fund shares.
The Fund may also advertise performance rankings assigned to it by organizations
which evaluate mutual fund performance such as Lipper Analytical Securities
Corp. It may also advertise "ratings" assigned to it by organizations such as
Morningstar, Inc.
The Fund's Annual Report to Shareholders contains additional performance
information and will be made available upon request without charge.
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<PAGE> 19
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15
<PAGE> 20
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Expense Summary 1
Financial Highlights 2
Investment Objective 3
Risk Factors and for Whom the Fund May be Appropriate 3
Investment Policies 3
Ohio Economic Considerations 8
Purchases and Redemptions 9
Net Asset Value 10
Optional Shareholder Services 11
Distributions 11
Taxes 12
General Information 13
Management of the Fund 13
Performance Calculations 14
</TABLE>
- --------------------------------------------------------------------------------
[GRADISON MUTUAL FUNDS LOGO]
580 Walnut Street, Cincinnati, Ohio 45202
(513) 579-5000 (800) 869-5999
<PAGE> 21
GRADISON OHIO TAX-FREE INCOME FUND
GRADISON-MCDONALD MUNICIPAL 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 November 1, l997,
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 November 1, 1997.
<PAGE> 22
<TABLE>
<CAPTION>
CONTENTS
- --------
Page Location in Prospectus
<S> <C>
INVESTMENT POLICIES AND RESTRICTIONS . . . . . . .4 Investment Objective
Diversification . . . . . . . . . . . . .5
Tax-Exempt Securities Ratings . . . . . .5
FACTORS RELATING TO OHIO . . . . . . . . . . . .7 Ohio Economic Considerations
HEDGING STRATEGIES . . . . . . . . . . . . . . 16 Investment Objective
Special Risks of Hedging Strategies . . 18
Additional Information
About Hedging Transactions . . . . . . 19
Options . . . . . . . . . . . . . . . . 19
Guidelines for Options . . . . . . . . . 21
Futures . . . . . . . . . . . . . . . . 21
Guidelines for Futures and
Related Options . . . . . . . . . . . 23
MUNICIPAL LEASES . . . . . . . . . . . . . . . . 24 Investment Objective
PURCHASE OF SHARES . . . . . . . . . . . . . . 25 How to Purchase Shares
REDEMPTION OF SHARES . . . . . . . . . . . . . 25 How to Redeem Shares;
Redemptions through
Gradison and McDonald
DAILY DISTRIBUTIONS - ACCOUNTING PRINCIPLES. . . 25 Distributions
TAXES . . . . . . . . . . . . . . . . . . . . . .26 Taxes
Federal . . . . . . . . . . . . . . . .26
Ohio State and Local Tax Matters .. . . .28
NET ASSET VALUE . . . . . . . . . . . . . . . . .29 Net Asset Value
PORTFOLIO TRANSACTIONS . . . . . .. . . . . .29
INVESTMENT ADVISER . . . . . . . . . . . . .31 Management of the Fund
Advisory Agreement . . . . . . . . . . .32
</TABLE>
2
<PAGE> 23
Master Distribution Agreement . . . . .33
Distribution Service Plan . . . . . . . 33
Transfer Agent and
Accounting Services Agreement . . . . 34
Other Compensation Paid/
Reimbursement Made to the Adviser . . 35
TRUSTEES AND OFFICERS OF THE TRUST. . . . .. .. .35
DESCRIPTION OF THE TRUST . . . . . . . . .. .. .37 General Information
CUSTODIAN . . . . . . . . . . . . . . . . .. .. .38
INDEPENDENT PUBLIC ACCOUNTANTS. . . . . . .. .. .38
LEGAL COUNSEL . . . . . . . . . . . . . . .. .. .38
EXCHANGES . . . . . . . . . . . . . . . . .. .. .39 Exchanges
TELEPHONE ACCESS TO ACCOUNT
INFORMATION . . . . . . . . . . . . . . .. .. .39
PERFORMANCE CALCULATIONS . . . . . . . . .. .. .39
APPENDIX A . . . . . . . . . . . . . . . .. .. .40
SALES BROCHURE INFORMATION . . . . . . . .. .. .42
REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS AND FINANCIAL STATEMENTS Following Page 59
<PAGE> 24
INVESTMENT POLICIES AND RESTRICTIONS
Gradison Ohio Tax-Free Income Fund (the "Fund") invests primarily in
securities issued by state and local municipalities the interest from which is
free from Federal income tax and Ohio state personal income tax. In addition to
the investment restrictions described in the Prospectus, the Fund has adopted
the following investment restrictions and limitations, which may not be changed
without the approval of the holders of a majority of the outstanding voting
securities of the Fund. (See "Description of the Trust.") The Fund will not:
(1) Borrow money, except from banks or as a temporary measure or for
extraordinary or emergency purposes such as to enable the Fund to
satisfy redemption requests where liquidation of portfolio securities is
considered disadvantageous and not for leverage purposes, and then only
in amounts not exceeding 10% of the total assets of the Fund at the time
of the borrowing or one third of the value of the Fund's total assets
including the amount borrowed. Any borrowing that comes to exceed 33
1/3% of the Fund's total assets by reason of a decline of net assets
will be reduced to the extent necessary to comply with the 33 1/3%
limitation. While any borrowing of greater than 5% of the assets occurs,
the Fund will not purchase additional portfolio securities;
(2) Make loans, except that the purchase of securities as allowed by the
Fund's investment objective and other investment restrictions and the
entering into of repurchase agreements shall not be prohibited by this
restriction;
(3) Purchase or sell real estate. The purchase of securities secured by real
estate which are otherwise allowed by the Fund's investment objective
and other investment restrictions shall not be prohibited by this
restriction;
(4) Underwrite the securities of other issuers, except insofar as the Fund
may technically be deemed an underwriter under the Securities Act of
1933 in connection with the acquisition of portfolio securities;
(5) 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 for the purposes and within the limits set forth in the
Prospectus and this Statement of Additional Information shall not be
prohibited by this restriction;
(6) Issue senior securities as defined in the Investment Company Act of
1940, except to the extent that such issuance might be involved with
respect to borrowings subject to item (1) above or with respect to
transactions involving futures contracts or the writing of options
within the limits described in the Prospectus and this Statement and
provided that the Fund may issue shares of additional series or classes
that the Trustees may establish.
The following limitations are not fundamental and may be changed without
shareholder approval: (1) With respect to the purchase of
4
<PAGE> 25
securities of other investment companies, the Fund will not (a) purchase more
than 3% of the outstanding voting shares of an investment company; (b) invest
more than 5% of its assets in securities of any one investment company; or (c)
invest more than 10% of its assets in securities of all investment companies.
(2) The Fund will not make short sales of securities, or purchase securities on
margin, except for short-term credit as is necessary for the clearance of
transactions. The deposit or payment by the Fund of initial or maintenance
margin in connection with futures contracts or related options transactions is
not considered the purchase of a security on margin. (3) The Fund will not
mortgage, pledge or hypothecate securities in amounts 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.
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.
DIVERSIFICATION
A bond for which the payments of principal and interest are secured by
an escrow account of securities backed by the full faith and credit of the U.S.
Government (defeased) will not be treated as an obligation of the original
municipality for purposes of determining concentration. When a security is
insured by bond insurance, it is not considered a security guaranteed by the
insurer and there is no limit on the percentage of the Fund's assets that may be
invested in securities insured by a single insurer.
TAX-EXEMPT SECURITIES RATINGS
Moody's Investors Services, Inc. ("Moodys"), Standard & Poor's ("S&P"),
and Fitch Investors Services, Inc. ("Fitch") are private services that provide
ratings of the credit quality of debt obligations, including issues of municipal
securities. A description of the investment grade ratings assigned to municipal
securities and tax-free commercial paper is set forth below. The Fund may use
these ratings in determining whether to purchase, sell or hold a security. It
should be emphasized, however, that ratings are general and are not absolute
standards of quality. Consequently, municipal securities with the same maturity,
interest rate and rating may have different market prices.
MUNICIPAL BONDS - Tax-exempt bonds rated Aaa and Aa by Moody's comprise what are
generally known as "high grade bonds". Tax-exempt bonds which are rated A by
Moody's possess many favorable investment attributes and are considered "upper
medium grade obligations". Factors giving security to principal and interest of
A-rated tax-exempt bonds are considered adequate,
5
<PAGE> 26
but elements may be present which suggest a susceptibility to impairment
sometime in the future. The Baa rating is assigned to "medium grade" obligations
by Moody's. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Tax-exempt bonds
rated AAA bear the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest. Tax-exempt
bonds rated AA also qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree. Bonds rated A have a strong
capacity to pay principal and interest, although they are somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions. The BBB rating, which is the lowest "investment grade" security
rating by S&P, indicates an adequate capacity to pay principal and interest.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity to pay principal and interest for Municipal
Obligations in this category than for Municipal Obligations in the A category.
Bonds rated AAA by Fitch are considered to be investment grade and of
the highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA by Fitch are considered to be investment
grade and of very high credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong as bonds rated AAA.
Bonds rated A by Fitch are considered to investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings. Bonds rated BBB by
Fitch are considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment.
SHORT-TERM NOTES - Moody's MIG1/VMIG1 rating denotes best quality characterized
by strong protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing. Moody's
MIG2/VMIG2 denotes high quality with ample margins of protection. MIG3/VMIG3
denotes favorable quality. While all security elements are accounted for there
is lacking the undeniable strengths of MIG1/VMIG1 and MIG2/VMIG2. Moody's
ratings MIG1/VMIG1-MIG3/VMIG3 are all investment grade ratings. S&P's rating of
SP-1 reflects very strong or strong capacity to pay principal and interest.
S&P's SP-2 rating reflects satisfactory capacity to pay principal and interest.
TAX-FREE COMMERCIAL PAPER - Issuers rated Prime-1 by Moody's (or related
supporting institutions) have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will normally be evidenced by
the following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; well established
6
<PAGE> 27
access to a range of financial markets; and assured sources of alternate
liquidity.
Issuers rated Prime-2 by Moody's (or related supporting institutions)
have a strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample liquidity is maintained.
A-1 - (S&P) This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2 - Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
"A-1".
FACTORS RELATING TO OHIO
As described above, and except to the extent investments are in
temporary investments, or invested in the limited amounts described in the
Prospectus in obligations of the governments of Puerto Rico, Guam, and the U.S.
Virgin Islands, the Fund will invest substantially all of its net assets in
obligations issued by or on behalf of the State of Ohio, political subdivisions
thereof, or agencies or instrumentalities of the State or its political
subdivisions (Ohio Obligations). The Fund is therefore susceptible to political,
economic or regulatory factors that may affect issuers of Ohio Obligations. In
addition, the specific Ohio Obligations invested in are expected to change from
time to time. The following information constitutes only a brief summary of some
of the many complex factors that may affect the financial situation of issuers
in Ohio, and is not applicable to "conduit" obligations on which the public
issuer itself has no financial responsibility. This information is derived from
official statements published in connection with the issuance of securities of
certain Ohio issuers and from other publicly available documents, and is
believed to be accurate. No independent verification has been made of any of the
following information.
The creditworthiness of Ohio Obligations of local Ohio issuers is
generally unrelated to that of obligations issued by the State itself, and
generally there is no responsibility on the part of the State to make payments
on those local obligations. There may be specific factors that are from time to
time applicable in connection with investment in particular Ohio Obligations or
in those obligations of particular Ohio issuers, and it is possible the
investment will be in particular Ohio Obligations or in those Obligations of
particular issuers as to which those factors apply. However, the information set
forth below is intended only as a general summary and not as a discussion of any
specific factors that may affect any particular issue or issuer of Ohio
Obligations.
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<PAGE> 28
Ohio is the seventh most populous state, with a 1990 Census count of
10,847,000 indicating a 0.5% population increase from 1980.
The Ohio economy while diversifying more into the service and other
nonmanufacturing areas, continues to rely in part on durable goods manufacturing
largely concentrated in motor vehicles and equipment, steel, rubber products and
household appliances. In l991, 26.3% of Ohio's gross product was manufacturing
and 17.1% from services. As a result, general economic activity in Ohio, as in
many other industrially-developed states, tends to be more cyclical than in some
other states and in the nation as a whole. Agriculture is an important segment
of the economy, with over half the State's area devoted to farming and
approximately 16% of total employment in agribusiness.
The State's overall unemployment rate has commonly been somewhat higher
than the national figure. However, Ohio reported a 1996 average monthly rate of
4.9%, compared to the national figure of 5.4% and l995 average monthly
unemployment rate of 4.8% compared to the national figure of 5.6% The
unemployment rate and its effects vary among particular geographic areas of the
State.
There can be no assurance that future statewide or regional economic
difficulties, and the resulting impact on State or local government finances
generally, will not adversely affect the market value of Ohio Obligations held
in the portfolio of the Fund or the ability of particular obligors to make
timely payments of debt service on (or lease payments relating to) those
obligations.
The State operates on the basis of a fiscal biennium for its
appropriations and expenditures, and is effectively precluded by law from ending
a fiscal year ending June 30 (FY) or biennium in a deficit position. Most State
operations are financed through the General Revenue Fund (GRF), for which
personal income and sales-use taxes are the major revenue sources. Growth and
depletion of GRF ending fund balances show a consistent pattern related to
economic conditions, with the FY-ending balance reduced during less favorable
economic periods and increased during more favorable economic periods. The State
has established procedures for, and has timely taken, necessary actions to
ensure a resource/expenditure balance during less favorable economic periods.
These include general and selected reductions in appropriations spending; none
have been applied to appropriations needed for debt service or lease rentals on
any State obligations.
The GRF appropriations act for the l994-l995 biennium provided for total GRF
biennial expenditures of approximately $30.7 billion. Authorized expenditures in
Fiscal Year 1994 were 9.2% higher than in Fiscal Year l993 (taking into account
F fiscal Year 1993 expenditures reductions), and for Fiscal Year 1995 are 6.6%
higher than in Fiscal Year 1994.
The first year of the biennium, Fiscal Year 1994, ended with a GRF fund
balance of over $560,000,000, permitting an additional $260,300,000 to be
deposited in the BSF. Actual Fiscal Year 1994 expenditures were 3.3% below those
authorized, primarily as the result of lower than expected Medicaid spending, In
addition, tax receipts (primarily auto sales and use tax) were significantly
above estimates.
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<PAGE> 29
The biennium ending GRF fund balance was $928,000,000. Of that, $70,000,000
has been retained as an unreserved and undesignated balance, and $858,000,000
transferred into various funds, including $535,200,000 into the Budget
Stabilization Fund (which has a current balance of $828,300,000).
The GRF appropriations act for the 1996-97 biennium was passed on June 28,
1995 and promptly signed (with, however, selective vetoes) by the Governor. That
act provides for total GRF biennial expenditures of approximately $33.5 billion,
with the following examples of GRF biennial expenditure increases over those
expenditures for the prior biennium for certain major programs: higher
education, 13.1%; mental health and mental retardation, 4.8%; primary and
secondary education, l5.4%; human services, 9.5%; justice and corrections, 28%.
Necessary GRF debt service and lease-rental appropriations for the entire
biennium were requested in the Governor's proposed budget and incorporated in
the related appropriations bill as introduced, and in the bill's versions as
passed by the House and the Senate and in the act as passed and signed. the same
is true for the separate Department of Transportation/Department of Public
Safety and Bureau of Workers' Compensation appropriations acts, contained
lease-rental appropriations for certain OBA-financed ODOT/DPS and BWC projects.
In accordance with the appropriations act, the significant June 30, 1995 GRF
fund balance, after leaving in the GRF an unreserved and undesignated balance of
$70,000,000, has been transferred to a variety of funds, including $535,200,000
to the BSF. $322,800,000 was transferred to other funds, including school
assistance funds and, in anticipation of possible federal program changes, a
human services stabilization fund.
The June 30, l996, GRF ending fund balance was over $781 million which was
higher than forecast; $100 million was transferred from GRF to the fund
providing for the elementary and secondary school computer network and
$30,000,000 to a new fund for transportation infrastructure. Approximately $401
million is serving as a basis for a temporary 1996 personal income tax
reduction.
CURRENT BIENNIUM
The GRF appropriations act for the current biennium was passed on June
25, 1997 and promptly signed (after selective vetoes) by the Governor. That act
provided for total GRF biennial expenditures of over $36 billion, with the
following examples of GRF major program biennial expenditure increases over
those for the prior biennium: higher education, 10.8%; mental health and mental
retardation, 4.2%; primary and secondary education, 15.4%; human services, 7.3%;
and adult and juvenile corrections, 18.4%.
Necessary GRF debt service and lease-rental appropriations for the
entire biennium were requested in the Governor's proposed budget and
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incorporated in the related appropriations bill as introduced, and in the bill's
versions as passed by the House and the Senate and in the act as passed and
signed. The same is true for the separate appropriations acts for the Department
of Transportation, Department of Public Safety and Bureau of Workers'
Compensation, which included lease-rental appropriations for certain
OBA-financed ODOT, DPS and BWC projects.
Litigation pending in federal district court and in the Ohio Court of
Claims contests the Ohio Department of Human Services' (ODHS) prior Medicaid
financial eligibility rules for married couples where one spouse is living in a
nursing facility and the other spouse resides in the community. ODHS promulgated
new eligibility rules effective January 1, 1996. It is appealing an order of the
federal court directing it to provide notice to persons potentially affected by
the former rules from 1990 through 1995. It is not possible at this time to
state whether this appeal will be successful or, should plaintiffs prevail, the
period (beyond the current fiscal year) during which necessary additional
Medicaid expenditures would have to be made. Plaintiffs have estimated total
additional Medicaid expenditures at $600,000,000 for the retroactive period and,
based on current law, it is estimated that the State's share of those additional
expenditures is approximately $240,000,000. The Court of Claims case may come to
trial later this year.
CASH FLOW
Because GRF cash receipts and disbursements do not precisely coincide,
temporary GRF cash flow deficiencies often occur in some months, and
particularly the middle months, of a Fiscal Year. Statutory provisions provide
for effective management by permitting the adjustment of payment schedules (as
was done during some prior Fiscal Years) and the use of the Total Operating Fund
(TOF).
The State has not done and does not do external revenue anticipation
borrowing.
The TOF includes the total consolidated cash balances, revenues,
disbursements and transfers of the GRF and several other specified funds
(including the BSF). The TOF cash balances are consolidated only for the purpose
of meeting cash flow requirements, and, except for the GRF, a positive cash
balance must be maintained for each discrete fund included in the TOF. The GRF
is permitted to incur a temporary cash deficiency by drawing upon the available
consolidated cash balance in the TOF. The amount of that permitted GRF cash
deficiency at any time is limited to 10% of GRF revenues for the then preceding
Fiscal Year.
The State has encountered (and planned for) some monthly GRF cash flow
deficiencies in all recent Fiscal Years. For example, GRF cash flow deficiencies
have ranged from occurring 10 months in Fiscal Years 1992 ($743,140,000 the
highest) to four months in Fiscal Year 1995 (the highest being $337,964,000).
The GRF had cash flow deficiencies in four months in Fiscal Year 1997 (the
highest being $565,741,000).
OBM currently projects that GRF cash flow deficiencies will occur in
some months in Fiscal Year 1998.
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Cash flow deficiencies have been and are expected by OBM to be within
the TOF limitations discussed above. Often, the GRF balancing steps described
above ameliorated cash flow deficiencies in later months of a Fiscal Year,
significantly assisting in producing the positive year-end GRF balances.
STATE DEBT
The incurrence or assumption of debt by the State without a popular vote
is, with limited exceptions, prohibited by current provisions of the State
Constitution. The State may incur debt to cover casual deficits or failures in
revenues or to meet expenses not otherwise provided for, but limited in amount
to $750,000. The Constitution expressly precludes the State from assuming the
debts of any county, city, town, or township, or of any corporation. (An
exception in both cases if for debts incurred to repel invasion, suppress
insurrection, or defend the State in war.) The Constitution provides that
"Except the debts above specified . . . no debt whatever shall hereafter be
created by, or on behalf of the state."
From 1921 to date Ohio voters approved 15 constitutional amendments
authorizing the incurrence of State debt to which taxes or excises were pledged
for payment. All related to capital facilities financing, except for three
funding veterans' bonuses. The only such tax-supported debt still authorized to
be incurred are highway, local infrastructure, coal development and natural
resources general obligation bonds as discussed below.
The State and State agencies have issued revenue bonds that are payable
from net revenues or relating to revenue-producing facilities or categories of
facilities, such as those issued by the Ohio Turnpike Commission. Under
interpretations by Ohio courts, those revenue bonds are not "debt" within the
constitutional provisions described above. The Constitution authorizes State
bonds (issued by the Ohio Housing Finance Agency) for certain housing purposes;
tax moneys may not be obligated or pledged to those bonds. See the discussion of
expanded housing finance authority below under Additional Authorizations.
In addition, Section 2i of Article VIII of the Constitution authorizes
the issuance, for certain purposes, the State obligations the owners or holders
of which are not given the right to have excises or taxes levied by the General
Assembly to pay principal and interest. Those special obligations include the
bonds and notes issued by, among others, the Ohio Public Facilities Commission
and the Ohio Building Authority and certain obligations issued by the Treasurer
of State. OPFC issues obligations for facilities for higher education, mental
health, and parks and recreation purposes. OBA issues obligations for facilities
to house branches and agencies of State Government and their functions,
including: State office buildings and facilities for the Department of
Administrative Services (DAS) and others; juvenile detention facilities,
including single-county or joint-county facilities, for the Department of Youth
Services (DYS) and their governmental entities; Ohio Department of
Transportation (ODOT) buildings; Department of Rehabilitation and Correction
(DRC) prisons and correctional facilities including certain local and
community-based
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facilities; office facilities for the Bureau of Workers' Compensation (BWC) and
Department of Natural Resources (DNR); Ohio Arts and Sports Facilities
Commission (ASFC) and Department of Public Safety (DPS) facilities; and school
district computer and security facilities. The Treasurer issues obligations for
certain elementary and secondary school facilities under leases with the State
Department of Education.
A current summary of State tax-supported obligations (general obligation
bonds), and special obligations issued by the OPFC and OBA, and certain special
obligations issued by the Treasurer, that have been authorized, and scheduled to
be issued and outstanding, excluding the 1997B Bonds, is as follows:
<TABLE>
<CAPTION>
AUTHORIZED BY
GENERAL ASSEMBLY ISSUED(A) OUTSTANDING(B)
GENERAL OBLIGATION BONDS
<S> <C> <C> <C>
Highway(c) $ 432,500,000 $ 175,000,000 $ 170,000,000
Highway(d) 1,854,695,000 1,745,000,000 357,700,000
Coal Development(e) 150,000,000 95,000,000 30,950,000
Infrastructure(f) 1,320,000,000 1,079,986,136 826,888,487
Natural Resources(g) 180,000,000 100,000,000 94,200,000
OHIO PUBLIC FACILITIES COMMISSION
Higher Education Facilities $ 4,929,300,000 $ 4,121,230,000 $ 2,069,965,000
Mental Health Facilities 1,141,000,000 1,037,535,000 396,765,000
Parks and Recreation Facilities 218,800,000 184,750,000 92,310,000
OHIO BUILDING AUTHORITY
Prison Facilities $ 1,499,000,000 $ 1,202,100,000 $ 931,959,827
DYS Facilities 194,000,000 113,000,000 101,830,000
DAS Facilities(h) 1,018,000,000 768,300,000 614,225,231
ASFC Facilities 197,600,000 137,000,000 122,345,000
ODOT Facilities(i) 210,000,000 143,800,000 103,220,000
DNR Facilities 12,160,000 12,160,000 9,830,000
DPS Facilities(i) 129,000,000 103,200,000 101,830,000
BWC Facilities(j) 214,255,000 214,255,000 205,255,000
TREASURER OF STATE
Education Facilities $ 538,640,000 $ 138,640,000 $ 116,810,000
<FN>
(a) Excludes refunding bonds; includes bonds refunded.
(b) Excludes bonds refunded; includes refunding bonds.
(c) Not more than $220,000,000 may be issued in any year and not more than $1.2
billion may be outstanding at any time.
(d) The authority to issue expired December 31, 1996. (e) Not more than
$100,000,000 may be outstanding at any time.
(f) Not more than $120,000,000 may be issued in any year, and the total issued
may not exceed $2.4 billion.
(g) Not more than $50,000,000 may be issued in any year and not more than
$200,000,000 may be outstanding at any time.
(h) Primarily for State office buildings in Columbus (two), Cleveland, Akron
and Toledo, and a State computer center in Columbus. Debt service for the
Akron and Toledo office buildings is supported in part by payments from
local government agencies using portions of those facilities. Includes
$100,000,000 for school district computer technology and security systems.
(i) Debt service paid from appropriations from highway use receipts. (j) Debt
service paid from appropriations from BWC Administrative Cost Fund.
</TABLE>
The General Assembly has appropriated sufficient moneys to meet debt
service requirements for the current biennium (ending June 30, 1999) on all
OPFC, OBA and Treasurer special obligations listed in the accompanying tables.
Except for $58,441,000 of highway user receipts appropriated for
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obligations issued for ODOT and DPS facilities, and $30,130,000 for the BWC
facility obligations, all those moneys have been appropriated from the GRF.
The following table shows the principal amount of those obligations
which were or are scheduled to be outstanding as of July 1 of the indicated
years:
<TABLE>
<CAPTION>
GENERAL OBLIGATIONS
-------------------
HIGHWAY NON-HIGHWAY OPFC OBA TREASURER
------- ----------- ---- --- ---------
<S> <C> <C> <C> <C> <C>
1997 $525,700,000 $1,005,566,568 $2,559,040,000 $ 1,993,910,058 $116,810,000
2000 291,500,000 817,149,349 1,703,335,000 1,646,290,020 76,040,000
2005 30,000,000 496,656,341 689,200,000 915,076,194 17,000,000
2010 -0- 224,937,892 77,600,000 300,245,000 -0-
2015 -0- 26,123,600 -0- 23,770,000 -0-
</TABLE>
The following tables show certain historical debt information and
comparisons. These tables include only outstanding bonds of the State secured by
pledges of taxes and excises, and those issued by the OPFC, OBA and the
Treasurer as reflected in the tables above. Highway obligations and obligations
issued by the OBA for ODOT, DPS and BWC purposes are not included since they are
paid from receipts that do not go into the GRF.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
FISCAL PRINCIPAL AMOUNT PRINCIPAL AMOUNT AS % OF ANNUAL
YEAR OUTSTANDING (AS OF JULY 1) PER CAPITA (A) PERSONAL INCOME
- ------ -------------------------- -------------- ----------------
<S> <C> <C> <C>
1980 $1,991,915,000 $184.48 l.90%
1985 2,664,060,000 246.73 1.88
1990 3,690,154,994 340.20 1.94
1993 4,286,631,904 395.19 2.00
1994 4,669,967,748 430.53 2.01
1995 5,049,962,637 465.56 2.06
1996 5,203,715,312 479.74 2.24(b
1997 5,461,641,626 489.52 2.22(b)
<CAPTION>
DEBT
DEBT SERVICE AS SERVICE DEBT SERVICE
FISCAL DEBT SERVICE TOTAL GRF % OF GRF PER AS % OF ANNUAL
YEAR PAYABLE(C) DISBURSEMENTS DISBURSEMENTS CAPITA PERSONAL INCOME
- ---- ---------- ------------- ------------- ------ ---------------
<S> <C> <C> <C> <C> <C>
1980 $ 187,478,382 $ 5,183,999,871 3.61% $ 17.43 0.18%
1985 316,122,379 8,480,380,477 3.73 29.30 0.22
1990 488,676,826 11,585,673,568 4.22 45.05 0.26
1993 556,512,741 13,600,175,302 4.09 50.18 0.25
1994 601,201,857 14,433,186,000 4.17 54.15 0.26
1995 648,878,779 14,978,608,718 4.33 58.15 0.26
1996 691,007,871 15,858,131,400 4.36 61.93(a) 0.26
1997 716,501,188 16,404,050,000 4.37 64.22(a) 0.27(b)
<FN>
(a) Population based on 1995 census figures (estimated).
(b) Based on 1996 personal income data.
</TABLE>
A statewide economic development program assists, with loans and,loan
guarantees, the financing of facilities for industry, commerce, research and
distribution. The law authorizes the issuance of State bonds and loan guarantees
secured by a pledge of portions of the State profits from liquor sales. The
General Assembly has authorized the issuance of these bonds by the State
Treasurer, with a general maximum of $300,000,000 currently authorized to be
outstanding at any one time (excluding bonds issued to meet guarantees, but less
any amount by which 4% of the unpaid principal amount of guaranteed loan
payments exceeds the funded amount applicable to the guarantees). The aggregate
amount from the liquor profits to be used in any Fiscal Year in connection with
these bonds (except for bonds issued
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to meet guarantees) may not under present law exceed $25,000,000. The total of
unpaid guaranteed loan amounts and unpaid principal of direct loans may not
exceed $500,000,000. A 1996 issue of $168,740,000 of taxable bonds refunded
outstanding bonds and provided additional funds for the program. The highest
future Fiscal Year debt service on those bonds, which are payable through 2022,
is $16,166,827.
The State from time to time enters into capital lease and lease purchase
agreements relating to facilities for general State governmental purposes. OBM
estimates total Fiscal Year 1998 rental payments under those agreements are
approximately $3,150,869 and $6,000,000 respectively. Payments under those
leases are subject to biennial appropriations. The number of and obligations
under such leases will vary from time to time.
ADDITIONAL AUTHORIZATION
Only a portion of State capital needs can be met by direct GRF
appropriations, and so additional State borrowing for capital purposes has been
and will be required. Under present constitutional limitations most of that
borrowing has been and will probably primarily be by lease-rental supported
obligations such as those issued by the OPFC and the OBA and, in some cases, by
the Treasurer.
The general capital appropriations act for the current (1997-98) capital
appropriations biennium authorized additional borrowing. It authorized OPFC
issuance of additional obligations in the amounts of $559,000,000 for higher
education capital facilities projects (a substantial number of which are
renovations and equipment of and improvements to existing facilities),
$68,400,000 for mental health facilities projects (including local projects),
and $22,700,000 for parks and recreation facilities projects. It also authorizes
additional OBA obligations in the amounts of $197,400,000 for prisons and local
jails, $37,800,000 for DYS facilities, $125,650,000 for DAS facilities including
computer technology and security systems for school districts, $80,700,000 for
ASFC facilities (including $38,000,000 for the newly authorized category of
sports facilities), $75,800,000 for DPS facilities, and $27,750,000 for ODOT
facilities. These additional authorizations and issuances under them are
reflected in the above tables.
The Treasurer of State has been authorized to issue bonds to finance
approximately $238,640,000 of capital improvements for elementary and secondary
public school facilities ($138,640,000 issued). Debt service on these
lease-rental obligations is payable from State resources.
A 1995 constitutional amendment extended the local infrastructure bond
program (authorizing an additional $1.2 billion of State full faith and credit
obligations to be issued over 10 years for the purpose) and authorized
additional highway bonds. The latter supersedes the prior highway bonds
authorization of not more than $500,000,000 to be outstanding at any time and
not more than $100,000,000 to be issued annually, and authorizes not more than
$1.2 billion to be outstanding at any time and not more than $220,000,000 to be
issued in a Fiscal Year.
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<PAGE> 35
The General Assembly has authorized the following additional general
obligation bonds to be issued by the Commissioners of the Sinking Fund:
$55,000,000 coal development, $165,000,000 highway capital improvements, and
$80,000,000 natural resources, and by the Treasurer $240,013,864 of
infrastructure bonds.
The most recent capital appropriations legislation provides for two new
categories of revenue-type financing. OBA is authorized to issue lease revenue
obligations to assist in the financing of up to 15% of the estimated cost of
certain Ohio sports facilities. In addition, a revolving fund is created to
assist in financing local multimodal and intermodal transportation facilities,
initially funded with a deposit of $30,000,000 of GRF moneys.
A 1990 constitutional amendment authorizes greater State and political
subdivision participation in the provision of individual and family housing.
This supplements the previously constitutionally authorized loans-for-lenders
and other housing assistance programs, financed in part with State revenue
bonds. The amendment authorizes the General Assembly to provide for State
assistance for housing in a variety of manners. The General Assembly could
authorize State borrowing for the purpose by the issuance of State obligations
secured by a pledge of all or such portion as it authorizes of State revenues or
receipts, although the obligations may not be supported by the State's full
faith and credit.
A 1994 constitutional amendment pledges the State's full faith and
credit and taxing power to meeting certain guarantees under the state's tuition
credit program. That program provides for purchase of tuition credits, for the
benefit of State residents, guaranteed to cover a specified amount when applied
to the cost of higher education tuition. Under the amendment, to secure the
tuition guarantees the General Assembly shall appropriate moneys sufficient to
offset any deficiency that may occur from time to time in the trust fund that
provides for the guarantees and at any time necessary to make payment of the
full amount of any tuition payment or refund required by a tuition payment
contract. (A 1965 constitutional provision that authorized, but did not require,
State student loan guarantees payable from available State moneys has never been
implemented, apart from a "guarantee fund" approach funded essentially from
program revenues.)
SCHOOLS
Litigation similar to that in other states, has been pending questioning
the constitutionality of Ohio's system of school funding. The Ohio Supreme Court
concluded in a decision released March 24, 1997 that major aspects of the system
(including basic operating assistance and the loan program described below) are
unconstitutional. It ordered the State to provide for and fund sufficiently a
system complying with the Ohio Constitution, staying its order for a year to
permit time for responsive corrective actions by the General Assembly. In
response to a State motion for reconsideration and clarification, the Court on
April 25 indicated that property taxes may still play a role in, but "can no
longer be the primary means" of, school funding. The Court also confirmed that
contractual
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<PAGE> 36
repayment provisions of certain debt obligations issued for school funding will
remain valid after the stay terminates.
Local school districts in Ohio receive a major portion (on a statewide
basis, recently approximately 44%) of their operating moneys from State
subsidies, but are dependent on local property taxes, and in 120 districts
income taxes, for significant portions of their budgets. Litigation is pending,
similar to that in other states, questioning the constitutionality of Ohio's
system of school funding. A small number of the State's 612 local school
districts have in any year required special assistance to avoid year-end
deficits. A current program provides for school district cash needs borrowing
directly from commercial lenders, with diversion of State subsidy distributions
to repayment if needed; in FY 1997 under this program 12 districts borrowed a
total of $113 million (including over $90 million by one district), and in FY
1996 borrowings totaling $87.2 million were approved.
Ohio's 943 incorporated cities and villages rely primarily on property
and municipal income taxes for their operations, and, with other local
governments, receive local government support and property tax relief moneys
distributed by the State. For those few municipalities that on occasion have
faced significant financial problems, established procedures provide for a joint
State/local commission to monitor the municipality's fiscal affairs, and for
development of a financial plan to eliminate deficits and cure any defaults.
Since inception in 1979, these procedures have been applied to 24 cities and
villages, in 19 of which the fiscal situation has been resolved and the
procedures terminated.
The fiscal emergency legislation was recently amended to extend its
potential application to counties (88 in the State) and townships. This
extension is on an "if and as needed" basis, and not aimed at particular
existing fiscal problems of those subdivisions.
At present the State itself does not levy ad valorem taxes on real or
tangible personal property. Those taxes are levied by political subdivisions and
other local taxing districts. The Constitution has since 1934 limited the amount
of the aggregate levy (including a levy for unvoted general obligations) of
property taxes by all overlapping subdivisions, without a vote of the electors
or a municipal charter provision, to 1% of true value in money, and statutes
limit the amount of that aggregate levy to 10 mills per $1 of assessed valuation
(commonly referred to as the "ten-mill limitation"). Voted general obligations
of subdivisions are payable from property taxes unlimited as to amount or rate.
HEDGING STRATEGIES
As discussed in the Prospectus, the Adviser may use a variety of
financial instruments ("Hedging Instruments"), including certain options,
futures contracts (sometimes referred to as "futures") and options on futures
contracts to attempt to hedge the Fund's portfolio. The particular Hedging
Instruments are described in Appendix A to this Statement of Additional
Information. Any income realized from the use of options and futures would be
taxable to shareholders.
16
<PAGE> 37
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges". A short hedge is a purchase or sale of a Hedging Instrument intended to
partially or fully offset potential declines in the value of one or more
investments held in the Fund's portfolio. Thus, in a short hedge the Fund takes
a position in a Hedging Instrument whose price is expected to move in the
opposite direction of the price of the investment being hedged. For example, the
Fund might purchase a put option on a security to hedge against a potential
decline in the value of that security. If the price of the security declined
below the exercise price of the put, the Fund could exercise the put and thus
limit its loss below the exercise price to the premium paid plus transaction
costs. In the alternative, because the value of the put option can be expected
to increase as the value of the underlying security declines, the Fund might be
able to close out the put option and realize a gain to offset the decline in the
value of the security.
Conversely, a long hedge is a purchase or sale of a Hedging Instrument
intended to partially or fully offset potential increases in the acquisition
cost of one or more investments that the Fund intends to acquire. Thus, in a
long hedge the Fund takes a position in a Hedging Instrument whose price is
expected to move in the same direction as the price of the prospective
investment being hedged. For example, the Fund might purchase a call option on a
security it intends to purchase to hedge against an increase in the cost of the
security. If the price of the security increased above the exercise price of the
call, the Fund could exercise the call and thus limit its acquisition cost to
the exercise price plus the premium paid and transaction costs. Alternatively,
the Fund might be able to offset the price increase by closing out an
appreciated call option and realizing a gain.
Hedging Instruments on securities generally are used to hedge against price
movements in one or more particular securities positions that the Fund owns or
intends to acquire. Hedging Instruments on debt securities may be used to hedge
either individual securities or broad market sectors.
The use of Hedging Instruments is subject to applicable regulations of
the SEC, the several options and futures exchanges upon which they are traded,
and the Commodity Futures Trading Commission ("CFTC"). In addition, the Fund's
ability to use Hedging Instruments will be limited by tax considerations. See
"Taxes".
In addition to the products, strategies and risks described below, the
Adviser may discover additional opportunities in connection with options,
futures contracts and other hedging techniques. These new opportunities may
become available as the Adviser develops new techniques, as regulatory
authorities broaden the range of permitted transactions and as new options,
futures contracts or other techniques are developed. The Adviser may utilize
these opportunities to the extent that they are consistent with the Fund's
investment objectives and permitted by the Fund's investment limitations and
applicable regulatory authorities. The Fund's Statement of Additional
Information will be supplemented to the extent that new products or techniques
involve materially different risks than those described below or in the
Prospectus.
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SPECIAL RISKS OF HEDGING STRATEGIES
The use of Hedging Instruments involves special consideration and risks,
as described below. Risks pertaining to particular Hedging Instruments are
described in the sections that follow.
(1) Successful use of most Hedging Instruments depends upon the
Adviser's ability to predict movements of the overall securities
and interest rate markets, which requires different skills than
predicting changes in the prices of individual securities. While
the Adviser is experienced in the use of Hedging Instruments,
there can be no assurance that any particular hedging strategy
adopted will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of a Hedging Instrument and price
movements of the investments being hedged. For example, if the
value of a Hedging Instrument used in a short hedge increased by
less than the decline in value of the hedged investment, the
hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the
investments being hedged, such as speculative or other pressures
on the markets in which Hedging Instruments are traded. The
effectiveness of hedges using Hedging Instruments on indices will
depend on the degree of correlation between price movements in
the index and price movements in the securities being hedged.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable
price movements in the investments being hedged. However, hedging
strategies can also reduce opportunity for gain by offsetting the
positive effect of favorable price movements in the hedged
investments. For example, if the Fund entered into a short hedge
because the Adviser projected a decline in the price of a
security in the Fund's portfolio, and the price of that security
increased instead, the gain from that increase might be wholly or
partially offset by a decline in the price of the Hedging
Instrument. Moreover, if the price of the Hedging Instrument
declined by more than the increase in the price of the security,
the Fund could suffer a loss. In either such case, the Fund would
have been in a better position had it not hedged at all.
(4) As described below, the Fund might be required to maintain assets
as "cover", maintain segregated accounts or make margin payments
when it takes positions in Hedging Instruments involving
obligations to third parties (I.E., Hedging Instruments other
than purchased options). If the Fund were unable to close out its
positions in such Hedging Instruments, it might be required to
continue to maintain such assets or accounts or make such
payments until the position expired or matured. These
requirements might impair the Fund's ability to sell a portfolio
security or make an investment at a time when it would otherwise
be favorable to do
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so, or require that the Fund sell a portfolio security at a
disadvantageous time. The Fund's ability to close out a position
in a Hedging Instrument prior to expiration or maturity depends
on the existence of a liquid secondary market or, in the absence
of such a market, the ability and willingness of the opposite
party to the transaction to enter into a transaction closing out
the position. Therefore, there is no assurance that any hedging
position can be closed out at a time and price that is favorable
to the Fund.
ADDITIONAL INFORMATION ABOUT HEDGING TRANSACTIONS
The Fund will not use Hedging Instruments for speculative purposes or
for purposes of leverage. Transactions using Hedging Instruments, other than
purchased options, expose the Fund to an obligation to another party. The Fund
will comply with SEC guidelines regarding cover for hedging transactions and
will, if the guidelines so require, set aside cash or liquid securities in a
segregated account with its custodian in the prescribed amount.
Assets held in a segregated account cannot be sold while the position in
the corresponding Hedging Instrument is open, unless they are replaced with
similar assets. As a result, the commitment of a large portion of the Fund's
assets to cover or segregated accounts could impede portfolio management or the
Fund's ability to meet redemption requests or other current obligations.
OPTIONS
The Fund may purchase put and call options, and write (sell) covered
call options and covered put options, on debt securities. The purchase of a call
option serves as a long hedge, and the purchase of a put option serves as a
short hedge.
Writing a covered call option serves as a limited short hedge, because
declines in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and the Fund will be obligated to
sell the security at less than its market value. If the covered call option is
an OTC option, the securities or other assets used as cover would be considered
illiquid unless the OTC options are sold to qualified dealers who agree that the
Fund may repurchase any OTC option it writes at a maximum price to be calculated
by a formula set forth in the option agreement. The cover for an OTC option
written subject to this procedure would be considered illiquid only to the
extent that the maximum repurchase price under the formula exceeds the intrinsic
value of the option.
Writing a put option serves as a limited long hedge because increases in
the value of a security the Fund intends to purchase would be offset to the
extent of the premium received for writing the option. However, if the security
depreciates to a price lower than the exercise price of the put
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<PAGE> 40
option, it can be expected that the option will be exercised and the Fund will
be obligated to purchase the security at more than its market value.
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options normally have expiration dates
of up to nine months. Options purchased by the Fund that expire unexercised have
no value.
The Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, the Fund may
terminate its obligation under a call or put option that it had written by
purchasing an identical call or put option; this is known as a closing purchase
transaction. Conversely, the Fund may terminate a position in a put or call
option it had purchased by writing an identical put or call option; this is
known as a closing sale transaction. Closing transactions permit the Fund to
realize profits or limit losses on an option position prior to its exercise or
expiration.
The Fund may purchase or write both exchange-traded and OTC options.
Exchange markets for options on debt securities exist but are relatively new,
and these instruments are primarily traded on the OTC market. Exchange-traded
options in the United States are issued by a clearing organization affiliated
with the exchange on which the option is listed which, in effect, guarantees
completion of every exchange-traded option transaction. In contrast, OTC options
are contracts between the Fund and its contra-party (usually a securities dealer
or a bank) with no clearing organization guarantee. Thus, when the Fund
purchases an OTC option, it relies on the party from whom it purchased the
option or to whom it has written the option (the contra-party) to make or take
delivery of the underlying investment upon exercise of the option. Failure by
the contra-party to do so would result in the loss of any premium paid by the
Fund as well as the loss of any expected benefit of the transaction.
The Fund's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. The Fund
intends to purchase or write only those exchange-traded options for which there
appears to be a liquid secondary market. However, there can be no assurance that
such a market will exist at any particular time. Closing transactions can be
made for OTC options only by negotiating directly with the contra-party, or by a
transaction in the secondary market if any such market exists. Although the Fund
will enter into OTC options only with contra-parties that are expected to be
capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option position
at a favorable price prior to expiration. In the event of insolvency of the
contra-party, the Fund might be unable to close out an OTC option position at
any time prior to its expiration.
If the Fund were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit and
would be unable to limit its losses prior to expiration. The inability to enter
into a closing purchase transaction for a covered call
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<PAGE> 41
option written by the Fund could cause material losses because the Fund would be
unable to sell the investment used as cover for the written option until the
option expires or is exercised. The inability to enter into a closing purchase
transaction for a put option written by the Fund could also cause material
losses because the price of the security underlying the option could continue to
decline.
As options on indexes of municipal and nonmunicipal debt securities
become available, the Fund may purchase and write put and call options on such
indexes in much the same manner as the more traditional options discussed above,
except that index options may serve as a hedge against overall fluctuations in
the debt securities markets (or market sectors) rather than anticipated
increases or decreases in the value of a particular security.
Because of the limited availability of options on municipal securities,
the Adviser may deem it in the best interest of the Fund to engage in
transactions using exchange-traded options on U.S. government securities.
Options on U.S. Treasury bonds, bills and notes are currently so traded;
additional contracts are likely to be developed. In the opinion of the Adviser,
there is a high degree of correlation between the prices and interest rates of
U.S. government securities and those of municipal securities. Therefore, the
Adviser believes that options on U.S. government securities could serve as an
effective proxy for options on municipal securities. Therefore, the Fund's
options activities may also include options on U.S. government securities traded
on national securities exchanges.
GUIDELINES FOR OPTIONS
In view of the risks involved in using the options strategies described
above, the Trust's Board of Trustees has determined that the Fund may purchase a
put or call option, including any straddles or spreads, only if the value of its
premium, when aggregated with the premiums on all other options held by the
Fund, does not exceed 5% of the Fund's total assets. This guideline may be
modified by the board without shareholder vote. Adoption of this guideline
cannot be guaranteed to limit the percentage of the Fund's assets at risk to 5%.
FUTURES
The Fund may purchase and sell municipal bond index futures, municipal
debt futures and other interest rate futures contracts. The Fund may also
purchase put and call options and write put and covered call options on futures
in which it is allowed to invest. The purchase of futures or call options
thereon can serve as a long hedge, and the sale of futures or the purchase of
put options thereon can serve as a short hedge. Writing covered call options on
futures contracts can serve as a limited short hedge, using a strategy similar
to that used for writing covered call options on securities or indices.
Similarly, writing put options on futures contracts can serve as a limited long
hedge.
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Interest rate futures contracts also can be used to manage the average
duration of the Fund's portfolio. If the Adviser wishes to shorten the average
duration of the Fund, the Fund may sell a futures contract or a call option
thereon, or purchase a put option on that futures contract. If the Adviser
wishes to lengthen the average duration of the Fund, the Fund may buy a futures
contract or a call option thereon, or sell a put option thereon.
The Fund may enter into interest rate futures contracts as a hedge
against or to minimize adverse principal fluctuations or as an efficient means
of regulating the Fund's exposure to the municipal bond market. The Fund could
sell interest rate futures as an offset against the effect of expected increases
in interest rates and purchase such futures as an offset against the effect of
expected declines in interest rates.
It is possible that the Fund's hedging activities will occur primarily
through the use of municipal bond index futures contracts because the uniqueness
of that index contract should better correlate with the Fund's portfolio and
thereby be more effective. However, it is also possible that it may be deemed in
the best interest of shareholders to use futures contracts on U.S. Treasury
bonds, bills or notes, and the Fund reserves the right to use such futures
contracts at any time. Use of these futures could occur, as an example, when
both the U.S. Treasury bond futures contract and municipal bond index futures
contract are correlating well with municipal bond prices, but the U.S. Treasury
bond futures contract is trading at a more advantageous price making the hedge
less expensive with the U.S. Treasury bond futures contract than would be
obtained with the municipal bond index futures contract.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the Fund is required to deposit an amount
generally equal to 10% or less of the contract value. Margin must also be
deposited when writing a call or put option on a futures contract, in accordance
with applicable exchange rules. Unlike margin in securities transactions,
initial margin on futures contracts does not represent a borrowing, but rather
is in the nature of a performance bond or good-faith deposit that is returned to
the Fund at the termination of the transaction if all contractual obligations
have been satisfied. Under certain circumstances, such as periods of high
volatility, the Fund may be required by an exchange to increase the level of its
initial margin payment, and initial margin requirements might be increased
generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
commission merchant daily as the value of the futures position varies, a process
known as "marking to market". Variation margin does not involve borrowing, but
rather represents a daily settlement of the Fund's obligations to or from a
futures commission merchant. When the Fund purchases an option on a future, the
premium paid plus transaction costs is all that is at risk. In contrast, when
the Fund purchases or sells a futures contract or writes a call or put option
thereon, it is subject to daily variation margin calls that could be substantial
in the event of adverse price movements. If the Fund had insufficient cash to
meet daily variation margin requirements, it might need to sell securities at a
time when such sales are disadvantageous.
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Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. Positions in futures and options on futures
contracts may be closed only on an exchange or board of trade that provides a
secondary market. The Fund intends to enter into futures transactions and
options thereon only on exchanges or boards of trade where there appears to be a
liquid secondary market. However, there can be no assurance that such a market
will exist for a particular contract at a particular time.
Under the circumstances, futures exchanges may establish daily limits on
the amount that the price of a futures contract or an option on a futures
contract can vary from the previous day's settlement price; once that limit is
reached, no trades may be made that day at a price beyond the limit. Daily price
limits do not limit potential losses because prices could move to the daily
limit for several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If the Fund were unable to liquidate a futures contract or an option on
a futures contract position due to the absence of a liquid secondary market or
the imposition of price limits, it could incur substantial losses. The Fund
would continue to be subject to market risk with respect to the position. In
addition, except in the case of purchased options, the Fund would continue to be
required to make daily variation margin payments and might be required to make
daily variation margin payments and might be required to maintain cash or liquid
assets in an account.
Certain characteristics of the futures market might increase the risk
that movements in the prices of futures contracts or an option on a futures
contract might not correlate perfectly with movements in the prices of the
investments being hedged. For example, all participants in the futures markets
are subject to margin deposit and maintenance requirements and might be
compelled to liquidate futures or related options positions whose prices are
moving unfavorably to avoid being subject to further calls. These liquidations
could increase price volatility of the instruments and distort the normal price
relationship between the futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the futures market are less
onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the futures and securities markets involving
arbitrage, "program trading" and other investment strategies might result in
temporary price distortions.
GUIDELINES FOR FUTURES AND RELATED OPTIONS
In view of the risks involved in using the futures and options
strategies that are described above, the Trust's Board of Trustees has
determined that the Fund will not purchase or sell futures contracts or related
options if, immediately thereafter, the sum of the amount of initial margin
deposits on the Fund's existing futures positions and
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initial margin deposits and premiums paid for related options would exceed 5% of
the market value of the Fund's total assets. This guideline may be modified by
the board without shareholder vote. Adoption of this guideline cannot be
guaranteed to limit the percentage of the Fund's assets at risk to 5%.
In addition, the Fund has represented to the CFTC that it will use
futures contracts and options thereon solely in bona fide hedging transactions
or under other circumstances permitted by the CFTC.
MUNICIPAL LEASES
As described in the Prospectus, the Fund may invest in Municipal
Obligations that constitute participations in a lease obligation or installment
purchase contract obligation (hereafter collectively called "municipal leases)
of a municipal authority or entity. Although municipal leases do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments due under the lease
obligation. However, certain municipal leases contain "nonappropriation" clauses
which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although nonappropriation municipal leases are
secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. The Fund will seek to minimize the special
risks associated with such securities by not investing more than 10% of its
assets in municipal leases that contain nonappropriation clauses. In evaluating
investments in municipal leases with nonappropriation clauses, the Adviser will
consider such factors as whether (1) the nature of the leased equipment or
property is such that its ownership or use is essential to a governmental
function of the municipality, (2) the lease payments will commence amortization
of principal at an early date resulting in an average life of seven years or
less for the lease obligation, (3) appropriate covenants will be obtained from
the municipal obligor prohibiting the substitution or purchase of similar
equipment if lease payments are not appropriated, (4) the lease obligor has
maintained good market acceptability in the past,(5) the investment is of a size
that will be attractive to institutional investors, and (6) the underlying
leased equipment has elements of portability and/or use that enhance its
marketability in the event foreclosure on the underlying equipment were ever
required. Municipal leases provide a premium interest rate which along with
regular amortization of the principal may make them attractive for a portion of
the assets of the Fund. With respect to evaluating the credit quality of a
municipal lease the Adviser will consider: whether a lease can be canceled; the
level of assurance that leased assets can be sold; the strength of the lessee's
general credit; the potential for an event of nonappropriation; and the legal
recourse in the event of a failure to appropriate.
The Trust's Board of Trustees has established the following guidelines for
determining the liquidity of municipal leases in the Fund's portfolio, and
subject to review by the Board, has delegated that responsibility to the
Adviser. When evaluating the liquidity of Municipal Leases, the
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<PAGE> 45
Adviser, pursuant to procedures established by the Board, considers all relevant
factors, including frequency of trading, availability of quotations, the number
of dealers and their willingness to make markets, the nature of trading activity
and the assurance that liquidity will be maintained.
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. which
through its Gradison Division acts as the Fund's 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 is closed other than for
customary weekend and holiday closings, (b) when trading in markets normally
utilized by the Fund is restricted, or an emergency exists (determined in
accordance with the rules and regulations of the Securities and Exchange
Commission) so that disposal of the securities held in the Fund or determination
of the net asset value of the Fund is not reasonably practicable, or (c) for
such other periods as the Securities and Exchange Commission by order may permit
for the protection of the Fund's shareholders.
The Fund transmits redemption proceeds only to shareholders names and
addresses on its records (or which it has otherwise verifies), provides written
confirmation of all transactions initiated by telephone (either immediately or
by monthly statement, depending on the circumstances), and requires
identification from individuals picking up checks at its office.
DAILY DISTRIBUTIONS - ACCOUNTING PRINCIPLES
The distribution declared by the Fund each day will normally be in an
amount equal to that day's proportionate share of 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 income computed in accordance with generally
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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 during 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. On occasion, the Fund may make distributions which constitute the
return of capital to shareholders.
For example, if the Adviser estimates that net investment income for a
31-day month will be $.085 per share, and if the Fund has a reserve of $.01 per
share of undistributed income, the daily distribution might be initially
established at $.09/31 per share for each day during such month, leaving a
reserve of $.005 per share available for distributions in subsequent months if
such estimates are accurate. The Adviser may revise its estimates of the monthly
amounts of such income, in which case the subsequent daily distributions during
such month may be revised accordingly.
TAXES
FEDERAL
The Fund has qualified and intends to qualify in the future for
treatment as a regulated investment company ("RIC") under the Internal Revenue
Code of 1986, as amended ("Code") and to qualify to pay "exempt-interest"
dividends. By so qualifying, the Fund will be relieved of Federal income tax on
that part of its investment company taxable income (consisting generally of any
taxable net investment income and net short-term capital gain) and any net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) distributed to Fund shareholders. In order to continue to qualify
for treatment as a RIC, the Fund must distribute to its shareholders for each
taxable year at least 90% of the sum of its investment company taxable income
plus its net interest income excludable from gross income under Section 103(a)
of the Code, and must meet several additional requirements. Among these
requirements are 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 or futures) derived with respect
to its business of investing in securities ("Income Requirement"); (2) the Fund
must derive less than 30% of its gross income each taxable year from the sale or
other disposition of securities, options, or futures that were held for less
than three months ("Short-Short Limitation"); and (3) 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 these other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets, and (b) not more than 25% of the value of
its total
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assets may be invested in securities (other than U.S. government securities or
the securities of other RICs) of any one issuer.
Dividends paid by the Fund will qualify as exempt-interest dividends,
and thus will be excludable from gross income by its shareholders, if the Fund
satisfies the additional requirement that, at the close of each quarter of its
taxable year, at least 50% of the value of its total assets consists of
securities the interest on which is excludable from gross income under Section
103(a); the Fund intends to continue to satisfy this requirement. The aggregate
dividends excludable from the shareholders' gross income may not exceed the
Fund's net tax-exempt income.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be disallowed to the extent of any exempt-interest dividends
received on those shares and any allowable loss will be treated as long-term
capital loss to the extent of any capital gain distributions received on those
shares. Distributions of the portion of the gain on bonds purchased at a
discount after April 30, l993, are taxable for Federal income tax purposes as
dividends.
Interest on indebtedness incurred or continued to purchase or carry Fund
shares will not be deductible for Federal income tax purposes to the extent that
the Fund distributes exempt-interest dividends; purchases of Fund shares may be
deemed to have been made with borrowed funds even though those funds are not
directly traceable to the purchase of those shares. Exempt-interest dividends
paid by the Fund are includable in your tax base for determining the taxability
of social security and railroad retirement benefits. Shares of the Fund may not
be an appropriate investment for "substantial users" of certain facilities
financed by private activity bonds in which the Fund may invest because interest
on such bonds will not be exempt from Federal income tax for such users and
their related persons.
Tax-exempt interest attributable to certain private activity bonds
(including, in the case of a RIC, such as the Fund, receiving interest on such
bonds, a proportionate part of the exempt-interest dividends paid by that RIC)
is an item of tax preference for purposes of the alternative minimum tax.
Exempt-interest dividends received by a corporate shareholder also may be
indirectly subject to that tax without regard to whether the Fund's tax-exempt
interest was attributable to such bonds.
The Fund may acquire zero coupon municipal securities, which are
securities issued with original issue discount. As a holder of those securities,
the Fund must take into account a portion of the original issue discount during
the taxable year, even if it receives no corresponding payment on the securities
during the year. Because the Fund annually must distribute substantially all of
its tax-exempt income, including any original issue discount, in order to
qualify for treatment as a RIC, the Fund may be required in some years to
distribute as a dividend an amount that is greater than the total cash it
actually receives. Those distributions will be made from the Fund's other cash
assets or from proceeds of sales of portfolio securities. The Fund may realize
capital gains or losses from those sales, which would increase or decrease its
investment company taxable income and/or net capital gain. In addition, any such
gains may be realized on the disposition of securities held for less than three
months. Because of the Short-Short Limitation, any such
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gains would reduce the Fund's ability to sell other securities, or options or
futures, held for less than three months that it might wish to sell in the
ordinary course of its portfolio management.
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts, 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
and futures derived by the Fund with respect to its business of investing in
securities will qualify as permissible income under the Income Requirement.
However, income from the disposition of options and futures contracts will be
subject to the Short-Short Limitation if they are held for less than three
months.
If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. The Fund
may, when it engages in hedging transactions, seek to qualify for this
treatment, but at the present time it is not clear whether this treatment will
be available for all of the Funds' hedging transactions. To the extent this
treatment is not available, the Fund may be forced to defer the closing out of
certain options and futures contracts beyond the time when it otherwise would be
advantageous to do so, in order for the Fund to continue to qualify as a RIC.
OHIO STATE AND LOCAL TAX MATTERS
The following reflects Ohio law as of the date of this Statement of
Additional Information.
Individual shareholders who are subject to the Ohio personal income tax,
Ohio school district income tax or Ohio municipal income tax will not be subject
to such taxes on distributions received from the Fund to the extent such
distributions consist of interest on or gain from the sale of debt obligations
issued by or on behalf of the State of Ohio and its political subdivisions,
agencies, and instrumentalities. ("Ohio Obligations") provided that the Fund
continues to qualify as a regulated investment company for federal income tax
purposes and that at all times at least 50% of the value of the total assets of
the Fund consists of Ohio Obligations, or similar obligations of other states or
their subdivisions. It is assumed for purposes of this discussion of Ohio
taxation that these requirements are satisfied. Gain recognized by such
individual shareholders on the sale of shares of the Fund will be subject to the
Ohio personal income tax and Ohio school district income tax; such gain may be
subjected to municipal income tax only by those Ohio municipalities that are
authorized by State law to tax intangible income.
Corporate shareholders that are subject to the Ohio corporation
franchise tax will not be required to include distributions received from
28
<PAGE> 49
the Fund in their net income base for purposes of calculating their Ohio
corporation franchise tax liability to the extent that such distributions are
either excluded from gross income for federal income tax purposes or consist of
interest on or gain from the sale of Ohio Obligations. However, corporate
shareholders will be required to include gain recognized on the sale of shares
of the Fund in their net income base for purposes of calculating their liability
for such tax. In addition, shares of the Fund will be includable in the
computation of net worth for purposes of such tax. Corporate shareholders that
are subject to Ohio municipal income tax will not be subject to such tax on
distributions received from the Fund to the extent such distributions consist of
interest on or gain from the sale of Ohio Obligations but may be subject to such
tax on gain from the sale of shares of the Fund in those three Ohio
municipalities that are authorized by State law to tax intangible income.
Distributions from the Fund that consist of interest on obligations of
the United States or the government of Puerto Rico, the Virgin Islands or Guam
or their authorities or instrumentalities are exempt from Ohio personal income
tax, Ohio school district income taxes and Ohio municipal income taxes and are
excluded from the net income base of the Ohio corporation franchise tax to the
same extent that such interest would be so exempt or excluded if the obligations
were held directly by the shareholders.
The Fund is not subject to the Ohio personal income tax, Ohio school
district income taxes, the Ohio corporation franchise tax, or the Ohio dealers
in intangibles tax, provided that, with respect to the Ohio corporation
franchise tax and the Ohio dealers in intangibles tax, the Fund satisfies an
annual reporting requirement imposed by the Ohio Revised Code.
NET ASSET VALUE
The net asset value of the Fund is calculated once daily Monday through
Friday except on days on which changes in the value of the Fund's portfolio
securities will not materially affect the current net asset value of the Fund's
shares and except on the following holidays: New Year's Day, Presidents Day,
Good Friday, Memorial Day Observed, Independence Day, Labor Day, Thanksgiving
Day, Christmas Day, Columbus Day, Martin Luther King Jr. Day, and Veteran's 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.
PORTFOLIO TRANSACTIONS
The Adviser is responsible for making the Fund's portfolio decisions,
including allocation of the Fund's brokerage business and negotiation of
brokerage commissions, subject to policies established by the Board of Trustees.
The Fund places orders for transactions with a number of brokers and dealers.
Most of the Fund's purchases and sales of portfolio
29
<PAGE> 50
securities are principal transactions with securities dealers and underwriters.
Since the Fund's inception it has 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. The Adviser's determination of what
constitutes reasonably competitive rates is based upon its professional judgment
and knowledge as to rates paid and charged for similar transactions throughout
the securities industry. The Adviser may consider sales by brokers or dealers of
shares of the Fund when selecting brokers or dealers to execute portfolio
transactions as long as the most favorable net results are obtained.
The Adviser may receive commissions from the Fund for effecting
transactions on an agency basis 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 conduct compliance reviews at least quarterly and 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. From the
inception of the Fund to the date of this Statement of Additional Information,
the Adviser has not received any commissions from the Fund for executing
transactions in portfolio securities.
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
30
<PAGE> 51
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 and subject to the possible receipt of exemptive
relief from the Securities and Exchange Commission. Accordingly, the Fund does
not purchase or sell portfolio securities from or to the Adviser in any
transaction in which the Adviser acts as principal. Pursuant to regulations of
the Securities and Exchange Commission, the Fund purchases securities in
underwritings in which the Adviser participates as an underwriter.
The Adviser also serves as the investment adviser to Gradison-McDonald
Cash Reserves Trust ("GMCR"), (a U.S. Government "money market" investment
company), Gradison Custodian Trust ("GCT") (U. S. Government income investment
company, and Gradison Growth Trust ("GGT") (equity investment company) and
furnishes investment advice to other clients. The assets of the mutual funds
managed by the Gradison Division totaled approximately $2.5 billion as of
September 30, 1997. The Adviser, including its predecessor, Gradison & Company,
Incorporated, has served as investment adviser to investment companies since
l976. Investment decisions for the Fund are made independently from those of the
other investment companies for which it acts as investment adviser and other
clients of the Adviser. 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. It is the opinion of the Board of Trustees that the benefits available to
the Fund from retaining the Adviser outweigh any disadvantages that may arise
from exposure to simultaneous transactions.
For the fiscal years ended June 30, l997, and l996 the Fund's respective
portfolio turnover rates were 134% and 100%. The higher portfolio turnover for
the fiscal year ended June 30, l997 resulted from an increase in short-term
trading activities.
INVESTMENT ADVISER
The Adviser manages the investment and reinvestment of the assets of the
Fund in accordance with the Fund's investment objective, policies and
restrictions, subject to the general supervision and control of the Board of
Trustees and pursuant to the terms of the Investment Advisory Agreement
("Agreement") between the Trust and Adviser. The Adviser and its officers and
employees, from time to time, enter into transactions with various banks,
including the Fund's custodian bank. It is the Adviser's opinion that the terms
and conditions of those transactions are not influenced by existing or potential
custodial or other Trust relationships.
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<PAGE> 52
The Adviser provides to the Trust at its own expense the executive
officers who are necessary for the management and operations of the Fund.
The Adviser is a securities broker dealer with 23 retail offices in the
state of Ohio and is the largest investment banking and securities brokerage
firm headquartered in Ohio. The Adviser manages investment advisory accounts,
including mutual funds, with assets in excess of $3 billion as of September 30,
l997.
ADVISORY AGREEMENT
The Agreement provides that the Adviser will manage the investments of
the Fund, subject to review by the Board of Trustees. The Adviser also bears the
cost of salaries and related expenses of executive officers of the Trust who are
necessary for the management and operation of the Fund and compensates the
Trustees who are affiliated with the Adviser. As compensation for its services
under the Agreement, the Adviser receives from the Fund a monthly fee based upon
the average value of the daily net assets for the month at an annual rate of .5
of 1% of the Fund's assets. For the fiscal years ended June 30, l995, June 30,
l996, and June 30, 1997, the Adviser received respectively $362,864, $356,463,
and $ 377,638 as investment advisory fees.
The Agreement further provides that in the absence of willful
misfeasance, bad faith or gross negligence in the performance of its duties
thereunder, or reckless disregard of its obligations thereunder, the Adviser is
not liable to the Fund or any of its shareholders for any act or omission by the
Adviser. The Agreement does not restrict the Adviser from acting as an
investment manager or adviser for others.
The Agreement grants to the Trust the right to use the names "Gradison"
and "McDonald" as a part of its name and the name(s) of its Fund(s), without
charge, subject to withdrawal of such right by the Adviser upon not less than 30
days' written notice to the Trust and subject to the automatic termination of
such right within 30 days after the termination of the Agreement for any reason.
The Agreement does not impair the right of the Adviser to use the name Gradison
or McDonald in the name and the name(s) of its Fund(s) without charge in
connection with any other business enterprise with which it is or may become
associated.
The Agreement will be submitted to a vote at the initial meeting of the
Fund's public shareholders, if and when such meeting is held. 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 (as defined in the Act).
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
32
<PAGE> 53
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 (as
defined in the Act).
MASTER DISTRIBUTION AGREEMENT
Shares of the Fund are continuously offered and distributed through the
principal underwriter of the Fund, McDonald (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. For the fiscal years
ended June 30, l995, l996 and 1997, McDonald received underwriting commissions
in the respective amounts of $89,864, $122,266, and $85,767, all of which was
retained by McDonald. On July 7, 1997, the sales charge was eliminated. The
Distributor is not obligated to sell any certain number of shares of the Fund.
The Distributor may enter into dealer's agreements with other dealers, pursuant
to which such dealers will also sell shares of the Fund. The Fund has agreed to
indemnify the Distributor to the extent permitted by applicable law against
certain liabilities under the 1933 Act. The Agreement also provides for the
payment of Distribution Service fees in the annual amount of .25% of the Fund's
average daily net assets.
DISTRIBUTION SERVICE PLAN
The Fund has in effect a Distribution Service Plan (the "Plan") under
Rule 12b-1 of the Investment Company Act of 1940. Rule 12b-1 permits an
investment company to finance, directly or indirectly, activities primarily
intended to result in the sale of its shares only if it does so in accordance
with the provisions of such Rule. The purpose of the Plan is to increase sales
of shares of the Fund to enable it to acquire and retain a sufficient level of
assets to enable it to operate at an efficient level. Higher levels of assets
tend to result in operating efficiencies with respect to the Fund's fixed costs
and portfolio management.
The Plan permits the Fund to incur expenses related to the distribution
of its shares, but only as specifically contemplated by the Plan. Under the
Plan, the Fund may pay service fees up to an amount that does not exceed an
annual rate of .25% of its average daily net assets. Such service fees 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) or other
persons for certain services provided to Fund shareholders (See the Prospectus
for further information). For the fiscal years ended June 30, l995, l996, and
1997, the Fund paid service fees to the Distributor in the respective amounts of
$181,432, $178,232, and $188,819. The benefits resulting from the Plan include a
more stable or increasing level of assets which, in turn, can limit or reduce
the expenses of the Fund on a per share basis and facilitates portfolio
management, among other benefits.
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<PAGE> 54
The Plan also specifically authorizes the payment of operational
expenses incurred by the Fund 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% 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 will be submitted for approval by the Fund's shareholders at the Fund's
initial shareholders' meeting, if and when such meeting is held. The Plan
(together with any agreements relating to implementation of the Plan) continues
in effect for a period of more than one year only so long as such continuance is
specifically approved at least annually by the vote of a majority of the Board
of Trustees, including the vote of a majority of the Independent Trustees, cast
in person at a meeting called for such purpose. The Plan may not be amended to
materially increase the amount of distribution expenses incurred by the Fund
without the approval of a majority of the Independent Trustees by 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.
TRANSFER AGENT AND ACCOUNTING SERVICES AGREEMENT
Pursuant to the Transfer Agent and Accounting Services Agreement,
Gradison provides transfer agent, dividend disbursing, and accounting services
for the Fund. Gradison responds to inquiries from shareholders, processes
purchase and redemption requests, maintains shareholder account records and
provides statements and confirmations to shareholders and maintains the Fund's
books and accounting records. For the fiscal years ended June 30, l995, l996 and
1997, the Fund paid Gradison respectively, $95,692, $90,667, and $87,323, for
transfer agent, dividend disbursing, and accounting services.
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<PAGE> 55
OTHER COMPENSATION PAID/REIMBURSEMENT MADE TO THE ADVISER
In addition to the advisory fee, transfer agent fee, and distribution
fees paid by the Fund to the Adviser, For the fiscal years ended June 30, l995,
1996 and 1997, the Fund reimbursed the Adviser, on a cost basis, for costs
allocable to services performed by the Adviser's employees, including legal
services, including salaries and office space, the amounts of $851, $3,402, and
$3,512.
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and officers of the Trust, together with information as to
their principal occupations during the past five years and positions currently
held with GMCR, GGT, GCT, 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.
*DONALD E. WESTON, 580 Walnut Street, Cincinnati, Ohio. Trustee and
Chairman of the Board; Chairman of Gradison and Director of McDonald &
Company Investments, Inc.; Director of Cincinnati Milacron Commercial Corp.
(financing arm of capital goods manufacturer) (since January 1993); Trustee
and Chairman of the Board of GMCR, GCT, and GGT.
DANIEL J. CASTELLINI, 312 Walnut Street, Cincinnati, Ohio. Trustee; Senior
Vice President/Finance and Administration and Chief Financial Officer of
the E.W. Scripps Company (communications); Trustee of GMCR, GCT, and GGT.
THEODORE H. EMMERICH, 1201 Edgecliff Place, Cincinnati, Ohio 45206.
Trustee. Retired; Until 1986, managing partner (Cincinnati office) Ernst &
Young (Public Accountants); Director of Carillon Fund, Inc.(investment
company), American Financial Group, Inc.(insurance), Cincinnati Milacron
Commercial Corp.; Trustee of Carillon Investment Trust and Summit
Investment Trust(investment companies); Trustee of GMCR, GCT, and GGT.
RICHARD A. RANKIN, 1717 Dixie Highway, Suite 600, Fort Wright, Kentucky
41011. Trustee. Partner, Rankin and Rankin (Public Accountants); Trustee of
GMCR, GCT, and GGT.
JEROME E. SCHNEE, 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).
BRADLEY E. TURNER, 580 Walnut Street, Cincinnati, Ohio 45202. President.
Senior Managing Director of McDonald; President of GMCR, GCT, and GGT.
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<PAGE> 56
STEPHEN C. DILBONE, 580 Walnut Street, Cincinnati, Ohio 45202. Executive
Vice President. Senior Vice President of Gradison.
RICHARD S. DEMKO, 800 Superior Avenue, Cleveland, Ohio 44114. Vice
President. Senior Vice President of McDonald.
PATRICIA J. JAMIESON, 800 Superior Avenue, Cleveland, Ohio 44114.
Treasurer. Secretary, Treasurer, Senior Managing Director, and Chief
Financial Officer of McDonald; Treasurer of GMCR, GCT, and GGT.
MARK A. FRIETCH, 580 Walnut Street, Cincinnati, Ohio. Assistant Treasurer.
Assistant Treasurer of GMCR, GCT, and GGT (since May l995); prior to that
Assistant Controller of Gradison Mutual Funds (August l993 to August l993,
Gradison Mutual Funds Controller (September l993 to June l997).
RICHARD M. WACHTERMAN, 580 Walnut Street, Cincinnati, Ohio 45202.
Secretary. Senior Vice President and General Counsel of Gradison.;
Secretary of GMCR, GCT, and GGT.
PAUL J. WESTON, 580 Walnut Street, Cincinnati, Ohio. Senior Vice President.
Executive Vice President of GMCR; Senior Vice President of GCT and GGT;
Executive Vice President of Gradison. Mr. Weston is the brother of Donald
E. Weston.
- ------------------------------
Trustees and officers of the Trust who are affiliated with the Adviser
receive no remuneration from the Trust. Trustees who are not affiliated with the
Adviser receive fees as determined by the Board of Trustees. As of September 30,
l997, the Trustees and officers of the Trust owned an aggregate of less than 1%
of the outstanding securities of the Fund.
Trustee Compensation Table
- --------------------------
Name of Trustee Aggregate Total Compensation
- -------------- Compensation From Trust and fund
From Trust complex (3 additional
as of June Trusts) paid to
30, l997 trustee for calendar year ended
-------- 12/31/96
--------
Theodore H. Emmerich $4,500 $23,250
Richard A. Rankin $4,500 $22,000
Jerome E. Schnee $4,500 $23,250
Daniel J. Castellini $4,500 $25,000
The Trust maintains a deferred compensation plan which allows trustees to defer
receipt of trustee fees otherwise payable to them until a future date. Deferred
amounts are credited with interest at a rate equal to the yield of the
Gradison-McDonald U.S. Government Reserves Fund. The Trust does not maintain any
other pension or retirement plans. There are currently no amounts owing to any
current trustee pursuant to the deferred compensation plan. As of June 30, l997,
the amount of $7,025 was payable by the Trust to the beneficiary of a former
trustee who is deceased and as
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<PAGE> 57
of December 31, l996, the amount of $42,470 was payable to the beneficiary of
that trustee by the Trust and the fund complex.
DESCRIPTION OF THE TRUST
The Trust is an open-end management investment company organized under
the laws of the State of Ohio by a Declaration of Trust dated June 11, 1992. 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 two series, representing the Gradison-McDonald Ohio Tax-Free Income
Fund and the Gradison-McDonald Intermediate Municipal Income Fund. Any
additional series of shares must be issued in compliance with the Investment
Company Act of 1940. Upon issuance and sale in accordance with the terms set
forth in the Prospectus, each share will be fully paid and nonassessable. Shares
have no preemptive, subscription or conversion rights and are redeemable as set
forth under "How to Redeem Shares."
Holders of shares of the Fund are entitled to vote the full and
fractional shares in the amount of their ownership of Fund shares. 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 Trust's outstanding shares. The Trust
or any Fund may be terminated by a vote of a majority of the Trustees. Whenever
the approval of a majority of the outstanding shares of the 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 Trust received upon the issuance of the shares of each
series, and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are allocated to each such series and constitute the
underlying assets of each series. The underlying assets of each series are
segregated on the books of account and are to be charged with the liabilities in
respect to such series and with each series'
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<PAGE> 58
proportionate share of the general liabilities of the Trust. In the event of the
termination and liquidation of the Trust, the holders of the shares of any
series are entitled to receive their pro-rata portion of the underlying assets
of the series available for distribution to shareholders.
The Trust is currently operating, and intends to continue to operate, in
compliance with the Ohio law relating to business trusts. Under Ohio law, the
shareholders of a complying business trust have no liability to third persons
for obligations of the Trust, which are to be satisfied solely from the Trust's
property. The Declaration of Trust provides that no Trustee, officer, employee,
or agent of the Fund shall be personally liable to any person for any action or
failure to act in connection with the Trust's property or the affairs of the
Trust except (1) for his own willful misfeasance, bad faith, 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 Trust or where he did not act with the
care that an ordinarily prudent person in a like position would use under
similar circumstances.
In the Fund's pre-effective registration statement, pursuant to the
requirements of the staff of the Securities and Exchange Commission ("SEC")
applied to all new funds at the time, the Fund undertook to hold a shareholders'
meeting within 16 months of effectiveness for the purpose of electing trustees,
ratifying the selection of independent accountants, and approving the investment
advisory agreement and distribution expense plan, notwithstanding the fact that
such election, ratification, and approvals had been effected by the sole
shareholder of the Fund (the Adviser) prior to the public offering of its shares
in accordance with the requirements of the Investment Company Act of 1940.
Subsequent to that time, the staff of the SEC has eliminated these requirements
for new funds and has determined that funds which had previously made such
undertakings could decide whether or not to hold such meetings. The Trustees of
the Fund have determined that it is in the best interests of the Fund not to
hold such a meeting, until one is otherwise required, in order to avoid the
costs of such a meeting.
CUSTODIAN
Star Bank, N.A., Star Bank Center, Cincinnati, Ohio 45202 acts as the
custodian of the portfolio securities and other assets of the Trust. Star Bank
has no part in determining the investment policies of the Trust or the
securities which are to be purchased, held or sold by the Trust. The Trust may
purchase or sell securities from or to Star Bank.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Arthur Andersen LLP, 425 Walnut Street, Cincinnati, Ohio
45202, has been selected as independent public accountants for the Fund for the
fiscal year ending June 30, 1998.
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<PAGE> 59
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP acts as legal counsel for the Fund.
EXCHANGES
Any termination or modification of the exchange privilege will be
preceded by 60 days' notice from the Fund except (1) under extraordinary
circumstances where there is a suspension of the exchanged security under
Section 22(e) of the 1940 Act and the rules and regulations thereunder or the
offering company temporarily ceases or delays sales of the acquired security
because it is unable to invest amounts effectively in accordance with applicable
investment objectives policies and restrictions; or (2) if the only material
effect of an amendment is to reduce or eliminate an administrative fee, sales
load, or redemption fee payable at the time of an exchange.
TELEPHONE ACCESS TO ACCOUNT INFORMATION
Shareholders may access information about their Fund account by
telephone 24 hours a day using a password assigned to them.
PERFORMANCE CALCULATIONS
The Fund's yield for the 30 days ended June 30, 1997 was 4.50%. The Fund's
tax-equivalent yield was 8.73% based on combined Federal and Ohio tax rates of
44.1%, the highest marginal tax rates. The tax equivalent yield is the yield
that a taxable investment would have to yield to be equivalent to the Fund's
tax-free yield.
The Average Annual Total Return of the Fund based on purchase at the net asset
price(1) has been as follows:
From inception (September 18, l992) through 6/30/97 6.86%
For 12 months ending 6/30/97 8.80%
The performance results shown above assume reinvestment of dividends and
other distributions. The performance quoted above represents historical
performance. The Fund's yield and return will fluctuate and value of an
investment in the Fund will fluctuate so that an investor's shares may be worth
more or less than their cost, when redeemed. During the period prior to July 1,
l994, the Adviser waived fees and/or reimbursed Fund expenses which had the
effect of increasing the performance shown above.
- --------
(1) A sales load of up to 2% was charged until July 7, 1997, which is not
reflected in the total return figures.
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<PAGE> 60
APPENDIX A
THE FUND MAY USE THE FOLLOWING HEDGING INSTRUMENTS:
OPTIONS ON DEBT SECURITIES -- A call option is a short-term contract
pursuant to which the purchaser of the option, in return for a premium, has the
right to buy the security underlying the option at a specified price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation, upon exercise of the option during the option term,
to deliver the underlying securing against payment of the exercise price. A put
option is a similar contract which gives its purchaser, in return for a premium,
the right to sell the underlying security at a specified price during the option
term. The writer of the put option, who receives the premium, has the
obligation, upon exercise during the option term, to buy the underlying security
at the exercise price. Options on debt securities are traded primarily in the
over-the-counter market rather than on any of the several options exchanges.
OPTIONS ON INDEXES OF DEBT SECURITIES -- An index assigns relative
values to the securities included in the index and fluctuates with changes in
the market values of such securities. Index options operate in the same way as
more traditional options except that exercises of index options are effected
with cash payments and do not involve delivery of securities. Thus upon exercise
of an index option, the purchaser will realize and the writer will pay, an
amount based on the difference between the exercise price and the closing price
of the index.
BOND INDEX FUTURES CONTRACTS -- A bond index futures contract is a
bilateral agreement pursuant to which one party agrees to accept and the other
party agrees to make delivery of an amount of cash equal to a specified dollar
amount times the difference between the index value at the close of trading of
the contract and the price at which the futures contract is originally struck.
No physical delivery of the bonds comprising the index is made; generally
contracts are closed out prior to the expiration date of the contract.
INTEREST RATE FUTURES CONTRACTS -- Interest rate futures contracts are
bilateral agreements pursuant to which one party agrees to make, and the other
party agrees to accept, delivery of a specified type of debt security at a
specified future time and at a specified price. Although such futures contracts
by their terms call for actual delivery or acceptance of debt securities, in
most cases the contracts are closed out before the settlement date without the
making or taking of delivery.
OPTIONS ON FUTURES CONTRACTS -- Options on futures contracts are similar
to options on securities except that an option on a futures contract gives the
purchaser the right, in return for the premium, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put), rather than to purchase or sell a security, at a
specified price at any time during the option term. Upon exercise of the option,
the delivery of the futures position to the holder of the option will be
accompanied by delivery of the accumulated
40
<PAGE> 61
balance, which represents the amount by which the market price of the futures
contract exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the future. The writer of an option, upon
exercise, will assume a short position in the case of a call, and a long
position in the case of a put.
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<PAGE> 62
[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
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
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<PAGE> 63
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 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
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<PAGE> 64
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
<TABLE>
<S> <C> <C>
1995 $139,000 Single Family Home
2000 $177,403 Graphic: Picture of a
2010 $288,971 partially built home
2025 $600,750
</TABLE>
<TABLE>
<S> <C> <C>
Automobile 1995 $18,359
Graphic Picture of an 2000 $23,431
automobile 2010 $38,167
2025 $79,347
</TABLE>
44
<PAGE> 65
<TABLE>
Four Year Public University Education
<S> <C> <C>
1995 $26,972 Graphic Picture of a
graduation cap and
2000 $34,424 a diploma.
2010 $58,073
2025 $116,571
</TABLE>
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.
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
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<PAGE> 66
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.
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 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
</TABLE>
46
<PAGE> 67
<TABLE>
<S> <C> <C> <C>
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.
<TABLE>
<CAPTION>
71% 89% 97% 100%
<S> <C> <C> <C>
1 year 5 year 10 year 15 Year
holding holding holding holding
periods periods periods periods
</TABLE>
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
<TABLE>
<S> <C>
$170,000 $168,820...................
$150,000 In the time frame illustrated here,
</TABLE>
47
<PAGE> 68
<TABLE>
<S> <C>
$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
</TABLE>
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.
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
</TABLE>
48
<PAGE> 69
$2,000 $37.50 240
<TABLE>
<S> <C>
Average Price Per Share
($37.50 divided by 4) $9.38
Average Cost Per Share
($2,000 divided by 240) $8.33
</TABLE>
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 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.
<TABLE>
<CAPTION>
CONSIDER GRADISON MUTUAL FUNDS
<S> <C> <C>
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
High Yield Fund 1 Ohio Municipal Cash Trust 2
Opportunity Value Fund Michigan Municipal Cash Trust 2
International Fund
<FN>
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.
</TABLE>
49
<PAGE> 70
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 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.
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<PAGE> 71
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, 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 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
51
<PAGE> 72
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
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.
52
<PAGE> 73
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 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
53
<PAGE> 74
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 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 investment goals and your current personal and financial
situation. Above all, we suggest you ask your investment consultant whatever you
feel you need to
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<PAGE> 75
know to help you fully understand the investments you are making.
SERVICE YOU CAN COUNT ON
LOW MINIMUN 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
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.
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<PAGE> 76
ACCOUNT STATEMENTS Clear, concise and informative.
YEAR-END SUMMARY A highly useful summary of all activity.
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
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<PAGE> 77
[GMO Fact Sheet]
Logo
GRADISON
MUTUAL FUNDS
OHIO
TAX FREE
INCOME FUND
The Ohio Tax Free Income Fund's goal is to provide monthly income, consistent
with preservation of capital, which is exempt from both federal and State of
Ohio income taxes. It is designed for higher tax bracket Ohio investors who can
take advantage of the double tax-free income generated from the Fund. The Fund
offers the added benefit of the reinvestment of dividends, thus providing the
compounding of income on a tax free basis.
The Fund invests in Ohio municipal bonds issued to finance general operating
expenses of public institutions and public works. It also invests in "private
activity" municipal bonds that are issued to obtain funding for privately
operated facilities. In order to gain favorable yield spreads, the Fund may
invest up to 20% of its assets in securities that are subject to the Alternative
Minimum Tax ("AMT") for certain investors.
Symbol: GMOTX
AVERAGE ANNUAL TOTAL RETURN Periods Ended 6/30/97
<TABLE>
<CAPTION>
Since Inception
One Year Three Years (9/18/92)
For Shares Purchased
<S> <C> <C> <C>
at Net Asset Value + 8.80% + 7.65% + 6.86%
For Shares Purchased at Full
2% Sales Charge + 6.65% 6.94% + 6.40%
</TABLE>
Chart:
Value of $1,000 Since Inception
Graph:
9/18/92 Inception Date $1,374 as of 6/30/97
The value of a $1,000 investment made in the fund at inception with all dividend
and capital gain distributions reinvested.
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 6/30/97
<S> <C> <C> <C> <C> <C>
$1,028.78 $1,164.50 $1,088.98 $1,272.38 $1,330.42 $1,373.88
The value of a $1,000 Investment made in the Fund at Inception with all dividend
and capital gain distributions paid out.
$1,013.60 $1,081.60 $ 960.00 $1,066.40 $1,060.80 $1,069.60
</TABLE>
The performance quoted above 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. Past performance does not ensure future results.
Effective July 7, l997, all sales loads have been eliminated.
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<PAGE> 78
<TABLE>
<CAPTION>
NET ASSETS AND QUALITY RATING
<S> <C>
The information below is as Pie Chart:
of June 30, 1997, and is
subject to change in the future. A 11%
AA 15%
AAA 59%
Not Rated 6%
BBB 7%
Cash 2%
</TABLE>
$76 million
Net Assets as of 6/30/97
June 30, 1997
Graphic: Photo of a man and woman
WEIGHTED AVERAGE MATURITY
Chart:
17 Years Weighted Average Maturity
5 10 15 20 25
The maturity of the Fund's portfolio is as of June 30, 1997, and is subject to
change. The net asset value of the Fund will fluctuate more than the value of a
fixed income fund with a shorter term maturity.
PORTFOLIO MANAGER PROFILE
[Photo]: Stephen C. Dilbone, CFA
Senior Vice President/Portfolio Manager
Gradison McDonald Asset Management
With more than fourteen years investment experience, Steve Dilbone is
responsible for managing the Ohio Tax Free Income Fund portfolio. Steve's
additional responsibilities include overseeing all fixed income investments in
the mutual fund group and in individually managed Gradison McDonald Asset
Management accounts.
Prior to joining Gradison McDonald in 1990, Steve spent seven years with Merrill
Lynch, most recently as Vice President of Municipal Markets in Chicago. A
Chartered Financial Analyst, Steve holds a B.S. degree in Finance from Miami
University and an M.B.A. in Finance from the University of Chicago.
PROFILE OF GRADISON MUTUAL OF FUNDS
Gradison Mutual Funds is a division of McDonald & Company, a leading regional
investment firm which acquired Gradison in 1991. As a registered investment
advisor since 1974 and mutual fund advisors since 1976, Gradison currently
manages in excess of $4 billion in Gradison Mutual Funds and individually
managed accounts.
58
<PAGE> 79
A prospectus for the Ohio Tax Free 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
GMIFS 1059 - GMO 6/97
Graphic: Photo of a man and two women
International Fund
Opportunity Value Fund
Growth & Income Fund
Ohio Tax Free Income Fund
Government Income Fund
Money Market Funds
Logo
GRADISON
Mutual Funds
59
<PAGE> 80
PORTFOLIO OF INVESTMENTS JUNE 30, 1997
<TABLE>
<CAPTION>
FACE COUPON
AMOUNT MUNICIPAL BONDS - 94.97% RATE MATURITY VALUE
<S> <C> <C> <C> <C>
$ 500,000 Akron, Bath, Coplay, OH Hospital (Akron General Hospital)* 5.38% 2/01/27 $ 483,750
545,000 Athens Co., OH Community Mental Health Series 1993 I 5.90 3/01/09 554,537
335,000 Avon, OH G.O. 6.50 12/01/15 366,825
1,045,000 Avon, OH G.O.* 5.50 12/01/17 1,024,100
1,075,000 Broadview Heights, OH Industrial Development Revenue 6.25 7/01/13 1,112,625
1,250,000 Cincinnati, OH Urban Redevelopment Improvement G.O. 6.30 12/01/15 1,342,188
2,950,000 Cleveland, OH Certificates of Participation 7.10 7/01/02 3,112,250
750,000 Cleveland, OH Public Power System First Mortgage Revenue 7.00 11/15/16 861,563
1,300,000 Cleveland, OH Urban Renewal Increment Bonds Series 1993 6.75 3/15/18 1,347,125
100,000 Cleveland, OH Urban Renewal Increment Bonds Series 1993 6.63 3/15/11 103,500
500,000 Cuyahoga Co., OH Health Care (Benjamin Rose Institute) 5.30 12/01/25 507,500
1,500,000 Cuyahoga Co., OH Hospital Revenue
(Fairview General and Lutheran Medical Center) 5.50 8/01/14 1,498,125
1,500,000 Cuyahoga Co., OH Utility Systems Revenue
(The Medical Center Company Project) 5.85 8/15/10 1,550,625
2,185,000 Cuyahoga Co., OH Industrial Development Revenue 6.50 6/01/16 2,321,563
1,250,000 Dublin, OH City School District G.O. 0.00 12/01/09 653,125
1,000,000 Fairfield Co., OH City School District G.O. 7.45 12/01/14 1,235,000
650,000 Franklin Co., OH Hospital Revenue
(Worthington Christian Village) 7.00 8/01/16 676,813
1,310,000 Franklin Co., OH Industrial Development Revenue
(Columbus College of Art & Design) 6.00 9/01/13 1,326,375
2,300,000 Gateway Economic Development Corporation
of Greater Cleveland Stadium Revenue 6.50 9/15/14 2,357,500
2,020,000 Greater Cincinnati, OH Mortgage Revenue Refunding
(Walnut Towers Project) 6.90 8/01/25 2,141,200
1,000,000 Greater Cleveland, OH Regional Transit 5.60 12/01/11 1,021,250
1,995,000 Hamilton Co., OH G.O. 5.50 12/01/17 2,014,950
2,150,000 Hamilton Co., OH Hospital Facilities Revenue
(Deaconess Hospital) 7.00 1/01/12 2,297,813
160,000 Hamilton Co., OH Hospital Facilities Revenue
(Childrens Hospital) 6.75 5/15/09 163,200
1,050,000 Hilliard, OH City School District 5.00 12/01/20 973,875
1,000,000 Kent, OH City School District 5.75 12/01/21 1,013,750
</TABLE>
See accompanying notes to financial statements.
<PAGE> 81
PORTFOLIO OF INVESTMENTS JUNE 30, 1997
<TABLE>
<CAPTION>
FACE COUPON
AMOUNT MUNICIPAL BONDS - (CONTINUED) RATE MATURITY VALUE
<S> <C> <C> <C> <C>
$1,000,000 Kettering, OH City School District 5.25% 1/01/22 $ 957,500
1,000,000 Lorain, OH G.O. 7.88 12/01/09 1,090,000
1,500,000 Lucas Co., OH Hospital Revenue (Toledo Hospital) 5.00 11/15/10 1,460,625
2,000,000 Lucas Co., OH Hospital Revenue (Toledo Hospital) 5.00 11/01/22 1,820,000
385,000 Lucas Northgate Housing Development Corp Ohio 8.13 1/01/25 402,806
500,000 Mount Vernon, OH City School District G.O. 7.50 12/01/14 583,750
1,000,000 Ohio Capital Corp Housing Mortgage Revenue Funding
(FHA Section 8 Housing) 6.35 7/01/15 1,032,500
920,000 Ohio Capital Corp Housing Mortgage Revenue Refunding
(FHA Section 8 Housing) 6.50 7/01/24 949,900
975,000 Ohio Capital Corp Housing Mortgage Revenue Refunding
(FHA Section 8 Housing) 7.70 1/01/25 1,022,531
1,000,000 Ohio G.O. 5.35 8/01/12 1,013,750
1,150,000 Ohio State Air Quality Development Authority Revenue
(Ohio Power) 7.40 8/01/09 1,236,250
2,750,000 Ohio State Air Quality Development Authority Revenue
(Cleveland Electric) 8.00 12/01/13 3,190,000
1,000,000 Ohio State Building Authority (Adult Correctional Building) 6.13 10/01/12 1,035,000
500,000 Ohio State Economic Development Revenue (ABS Industries) 6.00 6/01/04 519,375
815,000 Ohio State Economic Development Revenue
(Ohio Enterprise Bond Fund) 6.50 12/01/09 859,825
540,000 Ohio State Economic Development Revenue 5.60 6/01/02 543,375
3,500,000 Ohio Higher Education Facilities Revenue (Xavier University) 5.38 5/01/22 3,412,500
1,000,000 Ohio Higher Education Facilities Revenue (University of Dayton)* 5.20 12/01/10 1,000,000
1,000,000 Ohio State Water Development Authority Revenue
(Dayton Power) 6.40 8/15/27 1,061,250
1,000,000 Ohio State Water Development Authority Revenue 6.30 9/01/20 1,046,250
2,700,000 Puerto Rico G.O. 5.38 7/01/21 2,646,000
1,000,000 Puerto Rico Electric Power Authority Revenue 5.38 7/01/14 998,750
1,500,000 Springdale, OH Hospital Facilities Revenue
(Southwestern Ohio Seniors' Services Inc.) 5.88 11/01/12 1,492,500
1,715,000 Springfield, OH City School District G.O. 0.00 12/01/11 799,618
1,000,000 Student Loan Funding Corporation, Cincinnati, OH
Senior Subordinated Revenue Bonds Series 1993A 6.15 8/01/10 1,016,250
500,000 Summit Co., OH G.O. 6.90 8/01/12 541,875
</TABLE>
See accompanying notes to financial statements.
<PAGE> 82
PORTFOLIO OF INVESTMENTS JUNE 30, 1997
<TABLE>
<CAPTION>
FACE COUPON
AMOUNT MUNICIPAL BONDS - (CONTINUED) RATE MATURITY VALUE
<S> <C> <C> <C> <C>
$1,500,000 Toledo-Lucas Co., OH Convention Center
Special Lodging Tax Revenue 5.70% 10/01/15 $ 1,516,875
1,000,000 University of Akron, OH 5.25 1/01/22 952,500
1,000,000 University of Cincinnati, OH Certificates of Participation 5.00 6/01/09 990,000
1,250,000 Upper Arlington, OH G.O. 5.13 12/01/19 1,200,000
725,000 Warren Co., OH G.O. 6.55 12/01/14 829,218
1,500,000 Westlake, OH G.O. 5.55 12/01/17 1,511,250
1,000,000 Westlake, OH G.O. 5.50 12/01/20 997,500
1,760,000 Westlake, OH Industrial Development Revenue 6.40 8/01/09 1,839,200
--------------
TOTAL MUNICIPAL BONDS
(AMORTIZED COST $71,535,324) 73,629,850
--------------
SHORT-TERM INVESTMENTS - 5.03%
3,000,000 Ohio Municipal Cash Trust** 3.64 - 3,000,000
900,000 Ohio Tax-Free Money Fund** 3.47 - 900,000
--------------
TOTAL SHORT TERM INVESTMENTS
(AMORTIZED COST $3,900,000) 3,900,000
--------------
TOTAL INVESTMENTS, AT VALUE
(AMORTIZED COST $75,435,324) - 100% $ 77,529,850
==============
</TABLE>
*Security purchased on a delayed delivery basis. See Note 1.
**Ohio Municipal Cash Trust and Ohio Tax-Free Money Fund are money market mutual
funds the investment objective of which is to provide current income exempt from
federal regular and Ohio state income taxes consistent with stability of
principal. Interest is accrued daily and paid to the Fund monthly. The coupon
rate disclosed is the 7-day rate on June 30, 1997.
See accompanying notes to financial statements.
<PAGE> 83
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, 1997
<S> <C>
ASSETS
Investments in securities, at value (Note 1) (Cost $75,435,324) $ 77,529,850
Interest receivable 1,106,401
Receivable for investments sold 484,569
Cash 145,469
Prepaid expenses 4,444
Receivable for Fund shares sold 642
------------
TOTAL ASSETS 79,271,375
------------
LIABILITIES
Payable for investments purchased 3,009,358
Accrued investment advisory fee (Note 2) 30,618
Other accrued expenses payable to adviser (Note 2) 22,423
Payable for Fund shares redeemed 20,475
Dividends payable 9,576
Other accrued expenses and liabilities 6,449
------------
TOTAL LIABILITIES 3,098,899
------------
NET ASSETS $ 76,172,476
============
Net assets consist of:
Aggregate paid-in capital $ 74,151,016
Accumulated undistributed net investment income 5,681
Accumulated net realized loss (78,747)
Net unrealized appreciation of investments 2,094,526
------------
Net assets $ 76,172,476
============
Shares of capital stock outstanding
(no par value - unlimited number of shares authorized) 5,698,746
============
Net asset value and redemption price per share (Note 1) $ 13.37
============
Maximum offering price per share (Note 1) $ 13.64
============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 84
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997
<S> <C> <C>
INVESTMENT INCOME $4,406,662
EXPENSES:
Investment advisory fee (Note 2) $ 377,638
Distribution (Note 2) 188,819
Accounting service fees (Note 2) 48,000
Transfer agency fees (Note 2) 39,323
Professional fees 30,824
Trustees' fees (Note 2) 17,939
Amortization of organization expense (Note 2) 11,397
Printing 6,735
Registration fees 3,853
ICI dues 3,041
Other 246
----------
TOTAL EXPENSES 727,815
----------
NET INVESTMENT INCOME 3,678,847
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 1,183,172
Net change in unrealized appreciation of investments 1,449,100
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 2,632,272
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,311,119
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 85
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1997 1996
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 3,678,847 $ 3,556,116
Net realized gain on investments 1,183,172 237,361
Net change in unrealized appreciation of investments 1,449,100 406,577
------------ ------------
Net increase in net assets resulting from operations 6,311,119 4,200,054
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (3,674,726) (3,555,785)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 18,817,895 14,042,107
Net asset value of shares issued as distributions 2,938,885 2,869,010
Payments for shares redeemed (18,782,590) (16,976,110)
------------ ------------
Net increase (decrease) in net assets from Fund share transactions 2,974,190 (64,993)
------------ ------------
TOTAL INCREASE IN NET ASSETS 5,610,583 579,276
NET ASSETS:
Beginning of year 70,561,893 69,982,617
------------ ------------
End of year (including undistributed net investment income
of $5,681 and $1,560, respectively) (Note 1) $ 76,172,476 $ 70,561,893
============ ============
NUMBER OF FUND SHARES:
Sold 1,433,203 1,078,575
Issued as distributions to shareholders 223,226 220,755
Redeemed (1,427,931) (1,307,968)
------------ ------------
Net increase (decrease) in shares outstanding 228,498 (8,638)
Outstanding at beginning of year 5,470,248 5,478,886
------------ ------------
Outstanding at end of year 5,698,746 5,470,248
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 86
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Gradison-McDonald Municipal Custodian Trust (the "Trust") is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Trust was created under Ohio law by a
Declaration of Trust dated June 11, 1992; it commenced investment operations and
the public offering of its shares on September 18, 1992. There is currently one
series, the Gradison Ohio Tax-Free Income Fund (the "Fund"). The Fund's
investment objective is to provide as high a level of current income exempt from
Federal regular income tax and Ohio state personal income tax as is consistent
with preservation of capital by investing primarily in municipal securities.
The Fund changed its fiscal year end to June 30, effective with the June 30,
1994 Annual Report.
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 that
period. Actual results could differ from those estimates.
SECURITIES VALUATION - Securities are valued in accordance with procedures
established by management and approved by the Board of Trustees by using market
quotations provided by an independent pricing service, prices provided by market
makers, or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics. Short-term securities
with remaining maturities of less than 60 days are valued at amortized cost
which approximates market value.
SECURITIES TRANSACTIONS - Securities transactions are accounted for on the trade
date (the date the order to buy or sell is executed). Gains and losses on sales
of securities are calculated on the identified cost basis for financial
reporting and tax purposes.
SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS - When the Fund
purchases securities on a when-issued or delayed delivery basis, the transaction
may be entered into a month or more before delivery and payment are made. Such
securities are marked to market daily and begin earning interest on the
settlement date. In the event that the seller fails to deliver the securities,
the Fund could experience a loss to the extent of any appreciation, or a gain to
the extent of any depreciation, in the price of the securities.
The Fund will maintain, in a segregated account with its custodian, cash or
high-grade portfolio securities having an aggregate value at least equal to the
amount of such purchase commitments. At June 30, 1997, the Fund had committed
$3,009,358 to the purchase of delayed delivery securities; the market value of
the securities segregated as collateral for this purchase is $3,470,125.
INVESTMENT INCOME AND DISTRIBUTIONS TO SHAREHOLDERS - Interest income is accrued
as earned. Interest income includes interest earned, net of premium and original
issue discount, as required by the Internal Revenue Code.
Dividends arising from net investment income are declared daily and paid
monthly. Net realized capital gains, if any, are distributed at least annually.
TAXES - It is the Fund's policy to comply with the provisions of the Internal
Revenue Code available to regulated investment companies. As provided therein,
in any fiscal year in which the Fund so qualifies, and distributes at least 90%
of 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.
<PAGE> 87
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997
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 taxable net investment income (earned
during the calendar year) and 98% of its net realized capital gains, if any
(earned during the twelve months ended October 31), plus undistributed amounts
from prior years.
The tax basis of investments is equal to the amortized cost as shown on the
Statement of Assets and Liabilities.
For both financial reporting and tax purposes, gross unrealized appreciation and
gross unrealized depreciation of investments at June 30, 1997 were $2,182,717
and $88,191, respectively.
As of June 30, 1997, the Fund had a capital loss carryforward for Federal income
tax purposes of $78,747 which can be used to offset future capital gains.
FUND SHARE VALUATION - The net asset value per share is computed by dividing the
net asset value of the Fund (total assets less total liabilities) by the number
of shares outstanding. The maximum offering price per share is equal to the net
asset value per share plus 2.04% of net asset value (or 2% of the offering
price). The offering price is reduced on sales of $250,000 or more. 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 is eliminated.
ORGANIZATION EXPENSES - Expenses of organization have been capitalized and are
being amortized on a straight-line basis over 60 months commencing upon the
public offering of the Fund's shares.
NOTE 2 - TRANSACTIONS WITH AFFILIATES
The Fund's investments are managed, subject to the general supervision and
control of the Trust's Board of Trustees, by McDonald & Company Securities, Inc.
("McDonald"), a registered investment adviser and securities dealer, pursuant to
the terms of an Investment Advisory Agreement (the Agreement). Under the terms
of the Agreement, the Fund pays McDonald a fee computed and accrued daily and
paid monthly based upon the Fund's average daily net assets at the annual rate
of .50%.
The Agreement provides that McDonald 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, McDonald bears the costs of preparing,
printing and mailing sales literature and other advertising materials, the cost
of space and equipment rental, and compensates the Trust's trustees who are
affiliated with McDonald. All expenses not specifically assumed by McDonald are
borne by the Fund.
Under the terms of a Transfer Agency, Accounting Services and Administrative
Services Agreement, McDonald provides transfer agent, dividend disbursing,
accounting services and administrative services to the Trust. For the year ended
June 30, 1997, the Fund paid McDonald a monthly fee for transfer agency and
administrative services at an annual rate of $26.50 per shareholder non-zero
balance account, plus out-of-pocket costs for statement paper, statement and
reply envelopes and reply postage. Effective July, 1997, the Fund pays McDonald
a monthly fee for transfer agency and administrative services at an annual rate
of $23.00 per shareholder non-zero balance account and $5.00 per closed
shareholder account, as defined, plus out-of-pocket costs for statement paper,
statement and reply envelopes and reply postage. The Fund pays McDonald a
monthly fee for accounting services based on the Fund's average daily net assets
at an annual rate of .035% on the first $100 million, .025% on the next $100
million and .015% on any amount in excess of $200 million, with a minimum annual
fee of $48,000.
<PAGE> 88
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997
In accordance with the terms of a Distribution Service Plan adopted under Rule
12b-1 of the Investment Company Act of 1940, the Fund pays McDonald a service
fee for providing personal services to shareholders of the Fund, including
responding to shareholder inquiries and providing information to shareholders
about their Fund accounts. This fee is computed and paid at an annual rate of
.25% of the Fund's average daily net assets.
During the year ended June 30, 1997, McDonald received sales charges aggregating
$85,767 on sales of shares of the Fund.
The officers of the Trust are also officers of McDonald.
Each trustee of the Trust who is not affiliated with McDonald receives fees from
the Trust for services as a trustee. The amounts of such fees for each trustee
are as follows: (a) an annual fee of $3,500 payable in quarterly installments
and (b) $250 for each Board of Trustees or committee meeting attended.
NOTE 3 - SUMMARY OF INVESTMENT TRANSACTIONS
For the year ended June 30, 1997, purchases and proceeds from the sale of
securities, excluding short-term securities, amounted to $97,531,503 and
$96,197,089, respectively.
NOTE 4 - PORTFOLIO COMPOSITION
The concentration of investments as of June 30, 1997, classified by revenue
source and credit rating, was as follows:
<TABLE>
<CAPTION>
INVESTMENTS BY REVENUE SOURCE
<S> <C>
General Obligations 28.2%
Revenue Bonds:
Health Care 18.6
Utilities 11.5
Housing 11.2
Higher Education 8.2
Public Facilities 6.9
Industrial Development 3.8
State Agency 1.3
Municipal Lease 5.3
Money Market 5.0
-----
Total 100.0%
=====
</TABLE>
<TABLE>
<CAPTION>
INVESTMENTS BY CREDIT RATING
<S> <C>
S&P/Moody's:
AAA/Aaa 58.7%
AA/Aa 14.3
A/A 11.2
BBB/Baa 7.3
Unrated (1) 5.8
Money Market (2) 2.7
-----
Total 100.0%
=====
</TABLE>
(1) Unrated obligations have been determined by the adviser to be of equivalent
quality to the rated securities in which the Fund is permitted to invest.
(2) Money market funds in the Fund's portfolio invest in obligations rated in
one of the two highest short-term rating categories or unrated obligations
of comparable quality.
See the Fund's Portfolio of Investments for additional information on
portfolio composition.
<PAGE> 89
[ARTHUR ANDERSEN LOGO]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of the
Gradison Ohio Tax-Free Income Fund
of the Gradison-McDonald Municipal Custodian Trust:
We have audited the accompanying statement of assets and liabilities of the
Gradison Ohio Tax-Free Income Fund of the Gradison-McDonald Municipal Custodian
Trust (an Ohio business trust), including the portfolio of investments, as of
June 30, 1997, and the related statement of operations for the year then ended,
the statements of changes in net assets for the two years then ended, and the
financial highlights for the periods indicated thereon. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 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 Ohio Tax-Free Income Fund of the GradisonoMcDonald Municipal Custodian
Trust as of June 30, 1997, the results of its operations for the year then
ended, and the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for the periods indicated thereon, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Cincinnati, Ohio,
July 25, 1997
<PAGE> 90
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a)(1) Financial Statements (included in prospectus
Financial Highlights
(a)(2) Financial Statements (included in statement of additional
information).
Portfolio of Investments as of June 30, 1997.
Statement of Assets and Liabilities as of June 30, 1997.
Statement of Operations for the year ended June 30, 1997.
Statement of Changes in Net Assets for the years ended
June 30, 1996 and June 30, l997.
Notes to financial statements.
Report of Independent Public Accountants
(b)Exhibits (All included herein)
( 1) Declaration of Trust.
( 2) By-Laws of Trust.
( 5) Investment Advisory Agreement dated August 25, l992.
( 6)(a) Master Distribution Agreement as amended through April 14,
l994.
( 6)(b) Form of Dealer's Agreement.
( 8) Custodian Agreement dated August 24, l992.
( 9) Transfer Agency Agreement as amended through May 8, l997.
(10) Opinion of Counsel.
(11) Consent of Independent Accountant.
(15) Distribution Service Plan dated August 25, l992.
(16) Schedule of Performance Calculations.
(18) Powers of Attorney of Bradley E. Turner, Daniel
Castellini, Patricia Jamieson, Donald E. Weston,
Rankin, Theodore Emmerich, and Jerome Schnee.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
Item 26. NUMBER OF HOLDERS OF SECURITIES
Number of Record Holders
Title of Class as of October 1, l997
-------------- ---------------------
Shares of beneficial
interest of Registrant
Gradison Ohio Tax-Free Income Fund 1,440
C-1
<PAGE> 91
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to the captions "Management of the Trust" on page __ of
the Prospectus that is Part A of this Registration Statement, "Trustees and
Officers of the Trust" on page __ of the Statement of Additional Information of
the Gradison Ohio Tax-Free series of the Trust that is part of 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 the Gradison Division of
McDonald & Company Securities, Inc., which also serves as the principal
underwriter and investment adviser for Gradison-McDonald Cash Reserves
Trust, Gradison Custodian Trust, and Gradison Growth Trust.
(b) Information pertaining to the underwriter's directors and officers is
contained in the following table.
Principal Positions and
Positions and Offices Business Offices with
Name With Underwriter Address Registrant
- ---- --------------------- --------- --------------
Daniel F. Austin Director, Vice 800 Superior Avenue None
Chairman Cleveland Ohio 44114
Jack N. Aydin Director, Managing One Evertrust Plaza None
Director Jersey City, NJ 07302
Eugene H. Bosart, Director, Senior 260 East Brown Street None
III Managing Director Birmingham, MI 48009
Thomas G. Clevidence Director, Senior 800 Superior Avenue None
Managing Director Cleveland, OH 44114
Robert Clutterbuck Director, President, 800 Superior Avenue None
Chief Operating, Cleveland, OH 44114
Officer, Chief
Financial Officer
Ralph M. Della Ratta Director, Senior 800 Superior Avenue None
Jr. Managing Director, Cleveland, Ohio 44114
Dennis J. Donnelly Director, Senior 800 Superior Avenue None
Managing Director Cleveland, OH 44114
David W. Ellis, III Director, and Sr. 580 Walnut Street None
Managing Director Cincinnati, OH 45202
(Gradison Division)
Patricia J. Jamieson Secretary/Treasurer 800 Superior Avenue Treasurer,
Chief Financial Cleveland, OH 44114 Chief
Officer Financial
Officer
David W. Knall Director, Senior One American Square None
C-2
<PAGE> 92
Managing Director Indianapolis, IN 46282
Thomas M. McDonald Director, Managing 800 Superior Avenue
Director, Cleveland, OH 44114
John F. O'Brien Director, Senior 800 Superior Avenue None
Managing Director Cleveland, OH 44114
Lawrence T. Oakar Director, 800 Superior Avenue None
Managing Director Cleveland, OH 44114
James C. Redinger Director, Senior 800 Superior Avenue None
Managing Director Cleveland, OH 44114
William Summers, Jr. Director, Chairman, 800 Superior Avenue None
Chief Executive Cleveland, OH 44114
Officer
David D. Sutcliffe Director, 800 Superior Avenue None
Managing Director Cleveland, OH 44114
Bradley E. Turner Director, Senior 800 Superior Avenue President
Managing Director Cleveland, OH 44114
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
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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.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this 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 28th day of October 1997.
Registrant hereby certifies that this Amendment to Registration Statement meets
all of the requirements for effectiveness pursuant to paragraph (b) of Rule 485.
GRADISON-MCDONALD MUNICIPAL CUSTODIAN TRUST
(Registrant)
By */s/ DONALD E. WESTON
---------------------------
Chairman
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
Signature Title Date
--------- ----- ----
*DONALD E. WESTON Chairman of the Board October 28, l997
(Principal Executive
Officer and Trustee)
*DANIEL J. CASTELLINI Trustee "
*THEODORE EMMERICH Trustee "
*RICHARD RANKIN Trustee "
*JEROME SCHNEE Trustee "
*BRADLEY E. TURNER President "
*PATRICIA J. JAMIESON Treasurer
(Principal Financial and "
Accounting Officer)
*By /s/ Richard M. Wachterman
Richard M. Wachterman
Attorney-in-Fact
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<PAGE> 95
Exhibit List
Exhibit Number Description
- -------------- -----------
( 1) Declaration of Trust.
( 2) By-Laws of Trust.
( 5) Investment Advisory Agreement.
( 6) Master Distribution Agreement.
( 6)(b) Dealer's Agreement.
( 8) Custodian Agreement.
( 9) Transfer Agency Agreement.
(10) Opinion of Counsel.
(11) Consent of Independent Accountant.
(15) Distribution Service Plan Dated February 25, l994.
(16) Schedule of Performance Calculations.+
(18) Powers of Attorney of Bradley E. Turner, Daniel
Castellini, Patricia Jamieson, Donald E. Weston,
Rankin, Theodore Emmerich, and Jerome Schnee.
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<PAGE> 1
Exhibit 1
DECLARATION OF TRUST
OF
GRADISON-MCDONALD MUNICIPAL CUSTODIAN TRUST
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<PAGE> 2
INDEX
Page
Introduction 1
Article I - The Trust 1
1.1 Name and Principal Office. 1
1.2 Purpose 1
1.3 Definitions 2
Article II Trustees 3
2.1 Number and Qualification 3
2.2 Term and Election. 3
2.3 Resignation and Removal 4
2.4 Vacancies 4
2.5 Meetings 4
2.6 Officers 5
2.7 By-Laws 6
Article III - Powers of Trustees 6
3.1 General 6
3.2 Investments 6
3.3 Legal Title 7
3.4 Issuance and Repurchase ofSecurities 7
3.5 Borrow Money 7
3.6 Delegation; Committees 7
3.7 Collection and Payment 8
3.8 Expenses 8
3.9 Series; Classes 8
3.10 Allocation of Liabilities and Expenses 8
3.11 Miscellaneous Powers 8
3.12 Further Powers 9
Article IV - Investment Adviser and Distributor 9
4.1 Investment Adviser 9
4.2 Distributor 10
4.3 Parties to Contract 10
4.4 Provisions and Amendments 10
Article V - Limitation of Liability and Indemnification 11
5.1 No Personal Liability of Shareholders Trustees, etc. 11
5.2 Indemnification of Trustees, Officers, Employees or
Agents of the Trust 11
5.3 Payment of Expenses 12
5.4 Non-Exclusivity of Indemnification 12
5.5 No Bond Required of Trustees 13
5.6 No Duty of Investigation; Instruments, Notice
in Trust Instruments etc. 13
5.7 Reliance on Experts, etc. 13
Article VI - Shares of Beneficial Interest 14
6.1 Beneficial Interest 14
6.2 Right of Shareholders 15
6.3 Trust Only 15
6.4 Issuance of Shares 15
6.5 Register of Shares 16
6.6 Transfer Agent and Registrar 16
6.7 Transfer of Shares 16
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<PAGE> 3
6.8 Notices 17
Article VII - Custodian 17
7.1 Appointment and Duties 17
7.2 Central Certificate System 18
Article VIII - Redemption 18
8.1 Redemptions 18
8.2 Redemptions of Small Accounts 19
Article IX - Determination of Net Asset Value, Net Income and
Distributions 19
9.1 Net Asset Value 19
9.2 Distributions to Shareholders 19
9.3 Power to Modify Foregoing Procedures 20
Article X - Shareholders 20
10.1 Meetings of Shareholders 20
10.2 Notice of Meetings 21
10.3 Record Date for Meetings 21
10.4 Proxies, etc. 21
10.5 Reports 22
10.6 Inspection of Records 22
10.7 Shareholder Action By Written Consent 22
10.8 Shareholder Communications 23
Article XI - Duration; Termination of Trust; Amendment; Mergers, Etc. 23
11.1 Duration 23
11.2 Termination of Trust 23
11.3 Amendment Procedure 24
11.4 Merger, Consolidation and Sale of Assets 25
11.5 Incorporation 25
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<PAGE> 4
Article XII - Miscellaneous 25
12.1 Filing
12.2 Governing Law
12.3 Counterparts
12.4 Gender
12.5 Reliance by Third Parties
12.6 Provisions in Conflict With Law or Regulations
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<PAGE> 5
DECLARATION OF TRUST
OF
GRADISON-MCDONALD MUNICIPAL CUSTODIAN TRUST
THIS DECLARATION OF TRUST of Gradison-McDonald Municipal Custodian Trust is made
the 11th day of June, 1992 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:
ARTICLE I
The Trust
1.1 Name and Principal Office. The name of the trust created hereby (the
"Trust") shall be "Gradison-McDonald Municipal 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 or of a Class, thereof, is not
advisable, they may use such other name for the Trust, Series or Class as they
deem proper and the Trust, Series or Class 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 Chapter 1746 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 meanings:
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.
"Class" refers to the class of Shares of a Series of the Trust established in
accordance with the provisions of Article VI.
"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.
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<PAGE> 6
"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-lA filed under the Investment Company Act of 1940, as amended, and
the Securities Act of 1933, as amended.
"Series" refers to series of Shares of the Trust established in accordance with
the provisions of Article VI.
"Shareholders" shall mean as of any particular time all holders of record of
outstanding Shares at such time.
"Shares" shall mean the equal proportionate transferable units of interest into
which the beneficial interest of each Series shall be divided from time to time
and shall include fractions of shares as well as whole shares consistent with
the requirements of Federal and/or other securities laws (all of the
transferable units of a Series or of a single Class may be referred to as
"Shares" as the context may require).
"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.
The "Trust" refers to Gradison-McDonald Municipal Custodian Trust and reference
to the Trust, when applicable to one or more Series of the Trust, shall refer to
any such Series.
"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.
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 16(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 a 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
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<PAGE> 7
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 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.
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 of
Trustees. Regular meetings of the Trustees may be held without call or notice at
a time and
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<PAGE> 8
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 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 of any such
committee shall be a majority of the members thereof. Unless provided otherwise
by statute, this Declaration or the By-Laws1 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.
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
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<PAGE> 9
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 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.
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 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
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<PAGE> 10
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.
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 or of any Series 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 or of any Series, 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.
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<PAGE> 11
3.7 Collection and Payment. The Trustees shall have power to collect all
property due to the Trust or to any Series; to pay all claims, including taxes,
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
or to any Series; 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-1 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 or of any Series 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 Series: Classes The Trustees shall have the power to establish separate and
distinct Series with separately defined investment objectives and policies and
distinct investment purposes and to establish separate Classes thereof.
3.10 Allocation of Liabilities and Expenses. The Trustees shall have the power
to allocate assets, liabilities and expenses of the Trust to a particular Series
and liabilities and expenses to a particular Class thereof, or to apportion the
same between or among two or more Series or Classes, as applicable, provided
that any liabilities or expenses incurred by a particular Series or Class shall
be payable solely by that Series or Class.
3.11 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 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; (e) make donations, irrespective of benefit to the Trust, for
charitable, religious,
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<PAGE> 12
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 its investment adviser, any distributor and selected dealers, to such
extent as the Trustees shall determine; (g} guarantee indebtedness or
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.
3.12 Further Powers. The Trustees shall have power to conduct the business of
the Trust and carry on its operations in any and all of its 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.
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 Trust
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
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<PAGE> 13
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.
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 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 and 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 or to any
Series 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.
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
5.1 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 or with the care that an ordinarily prudent person in a
like position would use under similar circumstances, 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 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 the 1940
Act:
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(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
(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, 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 such, 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.
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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. 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 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 on 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 of one or more separate
and distinct Series or Classes thereof without par value. The number of Shares
is unlimited. The Shares may be issued from time to time, in one or more Series
or Class, 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 , including the following differences:
(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 a Series to receive dividends and other
distributions.
Each Class of a Series shall represent interests in the assets of a Series and
have identical voting, dividend, liquidation and other rights and the same terms
and conditions, expect that expenses allocated to that Class of a Series may be
borne solely by such Class as shall be determined by the Trustees and a Class of
a Series may have exclusive voting rights with respect to matters affecting only
that Class.
All votes of Shareholders shall be conducted in the aggregate of all holders of
shares of the Trust, except as provided in Section 10.1(a).
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 and shall be identical in all respects except
as may be fixed by the Trustees. The number of
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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.
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 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 or any Series thereof. Contributions to the Trust or any
Series may be accepted for, and Shares shall be redeemed as, whole Shares and/or
1/100ths of a Share or multiples thereof. At any time that there are no Shares
outstanding of any particular Series or Class previously established and
designated, the Trustees may by a majority vote abolish that Series or Class and
the establishment and designation thereof.
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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 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 the 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. Shares 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 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 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 or agent of the Trust
shall be affected by any notice of such death, bankruptcy or incompetence, or
other operation of law.
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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.
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 ($2,000,000) 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;
(e) to segregate on the books and accounts of the Trust the assets
specifically allocated to any Series of the Trust; and
(f) if authorized by the Trustees, to compute the net income of the Trust
and the net income attributable to each Series 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.
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 subcustodian 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
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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.
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 of 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 rates 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.
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8.2 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 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.
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. The determination of net asset value
may be made on a Series-by-Series or Class-by-Class basis, as appropriate, and
shall include any expense allocated to a specific Series or Class. 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 of a Series of Shares such
proportion of the net profits1 surplus (including paid-in surplus), capital, or
assets held by the Trustees and allocable to such Shares as they may deem
proper. Such distributions on Shares of a particular Series, shall be
distributed pro rata to the holders of Shares of that Series in proportion to
the number of Shares of that Series held by such holders, except that such
distributions shall appropriately reflect expenses allocated to a particular
Class of such Series. 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 of a Series 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 may be among the Shareholders of
record at the time of declaring a distribution or among the Shareholders of
record at
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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 of a Series or to meet
obligations of the Trust or of a Series, or as they may deem desirable to use in
the conduct of the affairs of the Trust or of a Series or to retain for future
requirements or extension of the business of the Trust or of a Series. 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 and any Series 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 Shares of a Series or Class 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 of 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.
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. If
the Trustees have determined that a matter affects only the interests of one or
more Series or one or more Class, then only the Shareholders of such Series or
Class shall be entitled to vote thereon. 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
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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 or less than all
of the Classes of one or more 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 10% 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 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 Meetings 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 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
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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 a 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.
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 or Class) 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 or
Class 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 or Class
separately rather than the entire Trust if deemed desirable.
10.6 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.
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10.8 Shareholder Communications The Trustees shall comply with all of the
provisions of Section 16(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 hold in the aggregate either Shares having a 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
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 and all Series and Classes 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 the remaining
Trust Property, in cash or in kind or partly of each, among the Shareholders
according to their respective rights. Shareholders of any Series of the Trust
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; however,
the payment to any particular
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Class within such Series may be reduced by any fees, expenses or charges
allocated to that Class.
(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 or Classes, in which
case the language of such Sections shall be applied and interpreted so as to
relate only to the Series or Classes 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, this 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 11.3(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 of any Series or Class or by
impairing or diminishing the preferences, voting powers, restrictions,
qualifications, special or relative rights or privileges pertaining thereto,
except with the vote or consent of the holders of a majority of the Shares; if
Shares have been issued in Series or Classes and such amendment would not affect
Shares of all Series or Classes 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 or Class 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
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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 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. To the
extent permitted by law as now or hereafter in effect, any Class may merge or
consolidate with any other Class of the same Series upon such terms and
conditions and for such consideration when and as authorized by a majority of
the Trustees then in office.
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.
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,
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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 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 or 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.
12.6 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.
(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
/s/ Donald E. Weston
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STATE OF OHIO
COUNTY OF HAMILTON
ACKNOWLEDGMENT
SS:
Then personally appeared before me,
Donald E. Weston, who acknowledged the foregoing instrument to be their free act
and deed and the free act and deed of the Trustees of Gradison-McDonald
Municipal Custodian Trust.
June 11, l992 /s/ Mary Ann Plunkett
Date Notary Public
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<PAGE> 1
EXHIBIT 2
BY-LAWS
OF
GRADISON-MCDONALD MUNICIPAL CUSTODIAN TRUST
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<PAGE> 2
GRADISON-MCDONALD MUNICIPAL CUSTODIAN TRUST
-------------------------------------------
BY-LAWS
-------
These By-Laws are made and adopted pursuant to Section 2.7 of the
Declaration of Trust establishing GRADISON-MCDONALD MUNICIPAL CUSTODIAN TRUST
dated June 11, 1992, 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 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 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
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<PAGE> 3
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 come 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. 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.
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 members 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
them. A majority of all members of any such committee may determine 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, 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
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
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<PAGE> 4
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 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 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.
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
-----------------------
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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.
ARTICLE V
---------
Miscellaneous
-------------
Section 5.1. DEPOSITORIES. 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.
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.
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 and
compensate such dividend disbursing agents, warrant agents and agents for the
reinvestment of dividends as they shall deem 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.
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-McDonald Municipal Custodian
Trust dated June 11, 1992, 1992, a copy of which, together with all amendments
thereto, is on file in the principal business office of the Trust, provides that
the name "Gradison-McDonald Municipal 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-McDonald Municipal 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-McDonald Municipal 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-MCDONALD MUNICIPAL CUSTODIAN TRUST
THIS AGREEMENT is made as of the 25th day of August, 1992, between McDonald &
Company Securities, Inc., an Ohio corporation (the "Adviser"), and
Gradison-McDonald Municipal 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 employs the Adviser to manage the investment and
reinvestment of the assets of the Gradison-McDonald Ohio Tax-Free 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-McDonald Ohio
Tax-Free 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. In all matters relating to the performance of this Agreement, act in
conformity with the Declaration of Trust, By-Laws, and Registration Statement of
the Trust and with the instructions and directions of the Board of Trustees and
will comply with the requirements of the 1940 Act, the rules thereunder, and all
other applicable federal and state laws and regulations; and
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<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;
b. Officers who are necessary for the management, operations, administration and
investments of the Trust; and
c. The payment or assumption by the Adviser of any expense of the Trust or the
Fund that the Adviser is not required by this Agreement to pay or assume shall
not obligate the Adviser to pay or assume the same or any similar expense of the
Trust or Fund on any subsequent occasion.
6. All expenses not specifically assumed by the Adviser under this Agreement or
by another party pursuant to any other 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, semiannual and other periodic reports
furnished to shareholders of the Trust's Fund or to regulatory authorities; and
other documents required by regulatory authorities; and notices and proxy
solicitation materials furnished to shareholders of the Trust's Fund;
c. Such distribution expenses or service fees as may be contemplated by an
effective plan pursuant to Rule 12b-1 under the 1940 Act, provided, however,
that any such payment by the 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
Fund;
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<PAGE> 3
f. Compensation of trustees of the Trust who are not affiliated with the
Adviser;
g. Compensation and expenses of any transfer agent, dividend disbursing agent,
registrar, custodian or depository appointed by the Trust;
h. Any costs, expenses or other relief asserted against the Trust or Fund for
violation of any law;
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. Any extraordinary expenses (including fees and disbursements of counsel,
costs of actions, suits or proceedings to which the Trust is a party and the
expenses the Trust may incur as a result of its legal obligation to provide
indemnification to its officers, trustees, agents and shareholders) incurred by
the Trust or Fund;
l. Taxes and other fees payable by the Trust to federal, state, or other
governmental agencies;
m. Costs of share certificates representing shares of the Trust's Fund, if
provided for;
n. Legal and accounting fees and expenses in connection with the operations of
the Trust, including its organization and the registration or qualification of
its shares with federal or state regulatory authorities;
o. Expenses incurred in connection with shareholders' or trustees' meetings;
p. Fees and other expenses incurred by the Trust in connection with its
membership in any organization, and;
q. Costs of liability, errors and omissions and other insurance and fidelity
bond.
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 specifically
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 services performed by the Adviser's employees
under this Agreement on behalf of the Trust, for which the Trust is responsible
including, without limitation, appropriate
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<PAGE> 4
portions of employee salaries, office space, 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.
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. If this Agreement
becomes effective or terminates before the end of any month, the fee for the
period from the effective date to the end of the month or from the beginning of
such month to the date of termination, as the case may be, shall be prorated
according to the proportion which such period bears to the full month in which
such effectiveness or termination occurs.
12. The Adviser shall reimburse the Trust if and to the extent that expenses
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 and the duties and
conditions to which the Adviser is bound by Paragraph 3 of this Agreement, the
Trust hereby agrees that the Adviser may subcontract
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<PAGE> 5
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.
15. This Agreement shall become effective as of the date first set forth above
and shall continue in effect until August 25, l994. 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 1940 Act) 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 1940 Act) by the Adviser,
unless such automatic termination shall be prevented by an order of exemption
from the Securities and Exchange Commission. Termination of this Agreement with
respect to any given Fund shall in no way affect the continued validity of this
Agreement or the performance thereunder with respect to any other Fund.
17. This Agreement may be amended at any time by the mutual consent of the
parties, provided that such consent on the part of 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 1940 Act) 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
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<PAGE> 6
30 days' written notice to the Trust. The Trust agrees that the names "Gradison"
and "McDonald" will be used by it only in connection with the business of any
open-end management investment company; that such names will be used only in
such forms, styles and contexts as may be approved by the Adviser; and that the
Trust will not do or cause to be done any act or undertaking which has the
effect of contesting, challenging or in any way impairing the Adviser's right,
title or interest in or to such names. The Trust agrees that it will not
represent that it has any right, title or interest in such names, and that the
Trust's use of such names shall not create any right, title or interest in its
favor therein. Within 30 days after the termination of this Agreement for any
reason, or after the written withdrawal of such consent of the Adviser (with or
without cause and within the Adviser' sole discretion) the Trust
a. will cease and desist from every use of the names "Gradison" and "McDonald"
and will deliver to the Adviser all prospectuses, sales literature and other
advertising materials bearing such names;
b. will cause its name to be changed so as to eliminate the word "Gradison" or
"McDonald" therefrom; and
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 the addresses designated by the respective parties for the
receipt of such notice. Until further written notice, it is agreed that the
addresses of the Adviser and of the Trust, respectively, shall be:
McDonald & Company Securities, Inc.
Attention: Gordon Price
800 Superior Avenue
Cleveland, Ohio 44114
Gradison-McDonald Municipal Custodian Trust
Attention: Paul J. Weston
580 Walnut Street
Cincinnati, Ohio 45202
Gradison-McDonald Municipal Custodian Trust
Attention: Richard M. Wachterman
580 Walnut Street
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.
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<PAGE> 7
21. This Agreement shall be construed in accordance with the laws of the State
of Ohio. To the extent that the applicable laws of the State of Ohio conflict
with the applicable provisions of the 1940 Act, the latter shall control.
IN WITNESS WHEREOF, the parties have executed this Investment Advisory Agreement
as of the date first written above.
MCDONALD & COMPANY SECURITIES, INC.
By: /s/ William Summers
GRADISON-McDONALD MUNICIPAL CUSTODIAN TRUST
By: /s/ Donald E. Weston
Schedule A
----------
Investment Advisory Fee
-----------------------
Series Fee
- ------ ---
Gradison-McDonald Ohio .5 of 1% of the average daily
Tax-Free Income Fund net assets of the series
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<PAGE> 1
EXHIBIT 6(a)
GRADISON-McDONALD MUNICIPAL CUSTODIAN TRUST
MASTER DISTRIBUTION AGREEMENT
-----------------------------
AGREEMENT made this 25th day of August, 1992 by and between
Gradison-McDonald Municipal Custodian Trust (the "Trust"), an Ohio business
trust, and McDonald & Company Securities, Inc. (the "Distributor"), an Ohio
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-McDonald Ohio Tax-Free 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.
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 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.
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<PAGE> 2
(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
Agreement. 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 Plan, and in that
connection it is understood that:
(i) such Plan shall remain in effect for one year from its
adoption date and may be continued from year to year
thereafter only if the Plan and any related agreements
are approved at least annually by a majority vote of the
Trustees of the Trust, including a majority of the
Trustees who are not "interested persons" of the Trust
and who have no direct or indirect financial interest in
the operation of the Plan or in any related agreement
("Independent Trustee"), cast in person at a meeting
called for the purpose of voting on such Plan and
agreements; and
(ii) the Plan may be terminated with respect to any Series at
any time by a majority vote of the Independent Trustees
or by vote of a majority of the outstanding voting
securities of the Series. In the event the Plan is not
continued or is terminated with respect to a Series,
this Agreement shall automatically terminate with
respect to that Series.
(f) The Distributor hereby agrees to use its best efforts to find
purchasers who shall purchase the Shares of the Series; it shall not be
obligated to sell any certain number of such Shares and nothing herein contained
shall prevent the Distributor from entering into like distribution arrangements
with other investment companies so long as the performance of its obligations
hereunder is not impaired thereby.
(g) The Distributor is authorized on behalf of the Trust to
purchase Shares of the Series presented to it by dealers at the price determined
in accordance with, and in the manner set forth in, the Prospectus.
Section 3. SERVICES NOT EXCLUSIVE. The services furnished by the
Distributor hereunder are not to be deemed exclusive and the Distributor shall
be free to furnish similar services to others so long as its services under this
Agreement are not impaired thereby. Nothing in this Agreement shall limit or
restrict the right of any director, officer or employee of the Distributor, who
may also be a Trustee, officer or employee of the Trust, to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any other business, whether of a similar or dissimilar nature.
Section 4. DUTIES OF THE TRUST.
(a) The Trust agrees to sell the Shares of the Series so long as it
has such Shares available for sale and to issue, if requested by the purchaser
and if provided for by the Trust, certificates for the Shares of the Series,
registered in such names and amounts as the Distributor has requested in
writing, as promptly as practicable after receipt by the Trust of the net asset
value thereof and written request of the Distributor therefor. The Trust may at
any time withdraw offerings of the Shares of one or more Series by notice to the
Distributor.
(b) The Trust shall keep the Distributor fully informed with regard
to its affairs and the affairs of the Series and shall furnish to the
Distributor copies of all information, financial statements and other papers
which the Distributor may reasonably request for use in connection with the
distribution of the Shares. This shall include, without limitation, one
certified copy of all financial statements of the Trust and the Series prepared
by independent accountants and such reasonable number of copies of its most
current Prospectus, and annual and interim reports as the Distributor may
request. The Trust shall cooperate fully in the efforts of the Distributor to
arrange for the sale of the Shares and in the performance of the Distributor's
duties under this Agreement.
(c) The Trust shall take, from time to time, all necessary action
to fix the number of authorized Shares of the Series and such steps, including
payment of the related filing fees, as may be necessary to register the same
under the 1933 Act so that there will be available for sale such number of
Shares of the Series as the Distributor may be expected to sell. The Trust
agrees to file from time to time such amendments, reports and other documents as
may be necessary in order that there may be no untrue statement of a material
fact in a Registration Statement or Prospectus, or necessary in order that there
may be no omission to state a material fact in the Registration Statement or
Prospectus which omission would make the statements therein, in light of the
circumstances under which they were made, misleading.
(d) The Trust shall use its best efforts to qualify and maintain
the qualification of an appropriate number of the Shares of the Series for 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
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<PAGE> 3
service of process in any state other than with respect to claims arising out of
the offering of the Shares of the Series. The Distributor shall furnish such
information and other material relating to its affairs and activities as may be
required by the Trust in connection with such qualifications.
Section 5. EXPENSES.
(a) The Trust shall bear all costs and expenses of the continuous
offering of the Shares of the Series in connection with: (i) fees and
disbursements of counsel and auditors, (ii) the preparation, filing and printing
of any registration statements and/or prospectuses required by and under the
federal securities laws, (iii) the preparation and mailing of annual and interim
reports and proxy materials to shareholders and (iv) the qualification of the
Shares for sale and of the Trust as a broker-dealer under the securities laws of
such states or other jurisdictions as shall be selected by the Trust and the
Distributor pursuant to Section 4(d) hereof and the cost and expenses payable to
each such state for continuing qualification therein. Any such costs and
expenses borne by the Trust which are attributable only to one Series will be
allocated to that Series; expenses which are not specifically allocable will be
allocated to each Series in a manner and on a basis determined in good faith by
the Trustees (including a majority of the Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Trust, the Adviser or the
Distributor) to be fair and equitable.
(b) The Distributor shall bear the following expenses (on a Series
by Series basis, where applicable): (i) the costs and expenses of preparing,
printing and distributing any materials not prepared by the Trust and other
materials used by the Distributor in connection with the offering of the Shares
of the Series for sale to the public, including the additional cost of printing
copies of the Prospectus and of annual and interim reports to shareholders other
than the copies thereof required for distribution to existing shareholders or
for filing with any federal and state securities authorities, (ii) the expenses
of registration or qualification of the Distributor as a dealer or broker under
federal or state laws and the expenses of continuing such registration or
qualification; and (iii) any other distribution or promotional expenses incurred
by the Distributor in connection with such offering, except for any such
distribution or promotional expenses as are paid by one or more Series pursuant
to a Rule 12b-1 distribution plan.
Section 6. INDEMNIFICATION. The Trust agrees to indemnify, defend
and hold the Distributor, its officers 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 Trust shall be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity agreement. If the Trust elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Trust and satisfactory to indemnified defendants in the suit whose
approval shall not be unreasonably withheld. In the event that the Trust elects
to assume the defense of a suit, it will reimburse the indemnified defendants
for the reasonable fees and expenses of any counsel retained by the indemnified
defendants.
The Distributor agrees to indemnify, defend and hold the Trust, its
trustees and officers and any person who controls the Trust, if any, within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Trust, its trustees or officers or any such controlling person may incur under
the 1933 Act, and the 1934 Act, or under common law or otherwise, but only to
the extent that such liability or expense incurred by the Trust, its trustees or
officers or such controlling person resulting from such claims or demands shall
arise out of or be based upon (i) any alleged untrue statement of a material
fact contained in information furnished in writing by the Distributor to the
-14-
<PAGE> 4
Trust for use in the Registration Statement or Prospectus; (ii) any failure of
the Distributor or any investor purchasing Shares of a Series through the
Distributor to timely transmit good payment for the purchase of such Shares;
(iii) any breach of the obligations of the Distributor under Section 7 of this
Agreement; or (iv) arising out of any agreement between the Distributor and any
retail dealer or arising out of any supplemental sales literature or advertising
used by the Distributor in connection with its duties under 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. The Distributor shall
be entitled to participate, at its own expense, in the defense or, if it so
elects, to assume the defense of any suit brought to enforce the claim, but if
the Distributor elects to assume the defense, the defense shall be conducted by
counsel chosen by the Distributor and satisfactory to the indemnified defendants
whose approval shall not be unreasonably withheld. In the event the Distributor
elects to assume the defense of any suit and retain counsel, the defendants in
the suit shall bear the fees and expenses of any additional counsel retained by
them. If the Distributor does not elect to assume the defense of any suit, it
will reimburse the indemnified defendants in the suit for the reasonable fees
and expenses of any counsel retained by them.
Section 7. COMPLIANCE WITH SECURITIES LAWS. The Trust represents
that it is registered as an open-end management investment company under the
1940 Act, and agrees that it will comply with all of the provisions of the 1940
Act and of the rules and regulations thereunder. The Trust and the Distributor
each agree to comply with all of the applicable terms and provisions of the 1940
Act, the 1933 Act and, subject to the provisions of Section 4(d), all applicable
state "Blue Sky" laws. The Distributor agrees to comply with all of the
applicable terms and provisions of the 1934 Act.
Section 8. TERM OF AGREEMENT. This Agreement shall commence on the
date first set forth above. This Agreement shall continue in effect for a period
more than one year from the date hereof only so long as such continuance is
specifically approved at least annually in conformity with the requirements of
the 1940 Act.
Section 9. TERMINATION. This Agreement may be terminated with
respect to any Series at any time, without the payment of any penalty, by vote
of a majority of the outstanding voting securities of the respective Series 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 1940 Act) unless such automatic
termination shall be prevented by an order of exemption from the Securities and
Exchange Commission.
Section 10. NOTICES. Any notice required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid, (1) to the Distributor at Gradison Division McDonald &
Company Securities Inc., 580 Walnut Street, Cincinnati, Ohio 45202 or (2) to the
Trust at Gradison-McDonald Municipal Custodian Trust, 580 Walnut Street,
Cincinnati, Ohio 45202.
Section 11. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Ohio.
Section 12. AMENDMENT OF THIS AGREEMENT. No provision of this
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
-15-
<PAGE> 5
Section 13. NON-LIABILITY OF SHAREHOLDERS, TRUSTEES, OFFICERS,
EMPLOYEES, REPRESENTATIVES AND AGENTS. A copy of the Declaration of Trust, as
amended, establishing the Trust is on file with the Secretary of the State of
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-McDONALD MUNICIPAL
CUSTODIAN TRUST
By /S/ Donald E. Weston
---------------------- -------------------------------
McDONALD & COMPANY SECURITIES, INC.
By /S/ William B. Summers
------------------------ -----------------------------
-16-
<PAGE> 6
Master Distribution Agreement
between
Gradison-McDonald Municipal Custodian Trust
and
McDonald & Company Securities, Inc.
-17-
<PAGE> 7
Schedule A
----------
Service Fee
-----------
<PAGE> 8
Series Fee
------ ---
Gradison-McDonald Ohio Tax-Free .25% of 1% of the
Income Fund average daily net
assets of the Series
1
<PAGE> 9
GRADISON-McDONALD MUNICIPAL CUSTODIAN TRUST
AMENDMENT TO MASTER DISTRIBUTION AGREEMENT
Section 2(e) of the Agreement is amended to substitute the following two
sentences for the first sentence:
In addition to the above, the Distributor shall also receive
compensation for personal services rendered to shareholders of the Trust
including providing shareholder liaison services such as responding to
shareholder inquiries and providing information to shareholders about their
Trust accounts. Such compensation shall be 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
Agreement.
Agreed this 14th day of April, l994.
GRADISON-McDONALD MUNICIPAL CUSTODIAN TRUST
By:/s/ Donald E. Weston
Chairman
McDONALD & COMPANY SECURITIES, INC.
By:/s/ Gordon A. Price
Senior Managing Director
2
<PAGE> 1
EXHIBIT 6(b)
SALES AGREEMENT FOR
GRADISON MUTUAL FUNDS
TO: McDonald & Company Securities, Inc.
580 Walnut Street
Cincinnati, Ohio 45202
Dear Sir or Madam:
We desire to enter into an agreement with you for the sale and
distribution of the shares of the open-end investment companies of which you are
the Distributor, or for which you may become distributor in the future, and the
shares of which are offered to the public (the "Funds"). Upon acceptance of this
Agreement by you, we understand that we may offer and sell shares of the Funds,
subject, however, to all of the terms and conditions hereof and to your right,
without notice, to suspend or terminate the sale of shares of the Funds.
1. In all sales of shares of the Funds to the public, we shall act as
dealer for our own account, and in no transaction shall we have any authority to
act as agent for the Funds or for you.
2. We understand that the shares of the Funds will be offered and sold
at the current net asset value or offering price, as the case may be, as set
forth in the current prospectus of each respective Fund in effect at the time
the order for such securities is confirmed and accepted by you or your agent.
The minimum dollar purchase of shares of the Fund shall be the applicable
minimum amount described in the Prospectus and no order for less than such
amount will be accepted hereunder. All purchase requests and applications
submitted by us are subject to acceptance or rejection in your sole discretion,
and, if accepted, each purchase will be deemed to have been consummated at your
office. The procedures for handling orders shall be subject to the instructions
which you shall forward to us from time to time.
3. We certify (a) that we are either a member of the National
Association of Securities Dealers, Inc. ("NASD") and agree to maintain
membership in the NASD or (b) in the alternative, that we are a bank as that
term is defined in Section 3(a)(6) of the Securities Exchange Act of l934. If we
are a member of the NASD, we agree to abide by all the rules and regulations of
the Securities and Exchange Commission and the NASD which are binding upon
underwriters and dealers in the distribution of securities of open-end
investment companies, including, without limitation, Section 26 of Article III
of the NASD Rules of Fair Practice, all of which are incorporated herein as if
set forth in full. We further agree to comply with all applicable state and
Federal laws and the rules and regulations of authorized regulatory agencies. We
agree that we will not sell or offer for sale shares of the Fund in any state or
jurisdiction where they have not been qualified for sale or in which we or the
sales person responsible for the sale is not properly qualified or registered.
Information about state registration of Funds is set forth in the Appendix.
4. We will offer and sell the shares of the Funds only in accordance
with the terms and conditions of the Prospectus and we will make no
representations not included in the Prospectus or in any authorized supplemental
material supplied by you. We understand that the Funds listed on the Appendix to
this Agreement pay a distribution expense and service fee aggregating in excess
of .25% per year, and, for such reason, may not be described as being "no-load"
or having "no sales charge" or words to a similar effect. We will use our best
efforts in the development and promotion of sales of the shares of the Fund and
agree to be responsible for the proper instruction and training of all sales
personnel employed by or registered as a broker with us, in order that the
shares will be offered in accordance with the terms and conditions of this
Agreement and all applicable laws, rules and regulations. We agree to hold you
harmless and indemnify you from all claims and expenses, including legal
expenses, in the event that we, or any of our sales representatives, should
violate any law, rule or regulation, or any provision of this Agreement, which
violation may result in liability to you; and in the event you determine to
refund any amounts paid by any investor by reason of any such violation on our
part, we shall return to you any commissions previously paid by you to us with
respect to the transaction for which the refund is made. All expenses which we
incur in connection with our activities under this Agreement shall be borne by
us. The provision set forth in the previous sentence shall survive any
termination of this Agreement. .
5. You represent that the substantive provisions of this paragraph have
been adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the "Act") by each Fund under a Distribution Expense Plan pursuant to said Rule
(the "Plan").
3
<PAGE> 2
(a) To the extent that we provide distribution and other services in the
service and promotion of any Fund's shares, including furnishing services and
assistance to our customers who invest in and own a Fund's shares and including,
but not limited to, answering routine inquiries regarding a Fund and assisting
in changing distribution options, account designations and addresses, and
generally providing personal services to shareholders of a Fund, you shall pay
us a distribution fee and/or service fee in the amount set forth in the current
prospectus of the Fund based on the average daily net asset value of each Fund's
shares which are owned of record by our firm as nominee for our customers or
which are owned by those customers of our firm whose records, as maintained by
each Fund or its agents, designate our firm as the customer's dealer of record.
No such fee shall be paid to us with respect to shares purchased by us and
redeemed or repurchased by a Fund or you, as agent, within seven (7) business
days after the date of your confirmation of such purchase. In addition, no such
fee will be paid to us with respect to any of our customers if the amount of
such fee based upon the value of such customer's shares of a Fund will be less
than $1.00. Payment of such fee to us shall be made within 30 days after the
close of each calendar year for which such fee is payable.
(b) We shall furnish you and any Fund with such information as shall
reasonably be requested by the Trustees of any Fund with respect to the fees
paid to us pursuant to this paragraph 6.
(c) You shall furnish to the Trustees of any Fund, for their review, on
a quarterly basis, a written report of the amount expended under the Plan by you
and the purposes for which such expenditures were made.
(d) The provisions of this paragraph may be terminated by the vote of a
majority of the Trustees of any Fund who are non-interested Trustees or by a
vote of a majority of a Fund's outstanding shares, on sixty (60) days' written
notice, without payment of any penalty. Such provisions will be terminated by
any act which terminates either a Fund's Distribution Agreement with you or this
Dealer's Agreement and shall terminate immediately in the event of the
assignment, as that term is defined in the Act, or this Dealer's Agreement.
(e) The provisions of this paragraph 6 shall continue in full force and
effect only so long as the continuance of the Plan and these provisions are
approved at least annually by a vote of the Trustees of each Fund, including a
majority of the non-interested Trustees, cast in person at a meeting called for
the purpose of voting thereon.
6. Payment for purchases of shares made by wire order from us shall be
made to you and received by you within three business days after the acceptance
of our order or such shorter time as may be required by law, except that payment
for money market fund shares shall be made on the same day as orders are placed.
If payment is not received by you, we understand that you reserve the right,
without notice, forthwith to cancel the sale, or, at your option, to sell the
shares ordered by us back to the Fund, in which latter case we may be held
responsible for any loss, including loss of profit suffered by you resulting
from our failure to make the aforesaid payment.
7. We agree to purchase shares only from you or from our customers. If
we purchase shares from you, we agree that all such purchases shall be made only
to cover orders received by us from our customers, or for our own bona fide
investment. If we purchase shares from our customers, we agree to pay such
customers not less than the applicable repurchase price as established by the
then current Prospectus.
8. Your obligations to us under this Agreement are subject to all the
provisions of any distributorship agreement entered into between you and any
Fund. We understand and agree that in performing our services covered by this
Agreement we are acting as principal, and you are in no way responsible for the
manner of our performance or for any of our acts or omissions in connection
therewith.
9. We agree to obtain any taxpayer identification number certification
from our customers required under Section 3406 of the Internal Revenue Code, and
any applicable Treasury regulations, and to provide you with timely written
notice of any failure to obtain such taxpayer identification number
certification in order to enable the implementation of any required backup
withholding.
10. We may terminate this Agreement by notice in writing to you, which
termination shall become effective (30) days after the date of mailing such
notice to you. We agree that you have and reserve the right, in your sole
discretion without notice, to suspend the sale of shares of any Fund, or to
withdraw entirely the offering of shares of any Fund, or, in your sole
discretion, to modify, amend or cancel this Agreement upon written notice to us
of such modification, amendment or cancellation, which shall be effective on the
date stated in such notice except that if we object to any modification or
amendment of the Agreement in writing within 30 days of the receipt of such
modification or amendment, such modification or amendment shall not become
effective and the Agreement shall be terminated as of your receipt of such
written objection from us. Without limiting the foregoing, you may terminate
this Agreement for cause on violation by us of any of the provisions of this
Agreement, said termination to become effective on the date of mailing notice to
us of such termination. Without limiting the foregoing, any
4
<PAGE> 3
provision hereof to the contrary notwithstanding, our expulsion from the NASD
will automatically terminate this Agreement without notice; our suspension from
the NASD or violation of applicable state or Federal laws or rules and
regulations of authorized regulatory agencies will terminate this Agreement
effective upon the date of your mailing notice to us of such termination. Your
failure to terminate for any cause shall not constitute a waiver of your right
to terminate at a later date for any such cause. All notice hereunder shall be
to the respective parties at the addresses listed hereon, unless changed by
notice given in accordance with this Agreement.
11. This Agreement shall become effective as of the date when it is
executed and dated by you below. This Agreement and all the rights and
obligations of the parties hereunder shall be governed by and construed under
the laws of the State of Ohio. This Agreement is not assignable or transferable,
except that your firm may assign or transfer this Agreement to any successor
firm or corporation which becomes the Distributor of the Fund.
DEALER FIRM/BANK(NAME)
------------------------------
(ADDRESS) -------------------------------------------
BY: -------------------------------------------------
(SIGNATURE)
- -----------------------------------------------------
(NAME) (TITLE)
Accepted:
McDONALD & COMPANY SECURITIES, INC.
By:
------------------------------
Date: day of
---- -----------
7/7/97
APPENDIX TO
SALES AGREEMENT FOR
GRADISON-McDONALD MUTUAL FUNDS
All of the Funds are registered for sale in all states and the District of
Columbia except that the Gradison-McDonald Ohio Tax-Free Income Fund is
registered only in Ohio, Indiana, Kentucky, and Michigan.
The following Funds pay 12b-1 fees in excess of .25% and are, therefore, not to
be described as "no-load":
Gradison Established Value Fund
Gradison Opportunity Value Fund
Gradison Growth and Income Fund
Gradison International Fund
5
<PAGE> 1
Exhibit 8
CUSTODY AGREEMENT
-----------------
Agreement made as of the 24 day of August, 1992, between
Gradison-McDonald Municipal Custodian Trust, (the "Trust"), a Registered
Investment Company organized under the Laws of Ohio and having its office at 580
Walnut Street, Cincinnati, Ohio 45202 acting for and on behalf of
Gradison-McDonald Ohio Tax-Free Income Fund (the "Fund"), which is operated and
maintained by the Trust for the benefit of the holders of shares of the Fund,
and Star Bank, N.A. (the "Custodian"), a national banking association having its
principal office and place of business at Star 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, Controller, 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 limitations on the
authority of such person as set forth in Appendix A or any such Certificate.
<PAGE> 2
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 its successor or successors
and its nominee or nominees, provided that 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 instrumentalities thereof,
commercial paper, obligations (including certificates of deposit, bankers'
acceptances, repurchase and reverse repurchase
-2-
<PAGE> 3
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, the Controller, and Senior Vice President of the Trust
listed in the Certificate annexed hereto as Appendix A 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 Fund'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.
11. "Written Instructions" shall mean communication 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
-3-
<PAGE> 4
writing or by telex or any other such system whereby the receiver of such
communication 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
--------------------------------------
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.
-4-
<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, 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;
-5-
<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 (1) 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 paragraph 10 of Article IX hereof.
3. Promptly after the close of business on each day the Fund is open and
valuing its portfolio, 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.
-6-
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 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 Rook-Entry System or the Depository or
their
<PAGE> 7
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 by the Depository or
a Sub-Custodian in a separate account or accounts in the name of the Fund
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;
7-
<PAGE> 8
(d) Execute, as Custodian, any necessary declarations or
certificates of ownership under the Federal income tax laws or the laws or
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
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.
7. The Custodian shall promptly deliver to the Trust all notices, proxy
material and executed but unvoted
8
<PAGE> 9
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, name 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
-9-
<PAGE> 10
made, provided that the same conforms to the total amount 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 the 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
- 10-
<PAGE> 11
(c) notifies the Custodian that its obligations in respect of any
other Security, as described in the Fund'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 payment date, or (II)
authorizing the declaration of dividends and
-11-
<PAGE> 12
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, as 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 Fund's shares, from the Dividend and
Transfer Agent of the Fund, or from the Trust.
2. Upon receipt of Written Instructions, 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 setting forth that the
redemption is in good form for redemption in accordance with the check
-12-
<PAGE> 13
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
------------
In connection with any borrowings, 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 Fund'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 total amount payable as set
-13-
<PAGE> 14
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
CONCERN1NG 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 Trustees, officers, employees and agents
with respect to any loss, claim, liability or cost (including reasonable
attorneys' fees) arising or alleged to arise from or
-14-
<PAGE> 15
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 Trustees, 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 to
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 Trustees,
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, however, that nothing contained herein shall preclude
recovery by
-15-
<PAGE> 16
the Trust, on behalf of the Fund, of principal and of 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") 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 take over the complete defense of the claim and the
Indemnifying Party shafl 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 the 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).
The obligations of the parties hereto under this paragraph shall
survive the termination of this Agreement.
-16-
<PAGE> 17
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 hereof,
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 (H) of paragraph 2(e) of Article IV hereof, nor
be liable for or considered to be the Custodian of any money, 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.
-17-
<PAGE> 18
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.
(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
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<PAGE> 19
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, 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 B. 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 Articles of Incorporation and the Trust's 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) 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 C 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
-19-
<PAGE> 20
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 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 in such manner as will meet the obligations of the Fund under the
Investment Company Act of 1940, with particular attention to Section 31 thereof
and Rules 31 a-1 and 31 a-2 thereunder, 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
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<PAGE> 21
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 arid 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 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
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<PAGE> 22
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 has 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 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.
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<PAGE> 23
ARTICLE XI
MISCELLANEOUS
-------------
1. Appendix A sets forth the names and the signatures of all 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,
Director, 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 be 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 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
-23-
<PAGE> 24
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, but bind only the Trust and then only to the extent of Fund Assets.
4. Such provisions of the Prospectus of the Fund and any other documents
(including advertising material) specifically mentioning the Custodian (other
than merely by name and address) 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 Star
Bank Center, 425 Walnut Street, Cincinnati, Ohio 45202, attention Trust Custody
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 business day following the time such
notice is deposited in the U.S. mail postage prepaid and addressed to the Trust
at its office at 580 Walnut Street, Cincinnati, Ohio 45202, or at such other
place as the Trust may from time to time designate in writing.
7. This Agreement with the exception of Appendices A & B 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.
-24-
<PAGE> 25
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: Gradison-McDonald Municipal
Custodian Trust
/s/ Mary Ann Plunkett By: /s/ Donald E. Weston
ATTEST: Star Bank, N.A.
/s/ Pamela [indecipherable] By: /s/ W.J. Keller
-25-
<PAGE> 26
APPENDIX A
BOARD OF TRUSTEES
AUTHORIZED PERSONS SPECIMEN SIGNATURES
Chairman Donald E. Weston /s/ Donald E. Weston
Secretary Richard M. Wachterman /s/ Richard M. Wachterman
Sr. Vice President Paul J. Weston /s/ Paul J. Weston
Adviser Employees Mark Frietch /s/ Mark Frietch
Leigh Judd /s/ Leigh Judd
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<PAGE> 27
APPENDIX B
The following Depository(s) and Sub-Custodian(s) are employed currently by
Star Bank, N.A. for securities processing and control
The Depository Trust Company (New York)
7 Hanover Square
New York, NY 10004
The Federal Reserve Bank
Cincinnati and Cleveland Branches
Bankers Trust Company
16 Wall Street
New York, NY 10005
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<PAGE> 28
CUSTODY COMPENSATION SCHEDULE
STAR BANK, N.A. AS CUSTODIAN, WILL RECEIVE MONTHLY
COMPENSATION FOR SERVICES ACCORDING TO THE TERMS OF THE FOLLOWING SCHEDULE:
<TABLE>
<S> <C> <C> <C>
1) PORTFOLIO TRANSACTION FEES:
A) FOR EACH REPURCHASE AGREEMENT TRANSACTION $ 7.00
B) FOR EACH PORTFOLIO TRANSACTION PROCESSED THROUGH 11.00
DTC OR FEDERAL RESERVE
C) FOR EACH PORTFOLIO TRANSACTION PROCESSED THROUGH 25.00
OUR NEW YORK CUSTODIAN
D) FOR EACH GNMA/AMORTIED SECURITY PURCHASE 40.00
E) FOR EACH GNMA PRIN/INT PAYDOWNS, GNMA SALES 8.00
F) FOR EACH OPTION/FUTURE CONTRACT WRITTEN, EXERCISED 25.00
OR EXPIRED
G) FOR EACH DISBURSEMENT 5.00
(FUND EXPENSES ONLY)
A TRANSACTION IS A PURCHASE/SALE OF A SECURITY, FREE RECEIPT/FREE
DELIVERY (EXCLUDES INITIAL CONVERSION), MATURITY, TENDER OR EXCHANGE.
2) MONTHLY BASE FEE - PER FUND $400
3) OUT-OF-POCKET EXPENSES
</TABLE>
THE ONLY OUT-OF-POCKET EXPENSES CHARGED TO YOUR ACCOUNT
WILL BE SHIPPING FEES OR TRANSFER FEES.
EARNINGS CREDITS
ON A MONTHLY BASIS EXCESS EARNINGS CREDITS FOR UNINVESTED CUSTODY
BALANCES WILL BE APPLIED AGAINST TRANSACTION FEES (AS REFERENCED IN
ITEM #1 ABOVE).
EARNINGS CREDITS AN BASED ON THE FLOATING 3-MONTH AVERAGE T-BILL RATE
ON THE INVESTABLE BALANCE.
STAR BANK WILL GUARANTEE THESE "START-UP FUND" FEES TO THE
GRADTSON-MCDONALD MUNICIPAL CUSTODIAN TRUST FOR A PERIOD OF THREE (3)
YEARS FROM THE INCEPTION DATE OF THE AGREEMENT.
ALL COMPENSATION IS PAYABLE MONTHLY.
Certification of Resolution of: Gradison-McDonald Municipal
Custodian Trust
I, Richard N. Wachterman, do hereby certify that the following resolutions were
duly adopted at a meeting of the Board of Trustees of the Trust held on July 27,
1992, and that such resolutions are still in full force and effect;
<PAGE> 29
Appointment of Custodian Bank and Approval of Custodian Agreement
RESOLVED, that Star Bank N.A. (Cincinnati), a national banking
association (the Bank"), be and is hereby appointed Custodian to hold
and administer the securities and the cash of the Trust and that the
appropriate officers of the Trust be and are hereby authorized to
execute a Custody Agreement between the Trust and the Bank
substantially in the form presented to this meeting with such changes
as such officers deem to be in the best interest of the Trust.
RESOLVED, that the following officers of the Trust and other
persons be and are hereby are authorized to (i) sign on behalf of the
Trust, authorizations, instructions, certificates, approvals or other
Written Instructions, (ii) to give instructions 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 sender of such communication and (iii) to give Oral
Instructions to Star Bank, N.A. Cincinnati (the "Bank"), Custodian of
the Trust under the Custody Agreement between the Trust and the Bank:
1. Donald E. Weston
2. Stephen C. Dilbone
3. Paul J. Weston
4. Leigh R. Judd
5. Richard M. Wachterman
6. Robert Clutterbuck
7. Richard Demko
8. Mark Frietch
/s/ Richard M. Wachterman 8/19/92
Secretary
<PAGE> 1
EXHIBIT 9
TRANSFER AGENCY, ACCOUNTING SERVICES
AND ADMINISTRATIVE SERVICES AGREEMENT
Agreement made as of the 25th day of August, 1992 between GRADISON
MUNICIPAL CUSTODIAN TRUST, a business trust organized and existing under the
laws of the State of Ohio, having its principal office and place of business at
580 Walnut Street, Cincinnati, Ohio 45202 (hereinafter referred to as the
"Fund"), and McDONALD & COMPANY SECURITIES, INC., a registered transfer agent,
having its principal office and place of business at 800 Superior Avenue,
Cleveland, Ohio 44114 (hereinafter referred to as the "Transfer Agent").
W I T N E S S E T H:
That for and in connection of the mutual promises hereinafter set
forth, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases shall
have the following meanings:
1. "Approved Institution" shall mean an entity so named in a
Certificate. From time to time the Fund may amend a previously delivered
Certificate by delivering to the Transfer Agent a Certificate naming an
additional entity or deleting any entity named in a previously delivered
Certificate.
2. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Transfer Agent by the Fund which is signed by any Officer, as hereinafter
defined, and actually received by the Transfer Agent.
3. "Custodian" shall mean the Fund's custodian under the terms
and conditions of the Custody Agreement between the Custodian and the Fund, or
its successor(s).
4. "Fund Business Day" shall be deemed to be each day on which
The New York Stock Exchange, Inc. is open for trading.
5. "Officer" shall be deemed to be the Fund's Chairman of the
Board, the Fund's President, Executive Vice President,any Vice President of the
Fund, the Fund's Secretary, the Fund's Treasurer, any Controller of the Fund,
any Assistant Controller of the Fund, any Assistant Treasurer of the Fund, any
Assistant Secretary of the Fund, and any other person duly authorized by the
Board of Trustees of the Fund to execute any Certificate, instruction, notice or
other instrument on behalf of the Fund.
6. "Shares" shall mean all or any part of each class of shares
of beneficial interest in the Fund.
7. "Prospectus" shall mean the last Fund prospectus and
statement of additional information actually received by the Transfer Agent from
the Fund with respect to which the Fund has indicated a registration statement
under the Federal Securities Act of 1933, as amended ("1933 Act"), has become
effective.
8. "Transfer Agent" shall mean McDonald & Company Securities,
Inc., as transfer agent, dividend disbursing agent, and accounting services
provider under the terms and conditions of this Agreement, its successor(s) or
assign(s).
ARTICLE II
APPOINTMENT OF TRANSFER AGENT
1. The Fund hereby constitutes and appoints the Transfer Agent
as transfer agent of all of the Shares of the Fund and as dividend disbursing
agent during the period of this Agreement.
<PAGE> 2
2. The Transfer Agent hereby accepts appointment as transfer
agent and dividend disbursing agent and agrees to perform the duties thereof as
hereinafter set forth.
3. In connection with such appointment, the Fund shall deliver
the following documents to the Transfer Agent:
(a) A certified copy of the Declaration of Trust of
the Fund and all amendments thereto;
(b) A certified copy of the By-Laws of the Fund;
(c) A certified copy of a resolution of the Board of
Trustees of the Fund appointing the Transfer Agent and authorizing the execution
of this Transfer Agency Agreement;
(d) A Certificate signed by the Secretary of the Fund
specifying with respect to each class of Shares: the number of authorized
Shares, the number of such authorized Shares issued, and the number of such
authorized Shares issued and currently outstanding, the names and specimen
signatures of the Officers of the Fund, and the name and address of the legal
counsel for the Fund;
(e) Specimen Share certificates for each class of
Shares, if any, in the form approved by the Board of Trustees of the Fund,
together with a certificate signed by the Secretary of the Fund as to such
approval; and
(f) Copies of the Fund's Registration Statement, as
amended to date, and the most recently filed Post-Effective Amendment thereto,
filed by the Fund with the Securities and Exchange Commission ("SEC") under the
1933 Act, as amended, and under the Investment Company Act of 1940, as amended
("1940 Act"), together with any applications filed in connection therewith.
4. If Share certificates are issued, the Fund shall furnish
the Transfer Agent with a sufficient supply of blank Share certificates and from
time to time will renew such supply upon request of the Transfer Agent. Such
blank Share certificates shall be properly signed, by facsimile or otherwise, by
Officers of the Fund authorized by law or by the by-laws to sign Share
certificates, and, if required, shall bear the corporate seal or facsimile
thereof.
ARTICLE III
RECAPITALIZATION OR CAPITAL ADJUSTMENT
1. In the case of any negative stock split, recapitalization
or other capital adjustment requiring a change in the form of Share
certificates, the Transfer Agent will issue Share certificates in the new form
in exchange for, or upon transfer of, outstanding Share certificates in the old
form, upon receiving:
(a) A Certificate authorizing the issuance of Share
certificates in the new form;
(b) Specimen Share certificates for each class of
Shares in the new form approved by the Board of Trustees of the Fund, with a
Certificate signed by the Secretary of the Fund as to such approval; and
(c) An opinion of counsel for the Fund with respect
to the validity of the Shares in the new form and the status of such Shares
under the 1933 Act and any other applicable federal law or regulation (i.e., if
subject to registration, that the Shares have been registered and that the
Registration Statement has become effective or, if exempt, the specific grounds
therefor).
2. The Fund shall furnish the Transfer Agent with a sufficient
supply of blank Share certificates in the new form, and from time to time will
replenish such supply upon the request of the Transfer Agent. Such blank Share
certificates shall be properly signed by Officers of the Fund authorized by law
or by the by-laws to sign Share certificates and, if required, shall bear the
corporate seal or facsimile thereof. The Fund agrees to indemnify and exonerate,
save and hold harmless the Transfer Agent from and against any and all claims or
demands that may be asserted against the Transfer Agent with respect to the
genuineness of any Share certificate supplied to the Transfer Agent pursuant to
this section.
<PAGE> 3
ARTICLE IV
ISSUANCE, REDEMPTION, AND TRANSFER OF SHARES
1. (a) The Transfer Agent shall accept with respect to each
Fund Business Day, at such times as are agreed upon from time to time by the
Transfer Agent and the Fund, each (i) purchase order received from a purchaser,
or shareholder, whether or not an Approved Institution, and (ii) redemption
request either received from a shareholder, whether or not an Approved
Institution, or contained in a Certificate, provided that (A) such purchase
order or redemption request, as the case may be, is reasonably believed by the
Transfer Agent to be in conformity with the Fund's purchase and redemption
procedures described in the Prospectus, and (B) the Transfer Agent has agreed to
accept and act in accordance with such type of purchase order or redemption
request, as the case may be.
(b) The Transfer Agent also shall accept with respect to
each Fund Business Day, at such times as are agreed upon from time to time by
the Transfer Agent and the Fund, a computer tape consistent in all respects with
the Transfer Agent's tape layout package, as amended from time to time, which is
believed by the Transfer Agent to be furnished by or on behalf of any Approved
Institution.
2. On each Fund Business Day the Transfer Agent shall, as of
the time at which the Fund computes its net asset value, issue to, and redeem
from, the accounts specified in a purchase order, redemption request, or
computer tape which in accordance with the Prospectus is effective on such Fund
Business Day the appropriate number of full and fractional Shares based on the
net asset value per Share of such class specified in an advice received on such
Fund Business Day from the Fund. Notwithstanding the foregoing, if a redemption
specified in a computer tape is for a dollar value of Shares in excess of the
dollar value of uncertificated Shares in the specified account, the Transfer
Agent shall not effect such redemption in whole or part, and promptly shall
orally advise both the Fund and the Approved Institution which supplied such
tape of such discrepancy.
3. The Transfer Agent shall, as of each Fund Business Day
specified in a Certificate or resolution described in paragraph 1 of succeeding
Article V, issue Shares of a class, based on the net asset value per Share of
such class specified in an advice received from the Fund on such Fund Business
Day, in connection with a reinvestment of a dividend or distribution on Shares
of such class.
4. On each Fund Business Day, the Transfer Agent shall supply
the Fund with a statement specifying with respect to the immediately preceding
Fund Business Day: the total number of Shares of each class (including
fractional Shares) issued and outstanding at the opening of business on such
day; the total number of Shares of each Class sold to the Custodian, on such day
pursuant to preceding paragraph 2 of this Article; the total number of Shares of
each class redeemed by the Custodian on such day; the total number of Shares of
each class, if any, sold to the Custodian on such day pursuant to preceding
paragraph 3 of this Article, and the total number of Shares of each class issued
and outstanding. On the same day such statement is received by the Fund, the
Fund shall confirm the information contained therein by delivering to the
Transfer Agent a Certificate with respect to the same.
5. In connection with each purchase and each redemption of
Shares, the Transfer Agent shall send such statements as are described in the
Prospectus. If the Prospectus indicates that certificates for Shares are
available, and if specifically requested in writing by any shareholder, the
Transfer Agent will countersign, issue and mail to such shareholder at the
address set forth in the records of the Transfer Agent, a Share certificate for
any full Shares requested. In addition, the Transfer Agent shall issue and mail
Share certificates for full Shares requested otherwise than in writing provided
(i) such request is in accordance with the Prospectus and (ii) the Transfer
Agent has expressly agreed with the Fund to act in accordance with such
requests.
6. As of each Fund Business Day the Transfer Agent shall
furnish the Custodian with an advice setting forth the number and dollar amount
of Shares to be redeemed or purchased on such Fund Business Day in accordance
with paragraph 2 of this Article.
7. Upon receipt of moneys paid to it by the Custodian in
connection with a redemption of Shares, the Transfer Agent shall cancel the
redeemed Shares and after making appropriate deduction for any withholding of
taxes required of it by applicable law (a) in the case of a redemption of Shares
pursuant to a redemption described in preceding paragraph 1(a) of this Article,
make payment in accordance with the Fund's redemption and payment procedures
described in the Prospectus, and (b) in the case of a redemption of Shares
pursuant to a computer tape described in preceding paragraph 1(b) of this
Article, make payment by directing a federal funds wire order to the account
previously designated by the Approved Institution specified in said computer
tape.
<PAGE> 4
8. The Transfer Agent shall not be required to issue any
Shares after it has received from an Officer of the Fund or from an appropriate
federal or state authority written notification that the sale of Shares has been
suspended or discontinued, and the Transfer Agent shall be entitled to rely upon
such written notification.
9. Upon the issuance of any Shares in accordance with this
Agreement the Transfer Agent shall not be responsible for the payment of any
original issue or other taxes required to be paid by the Fund in connection with
such issuance of any Shares.
10. Shares which are subject to restriction on transfer or
redemption (including, without limitation, Shares acquired pursuant to a
restrictive investment representation, Shares held by controlling persons,
Shares subject to shareholder's agreements, etc.) other than the general
restrictions on the transferability of the Shares described in the Prospectus,
may not be transferred or redeemed except upon receipt by the Transfer Agent of
an opinion of counsel for the Fund stating that such transfer or redemption is
in accordance with applicable law, and may be properly effected. The Transfer
Agent shall be entitled to rely upon such opinion and shall be indemnified by
the Fund for any transfer or redemption made in reliance upon any such opinion.
11. The Transfer Agent shall accept a computer tape consistent
with the Transfer Agent's tape layout package, as amended from time to time,
which is reasonably believed by the Transfer Agent to be furnished by or on
behalf of any Approved Institution and is represented to be instructions with
respect to the transfer of Shares from one account of such Approved Institution
to another such account, and shall effect the transfers specified in said
computer tape.
12. (a) Except as otherwise provided in sub-paragraph (b) of
this paragraph and in paragraph 13 of this Article, Shares will be transferred
or redeemed upon presentation to the Transfer Agent of Share certificates or
instructions properly endorsed for transfer or redemption, accompanied by such
documents as the Transfer Agent deems necessary to evidence the authority of the
person making such transfer or redemption, and bearing satisfactory evidence of
the payment of stock transfer taxes. In the case of small estates, where no
administration is contemplated, the Transfer Agent may, when furnished with an
appropriate surety bond, and without further approval of the Fund, transfer or
redeem Shares registered in the name of a decedent where the current market
value of the Shares being transferred does not exceed such amount as may from
time to time be prescribed by various states. The Transfer Agent reserves the
right to refuse to transfer or redeem Shares until it is satisfied that the
endorsement on the share certificate or instructions is valid and genuine, and
for that purpose it will require, unless otherwise instructed by an authorized
Officer of the Fund, a guarantee of signature by a member firm of a National
Securities Exchange, by a bank or trust company acceptable to the Transfer
Agent, or as otherwise provided by regulation of the SEC. The Transfer Agent
also reserves the right to refuse to transfer or redeem Shares until it is
satisfied that the requested transfer or redemption is legally authorized, and
it shall incur no liability for the refusal, in good faith, to make transfers to
redemptions which the Transfer Agent, in its judgment, deems improper or
unauthorized, or until it is satisfied that there is no basis to any claims
adverse to such transfer or redemption. The Transfer Agent may, in effecting
transfers and redemptions of Shares, rely upon those provisions of the Uniform
Act for the Simplification of Fiduciary Security Transfers or the Uniform
Commercial Code, as the same may be amended from time to time, applicable to the
transfer of securities, and the Fund shall indemnify the Transfer Agent for any
act done or omitted by it in good faith in reliance upon such laws.
(b) Notwithstanding the foregoing or any other provision
contained in this Agreement to the contrary, the Transfer Agent shall be fully
protected by the Fund in not requiring any instruments, documents, assurances,
endorsements or guarantees, including without limitation, any signature
guarantees, in connection with a redemption, or transfer, of Shares whenever the
Transfer Agent reasonably believes that requiring the same would be inconsistent
with the transfer and redemption procedures as described in the Prospectus.
13. Notwithstanding any provision contained in this Agreement
to the contrary, the Transfer Agent shall not be required or expected to
require, as a condition to any transfer of any Shares pursuant to paragraph 11
of this Article or any redemption of any Shares pursuant to a computer tape
described in this Article, any documents, including, without limitation, any
documents, of the kind described in sub-paragraph (a) of paragraph 12 of this
Article, to evidence the authority of the person requesting the transfer or
redemption and/or the payment of any stock transfer taxes, and shall be fully
protected in acting in accordance with the applicable provisions of this
Article.
14. (a) As used in this Agreement, the terms "computer tape"
and "computer tape believed by the Transfer Agent to be furnished by an Approved
Institution" shall include any tapes generated by the Transfer Agent to reflect
information believed by the Transfer Agent to have been input by an Approved
Institution, via a remote terminal or other similar link, into a data
processing, storage, or collection system, or similar system (the "System"),
located on the Transfer Agent's premises. For purposes of paragraph 1 of this
Article, such a computer tape shall be deemed to have been furnished at such
times as are agreed upon from time to time by the Transfer Agent and Fund only
if the information reflected thereon was input into the System at such times as
are agreed upon from time to time by the Transfer Agent and Fund.
<PAGE> 5
(b) Nothing contained in this Agreement shall constitute
any agreement or representation by the Transfer Agent to permit, or to agree to
permit, any Approved Institution to input information into a System.
15. The Fund hereby retains the Transfer Agent to provide all
necessary services to the Fund with respect to maintaining the books and
accounting records of the Fund, coordinating the transfer agent activities with
the Fund, pricing the securities of the Fund, calculating its net asset value,
coordinating the audit function with the Fund's independent accountant, and such
other activities as may be agreed to from time to time. The Fund shall pay to
the Transfer Agent a fee for providing such services as set forth in Appendix A
to this Agreement.
ARTICLE V
DIVIDENDS AND DISTRIBUTIONS
1. The Fund shall furnish to the Transfer Agent a copy of a resolution
of its Board of Trustees, certified by the Secretary or any Assistant Secretary,
either (i) setting forth with respect to a class of Shares the date of the
declaration of a dividend or distribution, the date of accrual or payment, as
the case may be, thereof, the record date as of which Shareholders entitled to
payment, or accrual, as the case may be, shall be determined, the amount per
Share of such dividend or distribution, the payment date on which all previously
accrued and unpaid dividends are to be paid, and the total amount, if any,
payable to the Transfer Agent on such payment date, or (ii) authorizing the
declaration of dividends and distributions on a daily or other periodic basis
and authorizing the Transfer Agent to rely on a Certificate setting forth the
information described in subsection (i) of this paragraph.
2. Upon the payment date specified in such Certificate or resolution,
as the case may be, the Fund shall, in the case of a cash dividend or
distribution, cause the Custodian to make available to the Transfer Agent an
amount of cash, if any, sufficient for the Transfer Agent to make the payment,
if any, specified in such Certificate or resolution, as the case may be, to the
Shareholders of record as of such payment date. The Transfer Agent will, upon
receipt of any such cash, make payment of such cash dividends or distributions
to the Shareholders of record as of the record date by: (i) mailing a check,
payable to the registered shareholder, to the address of record or dividend
mailing address, or (ii) wiring such amounts to the accounts previously
designated by an Approved Institution, as the case may be. The Transfer Agent
shall not be liable for any improper payments made in accordance with a
Certificate or resolution described in the preceding paragraph. If the Transfer
Agent shall not receive from the Custodian sufficient cash to make payments of
any cash dividend or distribution on the payable date to all shareholders of
record of the Fund as of the record date, the Transfer Agent shall, upon
notifying the Fund, withhold payment to all shareholders of record as of the
record date until sufficient cash is provided to the Transfer Agent.
3. It is understood that the Transfer Agent shall in no way be
responsible for the determination of the rate or form of dividends or capital
gain distributions due to the shareholders.
4. It is understood that the Transfer Agent shall file such appropriate
information returns concerning the payment of dividends and capital gain
distributions with the proper federal, state and local authorities as are
required by law to be filed by the Fund but shall in no way be responsible for
the collection or withholding of taxes due on such dividends or distributions
due to shareholders, except and only to the extent required of it by applicable
law or agreed between the Transfer Agent and the Fund.
ARTICLE VI
CONCERNING THE FUND
1. The Fund shall promptly deliver to the Transfer Agent written notice
of any change in the Officers authorized to sign Share certificates,
Certificates, notifications or requests, together with a specimen signature of
each new Officer. In the event any Officer who shall have signed manually or
whose facsimile signature shall have been affixed to blank Share certificates
shall die, resign or be removed prior to issuance of such Share certificates,
the Transfer Agent may issue such Share certificates of the Fund notwithstanding
such death, resignation or removal, and the Fund shall promptly deliver to the
Transfer Agent such approval, adoption or ratification as may be required by
law.
2. Each copy of the Declaration of Trust of the Fund and copies of all
amendments thereto shall be certified by the Secretary of the Fund. Each copy of
the By-Laws and copies of all amendments thereto, and copies of resolutions of
the Board of Trustees of the Fund, shall be certified by the Secretary of the
Fund.
<PAGE> 6
3. It shall be the sole responsibility of the Fund to deliver to the
Transfer Agent the Fund's currently effective Prospectus and, for purposes of
this Agreement, the Transfer Agent shall not be deemed to have notice of any
information contained in such Prospectus until it is actually received by the
Transfer Agent.
ARTICLE VII
CONCERNING THE TRANSFER AGENT
1. The Transfer Agent represents that it is currently registered with
the appropriate federal agency for the registration of transfer agents, or is
otherwise permitted to conduct lawfully its activities without such registration
and that it will remain so registered for the duration of this Agreement. The
Transfer Agent agrees that it will promptly notify the Fund in the event of any
material change in its status as a registered transfer agent. Should the
Transfer Agent fail to be registered with the SEC as a transfer agent at any
time during this Agreement, and such failure to register does not permit the
Transfer Agent to conduct lawfully its activities, the Fund may terminate this
Agreement upon five days' written notice to the Transfer Agent.
2. The Transfer Agent shall not be liable and shall be fully protected
in acting upon any computer tape, writing or document reasonably believed by it
to be genuine and to have been signed or made by the proper person or persons
and shall not be held to have any notice of any change of authority of any
person until receipt of written notice thereof from the Fund or such person. It
shall also be protected in processing Share certificates which it reasonably
believes to bear the proper manual or facsimile signatures of the Officers of
the Fund and the proper countersignature of the Transfer Agent.
3. The Transfer Agent may establish such additional procedures, rules
and regulations governing the transfer or registration of certificates of stock
as it may deem advisable and consistent with such rules and regulations
generally adopted by transfer agents.
4. The Transfer Agent shall keep such records in complete and accurate
form as are required by law or otherwise as required by the Fund's Prospectus or
Statement of Additional Information or good business practice in the form and
manner, and for such period, as it may deem advisable but not inconsistent with
the rules and regulations of appropriate government authorities, in particular
Rules 31a-2 and 31a-3 under the 1940 Act, as amended from time to time. The
Transfer Agent may deliver to the Fund from time to time as mutually agreed with
the Fund, for safekeeping or disposition by the Fund in accordance with law,
such records, papers, Share certificates which have been canceled in transfer,
exchange or redemption, or other documents accumulated in the execution of its
duties as such Transfer Agent, other than those which the Transfer Agent is
itself required to maintain pursuant to applicable laws and regulations, and the
Fund shall assume all responsibility for any failure thereafter to produce any
record, paper, canceled Share certificate, or other document so returned, if and
when required. The records hereto maintained by the Transfer Agent pursuant to
this paragraph 4, which have not been previously delivered to the Fund pursuant
to the foregoing provisions of this paragraph 4, shall be considered to be the
property of the Fund, shall be made available promptly upon request for
inspection by the officers, employees and auditors of the Fund, and such records
shall be delivered to the Fund upon request and in any event upon the date of
termination of this Agreement, as specified in Article VIII of this Agreement,
in the form and manner kept by the Transfer Agent on such date of termination or
such earlier date as may be requested by the Fund.
5. The Transfer Agent agrees on its own behalf and that of its
employees to keep confidential all records of the Fund and information relating
to the Fund and its shareholders (past, present and future), its investment
adviser and its principal underwriter, unless the release of such records or
information is otherwise consented to, in writing, by the Fund prior to its
release. The Fund agrees that such consent shall not be unreasonably withheld,
and may not be withheld where the Transfer Agent may be exposed to civil or
criminal contempt proceedings or when required to divulge such information or
records to duly constituted authorities.
6. Subject to approval by the Fund, the Transfer Agent may employ
agents or attorneys-in-fact at the expense of the Fund. If the selection of any
such agent or attorney-in-fact is approved by the Fund in a Certificate, the
Transfer Agent shall not be liable for any loss or expense arising out of, or in
connection with, the actions or omissions to act of such agent or
attorney-in-fact so long as the Transfer Agent acts in good faith and without
negligence or willful misconduct in the selection of such agent or
attorney-in-fact. In the event the selection of an agent or attorney-in-fact is
not approved by the Fund, the Transfer Agent shall have with respect to the
actions or omissions to act of such agent or attorney-in-fact the same rights,
duties, and responsibilities as the Transfer Agent would have if any such
actions or omissions to act were the action or omission to act of the Transfer
Agent or any officer or employee of the Transfer Agent. Notwithstanding the
foregoing, nothing contained in this paragraph shall obligate the Fund to
approve the selection of any agent or attorney-in-fact, and the Fund shall at
all times be free to withhold any such approval.
<PAGE> 7
7. Except to the extent set forth in paragraph 6 of this Article, the
Transfer Agent shall not be liable for any loss or damage, including counsel
fees, resulting from its actions or omissions to act or otherwise, except for
any loss or damage arising out of its own failure to act in good faith,
negligence or willful misconduct.
8. The Transfer Agent shall maintain insurance of the types and in the
amounts deemed by it to be appropriate. To the extent that policies of insurance
may provide for coverage of claims for liability or indemnity by the parties set
forth in this Agreement, the contracts of insurance shall take precedence, and
no provision of this Agreement shall be construed to relieve an insurer of any
obligation to pay claims to the Fund, the Transfer Agent or other insured party
which would otherwise be a covered claim in the absence of any provision of this
Agreement.
9. The Transfer Agent represents and warrants that, to the best of its
knowledge, the various procedures and systems which the Transfer Agent has
implemented with regard to the safeguarding form loss or damage attributable by
fire, theft or any other cause (including provision for twenty-four hours a day
restricted access) of the Fund's blank checks, certificates, records and other
data and the Transfer Agent's equipment, facilities and other property used in
the performance of its obligations hereunder are adequate, and that it will make
such changes therein from time to time as in its judgment are required for the
secure performance of its obligation hereunder. The Transfer Agent shall review
such systems and procedures on a periodic basis and the Fund shall have access
to review these systems and procedures.
10. The Fund shall indemnify and exonerate, save and hold harmless the
Transfer Agent from and against any and all claims (whether with or without
basis in fact or law), demands, expenses (including attorney's fees) and
liabilities of any and every nature which the Transfer Agent may sustain or
incur or which may be asserted against the Transfer Agent by any person by
reason of or as a result of any action taken or omitted to be taken by the
Transfer Agent in good faith and without negligence or willful misconduct or in
reliance upon (i) any provision of this Agreement; (ii) the Prospectus; (iii)
any instruction or order including, without limitation, any computer tape
reasonably believed by the Transfer Agent to have been received from an Approved
Institution; (iv) any instrument, order or Share certificate reasonably believed
by it to be genuine and to be signed, countersigned or executed by any duly
authorized Officer of the Fund; (v) any Certificate or other instructions of an
Officer; or (vi) any opinion of legal counsel for the Fund or the Transfer
Agent. The Fund shall indemnify and exonerate, save and hold harmless the
Transfer Agent from and against any and all claims (whether with or without
basis in fact or law), demands, expenses (including attorney's fees) and
liabilities of any and every nature which the Transfer Agent may sustain or
incur or which may be asserted against the Transfer Agent by any person by
reason of or as a result of any action taken or omitted to be taken by the
Transfer Agent in good faith in connection with its appointment or in reliance
upon any law, act, regulation or any interpretation of the same even though such
law, act or regulation may thereafter have been altered, changed, amended or
repealed.
11. Specifically, but not by way of limitation, the Fund shall
indemnify and exonerate, save and hold harmless the Transfer Agent from and
against any and all claims (whether with or without basis in fact or law),
demands, expenses (including attorney's fees) and liabilities of any and every
nature which the Transfer Agent may sustain or incur or which may be asserted
against the Transfer Agent to any person in connection with the genuineness of a
Share certificate, the Transfer Agent's capacity and authorization to issue
Shares and the form and amount of authorized Shares.
12. At any time, the Transfer Agent may apply to an Officer of the Fund
for written instructions with respect to any matter arising in connection with
the Transfer Agent's duties and obligations under this Agreement, and the
Transfer Agent shall not be liable for any action taken or permitted by it in
good faith in accordance with such written instructions. Such application by the
Transfer Agent for written instructions from an Officer of the Fund may, at the
option of the Transfer Agent, set forth in writing any action proposed to be
taken or omitted by the Transfer Agent with respect to its duties or obligations
under this Agreement and the date on and/or after which such action shall be
taken, and the Transfer Agent shall not be liable for any action taken or
omitted in accordance with a proposal included in any such application on or
after the date specified therein unless, prior to taking or omitting any such
action, the Transfer Agent has received written instructions in response to such
application specifying the action to be taken or omitted. The Transfer Agent may
consult counsel to the Fund, or its own counsel, at the expense of the Fund, and
shall be fully protected with respect to anything done or omitted by it in good
faith in accordance with the advice or opinion of counsel to the Fund or its own
counsel.
13. The Transfer Agent agrees to indemnify and hold harmless the Fund
from all taxes, charges expenses, assessments, claims and liabilities arising
from the Transfer Agent's obligations pursuant to this Agreement (including,
without limitation, liabilities arising under the federal securities laws, and
any state and foreign securities and blue sky laws, and amendments thereto) and
expenses, including (without limitation) reasonable attorneys' fees and
disbursements arising directly or indirectly out of the Transfer Agent's own
willful misfeasance, bad faith, negligence or reckless disregard of its duties
and obligations under this Agreement.
14. In order that the indemnification provisions contained in this
Article shall apply, upon the assertion of a claim for which either party may be
required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of
<PAGE> 8
such assertion, and shall keep the other party advised with respect to all
developments concerning such claims. The party who may be required to indemnify
shall have the option to participate with the party seeking indemnification
shall in no case confess any claim or make any compromise in any case in which
the other party may be required to indemnify it except with the other party's
prior written consent.
15. When mail is used for delivery of non-negotiable Share
certificates, the value of which does not exceed the limits of the Transfer
Agent's Blanket Bond, the Transfer Agent shall send such non-negotiable Share
certificates by first class mail, and such deliveries will be covered while in
transit by the Transfer Agent's Blanket Bond. Non-negotiable Share certificates,
the value of which exceed the limits of the Transfer Agent's Blanket Bond, will
be sent by insured registered mail. Negotiable Share certificates will be sent
by insured registered mail. The Transfer Agent shall advise the Fund of any
Share certificates returned as undelivered after being mailed as herein
provided.
16. The Transfer Agent may issue new Share certificates in place of
Share certificates represented to have been lost, stolen or destroyed upon
receiving instructions in writing from an Officer and indemnity satisfactory to
the Transfer Agent. Such instructions from the Fund shall be in such form as
approved by the Board of Trustees of the Fund in accordance with the provisions
of law or of the By-Laws of the Fund governing such matters. If the Transfer
Agent receives written notification from the owner of the lost, destroyed or
stolen Share certificate within a reasonable time after he has notice of it, the
Transfer Agent shall promptly notify the Fund and shall act pursuant to written
instructions signed by an Officer. If the Fund receives such written
notification from the owner of the lost, destroyed or stolen Share certificate
within a reasonable time after he has notice of it, the Fund shall promptly
notify the Transfer Agent and the Transfer Agent shall act pursuant to written
instructions signed by an Officer. The Transfer Agent shall not be liable for
any act done or omitted by it pursuant to the written instructions described
herein. The Transfer Agent may issue new Share certificates in exchange for, and
upon surrender of, mutilated Share certificates.
17. The Transfer Agent will issue and mail subscription warrants for
Shares of beneficial interest, Shares representing stock dividends, exchanges or
splits, or act as conversion agent upon receiving written instructions from an
Officer and such other documents as the Transfer Agent may deem necessary.
18. The Transfer Agent will supply shareholder lists to the Fund from
time to time upon receiving a request therefor from an Officer of the Fund.
19. In case of any requests or demands for the inspection of the
shareholder records of the Fund, the Transfer Agent will endeavor to notify the
Fund and to secure instructions from an Officer prior to such inspection.
Notwithstanding the foregoing, the Transfer Agent shall have the right to
exhibit such records to any Federal or State authority with whom the Fund or its
Shares are registered, and the Transfer Agent shall further have the right to
exhibit any such records to any person whenever it receives an opinion from its
counsel that there is reasonable likelihood that the Transfer Agent will be held
liable for the failure to exhibit such records, provided, however, that in
connection with any such exhibiting the Transfer Agent shall promptly notify the
Fund upon receipt of any such request or demand for inspection, indicating
whether such exhibiting has been made or is to be made.
20. At the request of an Officer, the Transfer Agent will address and
mail such appropriate notices to shareholders as the Fund may direct.
21. Notwithstanding any of the foregoing provisions of this Agreement,
the Transfer Agent shall be under no duty or obligation to inquire into, and
shall not be liable for:
(a) The legality of the issue or sale of any Shares, the
sufficiency of the amount to be received therefor, or the authority of
the Approved Institution or of the Fund, as the case may be, to request
such sale or issuance;
(b) The legality of a transfer of Shares, or of a redemption
of any Shares, the propriety of the amount to be paid therefor, or the
authority of the Approved Institution or of the Fund, as the case may
be, to request such transfer or redemption;
(c) The legality of the declaration of any dividend by the
Fund, or the legality of the issue of any Shares in payment of any
stock dividend; or
(d) The legality of any recapitalization or readjustment of
the Shares.
22. The Transfer Agent shall be entitled to receive and the Fund hereby
agrees to pay to the Transfer Agent for its performance hereunder, the
compensation set forth in Appendix C hereto as it may be amended.
<PAGE> 9
23. The Transfer Agent undertakes to comply with all applicable
requirements of the 1933 Act, Securities Exchange Act of 1934, as amended, and
the 1940 Act, and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by the Transfer
Agent hereunder.
24. The Transfer Agent shall have no duties or responsibil-ities
whatsoever except such duties and responsibilities as are specifically set forth
in this Agreement, and no covenant or obligation shall be implied in this
Agreement against the Transfer Agent.
ARTICLE VIII
TERMINATION
Either of the parties hereto may terminate this Agreement by giving to
the other party a notice in writing specifying the date of such termination,
which shall be not less than 180 days after the date of receipt of such notice.
In the event such notice is given by the Fund, it shall be accompanied by a copy
of a resolution of the Board of Trustees of the Fund, certified by the Secretary
or any Assistant Secretary, electing to terminate this Agreement and designating
a successor transfer agent or transfer agents. In the event such notice is given
by the Transfer Agent, the Fund shall, on or before the termination date,
deliver to the Transfer Agent a copy of a resolution of its Board of Trustees
certified by the Secretary or any Assistant Secretary designating a successor
transfer agent or transfer agents. In the absence of such designation by the
Fund, the Transfer Agent may designate a successor transfer agent. If the Fund
fails to designate a successor transfer agent and if the Transfer Agent is
unable to find a successor transfer agent, the Fund shall, upon the date
specified in the notice of termination of this Agreement and delivery of the
records maintained hereunder, be deemed to be its own transfer agent and the
Transfer Agent shall thereby be relieved of all duties and responsibilities
pursuant to this Agreement. Upon the termination hereof, the Fund shall pay to
the Transfer Agent such compensation as may be due for the period prior to the
date of such termination. Any termination affected hereunder shall not affect
the rights and obligations of the parties under Article VII hereof.
ARTICLE IX
MISCELLANEOUS
1. The Fund agrees that prior to effecting any change in the Prospectus
which would increase or alter the duties and obligations of the Transfer Agent
hereunder, it shall advise the Transfer Agent of such proposed change at least
30 days prior to the intended date of the same, and shall proceed with such
change only if it shall have received the written consent of the Transfer Agent
thereto, and the Transfer Agent shall not unreasonably withhold such consent.
2. Any notice or other instrument in writing authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office at 580 Walnut Street,
Cincinnati, Ohio 45202 or at such other place as the Fund may from time to time
designate in writing.
3. Any notice or other instrument in writing authorized or required by
this Agreement to be given to the Transfer Agent shall be sufficiently given if
addressed to the Transfer Agent and mailed or delivered to it at its office at
800 Superior Avenue, Cleveland, Ohio 44114 or at such other place as the
Transfer Agent may from time to time designate in writing.
4. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the formality of this
Agreement and authorized or approved by a resolution of the Board of Trustees of
the Fund.
5. 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 Fund without the written consent
of the Transfer Agent.
6. This Agreement shall be governed by and construed in accordance with
the laws of the State of Ohio.
7. 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.
8. The provisions of this Agreement are intended to benefit only the
Transfer Agent and the Fund, and no rights shall be granted to any other person
by virtue of this Agreement.
<PAGE> 10
9. 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, not 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 caused this Agreement to be
executed by their respective officers thereunto duly authorized and their
respective corporate seals to be hereunto affixed, as of the day and year first
above written.
GRADISON MUNICIPAL CUSTODIAN TRUST
By: /S/ Donald E. Weston
-----------------------
McDONALD & COMPANY SECURITIES, INC.
By: William Summers
-------------------
<PAGE> 11
TRANSFER AGENCY AND ACCOUNTING SERVICES AGREEMENT
APPENDIX B
I, Richard M. Wachterman, Secretary of Gradison-McDonald Municipal Custodian
Trust, an Ohio business trust do hereby certify that the following are the only
series of the Trust authorized by the Trust as of the dated of the Amendment of
this Appendix B to this transfer Agency Agreement:
No par value shares of beneficial interest in Gradison Ohio Tax-Free Income
Fund.
Richard M. Wachterman
---------------------
Secretary
September 15, l997
------------------
<PAGE> 12
TRANSFER AGENCY, ACCOUNTING SERVICES AND
ADMINISTRATIVE SERVICES AGREEMENT
APPENDIX C
The Fund shall pay to the Transfer Agent for transfer agency and
administrative duties a fee in the amount of $23.00 per non-zero balance
shareholder account per year based on the number of each series' accounts on the
master file at month-end, plus $5.00 per closed or zero balance shareholder
account per year based on the master file at month end. The Fund shall also pay
out-of-pocket costs for statement paper, statement envelopes, reply envelopes,
and reply postage.
The Fund shall also pay to the Transfer Agent, for accounting services
an annual fee in the amount of .035% of the first $100 million of average daily
Fund net assets, .025% of the next $100 million of average daily Fund net
assets, .015% of assets in excess of $200 million, with a minimum annual fee of
$48,000.
All fees shall be paid within ten days after the end of each month. The
Fund shall be responsible for paying any applicable taxes with respect to the
services provided by this Agreement.
Revised: May 8, l997
<PAGE> 1
EXHIBIT 10
Gradison Division
McDonald & Company Securities, Inc.
580 Walnut Street
Cincinnati, Ohio 45202
(513) 579-5076
October 27, l997
Gradison-McDonald Municipal Custodian Trust
580 Walnut Street
Cincinnati, Ohio 45202
Dear Sir or Madam:
Reference is made to issuance of shares of beneficial interest, ("Shares").
without par value of the Gradison Ohio Tax-Free Income Fund, a series of
Gradison-McDonald Municipal Custodian Trust.
I wish to advise you that I have reviewed the Trust's Declaration of Trust, its
By-Laws, the record of proceeding of its trustees from the date of its
organization until the present time, the applicable provisions of the laws of
the State of Ohio under which the Trust was organized, and such other documents
and questions of law as I deem necessary for the purpose of this opinion.
Based upon the foregoing, I am of the opinion that the Shares may be legally and
validly issued from time to time in accordance with the Trust's Declaration of
Trust and By-Laws and subject to compliance with the Securities Act of l933, as
amended, Investment Company Act of l940, as amended, and applicable state laws
regulating the sale of securities; and when so issued will be fully paid and
non-assessable.
I hereby consent to the filing of this opinion in connection with the
Post-Effective Amendment No. 10 to the Trust's Registration Statement on Form
N-1A (File No. 33-48613) which is about to be filed with the Securities and
Exchange Commission.
Sincerely,
Richard M. Wachterman
General Counsel
<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. 10 of our report dated July 25, 1997 and to all
references to our Firm included in or made a part of this post-effective
amendment.
/S/ Arthur Andersen LLP
Cincinnati, Ohio,
October 29, l997
<PAGE> 1
EXHIBIT 15
GRADISON-MCDONALD MUNICIPAL CUSTODIAN TRUST
DISTRIBUTION SERVICE PLAN
Section 1. Gradison-McDonald Municipal 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-1 (the "Rule") promulgated under the 1940 Act, may finance
the distribution of securities of which it is the issuer, including shares of
its Gradison-McDonald Ohio Tax-Free Income Fund (the "Portfolio") in accordance
with the terms of this Distribution Plan (the "Plan").
Section 2. In addition to those expenses incurred as
described in Section 3 below, while this Plan is in effect, the Trust may, in
respect of the distribution of securities of which it is the issuer, including
shares of the Portfolio, expend funds at 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
expenditures or may suspend the operation of this Section 2 for such period or
periods of time as they may determine. 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 Fund
accounts.
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 fees is
authorized under this Plan. 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, semiannual 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 the meaning
of the Rule, such payments when made by the Trust pursuant to the Investment
Advisory Agreement are authorized under this Plan.
Section 4. 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.
<PAGE> 2
Section 5. 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 6. This Plan shall not take effect as to a 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 a 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 a 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 expenditures incurred as to a 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 7. 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 a
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 8. 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 6 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 expenditures which may be made
with respect to such series and the purposes for which such expenditures may be
used by the Distributor, whereupon each such series shall be included with the
Gradison-McDonald Ohio Tax-Free Income Fund in the term "Portfolio" hereunder.
Section 9. The adoption of this Plan shall not constitute an
admission that any payments made by the Trust and authorized by the Plan
pursuant to Section 3 constitute distribution expenses within the meaning of the
Rule, or that payments of distribution expenses by the Trust's Adviser would
constitute the indirect payment of distribution expenses by the Trust or a
Portfolio.
Section 10. 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 11. The Trust shall preserve copies of this Plan and
any related agreements and all reports made pursuant to Section 5 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.
<PAGE> 3
Dated: August 25, l992
Amended: February 25, l994
<PAGE> 1
EXHIBIT 16
GRADISON-MCDONALD OHIO TAX FREE INCOME FUND
Average Annual Total Return - At Net Asset Value
1 Year
Period Ended June 30, 1997
<TABLE>
<CAPTION>
PRICE/ TRANSACTION CUMULATIVE
DATE TRANSACTION DIVIDEND NAV SHARES SHARES
<S> <C> <C> <C> <C> <C>
30-Jun-96 $1000 PURCHASE 12.900 7.519 77.519
26-Jul-96 INCOME DIVIDEND $0.0540 $12.92 0.324 77.843
30-Aug-96 INCOME DIVIDEND $0.0540 $12.96 0.324 78.167
27-Sep-96 INCOME DIVIDEND $0.0540 $13.11 0.322 78.489
25-Oct-96 INCOME DIVIDEND $0.0540 $13.10 0.324 78.813
29-Nov-96 INCOME DIVIDEND $0.0540 $13.38 0.318 79.131
27-Dec-96 INCOME DIVIDEND $0.0540 $13.29 0.321 79.452
31-Jan-97 INCOME DIVIDEND $0.0540 $13.23 0.324 79.776
28-Feb-97 INCOME DIVIDEND $0.0540 $13.30 0.324 80.100
27-Mar-97 INCOME DIVIDEND $0.0540 $13.06 0.332 80.432
25-Apr-97 INCOME DIVIDEND $0.0530 $13.03 0.327 80.759
30-May-97 INCOME DIVIDEND $0.0530 $13.27 0.323 81.082
27-Jun-97 INCOME DIVIDEND $0.0470 $13.41 0.284 81.366
</TABLE>
ESTIMATED NAV
REDEEMABLE = ENDING X END of
VALUE (ERV) SHARES PERIOD
$1,087.86 81.366 $13.37
PER SHARE
PERIOD END ENDING VALUE of
UNPAID DIV VALUE = SHARES X UNPAID DIV
$0.14 81.366 $0.0017
-
$1,088.00 = ENDING VALUE (ERV+UNPD DIV VALUE)
1.00
$1000(1+T) = $1,088.00
<PAGE> 2
T = 8.80%
<PAGE> 3
GRADISON-MCDONALD OHIO TAX FREE INCOME FUND
Average Annual Total Return - At Net Asset Value
Since Inception (9/18/92)
Period Ended June 30, 1997
<TABLE>
<CAPTION>
TRANSACTION CUMULATIVE
PRICE/
DATE TRANSACTION DIVIDEND NAV SHARES SHARES
- ------------- --------------------- --------------- -------- ----------------------- --------------------
<S> <C> <C> <C> <C> <C>
18-Sep-92 $1000 PURCHASE $12.50 80.000 80.000
27-Nov-92 INCOME DIVIDEND $0.1280 $12.57 0.815 80.815
31-Dec-92 INCOME DIVIDEND $0.0600 $12.67 0.383 81.198
29-Jan-93 INCOME DIVIDEND $0.0590 $12.77 0.375 81.573
26-Feb-93 INCOME DIVIDEND $0.0600 $13.24 0.369 81.942
26-Mar-93 INCOME DIVIDEND $0.0590 $13.01 0.371 82.313
30-Apr-93 INCOME DIVIDEND $0.0580 $13.12 0.364 82.677
28-May-93 INCOME DIVIDEND $0.0580 $13.19 0.364 83.041
25-Jun-93 INCOME DIVIDEND $0.0580 $13.35 0.361 83.402
30-Jul-93 INCOME DIVIDEND $0.0557 $13.32 0.349 83.751
27-Aug-93 INCOME DIVIDEND $0.0557 $13.56 0.344 84.095
27-Aug-93 CAP.GAIN DIST. $0.0100 0.062 84.157
24-Sep-93 INCOME DIVIDEND $0.0550 $13.70 0.338 84.495
29-Oct-93 INCOME DIVIDEND $0.0550 $13.67 0.340 84.835
26-Nov-93 INCOME DIVIDEND $0.0546 $13.46 0.344 85.179
31-Dec-93 INCOME DIVIDEND $0.0450 $13.52 0.283 85.462
31-Dec-93 CAP. GAIN DIST. $0.1060 0.668 86.130
28-Jan-94 INCOME DIVIDEND $0.0546 $13.65 0.344 86.474
25-Feb-94 INCOME DIVIDEND $0.0551 $13.20 0.361 86.835
25-Mar-94 INCOME DIVIDEND $0.0539 $12.86 0.364 87.199
29-Apr-94 INCOME DIVIDEND $0.0536 $12.53 0.373 87.572
27-May-94 INCOME DIVIDEND $0.0536 $12.63 0.371 87.943
24-Jun-94 INCOME DIVIDEND $0.0480 $12.55 0.336 88.279
29-Jul-94 INCOME DIVIDEND $0.0534 $12.69 0.371 88.650
26-Aug-94 INCOME DIVIDEND $0.0550 $12.64 0.386 89.036
30-Sep-94 INCOME DIVIDEND $0.0550 $12.39 0.395 89.431
28-Oct-94 INCOME DIVIDEND $0.0580 $12.05 0.431 89.862
25-Nov-94 INCOME DIVIDEND $0.0580 $11.65 0.447 90.309
30-Dec-94 INCOME DIVIDEND $0.0580 $12.00 0.437 90.746
27-Jan-95 INCOME DIVIDEND $0.0580 $12.26 0.429 91.175
24-Feb-95 INCOME DIVIDEND $0.0580 $12.58 0.421 91.596
31-Mar-95 INCOME DIVIDEND $0.0550 $12.68 0.397 91.993
28-Apr-95 INCOME DIVIDEND $0.0543 $12.62 0.396 92.389
26-May-95 INCOME DIVIDEND $0.0500 $12.96 0.356 92.745
30-Jun-95 INCOME DIVIDEND $0.0495 $12.77 0.359 93.104
28-Jul-95 INCOME DIVIDEND $0.0540 $12.77 0.394 93.498
25-Aug-95 INCOME DIVIDEND $0.0540 $12.75 0.396 93.894
29-Sep-95 INCOME DIVIDEND $0.0540 $12.93 0.392 94.286
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C> <C> <C> <C>
27-Oct-95 INCOME DIVIDEND $0.0540 $13.04 0.390 94.676
24-Nov-95 INCOME DIVIDEND $0.0540 $13.14 0.389 95.065
29-Dec-95 INCOME DIVIDEND $0.0540 $13.33 0.385 95.450
26-Jan-96 INCOME DIVIDEND $0.0540 $13.26 0.388 95.838
23-Feb-96 INCOME DIVIDEND $0.0540 $13.22 0.392 96.230
29-Mar-96 INCOME DIVIDEND $0.0540 $12.95 0.402 96.632
26-Apr-96 INCOME DIVIDEND $0.0540 $12.88 0.405 97.037
31-May-96 INCOME DIVIDEND $0.0540 $12.82 0.409 97.446
30-Jun-96 INCOME DIVIDEND $0.0540 $12.90 0.408 97.854
26-Jul-96 INCOME DIVIDEND $0.0540 $12.92 0.409 98.263
30-Aug-96 INCOME DIVIDEND $0.0540 $12.96 0.410 98.673
27-Sep-96 INCOME DIVIDEND $0.0540 $13.11 0.407 99.080
25-Oct-96 INCOME DIVIDEND $0.0540 $13.10 0.408 99.488
29-Nov-96 INCOME DIVIDEND $0.0540 $13.38 0.401 99.889
27-Dec-96 INCOME DIVIDEND $0.0540 $13.29 0.406 100.295
31-Jan-97 INCOME DIVIDEND $0.0540 $13.23 0.410 100.705
28-Feb-97 INCOME DIVIDEND $0.0540 $13.30 0.409 101.114
27-Mar-97 INCOME DIVIDEND $0.0540 $13.06 0.418 101.532
25-Apr-97 INCOME DIVIDEND $0.0530 $13.03 0.413 101.945
30-May-97 INCOME DIVIDEND $0.0530 $13.27 0.407 102.352
27-Jun-97 INCOME DIVIDEND $0.0470 $13.41 0.359 102.711
</TABLE>
ESTIMATED NAV
REDEEMABLE = ENDING X END of
VALUE (ERV) SHARES PERIOD
$1,373.25 102.711 $13.37
PER SHARE
PERIOD END ENDING VALUE of
UNPAID DIV VALUE = SHARES X UNPAID DIV
$0.17 102.711 $0.0017
-
$1,373.42 = ENDING VALUE (ERV+UNPD DIV VALUE)
4.78
$1000(1+T) = $1,373.42
T = 6.86%
GRADISON-MCDONALD OHIO TAX FREE INCOME FUND
Average Annual Total Return - With 2% Load
Since Inception (9/18/92)
Period Ended June 30, 1997
<PAGE> 5
<TABLE>
<CAPTION>
PRICE/ PRICE/ TRANSACTION CUMULATIVE
DATE TRANSACTION DIVIDEND NAV SHARES SHARES
<S> <C> <C> <C> <C> <C>
18-Sep-92 $1000 PURCHASE $12.76 78.370 78.370
27-Nov-92 INCOME DIVIDEND $0.1280 $12.57 0.798 79.168
31-Dec-92 INCOME DIVIDEND $0.0600 $12.67 0.375 79.543
29-Jan-93 INCOME DIVIDEND $0.0590 $12.77 0.367 79.910
26-Feb-93 INCOME DIVIDEND $0.0600 $13.24 0.362 80.272
26-Mar-93 INCOME DIVIDEND $0.0590 $13.01 0.364 80.636
30-Apr-93 INCOME DIVIDEND $0.0580 $13.12 0.357 80.993
28-May-93 INCOME DIVIDEND $0.0580 $13.19 0.356 81.349
25-Jun-93 INCOME DIVIDEND $0.0580 $13.35 0.354 81.703
30-Jul-93 INCOME DIVIDEND $0.0557 $13.32 0.342 82.045
27-Aug-93 INCOME DIVIDEND $0.0557 $13.56 0.337 82.382
27-Aug-93 CAP.GAIN DIST. $0.0100 0.060 82.442
24-Sep-93 INCOME DIVIDEND $0.0550 $13.70 0.331 82.773
29-Oct-93 INCOME DIVIDEND $0.0550 $13.67 0.333 83.106
26-Nov-93 INCOME DIVIDEND $0.0546 $13.46 0.337 83.443
31-Dec-93 INCOME DIVIDEND $0.0450 $13.52 0.277 83.720
31-Dec-93 CAP. GAIN DIST. $0.1060 0.654 84.374
28-Jan-94 INCOME DIVIDEND $0.0546 $13.65 0.338 84.712
25-Feb-94 INCOME DIVIDEND $0.0551 $13.20 0.354 85.066
25-Mar-94 INCOME DIVIDEND $0.0539 $12.86 0.357 85.423
29-Apr-94 INCOME DIVIDEND $0.0536 $12.53 0.366 85.789
27-May-94 INCOME DIVIDEND $0.0536 $12.63 0.364 86.153
24-Jun-94 INCOME DIVIDEND $0.0480 $12.55 0.330 86.483
29-Jul-94 INCOME DIVIDEND $0.0534 $12.69 0.364 86.847
26-Aug-94 INCOME DIVIDEND $0.0550 $12.64 0.378 87.225
30-Sep-94 INCOME DIVIDEND $0.0550 $12.39 0.387 87.612
28-Oct-94 INCOME DIVIDEND $0.0580 $12.05 0.422 88.034
25-Nov-94 INCOME DIVIDEND $0.0580 $11.65 0.439 88.473
30-Dec-94 INCOME DIVIDEND $0.0580 $12.00 0.428 88.901
27-Jan-95 INCOME DIVIDEND $0.0580 $12.26 0.421 89.322
24-Feb-95 INCOME DIVIDEND $0.0580 $12.58 0.412 89.734
31-Mar-95 INCOME DIVIDEND $0.0550 $12.68 0.390 90.124
28-Apr-95 INCOME DIVIDEND $0.0543 $12.62 0.387 90.511
26-May-95 INCOME DIVIDEND $0.0500 $12.96 0.350 90.861
30-Jun-95 INCOME DIVIDEND $0.0495 $12.77 0.352 91.213
28-Jul-95 INCOME DIVIDEND $0.0540 $12.77 0.386 91.599
25-Aug-95 INCOME DIVIDEND $0.0540 $12.75 0.388 91.987
29-Sep-95 INCOME DIVIDEND $0.0540 $12.93 0.384 92.371
27-Oct-95 INCOME DIVIDEND $0.0540 $13.04 0.383 92.754
24-Nov-95 INCOME DIVIDEND $0.0540 $13.14 0.381 93.135
29-Dec-95 INCOME DIVIDEND $0.0540 $13.33 0.377 93.512
26-Jan-96 INCOME DIVIDEND $0.0540 $13.26 0.381 93.893
23-Feb-96 INCOME DIVIDEND $0.0540 $13.22 0.384 94.277
29-Mar-96 INCOME DIVIDEND $0.0540 $12.95 0.393 94.670
30-Apr-96 INCOME DIVIDEND $0.0540 $12.88 0.397 95.067
31-May-96 INCOME DIVIDEND $0.0540 $12.82 0.400 95.467
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C> <C> <C> <C>
30-Jun-96 INCOME DIVIDEND $0.0540 $12.90 0.400 95.867
26-Jul-96 INCOME DIVIDEND $0.0540 $12.92 0.401 96.268
30-Aug-96 INCOME DIVIDEND $0.0540 $12.96 0.401 96.669
27-Sep-96 INCOME DIVIDEND $0.0540 $13.11 0.398 97.067
25-Oct-96 INCOME DIVIDEND $0.0540 $13.10 0.400 97.467
29-Nov-96 INCOME DIVIDEND $0.0540 $13.38 0.393 97.860
27-Dec-96 INCOME DIVIDEND $0.0540 $13.29 0.397 98.257
31-Jan-97 INCOME DIVIDEND $0.0540 $13.23 0.401 98.658
28-Feb-97 INCOME DIVIDEND $0.0540 $13.30 0.401 99.059
27-Mar-97 INCOME DIVIDEND $0.0540 $13.06 0.410 99.469
25-Apr-97 INCOME DIVIDEND $0.0530 $13.03 0.404 99.873
30-May-97 INCOME DIVIDEND $0.0530 $13.27 0.399 100.272
27-Jun-97 INCOME DIVIDEND $0.0470 $13.41 0.351 100.623
</TABLE>
ESTIMATED NAV
REDEEMABLE = ENDING X END of
VALUE (ERV) SHARES PERIOD
$1,345.33 100.623 $13.37
PER SHARE
PERIOD END ENDING VALUE of
UNPAID DIV VALUE = SHARES X UNPAID DIV
$0.17 100.623 $0.0017
$1,345.50 = ENDING VALUE (ERV+UNPD DIV VALUE)
4.78
$1000(1+T) = $1,345.50
T = 6.40%
GRADISON-MCDONALD OHIO TAX FREE INCOME FUND Average Annual Total Return - With
2% Load 1 Year
Period Ended June 30, 1997
<TABLE>
<CAPTION>
PRICE/ TRANSACTION CUMULATIVE
DATE TRANSACTION DIVIDEND NAV SHARES SHARES
=
<S> <C> <C> <C> <C> <C>
30-Jun-96 $1000 PURCHASE $13.160 5.988 75.988
26-Jul-96 INCOME DIVIDEND $0.0540 $12.92 0.317 76.305
30-Aug-96 INCOME DIVIDEND $0.0540 $12.96 0.318 76.623
27-Sep-96 INCOME DIVIDEND $0.0540 $13.11 0.316 76.939
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C> <C> <C> <C>
25-Oct-96 INCOME DIVIDEND $0.0540 $13.10 0.317 77.256
29-Nov-96 INCOME DIVIDEND $0.0540 $13.38 0.312 77.568
27-Dec-96 INCOME DIVIDEND $0.0540 $13.29 0.315 77.883
31-Jan-97 INCOME DIVIDEND $0.0540 $13.23 0.318 78.201
28-Feb-97 INCOME DIVIDEND $0.0540 $13.30 0.317 78.518
27-Mar-97 INCOME DIVIDEND $0.0540 $13.06 0.325 78.843
25-Apr-97 INCOME DIVIDEND $0.0530 $13.03 0.321 79.164
30-May-97 INCOME DIVIDEND $0.0530 $13.27 0.317 79.481
27-Jun-97 INCOME DIVIDEND $0.0470 $13.41 0.279 79.760
</TABLE>
ESTIMATED NAV
REDEEMABLE = ENDING X END of
VALUE (ERV) SHARES PERIOD
= = = =
$1,066.39 79.760 13.37
PER SHARE
PERIOD END ENDING VALUE of
UNPAID DIV VALUE = SHARES X UNPAID DIV
= = = =
$0.13 79.760 $0.0017
-
$1,066.53 = ENDING VALUE (ERV+UNPD DIV VALUE)
1.00
$1000(1+T) = $1,066.53
T = 6.65%
Gradison-McDonald Ohio Tax-Free Income Fund
Calculation of SEC Yield
<TABLE>
<CAPTION>
Daily
NAV POP Daily Shares Accum shares Interest Interest Expense Expense
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
06/30/97 13.370000 13.64286 5,700,230.167 5,700,230.167 11,607.44 11,607.44 1,983.70 1,983.70
</TABLE>
<PAGE> 1
(Exhibit 18)
GRADISON-McDONALD MUNICIPAL CUSTODIAN TRUST
Power of Attorney of Trustees and Officers
The undersigned, an officer or Trustee, or both an officer and Trustee, of
Gradison-McDonald Municipal Custodian Trust an Ohio business trust (the
"Trust"), which has filed with the Securities and Exchange Commission under the
provisions of the Securities Act of 1933, as amended, and the provisions of the
Investment Company Act of 1940, as amended, a Registration Statement on N-1A
(which together with any and all subsequent amendments, including post-effective
amendments, thereto is hereinafter called the "Registration Statement") for the
principal purpose of registering the public offering by the Trust of shares of
beneficial interest without par value of its series, hereby constitutes and
appoints Paul J. Weston, Richard M. Wachterman, Stephen C. Dilbone, Donald E.
Weston and Robert Zutz, and each of them, with full power and substitution or
resubstitution, the attorney or attorneys to execute and file on behalf of the
undersigned in his capacity as an officer and/or trustee of the trust, the
Registration Statement as aforesaid, and any and all exhibits, applications and
other documents to be filed with the Securities and Exchange Commission
pertaining thereto, with full power and authority to do and perform any and all
acts and things whatsoever required or necessary to be done in the premises, as
fully to all intents and purposes as he could do if personally present, hereby
ratifying and approving the acts of said attorneys or any of them and any such
substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
23rd day of May l995.
/S/ Patricia J. Jamieson
<PAGE> 2
GRADISON-McDONALD MUNICIPAL CUSTODIAN TRUST
Power of Attorney of Trustees and Officers
The undersigned, an officer or Trustee, or both an officer and Trustee, of
Gradison-McDonald Municipal Custodian Trust an Ohio business trust (the
"Trust"), which has filed with the Securities and Exchange Commission under the
provisions of the Securities Act of 1933, as amended, and the provisions of the
Investment Company Act of 1940, as amended, a Registration Statement on N-1A
(which together with any and all subsequent amendments, including post-effective
amendments, thereto is hereinafter called the "Registration Statement") for the
principal purpose of registering the public offering by the Trust of shares of
beneficial interest without par value of its series, hereby constitutes and
appoints Paul J. Weston, Richard M. Wachterman, Stephen C. Dilbone, Donald E.
Weston and Robert Zutz, and each of them, with full power and substitution or
resubstitution, the attorney or attorneys to execute and file on behalf of the
undersigned in his capacity as an officer and/or trustee of the trust, the
Registration Statement as aforesaid, and any and all exhibits, applications and
other documents to be filed with the Securities and Exchange Commission
pertaining thereto, with full power and authority to do and perform any and all
acts and things whatsoever required or necessary to be done in the premises, as
fully to all intents and purposes as he could do if personally present, hereby
ratifying and approving the acts of said attorneys or any of them and any such
substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
31st day of October l994.
/S/ Daniel J. Castellini
<PAGE> 3
GRADISON-McDONALD MUNICIPAL CUSTODIAN TRUST
Power of Attorney of Trustees and Officers
The undersigned, an officer or Trustee, or both an officer and Trustee, of
Gradison-McDonald Municipal Custodian Trust an Ohio business trust (the
"Trust"), which has filed with the Securities and Exchange Commission under the
provisions of the Securities Act of 1933, as amended, and the provisions of the
Investment Company Act of 1940, as amended, a Registration Statement on N-1A
(which together with any and all subsequent amendments, including post-effective
amendments, thereto is hereinafter called the "Registration Statement") for the
principal purpose of registering the public offering by the Trust of shares of
beneficial interest without par value of its series, hereby constitutes and
appoints Paul J. Weston, Richard M. Wachterman, Stephen C. Dilbone, Donald E.
Weston and Robert Zutz, and each of them, with full power and substitution or
resubstitution, the attorney or attorneys to execute and file on behalf of the
undersigned in his capacity as an officer and/or trustee of the trust, the
Registration Statement as aforesaid, and any and all exhibits, applications and
other documents to be filed with the Securities and Exchange Commission
pertaining thereto, with full power and authority to do and perform any and all
acts and things whatsoever required or necessary to be done in the premises, as
fully to all intents and purposes as he could do if personally present, hereby
ratifying and approving the acts of said attorneys or any of them and any such
substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
7th day of November l994.
/S/ Bradley E. Turner
GRADISON-McDONALD MUNICIPAL CUSTODIAN TRUST
Power of Attorney of Trustees and Officers
The undersigned, an officer or Trustee, or both an officer and Trustee, of
Gradison-McDonald Municipal Custodian Trust an Ohio business trust (the
"Trust"), which has filed with the Securities and Exchange Commission under the
<PAGE> 4
provisions of the Securities Act of 1933, as amended, and the provisions of the
Investment Company Act of 1940, as amended, a Registration Statement on N-1A
(which together with any and all subsequent amendments, including post-effective
amendments, thereto is hereinafter called the "Registration Statement") for the
principal purpose of registering the public offering by the Trust of shares of
beneficial interest without par value of its series, hereby constitutes and
appoints Paul J. Weston, Richard M. Wachterman, Stephen C. Dilbone, Donald E.
Weston and Robert Zutz, and each of them, with full power and substitution or
resubstitution, the attorney or attorneys to execute and file on behalf of the
undersigned in his capacity as an officer and/or trustee of the trust, the
Registration Statement as aforesaid, and any and all exhibits, applications and
other documents to be filed with the Securities and Exchange Commission
pertaining thereto, with full power and authority to do and perform any and all
acts and things whatsoever required or necessary to be done in the premises, as
fully to all intents and purposes as he could do if personally present, hereby
ratifying and approving the acts of said attorneys or any of them and any such
substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
27th day of July, l992.
/S/ T. Emmerich
GRADISON-McDONALD MUNICIPAL CUSTODIAN TRUST
Power of Attorney of Trustees and Officers
The undersigned, an officer or Trustee, or both an officer and Trustee, of
Gradison-McDonald Municipal Custodian Trust an Ohio business trust (the
"Trust"), which has filed with the Securities and Exchange Commission under the
provisions of the Securities Act of 1933, as amended, and the provisions of the
Investment Company Act of 1940, as amended, a Registration Statement on N-1A
(which together with any and all subsequent amendments, including post-effective
amendments, thereto is hereinafter called the "Registration Statement") for the
principal purpose of registering the public offering by the Trust of shares of
beneficial interest without par value of its series, hereby constitutes and
appoints Paul J. Weston, Richard M. Wachterman, Stephen C. Dilbone, Donald E.
Weston and Robert Zutz, and each of them, with full power and substitution or
resubstitution, the attorney or attorneys to execute and file on behalf of the
undersigned in his capacity as an officer and/or trustee of the trust, the
Registration Statement as aforesaid, and any and all exhibits, applications and
other documents to be filed with the
<PAGE> 5
Securities and Exchange Commission pertaining thereto, with full power and
authority to do and perform any and all acts and things whatsoever required or
necessary to be done in the premises, as fully to all intents and purposes as he
could do if personally present, hereby ratifying and approving the acts of said
attorneys or any of them and any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
27th day of July, l992.
/S/ Stephen C. Dilbone
<PAGE> 6
GRADISON-McDONALD MUNICIPAL CUSTODIAN TRUST
Power of Attorney of Trustees and Officers
The undersigned, an officer or Trustee, or both an
officer and Trustee, of Gradison-McDonald Municipal Custodian Trust an Ohio
business trust (the "Trust"), which has filed with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended, and
the provisions of the Investment Company Act of 1940, as amended, a Registration
Statement on N-1A (which together with any and all subsequent amendments,
including post-effective amendments, thereto is hereinafter called the
"Registration Statement") for the principal purpose of registering the public
offering by the Trust of shares of beneficial interest without par value of its
series, hereby constitutes and appoints Paul J. Weston, Richard M. Wachterman,
Stephen C. Dilbone, Donald E. Weston and Robert Zutz, and each of them, with
full power and substitution or resubstitution, the attorney or attorneys to
execute and file on behalf of the undersigned in his capacity as an officer
and/or trustee of the trust, the Registration Statement as aforesaid, and any
and all exhibits, applications and other documents to be filed with the
Securities and Exchange Commission pertaining thereto, with full power and
authority to do and perform any and all acts and things whatsoever required or
necessary to be done in the premises, as fully to all intents and purposes as he
could do if personally present, hereby ratifying and approving the acts of said
attorneys or any of them and any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
27th day of July, l992.
/S/ Jerome E. Schnee
<PAGE> 7
GRADISON-McDONALD MUNICIPAL CUSTODIAN TRUST
Power of Attorney of Trustees and Officers
The undersigned, an officer or Trustee, or both an officer and Trustee, of
Gradison-McDonald Municipal Custodian Trust an Ohio business trust (the
"Trust"), which has filed with the Securities and Exchange Commission under the
provisions of the Securities Act of 1933, as amended, and the provisions of the
Investment Company Act of 1940, as amended, a Registration Statement on N-1A
(which together with any and all subsequent amendments, including post-effective
amendments, thereto is hereinafter called the "Registration Statement") for the
principal purpose of registering the public offering by the Trust of shares of
beneficial interest without par value of its series, hereby constitutes and
appoints Paul J. Weston, Richard M. Wachterman, Stephen C. Dilbone, Donald E.
Weston and Robert Zutz, and each of them, with full power and substitution or
resubstitution, the attorney or attorneys to execute and file on behalf of the
undersigned in his capacity as an officer and/or trustee of the trust, the
Registration Statement as aforesaid, and any and all exhibits, applications and
other documents to be filed with the Securities and Exchange Commission
pertaining thereto, with full power and authority to do and perform any and all
acts and things whatsoever required or necessary to be done in the premises, as
fully to all intents and purposes as he could do if personally present, hereby
ratifying and approving the acts of said attorneys or any of them and any such
substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
27th day of July, l992.
/S/ Richard A. Rankin
<PAGE> 8
GRADISON-McDONALD MUNICIPAL CUSTODIAN TRUST
Power of Attorney of Trustees and Officers
The undersigned, an officer or Trustee, or both an officer and Trustee, of
Gradison-McDonald Municipal Custodian Trust an Ohio business trust (the
"Trust"), which has filed with the Securities and Exchange Commission under the
provisions of the Securities Act of 1933, as amended, and the provisions of the
Investment Company Act of 1940, as amended, a Registration Statement on N-1A
(which together with any and all subsequent amendments, including post-effective
amendments, thereto is hereinafter called the "Registration Statement") for the
principal purpose of registering the public offering by the Trust of shares of
beneficial interest without par value of its series, hereby constitutes and
appoints Paul J. Weston, Richard M. Wachterman, Stephen C. Dilbone, Donald E.
Weston and Robert Zutz, and each of them, with full power and substitution or
resubstitution, the attorney or attorneys to execute and file on behalf of the
undersigned in his capacity as an officer and/or trustee of the trust, the
Registration Statement as aforesaid, and any and all exhibits, applications and
other documents to be filed with the Securities and Exchange Commission
pertaining thereto, with full power and authority to do and perform any and all
acts and things whatsoever required or necessary to be done in the premises, as
fully to all intents and purposes as he could do if personally present, hereby
ratifying and approving the acts of said attorneys or any of them and any such
substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
27th day of July, l992.
/S/ Donald E. Weston
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000888850
<NAME> GRADISON MUNICIPAL CUSTODIAN TRUST
<SERIES>
<NUMBER> 1
<NAME> GRADISON-McDONALD OHIO TAX-FREE INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 75,435,324
<INVESTMENTS-AT-VALUE> 77,529,850
<RECEIVABLES> 1,591,612
<ASSETS-OTHER> 149,913
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 79,271,375
<PAYABLE-FOR-SECURITIES> 3,009,358
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 89,541
<TOTAL-LIABILITIES> 3,098,899
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74,151,016
<SHARES-COMMON-STOCK> 5,698,746
<SHARES-COMMON-PRIOR> 5,470,248
<ACCUMULATED-NII-CURRENT> 5,681
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (78,747)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,094,526
<NET-ASSETS> 76,172,476
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,406,662
<OTHER-INCOME> 0
<EXPENSES-NET> 727,815
<NET-INVESTMENT-INCOME> 3,678,847
<REALIZED-GAINS-CURRENT> 1,183,172
<APPREC-INCREASE-CURRENT> 1,449,100
<NET-CHANGE-FROM-OPS> 6,311,119
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,674,726
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,433,203
<NUMBER-OF-SHARES-REDEEMED> 1,427,931
<SHARES-REINVESTED> 223,226
<NET-CHANGE-IN-ASSETS> 5,610,583
<ACCUMULATED-NII-PRIOR> 1,560
<ACCUMULATED-GAINS-PRIOR> (1,261,919)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 377,638
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 727,815
<AVERAGE-NET-ASSETS> 75,527,560
<PER-SHARE-NAV-BEGIN> 12,899
<PER-SHARE-NII> .640
<PER-SHARE-GAIN-APPREC> .467
<PER-SHARE-DIVIDEND> .639
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.367
<EXPENSE-RATIO> .96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
