GRADISON MCDONALD CASH RESERVES TRUST, 485BPOS, 1997-01-30

GRADISON MCDONALD CASH RESERVES TRUST
485BPOS, 1997-01-30

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<PAGE> 1

1933 Act Registration No. 2-55297
1940 Act File No. 811-2618

================================================================================

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. 39 (X)
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 22 (X)

----------
G R A D I S O N - M c D O N A L D C A S H R E S E R V E S T R U S T
(Exact Name of Registrant as Specified in Declaration of Trust)
580 Walnut Street, Cincinnati, Ohio 45202
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (513) 579-5700

Copy to:
BRADLEY E. TURNER ROBERT J. ZUTZ
Gradison-McDonald Cash Reserves Trust Kirkpatrick & Lockhart
580 Walnut Street 1800 M St., N.W.
Cincinnati, Ohio 45202 Washington, D.C. 20036
(Name and Address of Agent for Service)

It is proposed that this filing will become effective (check appropriate box):

immediately upon filing pursuant to paragraph (b)
---
X on January 31, l997 pursuant to paragraph (b)
---
60 days after filing pursuant to paragraph (a)
---
on ______________ pursuant to paragraph (a) of Rule 485
---

----------

Registrant has heretofore registered an indefinite number of shares of
beneficial interest, par value $.01 per share, pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended. Registrant's Rule 24f-2 Notice was
filed on November 21, 1996.

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<PAGE> 2

GRADISON-McDONALD CASH RESERVES TRUST Cross-Reference Sheet

Pursuant to Item 501(b) of Regulation S-K
Under the Securities Act of 1933

<TABLE>
<CAPTION>
Form N-1A
Item Number Location in Prospectus
- ----------- ----------------------
<S> <C>
1. Cover Page . . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . . Expense Summary
3. Condensed Financial Information . . Financial History Summary
Yield and Effective Yield
Calculations
4. General Description of Registrant . How the Fund Invests; General
Information; Further
Information About How the
Fund Invests
5. Management of Fund . . . . . . . . . Management of the Fund, Cover
6. Capital Stock and Other Securities . Dividends and Taxes
7. Purchase of Securities Being
Offered . . . . . . . . . . . . . . Purchases and Redemptions
8. Redemption or Repurchase . . . . . . Purchases and Redemptions
9. Pending Legal Proceedings . . . . . Not Applicable

Location in Statement
of Additional information
-------------------------
10. Cover Page . . . . . . . . . . . . . . Cover Page
11. Table of Contents . . . . . . . . . . . Contents
12. General Information and History . . . . Description of the Trust
13. Investment Objectives and Policies . . . Investment Restrictions;
Portfolio Transactions
14. Management of the Fund . . . . . . . . . Trustees and Officers of
the Trust
15. Control Persons and Principal
Holders of Securities . . . . . . . . . Trustees and Officers of
the Trust
16. Investment Advisory and Other Services . Investment Adviser
17. Brokerage Allocation and Other
Practices . . . . . . . . . . . . . . . Portfolio Transactions
18. Capital Stock and Other Securities . . . Description of the Trust
19. Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . Purchase of shares
Redemption of Shares;
Exchange Privilege;
Signature Guarantees;
Net Asset Value
20. Tax Status . . . . . . . . . . . . . . . Taxes
21. Underwriters . . . . . . . . . . . . . . Investment Adviser
22. Calculation of Yield Quotations of
Money Market Funds . . . . . . . . . . Yield Information
23. Financial Statements . . . . . . . . . . Financial Statements and
Accountants
</TABLE>

<PAGE> 3

GRADISON
U.S. GOVERNMENT RESERVES
PROSPECTUS DATED JANUARY 31, 1997

Gradison U.S. Government Reserves (the "Fund") is a diversified series of the
GradisonoMcDonald Cash Reserves Trust, an open-end management investment
company. The Gradison Division of McDonald & Company Securities, Inc.
("Gradison"), is the investment adviser for the Fund (the "Adviser") and the
Fund's distributor (the "Distributor"). The Fund is a money market fund
investing in U.S. Government securities.

This Prospectus is designed to provide you with information that you should know
before investing and should be retained for future reference. A Statement of
Additional Information for the Fund, dated January 31, 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 information and transactions (including purchases, redemptions, and most
recent yield), call 579-5700 from Cincinnati, Ohio or 1-800-869-5999 toll free.

LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

An investment in the Fund is neither insured nor guaranteed by the U.S.
Government. There can be no assurance that the Fund will be able to maintain a
stable net asset value of $1.00 per share.

EXPENSE SUMMARY

<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<S> <C>
Management Fees .45%
12b-1 Fees .10%
Other Expenses .20%
-----
TOTAL FUND OPERATING EXPENSES .75%
</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>
$8 $24 $42 $93
- ------------------------------------------------------

<FN>
* The 5% annual return is a standardized rate prescribed for use by all mutual
funds for the purpose of this example and does not represent the past or future
return of the Fund.

The purpose of the preceding table is to assist investors in understanding
the various costs and expenses that an investor in the Fund will bear directly
and indirectly. (For more information about Fund expenses, see "Purchases and
Redemptions" and "Management of the Fund.")

</TABLE>

THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

<PAGE> 4

FINANCIAL HIGHLIGHTS

The table below presents the financial highlights of the most recent ten years
of the Fund's operations. (Prior to September 27, 1993, the financial results
are the results of Gradison Cash Reserves, the assets and liabilities of which
were acquired by the Fund effective September 27, 1993.) The information is
expressed in terms of a single share outstanding throughout each year. The
financial highlights for the years ended on September 30, 1993 and thereafter
have been audited by Arthur Andersen LLP, independent public accountants, whose
unqualified report appears in the Statement of Additional Information. The
financial highlights for periods ended prior to September 30, 1993 were audited
by other accountants.

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning
of year $ 1,000 $ 1,000 $ 1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000

Net investment income
.047 .050 .029 .025 .037 .059 .076 .084 .066 .055
Dividends from net
investment income (.047) (.050) (.029) (.025) (.037) (.059) (.076) (.084) (.066) (.055)
-------- -------- -------- ------ ------ ------ ------ ------ ------ ------
Net asset value at end of year $ 1,000 $ 1,000 $ 1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000
======== ======== ======== ====== ====== ====== ====== ====== ====== ======
Total return 4.86% 5.10% 2.97% 2.55% 3.83% 6.12% 7.87% 8.74% 6.77% 5.67%
======== ======== ======== ====== ====== ====== ====== ====== ====== ======
Ratios/Supplemental data:

Net assets at end of year $1,333.1 $1,224.1 $1,001.2 $979.8 $575.9 $638.7 $659.8 $613.4 $435.2 $398.2
(in millions)

Ratio of expenses to
average net assets (1) .75% .78% .80% .81% .75% .75% .76% .79% .86% .88%

Ratio of net investment
income to average net assets (1) 4.72% 5.00% 2.90% 2.53% 3.77% 5.95% 7.57% 8.41% 6.56% 5.52%
</TABLE>

On October 4, 1991, Gradison became investment adviser of the Fund as a result
of a merger with Gradison & Company Incorporated.

(1) During the year ended September 30, 1994, the Adviser absorbed expenses of
the Fund through waiver of a portion of the investment advisory fee. Assuming no
waiver of expenses, the ratio of expenses to average net assets was .81% and the
ratio of net investment income to average net assets was 2.89%.

HOW THE FUND INVESTS

The Fund's investment objective is to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity.
The Fund's investment objective cannot be changed without approval by the
holders of a majority of the Fund's outstanding voting shares (as defined in the
Investment Company Act of 1940 (the "Act")). All other policies set forth in
this Prospectus, unless otherwise noted, are subject to change without
shareholder approval. There can be no assurance that the Fund's investment
objective will be achieved. To achieve

2
<PAGE> 5

its investment objective, the Fund invests in securities issued or guaranteed as
to principal and interest by the U.S. Government or its agencies or
instrumentalities, and repurchase agreements in respect of these securities.
Securities in which the Fund invests may not earn as high a level of current
income as long-term or lower quality securities which generally have less
liquidity, greater market risk and more fluctuation in market value. The Fund
intends to maximize, to the extent possible, the portion of its dividends that
are not subject to state and local taxation.

The Fund seeks to maintain a net asset value of $1.00 per share for purchases
and redemptions. To do so, the Fund uses the amortized cost method of valuing
its securities pursuant to Rule 2a-7 under the Act, certain requirements of
which are summarized as follows. In accordance with Rule 2a-7, the Fund will
maintain a dollar-weighted average portfolio maturity of 90 days or less and
purchase only U.S. dollar denominated instruments having remaining maturities of
13 months or less as defined in that Rule. There can be no assurance that the
Fund will be able to maintain a stable net asset value of $1.00 per share.

Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and times of issuance. Treasury bills have initial
maturities of one year or less; Treasury notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of greater than
ten years. Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities in which the Fund may invest, for example, Government National
Mortgage Association pass-through certificates, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, by the right of the issuer to borrow from the Treasury; others, such as
those issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality; and others, such as those issued by the Federal Farm Credit
Bank System, only by the credit of the agency or instrumentality. While the U.S.
Government may provide financial support to such U.S. Government-sponsored
agencies or instrumentalities, no assurance can be given that it will always do
so, since it is not so obligated by law. The Fund will invest in such securities
only when it is satisfied that the credit risk with respect to the issuer is
minimal.

The Fund invests in securities which bear fixed, floating or variable rates of
interest. Interest derived from floating rate or variable rate securities may
fluctuate based on generally recognized reference rates or the relationship of
rates. The Fund may purchase floating and variable rate securities, including
securities the maturity of which exceeds one year if, under conditions that can
reasonably be foreseen, the Adviser believes that interest rate adjustments will
result in the market value of such securities returning to at least
approximately par. However, there can be no assurance that the market value of
such securities will always be at least approximately par.

The Fund also may invest in repurchase agreements secured by government
securities. For additional information about repurchase agreements and the
Fund's investment policies and restrictions, see "Further Information About How
the Fund Invests."

PURCHASES AND REDEMPTIONS

The following procedures and services apply to shareholders investing directly
with the Fund. Shareholders who invest in the Fund through a McDonald & Company
Securities, Inc. ("McDonald") or Gradison brokerage account should refer to the
additional information available through that account.

HOW TO PURCHASE SHARES

You may purchase shares of the Fund, without sales charge, by personally
delivering, mailing, or wiring funds to

3
<PAGE> 6

Gradison or McDonald. A completed Account Information Form must accompany or
precede the initial purchase. The minimum investment required to open an account
is $1,000 and additional investments must be at least $50. These minimums may,
however, be waived for certain group purchases.

Purchases by check will be credited to your account (and begin earning
dividends) when the Fund receives Federal funds for your check which normally
will be on the next business day after receipt of the check. Purchase checks
should be made payable (or properly endorsed) to the order of "Gradison U.S.
Government Reserves" and should be accompanied by your account name and account
number (if the number has been assigned).

Purchases by bank wire will be credited to your account (and begin earning
dividends) on the same business day that the wire is received by the Fund's
custodian bank or Gradison. However, Gradison must be advised by you of the
exact amount of your wire prior to 12:00 noon, Eastern time.

HOW TO REDEEM SHARES

You may redeem shares of the Fund without charge or penalty on any day that the
Fund is open for business. A redemption request (identifying the account name,
account number and the amount of your redemption) may be made in writing or by
telephone call to the Fund. If your request is received by the Fund by 12:00
noon, Eastern time, a check for the amount of your redemption will normally be
mailed the same business day, or if you prefer, you may arrange to pick up your
redemption check at the Fund's offices after 3:00 p.m. the same business day.

The checkwriting feature permits you to write your own redemption checks in
amounts of $100 or more without any fees. Checks also may be written in amounts
of less than $100, in which case you will be charged a fee of $.30 per check,
which reimburses the Fund for expenses associated with clearing such checks.
Shares continue to earn daily dividends until these checks are presented for
payment. Shareholders choosing the checkwriting feature must return one
signature card to the Fund signed by all owners of the account. The names of
payees of checks and the date checks are cashed appear on monthly transaction
statements. The checkwriting feature should not be used to effect a complete
redemption of an account. Shareholders who desire a complete redemption should
contact the Fund.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Purchase and redemption information and authorizations should be mailed or
delivered to Gradison or to Gradison Mutual Funds, 580 Walnut Street,
Cincinnati, Ohio 45202.

Purchases and redemptions are made at the next net asset value per share
calculated after receipt of Federal funds or a valid redemption request. The
Fund may, upon 30 days' written notice, impose reasonable service charges for
what it deems to be excessive use of checkwriting redemption. Share certificates
are not issued. Account transactions are reported on periodic statements. There
is a $10 fee per wire redemption less than $50,000.

In the case of shares purchased through McDonald and Gradison brokerage
accounts, credit balances arising on the settlement date of a securities sale
will generally be transferred to the Fund by McDonald in the form of Federal
funds on the day after settlement.

Normally, the Fund makes payment for redeemed shares within one business day
(but in no event more than seven days) after receipt of a properly executed
redemption request. However, the Fund may delay payment for the redemption of
shares in those cases where the shares were purchased by check (or any method of
payment subject to collection) until the purchase payment has cleared, currently
considered to be no more than 15 days from the date

4
<PAGE> 7

of receipt by the Fund. If you need more immediate access to your investment,
you should consider purchasing shares by wire or other immediately available
funds. The Fund may, at its discretion, redeem all shares in any account if the
value of that account falls below $500. However, shareholders will be given
notice and 60 days to increase the value of the account to the required $500.
The Fund reserves the right to limit or reject any purchase order. The Fund may
modify these and other purchase or redemption procedures to facilitate purchase
and redemption of shares through Gradison and McDonald brokerage accounts.

Under extraordinary circumstances, such as periods of drastic economic or market
changes, it is possible that you might not be able to reach the Fund by
telephone to effect a redemption. If such an occasion were ever to occur, you
can redeem your shares by using the checkwriting feature or you can make a
redemption request in writing (by mail or personally delivered) to the Fund's
offices. Shareholders who have brokerage accounts with Gradison or McDonald can
request that their Investment Consultants arrange the redemption. The telephone
redemption feature may be terminated or modified upon 30 days' notice to
shareholders.

The Fund, its Adviser, Distributor, 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, it
may be liable for any losses resulting from unauthorized instructions. Telephone
transactions are available to all shareholders as a standard service.

Certain optional services are available to shareholders. See "Optional
Shareholder Services" in the Statement of Additional Information and in
information provided in connection with McDonald or Gradison brokerage accounts.

EXCHANGES

Shares may be exchanged, without administrative fees, for shares of any Gradison
mutual fund and for shares of certain other Federal and Federal/Ohio tax-free or
municipal income money market funds.

You may request exchanges of your shares by telephoning or writing the Fund.
Before making an exchange, you should read the prospectus of the fund in which
you desire to invest, each of which is available upon request. The terms of the
exchange feature are subject to change and the exchange feature is subject to
termination, both upon 60 days' notice. Certain of the Gradison funds are sold
subject to initial sales charges. Exchanges of Fund shares for shares of such
funds will be subject to the respective fund's sales charge except to the extent
that a sales charge has previously been paid in connection with the shares.

DIVIDENDS AND TAXES

The Fund's net income is accrued daily as dividends and distributed monthly.
Share purchases effective before 12:00 noon, Eastern time, earn the dividend
that day. Redemption requests received before 12:00 noon will not receive that
day's dividend. (See "Purchases and Redemptions.") Dividends may be received in
cash or reinvested in additional shares of the Fund.

If your account is not a tax-deferred retirement account or exempt from
taxation, the dividends you receive will be subject to Federal taxation as
ordinary income. The Fund's dividends will not qualify for the dividends
received deduction for corporations. Each shareholder will receive, on an annual
basis, a statement of the Federal income tax consequences of all distributions.
The Fund distributes substantially all of its net investment income and capital
gains, if any, to shareholders each year.

5
<PAGE> 8

The Fund is required to withhold 31% of all dividends payable to any individual
and certain other noncorporate shareholders who do not provide the Fund with a
correct taxpayer identification number or certification that they are not
subject to backup withholding and that they have provided the Fund with a
correct taxpayer identification number.

Under the laws of most state and local jurisdictions, the portion of the Fund's
dividends derived from direct investments in certain U.S. Government securities
will not be subject to state or local income taxation, while the remaining
portion will be. Each year, shareholders will be provided with information as to
the percentage of income dividends derived from U.S. Government securities which
is generally not taxable by state and local jurisdictions. For the fiscal year
ending September 30, 1996, 100% of the Fund's dividends were not taxable by
state and local jurisdictions.

NET ASSET VALUE

The net asset value of the Fund's shares is generally calculated as of 12:00
noon and 4:00 p.m. Eastern time on each day when the New York Stock Exchange is
open for business. The net asset value per share, which is the price at which
shares are purchased and redeemed, is computed by dividing the value of the
Fund's net assets (assets minus liabilities) by the number of shares
outstanding. The Fund intends to maintain a constant net asset value of $1.00
per share, although there is no assurance that it will be able to do so.

GENERAL INFORMATION

The Fund is a series of the GradisonoMcDonald Cash Reserves Trust (the "Trust"),
which is a business trust organized under the laws of the State of Massachusetts
by a Declaration of Trust dated October 20, 1981. The Trust succeeded to the
business of Gradison Cash Reserves, Inc. which began its operations on April 26,
1976. Each share of the Fund has one vote and represents an equal pro rata
interest in the Fund. Shareholder inquiries should be directed to the phone
number or address of the Fund listed on the first page of this Prospectus.

MANAGEMENT OF THE FUND

The Trust's Board of Trustees is responsible for the direction and supervision
of the Fund's operations. Subject to the authority of the Board of Trustees,
Gradison manages the investment and reinvestment of the assets of the Fund, and
provides its employees to act as the officers of the Fund who are responsible
for the overall management of the Fund. McDonald, a wholly owned subsidiary of
McDonald & Company Investments, Inc., McDonald Investment Center, 800 Superior
Avenue, Cleveland, Ohio 44114, is an investment adviser and a securities
broker-dealer. McDonald, through Gradison, also serves as the investment adviser
to other investment companies and to individuals, employee benefit plans, and
other accounts requiring investment management.

For acting as investment adviser, the Fund pays the Adviser an annual fee of
.50% of the first $400 million of average daily net assets, .45% of the next
$600 million of average daily net assets, .40% of the next $1 billion of average
daily net assets and .35% of amounts in excess of $2 billion of average daily
net assets. Gradison acts as the Fund's transfer agent, dividend disbursing
agent, and accounting services provider. For providing such services, Gradison
receives an annual fee of $23.50 per shareholder non-zero balance account plus
out of pocket costs for acting as transfer agent and dividend disbursing agent
and an accounting services fee of .0150% of the first $400 million of average
daily net assets, .0125% of the next $300 million of average daily net assets,
.0100% of the next $300 mil-

6
<PAGE> 9

lion of average daily net assets, and .0075% of average daily net assets in
excess of $1 billion, with a minimum fee of $25,000 per year. Gradison's address
is 580 Walnut Street, Cincinnati, Ohio 45202.

Under the terms of a distribution service plan (the "Plan"), adopted pursuant to
Rule 12b-1 under the Act, the Fund pays to McDonald as Distributor a service fee
at the annual rate of .10% of the average daily net assets of the Fund. (The
maximum annual fee permitted by the Plan is .20% of the average daily net assets
of the Fund.) Such fee is calculated on a daily basis and paid to the
Distributor monthly. The service fee is paid as compensation to the Distributor
for providing personal services to shareholders of the Fund, including
responding to shareholder inquiries and providing information to shareholders
about their Fund account. In addition to the service fee, the Distributor may
also expend funds provided by the Plan for advertising and printing
prospectuses, annual reports, and other promotional material for prospective
investors, and for other distribution activities.

Registered broker dealers, third party administrators of tax-qualified
retirement plans, and other entities which establish omnibus accounts with the
Fund may provide sub-transfer agency, recordkeeping, or similar services to
participants in the omnibus accounts which reduce or eliminate the need for
identical services to be provided on behalf of participants by the Fund's
transfer agent. In such cases, the Fund may pay the entity a sub-transfer agency
or recordkeeping fee. Certain entities receiving such fees may also receive
service fees.

INDIVIDUAL RETIREMENT ACCOUNTS

Shares of the Fund may be purchased in conjunction with an Individual Retirement
Account ("IRA") which permits exchange privileges with other Gradison funds (see
"Exchanges") and which may also be used with a self-directed brokerage account.
Contact Gradison or McDonald for details.

FURTHER INFORMATION ABOUT HOW THE FUND INVEST

The Fund may engage in repurchase agreement transactions in which it buys a
security at one price and simultaneously agrees to sell the same security back
to the original owner ("seller") at a higher price, usually within seven days of
the initial purchase. The Fund engages in repurchase agreement transactions only
with selected domestic banks and securities dealers which the Adviser believes
present minimal credit risk. In all cases, the security subject to resale is
held by the Fund's custodian and the Fund ensures on a daily basis that the
value of the security, including accrued interest, is maintained at no less than
the price at which the seller is required to repurchase the security. Should a
seller fail to repurchase the security, the Fund could incur costs to sell the
security to another party and possibly a loss if the sale price is less than the
repurchase price. Under certain limited circumstances the Fund could also be
delayed or otherwise limited in disposing of the security, which could result in
a decline in its value and loss of interest.

The Fund may not borrow money, except from banks as a temporary measure or for
extraordinary or emergency purposes, and then only in amounts not exceeding 15%
of the Fund's total assets at the time of borrowing. While any borrowing of
greater than 5% of the assets occurs, the Fund will not purchase additional
portfolio securities. The foregoing policy may not be changed without
shareholder approval. The Fund may not, in an aggregate amount exceeding 10% of
the value of the Fund's total assets, (a) enter into repurchase agreements
maturing in more than seven days, (b) purchase illiquid securities, and (c)
purchase securities for which there are no readily available market quotations.

The Fund may invest in "stripped" securities (both interest-only and
principal-only) issued by the U.S. Treasury and recorded in the Federal Reserve
book-entry record-keeping system. "Stripped" U.S. Treasury securities include
zero

7
<PAGE> 10

coupon obligations that are normally issued at a discount to their "face value",
and may exhibit greater price volatility than ordinary debt securities.

The Fund may purchase securities on a when-issued or forward delivery basis, for
payment and delivery at a later date. The price and yield are generally fixed on
the date of commitment to purchase. During the period between purchase and
settlement, no interest accrues to the Fund. At the time of settlement, the
market value of the security may be more or less than the purchase price.

The Statement of Additional Information contains additional information
regarding Fund investment restrictions and policies.

PERFORMANCE CALCULATIONS

From time to time the Fund may advertise its "yield," "effective yield," and/or
"total return". All performance figures are based on historical earnings and are
not intended to indicate future performance. The yield of the Fund refers to the
income generated by an investment in the Fund over a 7-day period. This income
is then annualized. That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The effective yield of the Fund is
calculated similarly but, when annualized, the income earned by an investment in
the Fund is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment. The total return refers to the average annual compounded rate of
return over specified time periods that would equate an initial amount of money
invested in the Fund at the beginning of a stated period to the ending
redeemable value of the investment assuming the reinvestment of dividends in
additional Fund shares

<TABLE>
<CAPTION>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<S> <C> <C>
Expense Summary 1 Net Asset Value 6

Financial Highlights 2 General Information 6

How the Fund Invests 2 Management of the Fund 6

Purchases and Redemptions 3 Individual Retirement Accounts 7

Additional Purchase and Further Information About
Redemption Information 4 How the Fund Invests 7

Exchanges 5 Performance Calculations 8

Dividends and Taxes 5
- --------------------------------------------------------------------------------
</TABLE>

580 Walnut Street, Cincinnati, Ohio 45202
(513) 579-5000 (800) 869-5999

<PAGE> 11

GRADISON U.S. GOVERNMENT RESERVES

Gradison-McDonald Cash Reserves Trust

The Gradison Division of McDonald & Company Securities, Inc. ("Gradison"), is
the investment adviser of the Fund ("Adviser").

- ---------------------------------------------------------------------------

STATEMENT OF ADDITIONAL

INFORMATION

- ---------------------------------------------------------------------------

For information (including most recent yield), call:
579-5700 from Cincinnati, Ohio

Toll free (800) 869-5999 outside Cincinnati

Information may also be obtained from the Fund at:
580 Walnut Street
Cincinnati, Ohio 45202

- ---------------------------------------------------------------------------

This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus of the Fund, dated January 31, 1997, 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 January 31, 1997.

<PAGE> 12

- --------------------------------------------------------------------------------

CONTENTS

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Page Location in Prospectus

<S> <C>
INVESTMENT RESTRICTIONS AND POLICIES. . . . . 4 How the Fund Invests; Further
Information About How the
Fund Invests

PURCHASE OF SHARES . . . . . . . . . . . . . 6 Purchases and Redemptions;
Additional Purchase and
Redemption Information

REDEMPTION OF SHARES . . . . . . . . . . . . .6 Purchases and Redemptions;
Additional Purchase and
Redemption Information

EXCHANGE PRIVILEGE . . . . . . . . . . . . . 7 Exchanges
Telephone Exchanges . . . . . . . . . . 7
Written Exchanges . . . . . . . . . . . 7
General Exchange Information . . . . . . 7

SIGNATURE GUARANTEES . . . . . . . . . . . . 8

INCOME AND DIVIDENDS . . . . . . . . . . . . 8 Dividends and Taxes

TAXES . . . . . . . . . . . . . . . . . . . . 8 Dividends and Taxes

YIELD INFORMATION . . . . . . . . . . . . . . 9 Yield and Effective Yield
Calculations

NET ASSET VALUE . . . . . . . . . . . . . . . 10 Net Asset Value

PORTFOLIO TRANSACTIONS . . . . . . . . . . 11

INVESTMENT ADVISER . . . . . . . . . . . . . 12 Management of the Fund
Advisory Agreement . . . . . . . . . . . 12
Distribution Service Plan . . . . . . . 13
Transfer Agency, Accounting Services,
and Administrative Services
Agreement . . . . . . . . . . . . .15

OTHER COMPENSATION PAID/REIMBURSEMENT MADE
TO THE ADVISER . . . . . . . . . . . . . 15

TRUSTEES AND OFFICERS OF THE TRUST . . . . . 15

DESCRIPTION OF THE TRUST . . . . . . . . . . 17 General Information
</TABLE>

<PAGE> 13

<S> <C>
CUSTODIAN . . . . . . . . . . . . . . . . . . 19

ACCOUNTANTS . . . . . . . . . . . . . . . . . 19

LEGAL COUNSEL . . . . . . . . . . . . . . . . 19

OPTIONAL SHAREHOLDER SERVICES . . . . . . . . 19

TOTAL RETURN INFORMATION . . . . . . . . . . .21

SALES BROCHURE INFORMATION. . . . . . . . . . 23

FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT PUBLIC ACCOUNTANT .Following page 33 Financial Highlights
</TABLE>

<PAGE> 14

INVESTMENT RESTRICTIONS AND POLICIES

In addition to the investment restrictions described in the Prospectus,
the Fund has adopted the following investment restrictions and limitations,
which may not be changed without the approval of the holders of a majority of
the outstanding voting securities of the Fund as defined in the Investment
Company Act of 1940 (the "Act"). (See "Description of the Trust".) The Fund will
not:

(1) Borrow money, except from banks as a temporary measure or for
extraordinary or emergency purposes such as to enable the Fund to
satisfy redemption requests where liquidation of portfolio securities is
considered disadvantageous, and not for leverage purposes, and then only
in amounts not exceeding 15% of the total assets of the Fund at the time
of the borrowing. While any borrowing of greater than 5% of the assets
is outstanding, the Fund will not purchase additional portfolio
securities;

(2) Make loans, except that the purchase of debt securities as allowed by
the Fund's investment objective and other Investment Restrictions,
entering into repurchase agreements, and the lending of portfolio
securities in an amount not to exceed 30% of the value of its total
assets with the collateral value of loaned securities marked-to-market
daily and in accordance with applicable regulations or guidelines
established by the Securities and Exchange Commission shall not be
prohibited by this restriction;

(3) Purchase or sell real estate. The purchase of securities secured by real
estate which are otherwise allowed by the Fund's investment objective
and other Investment Restrictions shall not be prohibited by this
restriction;

(4) Underwrite the securities of other issuers, except insofar as the Fund
may technically be deemed an underwriter under the Securities Act of
1933 in connection with the disposition of portfolio securities;

(5) Purchase or sell commodities or commodity contracts or interests in oil,
gas or other mineral exploration or development programs or leases
except the purchase or sale of financial futures contracts or options on
financial futures contracts;

(6) Issue senior securities as defined in the Act, except to the extent that
such issuance might be involved with respect to borrowings subject to
item (1) above or with respect to transactions involving futures
contracts or the writing of options and provided that the Trust may
issue shares of additional series or classes that the Trustees may
establish.

(7) Invest more than 25% of its total assets in the securities of issuers in
any single industry, provided that there shall be no limitation on

<PAGE> 15

investments in obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities.

The limitations and policies set forth in the remainder of this section are
not fundamental and may be changed without shareholder approval: (1) The Fund
will not purchase securities of other investment companies except in connection
with a reorganization, merger, or consolidation with another open-end investment
company; (2) The Fund will not make short sales of securities, or purchase
securities on margin, except for short-term credit as is necessary for the
clearance of transactions; 3) The Fund will not purchase or retain in its
portfolio any securities issued by an issuer, if to the Fund's knowledge, those
Trustees and officers of the Trust or of the Fund's investment adviser, who
individually own beneficially more than 1/2 of 1% of the outstanding securities
of such issuer, together own beneficially more than 5% of such outstanding
securities. This limitation shall not apply to U.S. Government securities; (4)
The Fund will not mortgage, pledge or hypothecate securities except in
connection with permitted borrowings. The Fund has no current intention of
engaging in the lending of portfolio securities.

Government Securities are frequently offered on a "when-issued" or "forward
delivery" basis. When so offered, the price, which is generally expressed in
yield terms, is fixed at the time the commitment to purchase is made, but
delivery and payment for the when-issued or forward delivery securities take
place at a later date. During the period between purchase and settlement, no
payment is made by the Fund to the issuer and no interest accrues to the Fund.
To the extent that assets of the Fund are not invested prior to the settlement
of a purchase of securities, the Fund will earn no income; however, it is
intended that the Fund will be fully invested to the extent practicable and
subject to the policies stated herein. When-issued or forward delivery purchases
are negotiated directly with the other party and are not traded on an exchange.

While when-issued or forward delivery securities may be sold prior to the
settlement date, it is intended that the Fund will purchase such securities with
the purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time the Fund makes the commitment to purchase
securities on a when-issued or forward delivery basis, it will record the
transaction and reflect the value of the security in determining its net asset
value. The Fund does not believe that its net asset value or income will be
adversely affected by its purchase of securities on a when-issued or forward
delivery basis. The Fund will establish a segregated account in which it will
maintain cash, U.S. Government securities, or other high-grade debt obligations
equal in value to commitments for when-issued or forward delivery securities.
Such segregated securities either will mature or, if necessary, be sold on or
before the settlement date. The Fund will not enter into such transactions for
leverage purposes.

<PAGE> 16

If a percentage restriction set forth above is met at the time of
investment, a later movement above the restriction level resulting from a change
in the value of securities held by the Fund will not be considered a violation
of the investment restriction.

PURCHASE OF SHARES

Purchase orders become effective when the Fund receives the necessary
information regarding an investor's account and Federal funds are available to
the Fund for investment. (See "Net Asset Value".) Federal funds are normally
available to the Fund on the next bank business day following receipt by the
Fund of an investor's check or other payment including credit balances arising
on the settlement date of a sale of securities or receipt of a dividend or
interest payment transferred from a brokerage account maintained by Gradison or
McDonald. The Fund reserves the right to impose a charge of $15 for any purchase
check returned to the Fund as uncollectible and to collect such fee by redeeming
shares of the Fund from such shareholder's account.

On Fund share purchases through McDonald, prior to the time that an
investor's funds become Federal Funds and become invested in the Fund, McDonald
may receive the "float" benefit from those funds.

REDEMPTION OF SHARES

The Fund may suspend the right of redemption or may delay payment (a)
during any period when the New York Stock Exchange is closed other than for
customary weekend and holiday closings, (b) when trading in markets normally
utilized by the Fund is restricted, or an emergency exists (determined in
accordance with the rules and regulations of the Securities and Exchange
Commission) so that disposal of the Fund's portfolio securities or determination
of the Fund's net asset value is not reasonably practicable, or (c) for such
other periods as the Securities and Exchange Commission by order may permit for
the protection of the Fund's shareholders.

The check writing privilege is subject to the Fund custodian's (Star Bank,
N.A.) rules and regulations concerning checking accounts, including those
relating to the right of Star Bank to refuse to honor checks in amounts
exceeding the value of the account at the time the check is presented for
payment. The Fund reserves the right to impose a charge of $l5 for any
redemption check written against an insufficient Fund balance and to collect
such fee by redeeming shares of the Fund from such shareholder's account.

On Fund redemptions effected by the drawing of a McDonald check, McDonald
will receive the "float" benefit from the funds redeemed until the check is
presented for payment. Domestic wire redemptions (in a minimum amount of $l,000)
are available to shareholders holding shares directly

<PAGE> 17

with the Fund. There is a $10 fee for each wire redemption in an amount less
than $50,000.

The Fund transmits redemption proceeds only to shareholder names and
addresses on its records or which it has otherwise verified, provides written
confirmation of all transactions initiated by telephone either immediately or by
monthly statement, depending on the circumstances, requires identification from
individuals picking up checks at its offices, and may take other additional
steps to verify the identity of persons giving telephone instructions.

EXCHANGE PRIVILEGE

If a new account is established by an exchange, the dollar amount of the
exchange from the Fund must at least be equal to the minimum initial investment
of the Fund into which the exchange is being made; if an exchange is made into
an existing account, the minimum additional investment requirement must be met.

TELEPHONE EXCHANGES

Telephone exchanges may be made only when the registration of the two
accounts are identical.

WRITTEN EXCHANGES

You may also exchange your shares of the Fund by written request directed
to:

Gradison Mutual Funds
580 Walnut Street
Cincinnati, Ohio 45202

Such written request should include your name and account number and the
number of shares or dollar amount to be exchanged.

GENERAL EXCHANGE INFORMATION

An exchange involves a redemption of the Fund shares being exchanged and
the investment of the redemption proceeds into shares of the fund being
purchased. Both the redemption and investment will occur at the respective net
asset value per share next determined after receipt by the Fund of a proper
exchange request. For Federal income tax purposes, an exchange of shares is
considered to be a sale. Unless otherwise indicated, a new account established
by written exchange will have the same registration and selected options as your
present account.

The funds into which exchanges are made, and the Fund's distributor (with
respect to any other fund) each reserve the right to reject any exchange
request. In the case of excessive use of the exchange privilege,

<PAGE> 18

the Fund or Gradison, upon 60 days' written notice, may make reasonable service
charges (as specified in the notice) by redeeming shares from such shareholder's
account. The terms of the exchange feature are subject to change and the
exchange feature is subject to termination, both upon at least 60 days notice,
except that no notice shall be required under circumstances provided for by the
rules of the Securities and Exchange Commission.

SIGNATURE GUARANTEES

Signatures guaranteed by a domestic commercial bank or trust company,
credit union, savings and loan association, or a member firm of a national
securities exchange or other eligible guarantee institution may be required for
certain transactions. Shareholders may contact the Fund's transfer agent for
additional information about signature guarantee requirements.

INCOME AND DIVIDENDS

Net income of the Fund, for the purpose of declaring dividends, consists
of accrued interest income, plus or minus amortized purchase discount or
premium, plus or minus realized gains or losses, less accrued expenses. To the
extent the Fund's portfolio securities are valued at amortized cost (see "Net
Asset Value"), there will be no unrealized gains or losses on portfolio
securities. However, should net asset value, calculated by using available
market quotations, deviate significantly from $1.00 per share, the Trustees
could decide to value portfolio securities by using available market quotations,
which could result in unrealized gains or losses being considered in the
determination of net income of the Fund.

Income dividends accrue daily and are paid monthly. In the event that the
Fund incurs or anticipates any unusual expense, loss or depreciation which would
adversely affect its net income for a particular period, the Board of Trustees
may at that time consider whether to adhere to this dividend policy or to revise
it in light of then prevailing circumstances. Such expenses, losses or
depreciation could result in a shareholder receiving no dividends during such
period or in a shareholder receiving, upon redemption, a price per share lower
than the cost per share.

TAXES

The Fund has qualified and intends to continue to qualify as a "regulated
investment company" under the Internal Revenue Code of l986, as amended. As such
it will not be taxed on net income distributed to shareholders. In order to
continue to qualify for treatment as a regulated investment company, the Fund
must distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of taxable net
investment income plus net short-term

<PAGE> 19

capital gain, if any), and must meet several additional requirements. These
requirements include the following: (1) the Fund must derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities loans, gains from the sale or other disposition of securities and
certain other income; (2) the Fund must derive less than 30% of its gross income
each taxable year from the sale or other disposition of securities held for less
than three months; (3) at the close of each quarter of the Fund's taxable year,
at least 50% of the value of its total assets must be represented by cash and
cash items, U.S. government securities and other securities, with these other
securities limited, in respect of any one issuer, to an amount that does not
exceed 5% of the value of the Fund's total assets; and (4) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. government securities) of
any one issuer.

The Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and any capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.

The Federal income tax matters summarized above and in the Prospectus are
subject to change by legislation, administrative action and judicial decision.

YIELD INFORMATION

The current yield of the Fund for any seven-day period is calculated by
determining the net change exclusive of capital changes in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, dividing the net change by the value of the account at the
beginning of the base period to obtain the base period return, and multiplying
the base period return by (365/7). For purposes of this calculation, the net
change reflects dividends declared on the original share and dividends declared
on any shares purchased with dividends on that share. Capital changes that are
excluded from the net change are realized gains and losses as well as unrealized
appreciation and depreciation with respect to the Fund's portfolio. The yield of
the Fund for the seven day period ended September 30, 1996 was 4.66%.

The effective or compounded yield of the Fund is calculated by compounding
the unannualized base period return by adding one (1) to the base period return,
raising the sum to a power equal to 365 divided by 7, and subtracting one (1)
from the result. The effective yield of the Fund for the seven day period ended
September 30, l996 was 4.77%.

<PAGE> 20

Yield information may be useful to investors in reviewing the Fund's
performance. However, yield normally fluctuates on a daily basis and the yield
for any given past period is not an indication or representation by the Fund of
future yields or rates of return on its shares. The Fund's yield is affected by
prevailing market interest rates, investment portfolio quality and maturity,
type of instruments held and operating expenses. When comparing the Fund's yield
with that of other alternatives, investors should understand that certain other
investments, such as money market instruments or bank accounts, may provide
fixed yields, that other investments and other investment companies may use a
different method of calculating yield, and that bank accounts may be insured.
Investors should also consider that bank accounts may sometimes offer
temporarily high "promotional" rates and may, under certain circumstances,
subject accounts to service charges which reduce their effective yield.

NET ASSET VALUE

The net asset value of the Fund's shares is calculated daily, as of 12:00 noon
and 4:00 p.m., Eastern time, on each day when the New York Stock Exchange is
open for business, provided however that the Fund does not calculate its net
asset value on the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas
Day, Columbus Day, Martin Luther King, Jr. Day, and Veterans' Day.

The Fund values its portfolio instruments on the basis of the amortized
cost valuation method, which involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the instrument.
During such periods, the yield to shareholders of the Fund may differ somewhat
from that obtained in a similar fund with identical investments which uses
market values for all its portfolio securities. For example, if the use of
amortized cost resulted in a lower aggregate portfolio value on a particular
day, a prospective investor in the Fund would be able to obtain a somewhat
higher yield than would result from investment in such a similar fund and
existing shareholders of the Fund would receive less investment income. The
converse would apply in a period of rising interest rates.

The valuation of the Fund's portfolio instruments based upon their
amortized cost and the maintenance of the Fund's per share net asset value of
$1.00 is permitted based on the Fund's adherence to certain conditions. The Fund
will maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of 397 days or less (as
calculated in accordance with Rule 2a-7 under the Act) and invest only in
securities determined by the Board of Trustees or, pursuant

10
<PAGE> 21

to delegated authority, the Adviser, to be of high quality with minimal credit
risks. The Board also has established procedures designed to stabilize, to the
extent reasonably possible, the Fund's price per share, as computed for the
purpose of sales and redemptions, at $1.00. Such procedures include review of
the Fund's portfolio holdings by the Board, at such intervals as it may deem
appropriate, to determine whether the Fund's net asset value, calculated by
using available market quotations, and estimates of market values obtained from
yield data relating to instruments or securities with similar characteristics
pursuant to procedures approved by the Board of Trustees deviates from $1.00 per
share and, if so, whether such deviation may result in material dilution or is
otherwise unfair to existing shareholders. In the event the Board determines
that such a deviation exists, it has agreed to take such corrective action as it
deems necessary or appropriate, including, for example, the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity, withholding dividends, redemptions of shares in
kind, establishing a net asset value per share by using available market
quotations, and effecting a reverse split of shares.

Assets other than portfolio securities are valued at their fair value as
determined in good faith by the Board. The Board reviews these valuation methods
at least annually and from time to time may, in its absolute discretion,
establish other methods which it considers appropriate for determining net asset
value.

PORTFOLIO TRANSACTIONS

Most of the Fund's purchases and sales of portfolio securities will be
direct transactions with issuers, underwriters or major dealers in U.S.
Government securities. Accordingly, the Fund will incur little or no brokerage
cost. Purchases of portfolio securities from underwriters, however, include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers include a spread between the bid and ask prices.

The Fund's policy of investing in short-term debt securities, coupled with
its active portfolio management, may result in high portfolio turnover. However,
high turnover is not expected to adversely affect net asset value or yields,
since there are usually no brokerage commissions paid by the Fund in connection
with the purchase or sale of U.S. Government securities.

The Adviser will make investment decisions for the Fund, arrange for
placement of buy and sell orders and initiate portfolio transactions, subject to
general supervision by the Trust's Board of Trustees. No portfolio transactions
are currently executed with the Adviser or any securities dealer affiliated with
the Adviser. When initiating a portfolio transaction, the Adviser seeks the
prompt execution of its order in an effective manner at the most favorable
price.

11
<PAGE> 22

The Adviser also serves as the investment adviser for other investment
companies. Although investment decisions for the Fund will be made independently
from those for such investment companies, purchases and sales of particular
securities may be effected simultaneously by such entities and the Fund. In such
instances, the transactions will be allocated among the entities and the Fund in
a manner the Adviser considers equitable to each. In some cases, this procedure
could have a detrimental effect upon the price or amount of the securities
purchased or sold by the Fund. On the other hand, in some cases the ability of
the Fund to participate in volume transactions may produce better executions for
the Fund. It is the opinion of the Board of Trustees that the benefits available
to the Fund from retaining the Adviser outweigh any disadvantages which may
arise from exposure to simultaneous transactions.

INVESTMENT ADVISER

ADVISORY AGREEMENT

The Agreement provides that the Adviser will manage the investments of the
Fund, subject to review by the Board of Trustees. The Adviser also bears the
cost of salaries and related expenses of executive officers of the Trust who are
necessary for the management and operation of the Fund and compensates the
Trustees who are affiliated with the Adviser. The Fund reimburses the Adviser
its cost, including salary and fringe benefits, of personnel who perform legal
services for the Fund.

As compensation for its services under the Agreement, the Adviser receives
from the Fund a monthly fee at an annual rate of .50% of the first $400 million
of average daily net assets, .45% of the next $600 million of average daily net
assets, .40% of the next $1 billion of average daily net assets, and .35% of
average daily net assets in excess of $2 billion.

The Agreement further provides that in the absence of willful misfeasance,
bad faith or gross negligence in the performance of its duties thereunder, or
reckless disregard of its obligations thereunder, the Adviser is not liable to
the Fund or any of its shareholders for any act or omission by the Adviser. The
Agreement does not restrict the Adviser from acting as an investment manager or
adviser for others.

The Agreement grants to the Trust the right to use the names "Gradison" and
"McDonald" as a part of its name and the name(s) of its Fund(s), without charge,
subject to withdrawal of such right by the Adviser upon not less than 30 days'
written notice to the Trust and subject to the automatic termination of such
right within 30 days after the termination of the Agreement for any reason. The
Agreement does not impair the right of the Adviser to use the name Gradison or
McDonald in the name and the name(s) of its Fund(s) without charge in connection
with any other business enterprise with which it is or may become associated.

12
<PAGE> 23

The Agreement continues in effect from year to year if such continuance is
specifically approved at least annually by the vote of the holders of a majority
of the outstanding voting securities of the Fund or by the vote of a majority of
the Trust's Board of Trustees, and in either event by the vote cast in person of
a majority of the Trustees who are not "interested persons" of any party to the
Agreement.

The Agreement may be terminated at any time without penalty upon 60 days'
written notice by (i) the Board of Trustees, (ii) the vote of the holders of a
majority of the outstanding voting securities of the Fund, or (iii) the Adviser.
The Agreement will terminate automatically in the event of its assignment by the
Adviser. The Agreement may be amended at any time by the mutual consent of the
parties thereto, provided that such consent on the part of the Fund shall have
been approved by the vote of the holders of a majority of its outstanding voting
securities and by the vote of a majority of the Board of Trustees, including the
vote cast in person by a majority of the Trustees who are not "interested
persons" of any party to the Agreement.

Gradison & Company Incorporated merged with McDonald in October of l991.
Prior to that time Gradison & Company was the largest independent brokerage
firm/investment adviser in Cincinnati. Gradison has managed money market funds
for more than 19 years and manages in excess of $3 billion of assets in money
market funds, equity and bond mutual funds, and individually managed accounts.
McDonald is a regional investment banking, brokerage and investment advisory
firm with over 30 offices in nine states.

For the years ended September 30, 1996, September 30, l995, and September
30, 1994, the Fund paid Gradison advisory fees totaling respectively,
$6,078,331, $5,129,384 and $4,644,387 ($4,75l,078 prior to the fee waiver then
in effect).

DISTRIBUTION SERVICE PLAN

The Fund has in effect a Distribution Service Plan (the "Plan") under Rule
12b-1 of the Act. Rule 12b-1 permits an investment company to finance, directly
or indirectly, activities primarily intended to result in the sale of its shares
only if it does so in accordance with the provisions of such Rule. The purpose
of the Plan is to increase sales of shares of the Fund to enable it to acquire
and retain a sufficient level of assets to enable it to operate more efficiently
and to provide service to Fund shareholders. Higher levels of assets tend to
result in operating efficiencies with respect to the Fund's fixed costs and
portfolio management.

The Plan permits the Fund to incur expenses related to the distribution of
its shares, but only as specifically contemplated by the

13
<PAGE> 24

Plan. Under the Plan, the Fund may incur expenses in an amount that does not
exceed an annual rate of .20 of 1% of its average daily net assets. Expenses
that may be incurred by the Fund under the Plan within the limitation described
above are limited to service fee payments to broker-dealers (including the
Distributor) or other persons, expenditures to broker-dealers or other persons
for their assistance with respect to distribution of shares of the Fund with
respect to any activity primarily intended to result in sales or maintenance of
Fund shares, and expenditures by the Distributor for advertising, prospectuses,
annual and semi-annual reports, and other promotional material for prospective
investors.

In approving the Plan, the Board of Trustees concluded that there was a
reasonable likelihood that the Plan would benefit the Fund and its shareholders.
The Plan (together with any agreements relating to implementation of the Plan)
continues in effect for a period of more than one year only so long as such
continuance is specifically approved at least annually by the vote of a majority
of the Board of Trustees, including the vote of a majority of the Independent
Trustees, cast in person at a meeting called for such purpose. The Plan may not
be amended to materially increase the amount of distribution expenses incurred
by the Fund without the approval of a majority of the Independent Trustees by
vote cast in person at a meeting called for the purpose of voting on such
amendment and without the approval of a majority of the outstanding voting
securities of the Fund. The Plan may be terminated at any time by a vote of a
majority of the Independent Trustees or by a vote of the majority of the
outstanding voting securities of the Fund. Any agreement implementing the Plan
may be terminated at any time, without the payment of any penalty, by a vote of
a majority of the Independent Trustees or by a vote of a majority of the
outstanding voting securities of the Fund, on not more than sixty days' written
notice to the other party to the agreement, and any related agreement will
terminate automatically in the event of its assignment. The Plan requires that
the Board of Trustees receive at least quarterly written reports as to the
amounts expended during each quarter pursuant to the Plan and the purposes for
which such amounts were expended. While the Plan is in effect, the selection and
nomination of those Trustees who are not "interested persons" (as defined in the
Act) of the Trust shall be committed to the discretion of the Independent
Trustees then in office.

Pursuant to the Plan the Fund has entered into an agreement with McDonald
pursuant to which the Fund pays McDonald an annual service fee in the amount of
.10 of 1% of the average assets annually as payment for McDonald's provision of
personal services to Fund shareholders. For the fiscal years ended September 30,
1996, September 30, 1995, and September 30, l994, the Fund paid McDonald
respectively, $1,334,962, $1,100,769, and $1,008,515, as distribution fees.

14
<PAGE> 25

TRANSFER AGENCY, ACCOUNTING SERVICES, AND ADMINISTRATIVE SERVICES AGREEMENT

Pursuant to the Transfer Agency, Accounting Services, and Administrative
Services Agreement, Gradison provides transfer agent, dividend disbursing,
accounting services, and administrative services to the Fund. Gradison responds
to inquiries from shareholders, processes purchase and redemption requests,
maintains shareholder account records, provides statements and confirmations to
shareholders, maintains the Fund's books and accounting records, and prepares
and files registration statements and other reports, with the Securities and
Exchange Commission and other regulatory authorities. Pursuant to this
Agreement, McDonald receives a fee of $23.50 per year per shareholder account
for transfer agency and administrative services. In addition to this fee, the
Fund pays out of pocket costs including the cost of statement paper, statement
envelopes, reply envelopes, and reply postage. For accounting services, the Fund
pays McDonald an annual fee in the amount of .015% of the first $400 million of
average daily net assets, .0125% of the next $300 million, .01% of the next $300
million, and .0075% of assets in excess of $1 billion, with a minimum fee of
$25,000 per year. For the fiscal years ending September 30, 1996, September 30,
1995, and September 30, 1994, the Fund paid McDonald respectively $2,179,364,
$2,000,226, and $1,854,479, pursuant to this Agreement or other prior
arrangements.

OTHER COMPENSATION PAID/REIMBURSEMENT MADE TO THE ADVISER

In addition to the advisory fee, transfer agent fee, and distribution fees
paid by the Fund to the Adviser, for the fiscal year ended September 30, 1996,
l995, and l994, the Fund reimbursed the Adviser, on a cost basis, for costs
allocable to services performed by the Adviser's employees, including salaries
and office space, respectively $4,424, $3,531, and $25,005.

TRUSTEES AND OFFICERS OF THE TRUST

The Trustees and officers of the Trust, together with information as to
their principal occupations during the past five years and positions currently
held with the Gradison Growth Trust ("GGT"), the Gradison-McDonald Custodian
Trust ("GCT"), and the Gradison-McDonald Municipal Custodian Trust ("GMMT"), and
the Adviser, are listed below. All principal occupations have been held for at
least five years unless otherwise specified. Positions held with Gradison were
previously held with Gradison & Company Incorporated. The mailing address for
all trustees and officers of the Trust is c/o Gradison-McDonald Funds, 580
Walnut Street, Cincinnati, Ohio 45202.

15
<PAGE> 26

*DONALD E. WESTON. Trustee and Chairman of the Board; Chairman of Gradison and
Director of McDonald & Company Investments Inc. Trustee and Chairman of the
Board of GGT, GCT, and GMMT.; Director of Cincinnati Milacron Commercial
Corporation (financing subsidiary of Cincinnati Milacron Corporation
(manufacturer of machine tools).

THEODORE H. EMMERICH. Trustee. Retired; until 1986, managing partner (Cincinnati
office) Ernst & Young LLP (independent public accountants); Director of Carillon
Fund, Inc. (investment company), American Financial Group, Inc.(insurance), and
Cincinnati Milacron Commercial Corp.; Trustee of Summit Investment Trust and
Carillon Investment Trust (investment companies); Trustee of GGT, GCT, and GMMT.

RICHARD A. RANKIN. Trustee. Partner, Rankin and Rankin (independent public
accountants); Trustee of GGT, GCT, and GMMT.

JEROME E. SCHNEE. 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). Trustee of GGT, GCT, and GMMT.

PAUL J. WESTON. Executive Vice President; Executive Vice President of Gradison;
Senior Vice President of GGT, GCT, and GMMT. Mr. Weston is the brother of Donald
E. Weston.

C. STEPHEN WESSELKAMPER. Executive Vice President and Portfolio Manager; Vice
President of Gradison.

DANIEL J. CASTELLINI. Trustee; Senior Vice President/Finance and Administration
of the E. W. Scripps Company (communications); Trustee of GGT, GCT, and GMMT.

BRADLEY E. TURNER. President. Senior Managing Director of McDonald; President of
GGT, GCT, and GMMT.

PATRICIA J. JAMIESON. Treasurer. Managing Director and Chief Financial Officer
of McDonald; Treasurer of GGT, GCT, and GMMT.

MARK A. FRIETCH. Assistant Treasurer. Assistant Treasurer of GGT, GCT, and GMMT
(since May l995); Controller of Gradison-McDonald mutual funds (since August
l992); prior to that Financial Consultant of Union Central Life Insurance
Company.

RICHARD M. WACHTERMAN. Secretary. Senior Vice President and General Counsel of
Gradison; Secretary of GGT, GCT, and GMMT.

* Trustee who is an interested and affiliated person as defined by the
Investment Company Act of l940, of the Trust and the Adviser by virtue

16
<PAGE> 27

of stock ownership of the parent of the Adviser and employment by the Adviser.

Trustees and officers of the Trust who are affiliated with the Adviser
receive no remuneration from the Trust. Trustees who are not affiliated with the
Adviser receive fees as determined by the Board of Trustees. For the year ended
September 30, 1996, the fees paid to the Trustees by the Trust aggregated
$43,188.

Compensation Table
------------------

<TABLE>
<CAPTION>
Name of Trustee Aggregate Total Compensation
- --------------- Compensation From Fund and fund
From Fund complex (3 additional
for fiscal Trusts) paid to
year ended trustee for calendar
9/30/96 year ended 12/31/96
------- ---------------------
<S> <C> <C>
Theodore H. Emmerich 8,063 25,500

Richard A. Rankin 8,063 25,500

Jerome E. Schnee 8,000 25,000

Daniel J. Castellini 8,063 25,500
</TABLE>

The Trust maintains a deferred compensation plan which allows trustees to defer
receipt of trustee fees otherwise payable to them until a future date. Deferred
amounts are credited with interest at a rate equal to the yield of the Gradison
U.S. Government Reserves Fund. The Trust does not maintain any other pension or
retirement plans. There are currently no amounts owing to any current trustee
pursuant to the deferred compensation plan. As of September 30, l996, the amount
of $13,581 was payable by the Trust to the beneficiary of a former trustee who
is deceased and as of December 31, l996, the amount of $42,470 was payable to
that beneficiary by the fund complex (including the Fund).

DESCRIPTION OF THE TRUST

The Trust is a diversified, open-end investment company organized under the
laws of the Commonwealth of Massachusetts by an Amended and Restated Declaration
of Trust dated October 25, 1993. The Trust was formed for the specific purpose
of succeeding to the business and acquiring all of the assets of Gradison Cash
Reserves, Inc. in a reorganization effected on December 28, 1981. The Gradison
U.S. Government Reserves series of the Trust was formed for the purpose of
consolidating the following mutual funds: the Gradison Cash Reserves series of
the Trust, Gradison U.S. Government Trust, McDonald Money Market Fund, Inc., and
McDonald U.S. Government Money Market Fund, Inc. The shareholders of each of the
funds

17
<PAGE> 28

approved the consolidation. The Declaration of Trust provides for an unlimited
number of full and fractional shares of beneficial interest, $.01 par value, of
any series authorized by the Board of Trustees. The Board of Trustees has
authorized the issuance of shares of one series, representing the Fund. Any
additional series of shares must be issued in compliance with the Act and must
not constitute a security that is senior to the shares offered pursuant to the
Prospectus. All shares are of the same class and are freely transferable. Upon
issuance and sale in accordance with the terms of the offering, each share will
be fully paid and nonassessable. Shares have no preemptive, subscription or
conversion rights and are redeemable as set forth under "Redemption of Shares."

Holders of shares of the Fund are entitled to one vote per share.
Voting rights are not cumulative, which means that the holders of more than 50%
of the shares voting in any election of Trustees can elect all of the Trustees
of the Trust if they choose to do so, in which event the holders of the
remaining shares will be unable to elect a Trustee. Under the Declaration of
Trust, meetings of shareholders are not required to elect Trustees, unless less
than a majority of Trustees holding office have been elected by the shareholders
and a Trustee may be removed for cause by the vote of at least two thirds of the
remaining Trustees. Shareholders' meetings will be held only when required
pursuant to the Declaration of Trust or the Act, and when called by the Fund or
shareholders pursuant to the Declaration of Trust. The Trustees are required to
call a meeting of shareholders when requested in writing to do so by
shareholders of record of not less than 10 percent of the Trust's outstanding
shares. Pursuant to Section 16(c) of the Act, shareholders have the right to
remove trustees upon the vote of two-thirds of the outstanding shares of the
Trust, access shareholder lists under certain circumstances, and, as noted
above, instruct the trustees to call a shareholders' meeting.

Whenever the approval of a majority of the outstanding shares of a series
of the Trust is required in connection with shareholder approval of the
Investment Advisory Agreement or the Distribution Service Plan, or changes in
the investment objective or the investment restrictions, a "majority" shall mean
the vote of (i) 67% or more of the outstanding shares of the Fund present at a
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present in person or by proxy, or (ii) more than 50% of the outstanding
shares of the Fund, whichever is the lesser.

The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. The Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Trust and requires that notice of such disclaimer be given in every written
obligation, contract, instrument, certificate, share of beneficial interest,
other security of the Trust or undertaking made or issued by the Trustees or by
any officers, employees or agents of the Trust. The

18
<PAGE> 29

Declaration of Trust provides for indemnification out of Trust property of any
shareholder held personally liable for the obligations of the Trust. The
Declaration of Trust also provides that the Trust shall, upon request, assume
the defense of any claim made against any shareholder for any act or obligation
of the Trust and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations.
Management believes that, in view of the above, there is no realistic risk of
personal liability.

The Declaration of Trust provides that no Trustee, officer or agent of the
Trust shall be personally liable to any person for any action or failure to act
except (1) for his own bad faith, willful misfeasance, gross negligence, or
reckless disregard of his duties, (2) with respect to any matter as to which he
did not act in good faith and in a manner he reasonably believed to be in, and
not opposed to, the best interests of the Trust, or (3) in the case of any
criminal proceeding, with respect to any conduct which he had reasonable cause
to believe was unlawful.

CUSTODIAN

Star Bank, N.A., Star Bank Center, Cincinnati, Ohio 45202, acts as the
custodian of the portfolio securities and other assets of the Fund. Star Bank
has no part in determining the investment policies of the Fund or the securities
which are to be purchased, held or sold by the Fund. The Fund may enter into
repurchase agreements with Star Bank and may purchase or sell securities from or
to Star Bank.

ACCOUNTANTS

Arthur Andersen LLP, 425 Walnut Street, Cincinnati, Ohio, is the independent
public accountant for the Fund.

LEGAL COUNSEL

Kirkpatrick & Lockhart LLP acts as counsel to the Trust.

OPTIONAL SHAREHOLDER SERVICES

Shareholders may receive cash payment of the dividends that their account
has earned during the month or have such dividends reinvested in additional
shares of the Fund. If such election is made, dividends will be mailed to the
shareholder or any other person designated by the shareholder. This option may
be changed or terminated by written notice to the Fund.

19
<PAGE> 30

Shareholders may arrange for a fixed amount of money to be transferred on a
regular automatic basis from a bank or other depository account to their Fund
account. For additional information shareholders should contact the Fund or
their sales representative.

If an account has a value of at least $5,000 shareholders may elect to have
monthly or quarterly payments of a specified amount (but not less than $50)
mailed to themselves or another specified person. This option may be changed or
terminated at any time by written notice to the Fund. Because the Fund cannot
guarantee that payments will be made on the date specified, such payments should
not be used when receipt of the payment is time-sensitive.

These services may not be available as to Fund shares not held directly
with the Fund.

20
<PAGE> 31

Gradison U. S. Government Reserves

TOTAL RETURN FOR PERIODS ENDED SEPTEMBER 30, 1996

Average Annual Total Return

<TABLE>
<CAPTION>
10 Years 5 Years 3 Years 1 Year Quarter*

<S> <C> <C> <C> <C> <C>
U. S. Government Reserves +5.43% +3.86% +4.30% +4.86% +1.18%

Consumer Price Index +3.7% +2.8% +2.8% +3.3% +0.8%
</TABLE>

<TABLE>
<CAPTION>
U. S. Government Consumer Price
Year Cash Reserves Index

The table above is intended to compare the total return results of the U. S.
Government Reserves with the Consumer Price Index which is widely considered as
a measure of inflation. Total returns reflect the reinvestment and compounding
of actual daily dividends and distributions for each period noted above. The
performance quoted above represents past performance. Future returns will
fluctuate. Past performance does not insure future results.

Gradison U. S. Government Reserves acquired all of the outstanding shares of
Gradison Cash Reserves (GCR), Gradison U. S. Government Trust, McDonald Money
Market Fund, Inc., and McDonald U. S. Government Money Market Fund, Inc. on
September 27, 1993. Returns prior to that date are those of GCR. In 1993 and
1994 certain fees were waived by the Adviser which increased returns.

An investment in the Fund is neither insured nor guaranteed by the U. S.
Government and there can be no assurance that the Fund will be able to maintain
a stable net asset value of $1.00 per share.

All income earned in 1996 was received from U. S. Government obligations that
are exempt from state and local taxes. In some of the periods noted above, GCR
invested in commercial paper and other securities that generally have a higher
yield than U. S. Government Obligations.

21
<PAGE> 32

For a copy of the prospectus please call your Investment Consultant at (513)
579-5000 or (800) 869-5666. The prospectus contains more complete information.
Read it carefully before you invest.

*Not annualized

Gradison Division of McDonald & Company Securities, Inc. - Distributor

GRADISON-McDONALD
Mutual Funds

22
<PAGE> 33

Sales Brochure

COVER PAGE
- ----------

MONEY MARKET
FUNDS

GRADISON MCDONALD

[GRAPHIC: COLLAGE OF CAMERA, PASSPORT, STAMPS, MAP, COMPASS, POSTCARDS AND
"YOUR FUTURE STARTS TODAY."]

U.S. GOVERNMENT RESERVES
MUNICIPAL CASH SERIES
OHIO MUNICIPAL CASH TRUST

23
<PAGE> 34

FAMILY OF MUTUAL FUNDS

MONEY MARKET

INTERMEDIATE OHIO TAX FREE
MUNICIPAL INCOME

INTERNATIONAL ESTABLISHED
VALUE

GOVERNMENT OPPORTUNITY
INCOME VALUE

GROWTH
& INCOME

24
<PAGE> 35

PAGE 1
- ------

[Graphic; collage of passport, stamps, map, and camera]

Whatever your goals or ASPIRATIONS.
Whatever your objective. One thing is certain.
An INVESTMENT made today brings
you that much closer to meeting that OBJECTIVE
and reaching that GOAL ...
whether it's buying a house, starting a family,
SAVING for a college education,
or planning for retirement. Hesitate and
time will pass you by.

Today, opening a MONEY MARKET account
is a FUNDAMENTAL step in starting a
savings and investment program.
And for a growing number of TODAY'S INVESTORS,
GRADISON-McDONALD is a preferred name among money market funds.

1-800-869-5999[Graphic of call for information logo.]

25
<PAGE> 36

PAGE 2
- ------

MONEY MARKET
FUND

GRADISON-McDONALD, RECOGNIZING THE BENEFITS
THAT MONEY MARKET FUNDS OFFERED THEIR
CLIENTS, BEGAN MANAGING ITS MONEY MARKET
FUND IN 1976. MONEY MARKET MUTUAL FUNDS
WERE ORIGINALLY VIEWED AS A CONVENIENT, TEM-
PORARY LOCATION FOR CASH WHILE LONG-TERM
INVESTMENTS WERE CONSIDERED. THEY QUICKLY
BECAME A POPULAR VEHICLE FOR SAVINGS AND
CHECKING ASSETS AS PASSBOOK SAVING RATES
DECLINED AND THE COST OF MAINTAINING A
CHECKING ACCOUNT ROSE. TODAY, MONEY MAR-
KET FUNDS--WITH THEIR COMPETITIVE CURRENT
YIELDS AND HIGH LEVEL OF SERVICE--ARE A FUN-
DAMENTAL ASPECT OF PERSONAL FINANCE AND
BUSINESS MANAGEMENT.

CHOOSE FROM THREE FUNDS
- -----------------------

U.S. GOVERNMENT RESERVES invests solely in U.S. Government and agency
securities. The Fund is managed by experienced Gradisono McDonald portfolio
managers.

MUNICIPAL CASH SERIES provides current income exempt from Federal regular income
tax.FN1 and is managed by Federated Advisers and available through Gradisono
McDonald.

OHIO MUNICIPAL CASH TRUST (CASH II SHARES) is a double tax-free money market
mutual fund for Ohio investors. The Fund seeks to provide money market income
exempt from both Federal regular FN1 and Ohio taxation and is also managed by
Federated Advisers and available through Gradison-McDonald.

26
<PAGE> 37

PAGE 3
- ------

[Graphic: Collage: Compass, postcards.]

Unlike checking and passbook accounts, an investment in the Funds is neither
insured nor guaranteed by the U.S. Government. There can be no assurance that
the Funds will maintain a stable net asset value of $1.00 per share.

LIQUIDITY
---------

Money market fund assets are as easily accessible as making a phone call or
writing a check. ATM access is also available for an additional fee through the
McDonald Relationship Account.

LOW MINIMUM INVESTMENT
----------------------

There is no minimum size account or minimum additional investment for money
market fund accounts maintained together with a Gradison-McDonald active
brokerage account.

Money market fund accounts maintained separately from an active brokerage
account must have an initial investment of $1,000 and minimum additional
investments of at least $50.

FN 1 A portion of the income will be subject to Alternative Minimum Taxation for
Taxpayers subject to such tax.

1-800-869-5999 [Graphic of call for information logo.]

27
<PAGE> 38

PAGE 4
- ------

FREE CHECK WRITING
- ------------------

Money market fund accounts offer free check writing for any check of $100 or
more. Checks of less than $100 are processed for a minimal fee of 30 cents per
check.

DAILY DIVIDENDS
- ---------------

Dividends are declared daily. You may also choose to have each month's dividends
paid to you.

EXCHANGES
- ---------

You can move money from the money market funds to any of the following
Gradison-McDonald funds at any time. The Gradison-McDonald funds currently
include

Opportunity Value Fund
Established Value Fund
Government Income Fund
Ohio Tax-Free Income Fund
Intermediate Municipal Income Fund

Gradison o McDonald funds planned for 1995 and sold by prospectus only include:

Growth & Income Fund
International Fund

ACCESS
- ------

You can redeem money market fund shares on any business day.
[Graphic: Passport and stamps.]

28
<PAGE> 39

INSIDE BACK COVER
- -----------------

A TRUSTED NAME

Gradison - McDonald
is headquartered in Cincinnati and has
managed mutual funds since 1976.
The parent company, McDonald & Company
Investments, was founded in 1924
and has been listed on the
New York Stock Exchange since 1983.
It operates a leading regional
investment advisory, investment banking,
and investment brokerage firm
with offices throughout
Ohio, Michigan and Indiana,
and in Atlanta, Boston, Dallas, Chicago,
Los Angeles, the New York City area
and Naples, Florida

1-800-869-5999 [Graphic of call for information logo.]

29
<PAGE> 40

Back Cover
- ----------
[Graphic: Portable phone and envelopes]

To find out more about the
GRADISON-McDONALD
MONEY MARKET FUNDS
OR OTHER FUNDS IN THE FAMILY

CALL
1-800-869-5999

OR WRITE
Gradison o McDonald Mutual Funds
580 Walnut Street
Cincinnati, Ohio 45202

GRADISON-McDONALD

You may obtain a prospectus containing complete information about the money
market funds from a Gradison o McDonald Mutual Funds representative or your
Investment Consultant. Read it carefully before investing.

Federated Securities Corp. is the principal distributor for the shares of
Municipal Cash Series and Ohio Municipal Cash Trust (Cash II Shares). McDonald &
Company Securities, Inc. is the principal distributor for the shares of the
Gradison- McDonald U.S. Government Reserves.

McDonald & Company Securities Inc., acts as agent for clients investing in
Municipal Cash Series and Ohio Municipal Cash Trust (Cash II Shares) and does
not act as investment adviser for the those funds. Checking redemptions for
these funds is provided by Gradison-McDonald through Star Bank, N.A.

30
<PAGE> 41

[Fact Sheet]

GRADISON McDONALD
U. S.
Government
Reserves

March 31, 1996

U. S. Government Reserves is a money market mutual fund designed to provide
investors with current money market yields by investing exclusively in
securities issued by the U. S. Government or its agencies or instrumentalities,
and in repurchase agreements for such securities.

The Fund is used by individuals, institutions and corporations as a short-term
investment with convenient daily liquidity. Investors and retirement plan
participants make use of the Fund as a temporary depository for assets between
longer-term investment decisions.

U. S. Government Reserves offers high levels of service including checkwriting,
wire transfers, daily sweeps with brokerage accounts, monthly statements that
include check payee names, and telephone redemption privileges. Additional
services, including a debit card with ATM access, are available for an
additional fee through the optional "Relationship Account".

Symbol: GMUXX

[Graphic: United States Passport,
Postage Stamps]

PERFORMANCE RESULTS SINCE INCEPTION

Bar Chart stating "Annual Return of U. S. Government Reserves" with these plot
points 1976 - 5.26%*; 1977 - 5.00%; 1978 - 6.88%; 1979 - 10.18%; 1980 - 11.60%;
1981 - 16.95%; 1982 - 12.32%; 1983 - 8.54%; 1984 - 10.09%; 1985 - 7.78%; 1986 -
6.28%; 1987 - 6.03%; 1988 - 7.07%; 1989 - 8.78%; 1890 - 7.64%; 1991 - 5.48%;
1992 - 3.33%; 1993 - 2.49%; 1994 - 3.46%; 1995 - 5.26%; 3/31/96* - 4.93%.

Line Chart stating "Annual Percent of Change in the Consumer Price Index" with
these plot points 1976 - 6.12%; 1977 - 6.38%; 1978 - 6.48%; 1979 - 10.22%; 1980
- - 14.69%; 1981 - 10.55%; 1982 - 6.79%; 1983 - 3.64%; 1984 - 4.74%; 1985 - 3.74%;
1986 - 2.26%; 1987 - 3.03%; 1988 - 3.90%; 1989 - 4.97%; 1989 - 4.97%; 1990 -
5.25%; 1991 - 4.89%; 1992 - 3.19%; 1993 - 3.09%; 1994 - 2.51%; 1995 - 2.85%;
March 31, 1996 - 2.80%.

31
<PAGE> 42

Total return includes reinvestment of all distributions.
*Annualized return. Actual return for the full 1996 year will change.

AVERAGE ANNUAL TOTAL RETURN

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIODS Quarter* 1 Year 3 Years 5 Years 10 Years
ENDED +1.21% +5.16% +3.92% +3.93% +5.50%
3/31/96
<FN>
*Not annualized
</TABLE>

Returns prior to September 27, 1993, are those of Gradison Cash Reserves, a
predecessor money market fund which invested in non-government obligations, the
yields of which generally exceed the yield of government obligations.
Performance presented above represents past performance; future returns will
fluctuate.

An investment in the Fund is neither insured nor guaranteed by the U. S.
Government and there can be no assurance that it will be able to maintain a
stable net asset value of $1.00 per share.

NET ASSETS AND WHERE THE FUND IS INVESTED

The information below is as of March 31, 1996, and is subject to change in the
future.

$ 1,404 Billion [Graphic: Pie Chart
Net Assets as of 3/31/96 Student Loan Marketing Association 3%
U. S. Treasuries 4%
Tennessee Valley Authority 9%
Federal Home Loan Banks 46%
Federal Farm Credit Bank 38% ]

PORTFOLIO MANAGER PROFILES

[Graphic: Photo C. Stephen Wesselkamper]
C. Stephen Wesselkamper
First Vice President/Portfolio Manager
Gradison McDonald Asset Management

With more than eighteen years financial analysis and portfolio
management experience, the last thirteen with Gradison McDonald, Stephen
Wesselkamper bears primary responsibility for both strategy and day to day
portfolio management of U. S. Government Reserves. Steve also provides his
fixed income expertise to management of the

32
<PAGE> 43

Gradison McDonald Government Income Fund. A magna cum laude B.S. graduate
of the University of Cincinnati, Steve holds an MBA from Xavier University.

Paul J. Weston [Graphic: Photo of Paul J. Weston]
Executive Vice President
Gradison McDonald Asset Management

With more than 25 years of investment experience with Gradison McDonald, Paul
Weston has been involved with both the portfolio management and administration
of Gradison McDonald U. S. Government Reserves for more than 15 years. Paul has,
for a number of years, served on several industry wide committees. His
educational background includes Bowdoin College, Western Reserve University, and
the Wharton School of Finance and Commerce.

PROFILE OF GRADISON McDONALD FAMILY OF FUNDS

Grid from less potential risk, less potential reward to more potential risk,
more potential reward from left to right; Money market funds, Government Income
Fund, Government Income Fund, Intermediate Municipal Income Fund, Ohio Tax-Free
Income Fund, Established Value Fund, Growth & Income Fund, Opportunity Value
Fund and International Fund.

Gradison McDonald Asset Management combines the extensive investment experience
of Gradison & Company, founded in 1925, with McDonald & Company which was
founded in 1924. The two firms merged in 1991. As registered investment advisers
since 1974 and mutual fund advisers since 1976, Gradison McDonald currently
manages in excess of $3 billion in mutual fund and individually managed assets.

A prospectus for the U. S. Government Reserves or any other Gradison McDonald
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

33
<PAGE> 44

PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996

<TABLE>
<CAPTION>
MATURITY, INTEREST PRINCIPAL
COUPON RATE RATE(2) AMOUNT VALUE

FEDERAL FARM CREDIT BANKS, DISCOUNT NOTES - 12.06%
<S> <C> <C> <C>
10/01/96 5.15% $ 5,000,000 $ 5,000,000
10/03/96 5.19 14,000,000 13,995,963
10/09/96 5.20 15,000,000 14,982,667
10/10/96 5.27 12,000,000 11,984,190
10/11/96 5.23 16,400,000 16,376,174
10/15/96 5.22 10,860,000 10,837,954
10/21/96 5.21 12,000,000 11,965,267
10/24/96 5.28 10,000,000 9,966,267
10/29/96 5.38 11,625,000 11,576,356
11/01/96 5.36 10,000,000 9,953,844
11/14/96 5.25 18,810,000 18,689,410
12/17/96 5.27 25,000,000 24,718,469
-----------
160,046,561
-----------

FEDERAL FARM CREDIT BANKS, BONDS - 1.77%

11/01/96, 5.60% 5.49 10,000,000 10,000,820
11/01/96, 5.45% 5.45 13,525,000 13,523,639
-----------
23,524,459
-----------

FEDERAL FARM CREDIT BANKS,
FLOATING RATE NOTES(1) - 18.01%

1/13/97 5.22 26,000,000 25,987,068
1/22/97 5.21 13,000,000 12,992,563
4/01/97 5.41 50,000,000 49,986,696
5/01/97 5.56 50,000,000 49,977,348
6/13/97 5.57 50,000,000 50,000,000
6/27/97 5.52 50,000,000 49,982,312
-----------
238,925,987
-----------

FEDERAL FARM CREDIT BANKS,
FLOATING RATE MASTER NOTE(1) - 7.91%

10/16/96 5.36 105,000,000 105,000,000
-----------
</TABLE>

<TABLE>
<CAPTION>
MATURITY, INTEREST PRINCIPAL
COUPON RATE RATE(2) AMOUNT VALUE

FEDERAL FARM CREDIT BANKS, DISCOUNT NOTES - 12.06%
<S> <C> <C> <C>

10/02/96 5.28% $ 7,915,000 $ 7,913,839
10/03/96 5.22 15,000,000 14,995,650
10/07/96 5.28 6,200,000 6,194,544
10/08/96 5.16 19,200,000 19,180,736
10/10/96 5.22 9,405,000 9,392,726
10/15/96 5.31 50,000,000 49,896,799
10/17/96 5.16 25,000,000 24,942,667
10/21/96 5.33 8,400,000 8,375,127
10/24/96 5.18 37,000,000 36,877,551
10/28/96 5.20 7,985,000 7,953,858
11/21/96 5.19 61,000,000 60,551,483
11/27/96 5.40 19,495,000 19,328,318
12/04/96 5.37 25,000,000 24,761,333
12/12/96 5.37 15,000,000 14,838,900
12/17/96 5.40 6,300,000 6,227,235
12/19/96 5.40 15,000,000 14,822,250
1/10/97 5.43 8,465,000 8,336,043
1/23/97 5.44 22,585,000 22,195,936
1/28/97 5.43 15,000,000 14,730,762
2/03/97 5.33 10,000,000 9,814,931
3/06/97 5.34 10,000,000 9,768,600
3/12/97 5.32 10,000,000 9,760,600
3/18/97 5.33 10,000,000 9,751,267
4/10/97 5.48 15,000,000 14,563,883
-----------
425,175,038
-----------
</TABLE>
See accompanying notes to financial statements.

<PAGE> 45
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996
<TABLE>
<CAPTION>

MATURITY, INTEREST PRINCIPAL
COUPON RATE RATE(2) AMOUNT VALUE

FEDERAL HOME LOAN BANKS, BONDS - 6.75%
<S> <C> <C> <C>
1/02/97, 5.42% 5.42% $ 5,000,000 $ 5,000,000
1/03/97, 5.53% 5.56 5,400,000 5,399,567
1/29/97, 5.24% 5.30 25,000,000 24,994,918
3/05/97, 5.30% 5.30 25,000,000 25,000,000
3/06/97, 5.04% 5.25 20,000,000 19,982,562
6/20/97, 6.11% 6.11 9,150,000 9,150,000
-----------
89,527,047
-----------
FEDERAL HOME LOAN BANKS,
FLOATING RATE NOTES(1) - 8.29%

11/13/96 5.21 10,000,000 9,999,530
3/27/97 5.29 50,000,000 49,977,557
9/26/97 5.36 50,000,000 49,961,189
-----------
109,938,276
-----------

MATURITY, INTEREST PRINCIPAL
COUPON RATE RATE(2) AMOUNT VALUE

STUDENT LOAN MARKETING ASSOCIATION,
FLOATING RATE NOTES(1) - 3.02%

10/30/97 5.67% $ 20,000,000 $ 20,038,448
11/24/97 5.49 20,000,000 20,000,000
-------------
40,038,448
-------------

TENNESSEE VALLEY AUTHORITY, DISCOUNT NOTES - 6.35%

10/09/96 5.22 10,000,000 9,988,400
10/23/96 5.23 58,000,000 57,814,625
11/07/96 5.20 16,500,000 16,411,817
-------------
84,214,842
-------------
U.S. TREASURY NOTES - 3.79%

1/31/97, 7.50% 5.33 20,000,000 20,138,690
2/28/97, 6.88% 5.59 30,000,000 30,150,927
-------------
50,289,617
-------------

TOTAL INVESTMENTS, AT VALUE
(Cost $1,326,680,275) - 100% $1,326,680,275
==============
<FN>
(1) For regulatory purposes, the maturity date of floating rate securities
with market prices that approximate par is considered to be the date upon
which the next readjustment of the interest rate can occur.
(2) The interest rates disclosed in the portfolio of investments are as
follows:
- U.S. Government Agency discount notes - the discount rate at the time
of purchase;
- U.S. Treasury notes and U.S. Government Agency bonds - the
yield to maturity at the time of purchase;
- U.S. Government Agency floating rate notes - the nominal coupon rate at
September 30, 1996.
</TABLE>

See accompanying notes to financial statements.

<PAGE> 46
STATEMENT OF ASSETS AND LIABILITIES

SEPTEMBER 30, 1996

ASSET
<S> <C>
Investments in securities, at value (Note 1) (Cost $1,326,680,275) $1,326,680,275
Interest receivable 7,062,276
Prepaid expenses and other assets 691,123
-------------
TOTAL ASSETS 1,334,433,674
-------------
LIABILITIES

Accrued investment advisory fee (Note 2) 466,773
Payable for Fund shares redeemed 433,830
Other accrued expenses payable to adviser (Note 2) 291,706
Other accrued expenses and liabilities 178,182
-------------
TOTAL LIABILITIES 1,370,491
-------------
NET ASSETS

Equivalent to $1.00 per share on 1,333,063,183 outstanding shares (Note 1)
($.01 par value - unlimited number of shares authorized) $1,333,063,183
=============
</TABLE>

See accompanying notes to financial statements.

<PAGE> 47

STATEMENT OF OPERATIONS

YEAR ENDED
SEPTEMBER 30, 1996

<S> <C> <C>
INTEREST INCOME $73,584,299

EXPENSES:
Investment advisory fee (Note 2) $ 6,078,331
Transfer agency fees (Note 2) 2,026,000
Distribution (Note 2) 1,334,962
Accounting services fees (Note 2) 153,364
Printing 115,801
Registration fees 100,564
ICI dues 53,232
Professional fees 50,529
Trustees' fees (Note 2) 43,822
Insurance 35,485
Other 103,914
----------
TOTAL EXPENSES 10,096,004
-----------
NET INVESTMENT INCOME $63,488,295
===========
</TABLE>

See accompanying notes to financial statements.

<PAGE> 48

STATEMENTS OF CHANGES IN NET ASSETS

YEAR ENDED SEPTEMBER 30,
--------------------------------------
1996 1995

<S> <C> <C>
FROM NET INVESTMENT INCOME $ 63,488,295 $ 55,329,396
------------- -------------
FROM DIVIDENDS TO SHAREHOLDERS (63,488,295) (55,329,396)
------------- -------------
FROM FUND SHARE TRANSACTIONS:
(at a constant net asset value of $1.00 per share)
Proceeds from shares sold 5,411,348,184 5,412,404,275
Net asset value of shares issued in reinvestment of dividends 63,488,295 55,329,396
Payments for shares redeemed (5,365,902,757) (5,244,837,425)
------------- -------------
Increase in net assets from Fund share transactions 108,933,722 222,896,246
------------- -------------
TOTAL INCREASE IN NET ASSETS 108,933,722 222,896,246
NET ASSETS:

Beginning of year 1,224,129,461 1,001,233,215
------------- -------------
End of year $1,333,063,183 $1,224,129,461
============= =============
</TABLE>

See accompanying notes to financial statements.

8
<PAGE> 49
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES

Gradison-McDonald Cash Reserves Trust (the Trust) is a no-load, diversified,
open-end management investment company registered under the Investment Company
Act of 1940, as amended. Effective with the start of business on September 27,
1993 (the Reorganization Date) all of the outstanding shares of the Gradison
Cash Reserves (GCR) series of the Trust, Gradison U.S. Government Trust,
McDonald Money Market Fund, Inc., and McDonald U.S. Government Money Market
Fund, Inc. were acquired by a new series of the Trust, Gradison-McDonald U.S.
Government Reserves (the Fund).

The Fund's investment objective is to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity.

The following is a summary of significant accounting policies followed by the
Trust in the preparation of the Fund's financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amount of income and expenses for that
period. Actual results could differ from those estimates.

SECURITIES VALUATION -- Investments are valued using the amortized cost method
which approximates market value. This involves initially valuing a security at
its original cost and thereafter assuming a constant amortization to maturity of
any discount or premium. This method of valuation is expected to enable the Fund
to maintain a constant net asset value per share.

SECURITIES TRANSACTIONS AND INTEREST INCOME -- Securities transactions are
accounted for on the trade date (the date the order to buy or sell is executed).
Interest income is accrued as earned and includes any immaterial gains or losses
realized from securities transactions during the year.

FUND SHARE VALUATION AND DIVIDENDS TO SHAREHOLDERS -- Fund shares are sold and
redeemed on a continuing basis at the net asset value. 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. All of the net
investment income of the Fund is declared as a dividend and paid in additional
shares once daily. Net investment income consists of all interest income accrued
on the portfolio securities of the Fund, plus or minus amortized purchase
discount or premium, less accrued expenses. Share purchases effective before
12:00 noon (Eastern time) earn dividends that day. Redemption requests received
before 12:00 noon will not receive that day's dividend.

TAXES -- It is the Trust's policy to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. As provided therein,
in any fiscal year in which the Trust so qualifies, and distributes at least 90%
of its taxable net income, the Trust will be relieved of federal income tax on
the income distributed. Accordingly, no provision for income taxes has been
made.

In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Trust's intention to declare as dividends
in each calendar year, at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains, if any (earned
during the twelve months ended October 31) plus undistributed amounts from prior
years.

The tax basis of investments is equal to the amortized cost as shown on the
Portfolio of Investments.

NOTE 2 -- TRANSACTIONS WITH AFFILIATES

The Fund's investments are managed, subject to the general supervision and
control of the Trust's Board of Trustees, by McDonald & Company Securities, Inc.
(McDonald), a registered investment adviser and securities dealer, pursuant to
the

<PAGE> 50
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996

terms of an Investment Advisory Agreement (the Agreement). Under the terms of
the Agreement, the Trust pays McDonald a fee computed and accrued daily and paid
monthly based upon the Fund's average daily net assets at the annual rate of
.50% on the first $400 million, .45% on the next $600 million, .40% on the next
$1 billion and .35% on any amounts in excess of $2 billion.

Under the terms of the Agreement, McDonald bears the costs of salaries and
related expenses of executive officers of the Trust who are necessary for the
management and operations of the Trust. In addition, McDonald bears the costs of
preparing, printing and mailing sales literature and other advertising
materials, and compensates the Trust's trustees who are affiliated with
McDonald.

Under the terms of a Transfer Agency, Accounting Services and Administrative
Services Agreement, McDonald provides transfer agent, dividend disbursing,
accounting services and administrative services to the Trust. The Trust pays
McDonald a monthly fee for transfer agency and administrative services at an
annual rate of $23.50 per shareholder account, plus out-of-pocket costs for
statement paper, statement and reply envelopes and reply postage. The Trust pays
McDonald a monthly fee for accounting services based on the Fund's average daily
net assets at an annual rate of .015% on the first $400 million, .0125% on the
next $300 million, .01% on the next $300 million and .0075% on any amount in
excess of $1 billion, with a minimum annual fee of $25,000.

Under the terms of a Distribution Service Plan adopted under Rule 12b-1 of the
Investment Company Act of 1940, the Trust has entered into an agreement with
McDonald pursuant to which the Trust pays McDonald a service fee in the annual
amount of .10% of the Fund's average daily net assets.

The officers of the Trust are also officers of McDonald.

Each trustee of the Trust who is not affiliated with McDonald receives fees from
the Trust for services as a trustee. The amounts of such fees for each trustee
are as follows: (a) an annual fee of $6,000 payable in quarterly installments
for service during each fiscal quarter, (b) $500 for each Board of Trustees
meeting attended and (c) $300 for each committee meeting attended. Each trustee
not serving on other Gradison-McDonald Mutual Fund Boards of Trustees receives
an additional $500 for each meeting attended.

<PAGE> 51
Grandison-McDonald

ARTHUR
ANDERSEN

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Trustees of the
Gradison-McDonald U.S. Government Reserves series
of the Gradison-McDonald Cash Reserves Trust:

We have audited the accompanying statement of assets and liabilities of the
Gradison-McDonald U.S. Government Reserves, a series of the Gradison-McDonald
Cash Reserves Trust (a Massachusetts business trust), including the portfolio
of investments, as of September 30, 1996, the related statement of operations
for the year then ended, and the statements of changes in net assets for the
periods indicated thereon, and the financial highlights for each of the four
periods in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the year ended September 30,
1992, of the Gradison-McDonald U.S. Government Reserves series of the
Gradison-McDonald Cash Reserves Trust, was audited by other auditors whose
report dated October 22, 1992, expressed an unqualified opinion on these
financial highlights.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Gradison-McDonald U.S. Government Reserves series of the Gradison-McDonald
Cash Reserves Trust as of September 30, 1996, the results of its operations for
the year then ended, the changes in its net assets for the periods indicated
thereon, and the financial highlights for each of the four periods in the period
then ended, in conformity with generally accepted accounting principles.

Cincinnati, Ohio,
October 25, 1996 /s/ Arthur Andersen LLP

11
<PAGE> 52

PART C

OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(a)(1) Financial Statements (included in the Prospectus):

Financial Highlights

(a)(2) Financial Statements (included in the Statement of Additional
Information):

Report of Independent Accountant
Portfolio of Investments at September 30, 1996
Statements of Assets and Liabilities at September 30, l996
Statement of Operations for the year ended September 30, 1996
Statement of Changes in Net Assets for the two years ended
September 30, 1995 and September 30, l996

Notes to Financial Statements

(b) Exhibits
( 1) Registrant's Declaration of Trust, as amended October 25,
l993. +
( 2)(a) Registrant's By-Laws. *
(b) Amendment to Registrant's By-Laws (Amending Section
3.1).**
( 3) None.
( 4) None.
( 5) Investment Advisory Agreement dated September 24, l993.+
( 6) See Exhibit 15 (b).
( 7) Deferred compensation agreement.+
( 8) Custodian Agreement.+
( 9) Transfer Agency, Accounting Services, and Administrative
Services Agreement dated September 24, l993.+
(10) Opinion of Counsel is filed yearly with Registrant's Rule 24f-2
Notice and was most recently filed on November 14, l995.
(11) Consent of Arthur Andersen LLP (included herein).
(12) None.
(13) Letter of Investment Intent +
(14) Individual Retirement Account Plan Booklet. +
(15)(a) Distribution Service Plan dated September 24, l993.+
(b) Distribution Agreement between Trust and Adviser dated
September 24, l993.+
(16) Schedule of Yield Computation. +
(18)(a) Powers of Attorney of Theodore Emmerich, Richard
Rankin, Jerome Schnee, Paul Weston,
and Donald Weston. +
(18)(b) Powers of Attorney of Bradley E. Turner and Daniel J.

C-1
<PAGE> 53

Castellini . ***
(18)(c) Power of Attorney of Patricia Jamieson. ++
- ---------------------------------------------------
+ Incorporated by reference to Exhibits 1, 5, 7, 8, 9, 13, 14, 15(a), 15(b), 16,
and 18(a) to Registrant's Registration Statement No. 2-55297 previously filed
with the Securities and Exchange Commission on January 25 1994.

* Incorporated by reference to Exhibit 2(a), to Registrant's Registration
Statement No. 2-55297 previously filed with the Securities and Exchange
Commission on November 26, 1986.

** Incorporated by reference to Exhibit 2(b), to Registrant's Registration
Statement No. 2-55297 previously filed with the Securities and Exchange
Commission on November 29, 1991.

*** Incorporated by reference to Exhibit 18(b), to Registrant's Registration
Statement No. 2-55297 previously filed with the Securities and Exchange
Commission on January 26, l995.

++ Incorporated by reference to Exhibit 18(c), to Registrant's Registration
Statement No. 2-55297 previously filed with the Securities and Exchange
Commission on January 25, l996.

Item 26. Number of Holders of Securities

Number of Record Holders
Title of Class as of January 27, l997
-------------- ----------------------

Shares of beneficial interest, par value
$.01 per share, of the Registrant:

Gradison U.S. Government Reserves 91,954

Item 27. INDEMNIFICATION

Reference is made to Article V of the Declaration of trust of the
Registrant, filed as Exhibit 1 to this Registration Statement. Officers and
Trustees of Registrant are insured against liability by reasons of acts, errors,
or omissions in such capacities.

Item 28. Business and Other Connections of Investment Adviser

Reference is made to the captions "Management of the Fund" in the
Prospectus that is Part A of this Registration Statement and "Trustees and
Officers of the Trust" in the Statement of Additional Information that is Part B
of this Registration Statement and to Item 29(b) of this Part C of the
Registration Statement.

Item 29. Principal Underwriters

C-2
<PAGE> 54

(a) The principal underwriter of the Registrant is McDonald & Company
Securities, Inc., which also serves as the principal underwriter and
investment adviser for Gradison U.S. Government Trust, Gradison Growth
Trust, Gradison Custodian Trust, and the Gradison-McDonald Municipal
Custodian Trust.

(b) Information pertaining to its directors and officers is contained in the
following table.

<TABLE>
<CAPTION>
Principal Positions and
Positions and Offices Business Offices with
Name With Underwriter Address Registrant
- ---- --------------------- --------- -------------
<S> <C> <C> <C>
Daniel F. Austin Director, Vice 800 Superior Avenue None
Chairman Cleveland Ohio 44114

Jack N. Aydin Director, Managing One Evertrust Plaza None
Director Jersey City, NJ 07302

Eugene H. Bosart, Director, Senior 260 East Brown Street None
III Managing Director Birmingham, MI 48009

Thomas G. Clevidence Director, Senior 800 Superior Avenue None
Managing Director Cleveland, OH 44114

Robert Clutterbuck Director, President 800 Superior Avenue None
Chief Operating Cleveland, OH 44114
Officer,

Ralph M. Della Ratta Director, Senior 800 Superior Avenue None
Jr. Managing Director Cleveland, Ohio 44114

Dennis J. Donnelly Director, Senior 800 Superior Avenue None
Managing Director Cleveland, OH 44114

David W. Ellis, III Director, and 580 Walnut Street None
Managing Director Cincinnati, OH 45202
(Gradison Division)

Patricia J. Jamieson Secretary/Treasurer 800 Superior Avenue Treasurer
Chief Financial Cleveland, OH 44114 Chief
Officer, Managing Financial
Director Officer

David W. Knall Director, Senior One American Square None
Managing Director Indianapolis, IN 46282

Thomas M. McDonald Director, Managing 800 Superior Avenue None
Director, Cleveland, OH 44114

John F. O'Brien Director, Senior 800 Superior Avenue None
Managing Director Cleveland, OH 44114
</TABLE>

C-3
<PAGE> 55

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Lawrence T. Oakar Director, 800 Superior Avenue None
Managing Director Cleveland, OH 44114

James C. Redinger Director, Senior 800 Superior Avenue None
Managing Director Cleveland, OH 44114

William Summers, Jr. Director, Chairman 800 Superior Avenue None
Chief Executive Cleveland, OH 44114
Officer

David D. Sutcliffe Director, 800 Superior Avenue None
Managing Director Cleveland, OH 44114

Bradley E. Turner Director, Senior 580 Walnut Street President
Managing Director Cincinnati, Ohio 45202

Gary A. Zdolshek Director, Senior 800 Superior Avenue None
Managing Director Cleveland, OH 44114
</TABLE>

Item 30. Location of Accounts and Records

Registrant undertakes to provide without cost a copy of its most recent annual
report upon request.

All accounts, books and documents required to be maintained by the Registrant
pursuant to Section 31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31(a) thereunder are maintained at the offices of the Registrant, 580
Walnut Street, Cincinnati, Ohio 45202, except as indicated below opposite the
applicable reference the aforesaid Rules.

Rules In Possession of:
----- -----------------

31a-1(b)(1), 31a-1(b)(2)(i)(a)-(f), Star Bank, N.A.
31a-1(b)(2)(ii), 31a-1(b)(5) and Star Bank Center
31a-1(b)(8) Cincinnati,
Ohio 45202

Item 31. Management Services

Not applicable.

Item 32. Undertakings

Insofar as indemnification for liability arising under the Securities Act of
l933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.

C-4
<PAGE> 56

In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a trustee,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction, the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

C-5
<PAGE> 57

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cincinnati and State of Ohio on the 29th day of
January, 1997 .

GRADISON-McDONALD CASH RESERVES TRUST

By BRADLEY E. TURNER*
------------------
Bradley E. Turner, President

Pursuant to the requirements of the Securities Act of 1933, this
Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.

Registrant hereby certifies that this Amendment to Registration
Statement meets all of the requirements for effectiveness pursuant to paragraph
(b) of Rule 485.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
*DONALD E. WESTON Chairman of the Board January 29, 1997
(Principal Executive
Officer and Trustee)

*DANIEL J. CASTELLINI Trustee "

*THEODORE EMMERICH Trustee "

*RICHARD RANKIN Trustee "

*JEROME SCHNEE Trustee "

*BRADLEY E. TURNER President "

*PATRICIA JAMIESON Treasurer "
(Principal Financial and
Accounting Officer)

<FN>
*By RICHARD M. WACHTERMAN
---------------------
Richard M. Wachterman, Attorney-in-fact
</TABLE>

S-1
<PAGE> 58

Exhibit List

Exhibit Number Description
- -------------- -----------

11 Consent of Arthur Andersen LLP

<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. 39 of our report dated October 25, l996 and to all
references to our Firm included in or made a part of this Post-Effective
Amendment.

|S| Arthur Andersen LLP
ARTHUR ANDERSEN LLP

Cincinnati, Ohio,
January 29, l997

<ARTICLE> 6
<CIK> 0000042895
<NAME> GRADISON CASH RESERVES TRUST
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLAR

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1,326,680,275
<INVESTMENTS-AT-VALUE> 1,326,680,275
<RECEIVABLES> 7,062,276
<ASSETS-OTHER> 691,123
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,334,433,674
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,370,491
<TOTAL-LIABILITIES> 1,370,491
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,333,063,183
<SHARES-COMMON-STOCK> 1,333,063,183
<SHARES-COMMON-PRIOR> 1,224,129,461
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,333,063,183
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 73,584,299
<OTHER-INCOME> 0
<EXPENSES-NET> 10,096,004
<NET-INVESTMENT-INCOME> 63,488,295
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 63,488,295
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 63,488,295
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,411,348,184
<NUMBER-OF-SHARES-REDEEMED> 5,365,902,757
<SHARES-REINVESTED> 63,488,295
<NET-CHANGE-IN-ASSETS> 108,933,722
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,078,331
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,096,004
<AVERAGE-NET-ASSETS> 1,334,582,687
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .047
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .047
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>