GRADISON GROWTH TRUST, 485BPOS, 1997-07-29

GRADISON GROWTH TRUST
485BPOS, 1997-07-29

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<PAGE> 1
As filed with the Securities and Exchange Commission on July 30, l997
1933 Act Registration No. 2-84169
1940 Act File No. 811-3760
=============================================================================
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. 19 (X)

and/or

REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )

Amendment No. 20 (X)

----------
G R A D I S O N G R O W T H 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 , Jr. Richard M. Wachterman
Gradison Growth Trust Gradison Growth Trust
580 Walnut Street 580 Walnut Street
Cincinnati, Ohio 45202 Cincinnati, Ohio 45202
(Name and Address of Agent for Service)

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

immediately upon filing pursuant to paragraph (b) of Rule 485.
---

X on August 1, l997 pursuant to paragraph (b) of Rule 485.
---

___ days after filing pursuant to paragraph (a) of Rule 485.
---

on ______________ pursuant to paragraph (a) of Rule 485.
---

----------
Registrant has heretofore registered an indefinite number of shares of
beneficial interest, without par value, pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended. Registrant's Rule 24f-2 Notice was
filed on May 23, l997.
=============================================================================

<PAGE> 2

GRADISON GROWTH TRUST

CONTENTS OF POST-EFFECTIVE AMENDMENT

The post-effective amendment to the registration statement of Gradison Growth
Trust contains the following documents:

Facing Sheet

Contents of Post-Effective Amendment

Cross-Reference Sheet

Part A - Prospectus

One Prospectus for all of the following funds:

Gradison Growth and Income Fund
Gradison Established Value Fund
Gradison Opportunity Value Fund.
Gradison International Fund.

Part B - Statement of Additional Information

Separate Statements of Additional Information for each of the following funds:

Gradison Growth and Income Fund
Gradison Established Value Fund
Gradison Opportunity Value Fund.
Gradison International Fund.

Part C - Other Information

Signature Page

Exhibits

<PAGE> 3

GRADISON GROWTH TRUST
Cross-Reference Sheet
Pursuant to Item 501(b) of Regulation S-K
Under the Securities Act of 1933

Form N-1A
Item Number Location in Prospectus
- ----------- ----------------------

1. Cover Page . . . . . . . . . . . . Cover Page of Prospectus

2. Synopsis . . . . . . . . . . . . . Expense Summary

3. Condensed Financial Information .. Performance Calculations
Financial Highlights

4. General Description of Registrant Cover Page; Investment Objective,
Policies, and Risk Factors;
Foreign Securities; Futures
Transactions; Risk of Futures
and Forward Foreign Currency
Contracts; Low Capitalization
Stocks; Investment Restrictions
and Fundamental Policies;
General Information

5. Management of Fund . . . . . . . . .Management of the Fund;
Dividends and Distributions

6. Capital Stock and Other Securities .Cover Page; Dividends and
Distributions; Taxes; General
Information

7. Purchase of Securities Being Purchases and Redemptions; Net
Offered Asset Value; Optional
Shareholder Services;
Distribution Plan; Management
of the Fund

8. Redemption or Repurchase . . . . Purchases and Redemptions

9. Pending Legal Proceedings . . . . Not applicable

Location in Statement
of Additional Information
-------------------------

10. Cover Page . . . . . . . . . . . Cover Page

11. Table of Contents . . . . . . . . Table of Contents

12. General Information and History . Not applicable

13. Investment Objectives and Policies. Risk Factors and Investment
Techniques; Investment
Restrictions; Portfolio
Transactions and Brokerage;

14. Management of the Fund . . . Trustees and Officers of the
Trust
15. Control Persons and Principal
Holders of Securities . . . . . . .Not applicable

16. Investment Advisory and Other
Services . . . . . Investment Adviser

17. Brokerage Allocation and Other
Practices . . . . . . . . . . . . . Portfolio Transactions and
Brokerage

18. Capital Stock and Other Securities. Description of the Trust

19. Purchase, Redemption and Pricing of
Securities Being Offered . . . . . Purchase of Shares; Redemption

<PAGE> 4

of Shares; Net Asset Value

20. Tax Status . . . . . . . . . . . . Taxes

21. Underwriters . . . . . . . . . . . Investment Adviser

22. Calculation of Yield Quotations
of Money Market Funds. . . . . . . Not applicable

23. Financial Statements . . . . . . . Financial Statements

<PAGE> 5

GRADISON ESTABLISHED VALUE FUND

GRADISON GROWTH & INCOME FUND

GRADISON OPPORTUNITY VALUE FUND

GRADISON INTERNATIONAL FUND

Prospectus dated August 1, 1997

This Prospectus contains information about the four equity mutual funds listed
above (the "Funds") which are separate diversified series portfolios of the
Gradison Growth Trust (the "Trust"), an open-end management investment company.
McDonald & Company Securities, Inc. ("McDonald"), through its Gradison Division
("Gradison"), is the investment adviser and distributor ("Distributor") for the
Funds. Blairlogie Capital Management ("Blairlogie") is the investment
sub-adviser ("Portfolio Manager") of the International Fund.

This Prospectus is designed to provide you with information that you should know
before investing and should be retained for future reference. Statements of
Additional Information for the Funds, dated August 1, 1997 have been filed with
the Securities and Exchange Commission and are incorporated herein by reference.
The Statements are available upon request without charge from the Funds at 580
Walnut Street, Cincinnati, Ohio 45202 or by calling the phone numbers provided
below.

For all information (including purchases, redemptions, and most recent share
prices), call 579-5700 from Cincinnati, Ohio or 1-800-869-5999 toll free.

The Gradison International Fund ("International Fund") invests in foreign
securities which presents special risks and in emerging market countries which
presents additional risks. See "Foreign Securities" in this Prospectus.

Shares of the Funds are not deposits or obligations of any bank or other
depository institution and are not guaranteed or insured by the Federal Deposit
Insurance Corporation or any other government agency.

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

<PAGE> 6

EXPENSE SUMMARY

<TABLE>
<CAPTION>
ESTABLISHED GROWTH & OPPORTUNITY
VALUE INCOME VALUE INTERNATIONAL
FUND FUND FUND FUND

SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load on purchases None None None None
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees(1) .53% .41% .64% .80%
12b-1 Fees(1) .48% .50% .50% .00%
Other Expenses(1) .11% .59% .22% 1.20%
------ ------ ------ ------
TOTAL FUND OPERATING EXPENSES(1) 1.12% 1.50% 1.36% 2.00%
====== ====== ====== ======

- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

The Funds are sold without a front-end or back-end sales charge. The Funds pay
an annual asset-based distribution expense of up to .25% and a service fee of up
to .25% of net assets. As a result of the distribution expense fee, long-term
shareholders may pay more than the economic equivalent of the maximum sales
charge permitted under the rules of the National Association of Securities
Dealers. However, in order for a Fund investor to exceed the amount of the
maximum permitted front-end sales charge, a continuous investment in the Fund
for 25 years would be required.

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 expenses of the Funds, see "Management
of the Funds.")

Example: You would pay the following expenses on a $1,000 investment assuming a
5% annual return(2) and redemption at the end of each period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------
<S> <C> <C> <C> <C>
ESTABLISHED VALUE FUND $11 $36 $62 $136
GROWTH & INCOME FUND $15 $47 $82 $179
OPPORTUNITY VALUE FUND $14 $43 $74 $164
INTERNATIONAL FUND $20 $63 $108 $233
</TABLE>

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

(1)The expenses of the International Fund and the Management Fees and Total Fund
Operating Expenses categories of the Growth & Income Fund are after fee waivers
and expense reimbursement by the investment adviser. Otherwise, the Management
Fees, 12b-1 Fees, Other Expenses and Total Fund Operating Expenses categories of
the International Fund would be 1.00%, 0.50%, 1.28%, and 2.78% respectively, and
the Management Fees, and Total Fund Operating Expenses categories of the Growth
& Income Fund would be .65% and 1.74%, respectively. See "Management of the
Funds."

(2)The 5% annual return is a standardized rate prescribed for use by all mutual
funds for the the purpose of this example and does not represent the past or
future return of any Fund.

2
<PAGE> 7

FINANCIAL HIGHLIGHTS

The tables below present the financial highlights of the Funds' operations for
the periods presented. The information is expressed in terms of a single share
outstanding throughout each period. The financial highlights for periods ended
on April 30, 1993 and thereafter have been audited by Arthur Andersen LLP,
independent public accountants, whose unqualified reports appear in the
Statement of Additional Information for each respective Fund. The financial
highlights for periods ended prior to April 30, 1993 were audited by other
accountants. The Statement of Additional Information can be obtained without
charge by calling the telephone numbers on the front page of this Prospectus.

GRADISON ESTABLISHED VALUE FUND

<TABLE>
<CAPTION>
YEAR ENDED 11
MARCH 31, MONTHS YEAR ENDED APRIL 30,
------------------ ENDED ---------------------------------------------------------------------
1997 1996 3/31/95(1) 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning
of period $ 27.567 $ 23.381 $ 22.515 $ 21.375 $ 18.366 $ 17.754 $ 17.189 $ 18.165 $ 16.270 $ 17.685
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from investment
operations:

Net investment income .445 .436 .376 .256 .286 .386 .511 .723 .548 .433
Net realized and unrealized
gains or losses on
investments 3.615 5.190 1.520 2.104 3.278 .916 .804 (.474) 2.157 .092
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total income from
investment operations 4.060 5.626 1.896 2.360 3.564 1.302 1.315 .249 2.705 .525
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Distributions to shareholders:
Dividends from
net investment income (.450) (.430) (.370) (.220) (.285) (.420) (.548) (.720) (.495) (.500)
Distributions from realized
capital gains (2.350) (1.010) (.660) (1.000) (.270) (.270) (.202) (.505) (.315) (1.440)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions to
shareholders (2.800) (1.440) (1.030) (1.220) (.555) (.690) (.750) (1.225) (.810) (1.940)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value at end of
period $ 28.827 $ 27.567 $ 23.381 $ 22.515 $ 21.375 $ 18.366 $ 17.754 $ 17.189 $ 18.165 $ 16.270
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total return 15.14% 24.84% 8.85%(2) 11.30% 19.86% 7.59% 8.04% 1.11% 17.24% 3.62%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Ratios/Supplemental data:
Net assets at end of period
(in millions) $429.7 $ 366.4 $ 277.4 $ 253.3 $ 203.6 $ 175.5 $ 150.5 $ 134.6 $ 102.2 $ 69.2
Ratio of expenses to
average net assets 1.12% 1.15% 1.20%(3) 1.22% 1.28% 1.31% 1.39% 1.40% 1.45% 1.57%
Ratio of net investment
income to average
net assets 1.57% 1.70% 1.87%(3) 1.15% 1.48% 2.12% 3.10% 4.14% 3.34% 2.67%
Portfolio turnover rate 31.22% 18.48% 24.23% 38.39% 28.08% 67.96% 73.88% 63.63% 49.87% 25.99%
Average commission paid
per share traded(4) $.045 -- -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

(1) The Fund changed its fiscal year to March 31.
(2) Total return represents the actual return over the period and has not been
annualized.
(3) Annualized.
(4) This data was not required in fiscal years prior to 1997.

3
<PAGE> 8

<TABLE>
<CAPTION>
GRADISON GROWTH & INCOME FUND

YEAR ENDED MARCH 31, FOR THE PERIOD
------------------- 2/28/95* TO
1997 1996 3/31/95

<S> <C> <C> <C>
Net asset value at beginning of period $18.459 $15.189 $15.000
------- ------- -------
Income from investment operations:
Net investment income .246 .173 .030
Net realized and unrealized gains on investments 3.112 3.317 .159
------- ------- -------
Total income from investment operations 3.358 3.490 .189
------- ------- -------
Distributions to shareholders:
Dividends from net investment income (.210) (.185) --
Distributions from realized capital gains (.130) (.035) --
------- ------- -------
Total distributions to shareholders (.340) (.220) --
------- ------- -------
Net asset value at end of period $21.477 $18.459 $15.189
======= ======= =======
Total return 18.33% 23.09% 1.27%(1)
======= ======= =======
Ratios/Supplemental data:

Net assets at end of period (in millions) $ 25.7 $ 12.0 $ 1.2
Ratios net of expenses waived and reimbursed by the adviser(2):
Ratio of expenses to average net assets 1.50% 1.50% 0.00%
Ratio of net investment income to average net assets 1.34% 1.39% 4.09%
Ratios assuming no adviser waiver or reimbursement of expenses(2):

Ratio of expenses to average net assets 1.74% 2.87% 13.88%
Ratio of net investment income (loss) to average net assets 1.09% .01% (9.79%)
Portfolio turnover rate 16.01% 3.07% 3.62%
Average commission paid per share traded(4) $ .046 -- --
- ---------------------------------------------------------------------------------------------------------------------------

<FN>
(1) Total return represents the actual return over the period and has not been
annualized.
(2) The adviser absorbed expenses of the Fund through waiver of fees and
reimbursement of certain expenses.
(3) Annualized.
(4) This data was not required in fiscal years prior to 1997.

*Date of public offering
</TABLE>

4
<PAGE> 9

GRADISON OPPORTUNITY VALUE FUND

<TABLE>
<CAPTION>
YEAR ENDED 11
MARCH 31, MONTHS YEAR ENDED APRIL 30,
----------------- ENDED -------------------------------------------------------------------
1997 1996 3/31/95(1) 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning
of period $22.264 $18.100 $18.348 $17.547 $16.462 $14.767 $13.644 $13.499 $12.967 $13.233
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations:

Net investment income .203 .193 .136 .086 .081 .173 .245 .334 .232 .162
Net realized and unrealized
gains or losses on
investments 2.509 4.731 .176 1.585 1.744 2.467 1.198 .401 1.200 (.178)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from
investment operations 2.712 4.924 .312 1.671 1.825 2.640 1.443 .735 1.432 (.016)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Distributions to shareholders:
Dividends from
net investment income (.165) (.185) (.120) (.070) (.100) (.270) (.252) (.330) (.180) (.120)
Distributions from realized
capital gains (2.040) (.575) (.440) (.800) (.640) (.675) (.068) (.260) (.720) (.130)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions to
shareholders (2.205) (.760) (.560) (.870) (.740) (.945) (.320) (.590) (.900) (.250)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value at end of
period $22.771 $22.264 $18.100 $18.348 $17.547 $16.462 $14.767 $13.644 $13.499 $12.967
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total return 12.46% 28.00% 1.75%(2) 9.75% 11.57% 18.60% 10.94% 5.16% 11.71% 0.25%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Ratios/Supplemental data:
Net assets at end of period
(in millions) $ 114.5 $ 103.0 $ 84.7 $ 83.3 $ 68.2 $ 47.4 $ 28.7 $ 23.0 $ 20.1 $ 17.7
Ratio of expenses to
average net assets 1.36% 1.41% 1.37%(3) 1.38% 1.44% 1.49% 1.61% 1.52% 1.84% 1.83%
Ratio of net investment
income to average
net assets .90% .95% .84% .47% .61% 1.32% 2.03% 2.47% 1.84% 1.22%
Portfolio turnover rate 34.91% 23.98% 31.90% 40.41% 39.00% 64.25% 63.88% 36.57% 35.79% 73.93%
Average commission paid
per share traded(4) $ .029 -- -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

5
<PAGE> 10

<TABLE>
<CAPTION>
GRADISON INTERNATIONAL FUND

YEAR ENDED FOR THE PERIOD
MARCH 31, 5/31/95* TO
1997 3/31/96

<S> <C> <C>
Net asset value at beginning of period $15.822 $15.000
------- -------
Income from investment operations:
Net investment income (.023) .065
Net realized and unrealized (loss) gain on investments .457 .799
------- -------
Total income from investment operations .434 .864
------- -------
Distributions to Shareholders
Dividends from net investment income -- (.042)
Distributions from realized capital gains (.030) --
------- -------
Total distributions to shareholders (.030) (.042)
------- -------
Net asset value at end of period $16.226 $15.822
======= =======
Total return 2.78% 5.76%
======= =======
Ratios/Supplemental data:
Net assets at end of period (in millions) $ 24.8 $ 15.3
Ratios net of expenses waived and reimbursed by the adviser(2):
Ratio of expenses to average net assets 2.00% 1.75%
Ratio of net investment income (loss) to average net assets (.13%) .70%
Ratios assuming no adviser waiver or reimbursement of expenses(2):
Ratio of expenses to average net assets 2.78% 3.73%
Ratio of net investment loss to average net assets (.91%) (1.28%)
Portfolio turnover rate 92.36% 71.78%
Average commission paid per share traded(4) $ .001 --
- ---------------------------------------------------------------------------------------------------------------------------

*Date of public offering
</TABLE>

INVESTMENT OBJECTIVES, POLICIES AND RISKS

The investment objective of the Gradison Established Value Fund ("Established
Fund") and the Gradison Opportunity Fund ("Opportunity Fund") is long-term
capital growth by investing primarily in common stocks. The investment objective
of the Gradison Growth & Income Fund ("Growth & Income Fund") is long-term
growth of capital, current income, and growth of income consistent with
reasonable investment risk. The investment objective of the Gradison
International Fund ("International Fund") is growth of capital. The Funds'
investment objectives cannot be changed without shareholder approval.

There can be no assurance that the Funds will achieve their investment
objectives. The value of the Funds' investments and the income they generate
varies from day to day, generally reflecting changes in market conditions,
interest rates, and other company, political, and economic news. Stocks are
subject to greater price volatility than fixed income securities and money
market investments. While stocks have historically shown greater growth

6
<PAGE> 11

potential than fixed income securities and money market securities, they may
decline over short or even extended periods. The fixed income securities in
which the Funds may invest have market values which tend to vary inversely with
the level of interest rates - when interest rates rise, their value will tend to
decline and vice versa. When you redeem your Fund shares, they may be worth more
or less than what you paid for them.

INVESTMENT POLICIES - ESTABLISHED AND OPPORTUNITY FUNDS

The Established Fund invests primarily in common stocks of companies that are
considered by Gradison to be undervalued, selected from those in the Standard &
Poor's 500 Composite Stock Price Index ("S&P 500") and from among other
companies generally with market capitalizations of $1 billion or more. The
Opportunity Fund invests primarily in common stocks of smaller companies that
are exhibiting high earnings growth in relation to their price-earnings ratio.
These companies are limited to approximately 2,000 stocks (most of which are
listed on the New York or American Stock Exchanges) and do not include companies
in the S&P 500. These companies generally will have market capitalizations of
less than $1 billion. Investment in smaller company stocks presents additional
risks. See "Low Capitalization Stocks."

In the Established and Opportunity Funds, investments are made in companies that
meet certain objective requirements with respect to earnings, price-earnings
ratios, price-book ratios, rate of return on shareholders' equity, and other
similar factors. A disciplined approach, using computer modeling methodology is
used as the primary factor in making investment decisions with respect to these
Funds. The methodology generates recommendations on a monthly basis. Gradison
continuously monitors the recommendations and acts at any time during the month,
if necessary, to better achieve the objective of the Funds. Additionally,
Gradison continuously monitors the disciplined approach and will effect
modifications to the methodology if such modifications could better achieve the
objective of the Funds. Although investments in these Funds are made for the
purpose of long-term capital growth rather than short-term profits, the Funds
are not restricted with regard to portfolio turnover. (See "Advisory Agreement"
in the Funds' Statement of Additional Information.)

Mr. William J. Leugers, Jr. and Mr. Daniel R. Shick are primarily responsible
for the day-to-day portfolio management of the Established and Opportunity
Funds. Mr. Leugers has had such responsibility since the inception of the Funds
and is Executive Vice President of the Trust and Managing Director of Gradison.
Mr. Shick has had such responsibility during the past three years and is Vice
President of the Trust and Senior Vice President of Gradison.

Under normal circumstances, at least 70% of each Fund's assets will be invested
in common stocks. Each Fund may invest its remaining assets in U.S. Government
obligations, certificates of deposit, commercial paper, other money market
obligations, and repurchase agreements (collectively "Reserves"). The Funds'
maintenance of Reserves is primarily to maintain liquidity for redemptions and
to lower the volatility of net asset value. For temporary defensive purposes,
the portion of the Funds' assets invested in Reserves may be increased without
limitation.

The Established and Opportunity Funds will not purchase the securities of any
issuer if, as a result either Fund: (i) would own more than 10% of the
outstanding voting securities of such issuer; (ii) such holdings would amount to
more than 5% of a Fund's total assets; or (iii) more than 25% of its assets
would be concentrated in any one industry. The investment restrictions in the
previous sentence may not be changed without shareholder approval.

INVESTMENT POLICIES - GROWTH & INCOME FUND

The Growth & Income Fund invests primarily in common stocks of companies
considered by Gradison to be undervalued and which offer earnings growth
potential while paying current dividends. Particular emphasis will be placed on
the identification of dividend paying securities issued by companies which have,
on average, records of

7
<PAGE> 12

historic growth in earnings that are higher than the growth in earnings of the
S&P 500. The companies which will be sought will also have had higher returns on
shareholder equity than the S&P 500. Gradison believes that above average
dividend returns and below average price/earnings ratios are factors that
generally tend to moderate risk and afford opportunity for appreciation of
securities, while also providing current income. The selection process also
utilizes research oriented to quality, predictability of operating growth, and
financial strength. The equity securities invested in by the Growth & Income
Fund will usually be dividend paying securities although securities that are not
paying dividends but offer prospects for growth of capital or future income may
be purchased. In selecting equity securities for investment, no specific
criteria regarding the length of time the company has paid dividends or the rate
of growth of a company's dividend are utilized. The Growth & Income Fund will
generally invest in securities of companies with capitalizations in excess of
$500 million, the securities of which are traded on recognized securities
exchanges or in the over-the-counter market.

The Growth & Income Fund ordinarily invests principally in common stocks and
avoids market-timing or speculating on broad market conditions. It may also
invest in securities convertible into common stocks, warrants, straight debt
securities (rated in the top three quality categories by Standard & Poor's
Corporation or Moody's Investors Service, Inc. or determined to be of equivalent
quality by Gradison), cash equivalents, U.S. Government securities, or
non-convertible preferred stocks. The cash equivalents in which it may invest
are short term U.S. Government obligations, certificates of deposit of domestic
depository institutions, high grade commercial paper, and fully collateralized
repurchase agreements with banks or securities dealers.

It is the policy of the Growth & Income Fund not to engage in trading for
short-term profits. Nevertheless, changes in the portfolio will be made promptly
when determined to be advisable by reason of developments not foreseen at the
time of the initial investment decision, and usually without reference to the
length of time a security has been held. Accordingly, portfolio turnover rate
will not be considered a limiting factor in the execution of investment
decisions.

Julian C. Ball, Executive Vice President of the Trust and Portfolio Manager of
the Growth & Income Fund, has been primarily responsible for the day-to-day
management of its portfolio since its inception. Mr. Ball has been a Vice
President of McDonald since July of 1994. Prior to that, he was Vice President
and Portfolio Manager at Duff & Phelps Investment Management Company. Mr. Ball
is a Chartered Financial Analyst.

With respect to 75% of its total assets, the Growth & Income Fund will not
purchase securities of any issuer (other than securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities) if, as a result, more
than 5% of its assets would be invested in securities of that issuer or it would
hold more than 10% of the voting securities of that issuer. The Growth & Income
Fund may not purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities) if,
as a result, more than 25% of its total assets would be invested in the
securities of companies whose principal business activities are in the same
industry, and it may not borrow money, except from banks as a temporary measure
or for extraordinary or emergency purposes, and then only in amounts not
exceeding 10% of its total assets. While any borrowing of greater than 5% of its
assets occurs, it will not purchase additional portfolio securities. The
foregoing restrictions may not be changed without shareholder approval.

INVESTMENT POLICIES - INTERNATIONAL FUND

The International Fund invests primarily in a diversified portfolio of common
stocks of non-United States companies in both "emerging market" countries and
more developed countries. It generally will invest a maximum of 30% of its
assets in the securities of issuers in emerging market countries and such
investments will normally be in securities of more than three different
countries. However, between monthly rebalancing of its portfolio between
securities of emerging and developed countries, the percentage of the Fund's
assets invested in emerging countries could

8
<PAGE> 13

temporarily exceed 30% of its assets as a result of market appreciation or
purchase of such securities. Some of the countries considered to be emerging
market countries and in which investments may be made are:

<TABLE>
<S> <C> <C> <C> <C> <C>
Argentina Colombia Indonesia Peru South Korea Turkey
Brazil Greece Jordan Philippines Sri Lanka Venezuela
Chile Hungary Mexico Poland Taiwan
China India Pakistan Portugal Thailand
</TABLE>

For purposes of allocating investments, a company will be considered to be
located in a country based on the following criteria: the country in which the
company is domiciled, the country in which its securities are primarily traded,
the country from which it derives a significant portion of its goods, or the
country where its services are produced.

The Portfolio Manager applies two levels of screening in selecting investments.
First, an active country selection model analyzes world markets and assigns a
relative value ranking, or "favorability weighting," to various countries to
determine markets which are considered to be relatively undervalued. Second, at
the stock selection level, quality analysis and value analysis are applied to
each security, assessing variables such as balance sheet strength and earnings
growth (quality factors) and performance relative to the industry,
price-to-earnings ratios and price-to-book ratios (value factors). This
two-level screening method identifies what the Portfolio Manager believes are
undervalued securities for purchasing as well as provides a sell discipline for
securities the Portfolio Manager believes are fully valued. In selecting
securities, the Portfolio Manager considers, to the extent practicable, and on
the basis of information available to it for research, a company's environmental
business practices.

In determining which developed countries' stock to invest in, the Portfolio
Manager takes into consideration the country weightings of the Morgan Stanley
Capital International and the Europe Austrasia Far East Index ("EAFE"). This may
result in weightings of securities in the International Fund similar to the EAFE
Index and a significant percentage of the Fund's portfolio being invested in
Japanese securities. As of June 30, 1997, approximately 16% of the International
Fund's assets were invested in securities of Japanese companies.

Most of the foreign securities in which the International Fund invests will be
denominated in foreign currencies and the Fund may engage in foreign currency
transactions to attempt to protect itself against fluctuations in currency
exchange rates in relation to the U.S. dollar or to increase yield. Such foreign
currency transactions may include forward foreign currency contracts and
currency exchange transactions on a spot (i.e., cash) basis. See "Forward
Foreign Currency Transactions" in this Prospectus. The International Fund may
purchase and sell stock index futures contracts. See "Futures Transactions" in
this Prospectus and "Risk Factors and Investment Techniques - Futures and
Currency Strategies" in the Fund's Statement of Additional Information for more
information.

Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies. For a
description of these risks, see "Foreign Securities" in this Prospectus.

The International Fund will invest primarily (normally at least 65% of its
assets) in common stock of non-United States companies. It may maintain a
portion of its assets, which will usually not exceed 10%, in U.S. Government
securities, high-quality debt securities (the maturity or remaining maturity of
which will not exceed five years), money market obligations (issued by U.S. and
foreign issuers and that are denominated in U.S. dollars or foreign currency),
and in cash to provide for payment of its expenses and to permit it to meet
redemption requests. The International Fund may temporarily not be invested
primarily in equity securities after receipt of significant new monies and may
temporarily not contain the number of stocks in which it normally invests if it
does not have sufficient assets to be fully invested, or pending the Portfolio
Manager's ability to prudently invest new monies.

It is the policy of the International Fund to normally be as fully invested in
common stock as practicable at all times and not to attempt to "time" the
market. Accordingly, investors bear the risk of general declines in stock
prices, and

9
<PAGE> 14

that exposure to such declines will not be lessened by investment in fixed
income securities. However, for temporary defensive purposes, such as when the
Portfolio Manager believes that the market for non-United States equity
securities is extremely unfavorable, an unlimited portion of its assets may be
invested in U.S. Government debt securities and money market obligations of U.S.
issuers. The International Fund will be managed without restriction as to
portfolio turnover, except as is imposed on its ability to engage in short-term
trading by provisions of the federal tax laws.

For more detailed information on the investment techniques which the
International Fund may utilize, as well as information on the types of
securities in which it may invest, including information on U.S. Government
securities, corporate debt securities, variable and floating rate securities,
preferred stocks, convertible bonds, repurchase agreements, securities purchased
on a when-issued or firm-commitment basis, warrants, and lending of portfolio
securities, see the Fund's Statement of Additional Information.

The International Fund will not, with respect to 75% of its assets, invest more
than 5% of its assets (taken at market value at the time of such investment) in
securities of any one issuer, except that this restriction does not apply to
U.S. Government securities. It will not, with respect to 75% of its assets,
invest in more than 10% (taken at market value at the time of such investment)
of any one issuer's outstanding voting securities, except that this restriction
does not apply to U.S. Government securities. The International Fund will not
concentrate more than 25% of its assets in any particular industry, except that
this restriction does not apply to U.S. Government securities. It may borrow
from banks as a temporary measure for extraordinary or emergency purposes, such
as to facilitate redemptions, up to 33 1/3% of the value of its total assets
(including the amount borrowed) less liabilities (other than borrowings). This
borrowing may be unsecured or secured. In connection with permissible
borrowings, securities owned may be transferred as collateral. The foregoing
restrictions may not be changed without shareholder approval.

The International Fund may invest in illiquid securities, but may not invest in
securities that are illiquid because they are subject to legal or contractual
restrictions on resale, in repurchase agreements maturing in more than seven
days, or other securities which are illiquid if, as a result of such investment,
more than 15% of its net assets (taken at market value at the time of such
investment) would be invested in such securities. These percentage restrictions
set forth above do not limit purchases of restricted securities that are
eligible for sale to qualified institutional purchasers pursuant to Rule 144A
under the Securities Act of 1933, provided that those securities have been
determined to be liquid by the Board of Trustees or by the Portfolio Manager
under Board-approved guidelines. Those guidelines take into account the trading
activity for such securities and the availability of reliable pricing
information, among other factors. If there is a lack of trading interest in a
particular Rule 144A security, the holding of that security may be deemed to be
illiquid.

James Smith of Blairlogie is primarily responsible for day-to-day portfolio
management of the International Fund. Mr. Smith is the Chief Investment Officer
of Blairlogie. Mr. Smith has been Director and Chief Investment Officer of
Blairlogie since its inception in November 1992. He previously served as a
senior portfolio manager at Murray Johnstone in Glasgow, Scotland (from October
1989 to November 1992), where he was responsible for international investment
management for North American clients and at Schroder Investment Management in
London. Mr. Smith received his bachelor's degree in Economics from London
University and his M.B.A. from Edinburgh University. He is an Associate of the
Institute of Investment Management and Research.

FOREIGN SECURITIES

The International Fund may invest directly in: foreign equity securities; U.S.
dollar or foreign currency denominated foreign corporate debt securities;
foreign preferred securities; certificates of deposit, fixed time deposits and
banker's acceptances issued by foreign banks, obligations of foreign governments
or their subdivisions, agencies and instrumentalities, international agencies
and supranational entities; and securities represented by American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs"), or Global Depository
Receipts ("GDRs").

10
<PAGE> 15

ADRs are U.S. dollar denominated receipts issued generally by domestic banks and
representing the deposit with the bank of a security of a foreign issuer, and
are publicly traded on exchanges or over-the-counter in the United States. EDRs
and GDRs are receipts similar to ADRs. EDRs are issued and traded in Europe, and
GDRs are issued and traded in several international financial markets.

The International Fund may invest in other investment companies which invest in
foreign securities, including investment companies which invest in indices of
foreign securities of a particular country, subject to the requirements of
applicable law. Such investment will result in shareholders, in effect, paying
multiple fees since such investment companies incur expenses similar to the
Fund's.

Investing in the securities of issuers in any foreign country involves special
risks and considerations not typically associated with investing in U.S.
companies. These include: changes in foreign exchange rates affecting the value
of securities denominated or quoted in currencies other than the U.S. dollar;
differences in accounting, auditing and financial reporting standards; generally
higher commission rates on foreign portfolio transactions; the possibility of
nationalization, expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations (which may include suspension of the
ability to transfer currency from a country); government interference, including
government ownership of companies in certain sectors; wage and price controls,
or imposition of trade barriers and other protectionist measures; political
instability; potential restrictions on the flow of international capital;
reduced levels of publicly available information concerning issuers; and reduced
levels of governmental regulation of foreign securities markets. Additionally,
foreign securities and dividends and interest payable on those securities may be
subject to foreign taxes, including foreign withholding taxes, and other foreign
taxes may apply with respect to securities transactions. Transactions in foreign
securities may involve greater time from the trade date until the settlement
date than for domestic securities transactions, and may involve the risk of
possible losses through the holding of securities by custodians and in
securities depositories in foreign countries. Foreign securities often trade
with less frequency and volume than domestic securities and therefore may
exhibit greater price volatility. Additional costs associated with an investment
in foreign securities may include higher transaction costs and the cost of
foreign currency conversions. The International Fund may encounter substantial
difficulties in obtaining and enforcing judgments against non-U.S. resident
individuals and companies.

Investment in emerging market countries presents risks in greater degree than,
and in addition to, those presented by investment in foreign issuers in general.
A number of emerging market countries restrict, to varying degrees, foreign
investment in stocks. Repatriation of investment income, capital, and the
proceeds of sales by foreign investors may require governmental registration
and/or approval in some emerging market countries. A number of the currencies of
developing countries have experienced significant declines against the U.S.
dollar in recent years, and devaluation may occur subsequent to investments in
these currencies. Inflation and rapid fluctuations in inflation rates have had
and may continue to have negative effects on the economies and securities
markets of certain emerging market countries.

Many of the emerging securities markets are relatively small, have low trading
volumes, suffer periods of relative illiquidity, and are characterized by
significant price volatility. There is a risk in emerging market countries that
a future economic or political crisis could lead to price controls, forced
mergers of companies, expropriation or confiscatory taxation, seizure,
nationalization, or creation of government monopolies, any of which may have a
detrimental effect on the International Fund's investment.

FUTURES TRANSACTIONS

The International Fund may purchase and sell stock index futures contracts (1)
in order to attempt to reduce the overall investment risk in its portfolio
("hedging") or (2) to enhance yield. Stock index futures contracts may also be
purchased in lieu of investing in individual stocks in order to maintain
liquidity, because the Portfolio Manager has not

11
<PAGE> 16

yet selected the individual securities in which to invest, or because the stock
index future presents a more favorable investment than investment in individual
securities. There can be no assurance that these techniques will succeed. For
more information regarding stock index futures contracts, see "Risk Factors and
Investment Techniques - Futures and Currency Strategies" in the Fund's Statement
of Additional Information.

To the extent that futures contracts are entered into other than for bona fide
hedging purposes (as defined by the Commodity Futures Trading Commission
("CFTC")), the aggregate initial margin required to establish those positions
will not exceed 5% of the liquidation value of the International Fund's
portfolio, after taking into account unrealized profits and unrealized losses on
any contracts entered into. This limitation does not limit the percentage of the
International Fund's assets at risk to 5%. The International Fund may enter into
futures contracts only to the extent that obligations under such contracts
represent not more than 20% of its assets. These guidelines may be modified by
the Trust's Board of Trustees without a shareholder vote.

The International Fund will only enter into stock index futures contracts which
are standardized and traded on a U.S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system. It may trade futures
contracts not only on U.S. domestic markets, but also on exchanges located
outside of the United States. Foreign markets may offer advantages such as
trading in indices that are not currently traded in the United States. Foreign
markets, however, may have greater risk potential than domestic markets. Unlike
trading on domestic commodity exchanges, trading on foreign commodity exchanges
is not regulated by the CFTC and may be subject to greater risk than trading on
domestic exchanges. For example, some foreign exchanges are principal markets so
that no common clearing facility exists and a trader may look only to the broker
for performance of the contract. Trading in foreign futures contracts may not be
afforded certain of the protective measures provided by the Commodity Exchange
Act, the CFTC's regulations, the rules of the National Futures Association, or
of any domestic futures exchange, including the right to use reparations
proceedings before the CFTC and arbitration proceedings provided by the National
Futures Association or any domestic futures exchange. Margin deposits for
foreign futures transactions may not be provided the same protections as
deposits provided in respect of transactions on U.S. futures exchanges. In
addition, any profits that might be realized in trading could be eliminated by
adverse changes in the exchange rate of the currency in which the transaction is
denominated, or losses could be incurred as a result of changes in the exchange
rate.

FORWARD FOREIGN CURRENCY CONTRACTS

The International Fund may purchase and sell forward currency contracts to
attempt to manage its foreign currency exchange rate exposure. For example, it
may use forward contracts to shift its exposure to foreign currency exchange
rate changes from one foreign currency to another. If securities denominated in
a foreign currency are owned and the Portfolio Manager believes that this
currency will decline relative to another currency, the International Fund might
enter into a forward contract to sell the appropriate amount of the first
foreign currency with payment to be made in the second foreign currency. It
might also use two forward contracts (one exchanging the first foreign currency
into U.S. dollars and the second exchanging U.S. dollars into the second foreign
currency) to accomplish the same purpose. Transactions that use two foreign
currencies are sometimes referred to as "cross hedging." Use of a different
foreign currency magnifies the exposure to foreign currency exchange rate
fluctuations.

OPTIONS ON FOREIGN CURRENCY

The International Fund may buy call and put options on foreign currencies.
Buying a call gives the Fund the ability to buy the currency on which the call
was written at the call price during the period in which the call may be
exercised. Buying a put gives the Fund the ability to sell the currency on which
the call was written at the put price during the period in which the put may be
exercised. The International Fund may buy put or call options on a currency

12
<PAGE> 17

irrespective of the size of the position it may hold in securities of that
currency, if any. The International Fund may not purchase options on currency to
the extent that the total premium cost exceeds 5% of the Fund's total assets.
The Fund may execute options transactions on recognized exchanges or in the
over-the-counter markets. The Fund's ability to terminate options in the
over-the-counter markets may be more limited than for exchange-traded options
because of the possible lack of a secondary trading market and may also involve
the risk that securities dealers participating in such transactions would be
unable to meet their obligations to the Fund. The use of options involves
certain special risks. Options transactions involve costs and may result in
losses. See, generally, "Risks of Futures and Forward Foreign Currency
Contracts" in this Prospectus.

RISKS OF FUTURES AND FORWARD FOREIGN CURRENCY CONTRACTS

Although the International Fund might not employ any of these investment
techniques, its use of futures and forward contracts would involve certain
investment risks and transaction costs to which it might otherwise not be
subject. These risks include: (1) dependence on the Portfolio Manager's ability
to predict fluctuations in the general securities markets or appropriate market
sector and movements in currency markets; (2) imperfect correlation, or even no
correlation, between movements in the price of forward contracts or futures
contracts and the movements in the price of the currency or security hedged or
used for cover; (3) the fact that the skills and techniques used to trade
futures contracts or to use forward currency contracts are different from those
needed to select portfolio securities; (4) lack of assurance that a liquid
secondary market will exist for any particular futures contract at any
particular time; (5) the possible inability to purchase or sell a portfolio
security at a time when it would otherwise be favorable for it to do so, or the
possible need to sell a security at a disadvantageous time, due to the need to
maintain "cover" or to segregate securities in connection with its use of these
instruments; and (6) the possible need to defer closing out of certain futures
contracts and forward currency contracts in order to qualify or continue to
qualify for the beneficial tax treatment afforded regulated investment companies
under the Internal Revenue Code. See "Taxes" in the International Fund's
Statement of Additional Information. If the Portfolio Manager incorrectly
forecasts securities market movements or currency exchange rates in utilizing a
strategy, the International Fund would be in a better position if it had not
hedged at all. If it attempts to hedge securities it owns by sale of a futures
contract which is not composed of the same securities as those owned, there is a
greater risk that the hedge will not be successful. There can be no assurance
that these strategies will succeed.

ADDITIONAL INFORMATION ABOUT INVESTMENT RESTRICTIONS OF ALL FUNDS

The Funds are subject to investment restrictions that are described more fully
in the Statements of Additional Information. Those investment restrictions so
designated and the investment objective of each Fund are "fundamental policies",
which means that they may not be changed without a vote of a majority of the
outstanding voting securities of that Fund. All other investment policies and
practices described in this Prospectus and in the Statement of Additional
Information are not fundamental, meaning that the Board of Trustees may change
them without shareholder approval. Shareholders will be notified of material
changes. The vote of a majority of the outstanding voting securities of a Fund
means the vote, at a shareholders' meeting, of (a) 67% or more of the voting
securities present at such meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy;
or (b) more than 50% of the outstanding voting securities of the Fund, whichever
is less.

LOW CAPITALIZATION STOCKS

The International Fund may invest in, and the Opportunity Fund's equity
investments consist almost exclusively of, the common stock of companies with
market capitalization of less than $1 billion. Investments in larger companies
present certain advantages in that such companies generally have greater
financial resources, more extensive research and development, manufacturing,
marketing and service capabilities, and more stability and greater depth of
man-

13
<PAGE> 18

agement and technical personnel. Investments in smaller, less seasoned companies
may present greater opportunities for growth, but also may involve greater risks
than are customarily associated with more established companies. The securities
of smaller companies may be subject to more abrupt or erratic market movements
than larger, more established companies. These companies may have limited
product lines, markets or financial resources, and they may be dependent upon a
limited management group. Their securities may be traded only in the
over-the-counter market or on a foreign securities exchange. As a result, the
disposition by the Funds of securities to meet redemptions may require the Funds
to sell these securities at a disadvantageous time, or at disadvantageous
prices, or to make many small sales over a lengthy period of time.

REPURCHASE AGREEMENTS

All of the Funds may enter into repurchase agreement transactions. Repurchase
agreements are transactions by which a Fund purchases obligations of the U.S.
Government with the seller concurrently agreeing to repurchase the securities at
the Fund's cost plus interest within a specified time (usually one business day)
or upon demand by the Fund. In these transactions, the security subject to
repurchase is held by the Fund's custodian, and the Fund ensures on a daily
basis that the market value of the security, including accrued interest, is no
less than the price at which the seller is required to repurchase it. If a
seller fails to repurchase the security, the Fund could incur costs to sell the
security to another party and possibly a loss if the sale is at less than the
repurchase price. Under certain circumstances, a Fund could also be delayed or
limited in disposing of a security, which could result in a decline in its value
or loss of interest. The Funds may engage in repurchase agreement transactions
only with domestic banks and securities dealers which Gradison believes present
minimal credit risk. These investment policies and procedures are not
fundamental policies and may be changed by the Trustees without shareholder
approval.

PURCHASES AND REDEMPTIONS

HOW TO PURCHASE SHARES

You may purchase shares of any Fund, without initial sales charge, by bringing
or mailing funds to Gradison, McDonald, or the Fund. Checks should be made
payable to the order of the Fund(s) in which you desire to invest and should be
accompanied by your account name, and account number if you have one. A
completed Account Information Form must accompany or precede the initial
purchase. The minimum investment required to open an account in a Fund is $1,000
and additional investments must be at least $50. These minimums may be waived
for certain group purchases. Purchase orders become effective when the Fund
receives the necessary information about your account and provision for payment
has been made.

HOW TO REDEEM SHARES

You may redeem Fund shares without charge by sending a signed redemption request
to the Fund identifying the account name and number and the number of shares or
dollar amount to be redeemed. You may redeem shares by telephone and have the
proceeds of your redemption mailed to the address on the Fund's records. The
Funds normally make payment for redeemed shares within one business day and,
except in extraordinary circumstances, within seven days after receipt of a
properly executed redemption request. The Funds may delay payment for the
redemption of shares where the shares were purchased with a personal check (or
any other method of payment subject to collection), but only until the purchase
payment has cleared, which may be up to 15 days from the day the purchase
payment is received by a Fund. If you need more immediate access to your
investment, you should consider purchasing shares by wire, cash or other
immediately available funds. Shareholders may make special arrangements for wire
transfer of redemption proceeds by contacting a Fund in advance of a share
redemption.

14
<PAGE> 19

TRANSACTIONS THROUGH GRADISON, MCDONALD, AND OTHER AGENTS

Investors who maintain brokerage accounts with Gradison or McDonald may purchase
or redeem Fund shares without incurring any fees. Shares may also be purchased
or redeemed through a broker-dealer (other than Gradison or McDonald),
investment counselor or other agent or fiduciary, which may charge a fee for its
services. The Funds may agree to modify or waive their purchase and redemption
procedures or requirements in order to facilitate these transactions. For
example, investors may purchase shares through broker-dealers who are members of
the National Association of Securities Dealers, Inc. under terms that require
payment within three business days of purchase. No such modification or waiver
will result in an investor being assessed a fee by a Fund in connection with any
purchase or redemption of shares.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

All purchase and redemption information and authorizations (except those
effected by Gradison or McDonald) should be mailed or delivered to Gradison
Mutual Funds, 580 Walnut Street, Cincinnati, Ohio 45202.

All purchases and redemptions are made at the net asset value per share next
calculated after receipt of a purchase order (and provision for payment has been
made) or a valid redemption request. If payment for a purchase of shares is not
received from a broker-dealer within the time required as set forth above or if
a purchaser's check is returned to a Fund as uncollectible, the purchase is
subject to cancellation and the broker-dealer or purchaser, as the case may be,
will be responsible for any loss incurred by a Fund. To redeem share
certificates, the certificates must be presented to the Fund with proper
endorsements and signature guarantees, a procedure that may result in delay. The
Funds do not currently issue share certificates. Shareholders receive periodic
statements of share ownership and transactions.

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

The Funds, Gradison, McDonald, and their officers and employees will not be
liable for following instructions communicated by telephone that are reasonably
believed to be genuine. The Funds will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine, and if they do not, in
the view of the Securities and Exchange Commission, they may be liable for any
losses resulting from unauthorized instructions. Telephone transactions are
available to all shareholders as a standard service.

DIVIDENDS AND DISTRIBUTIONS

Substantially all of the net investment income of the Established and Growth &
Income Funds is distributed to shareholders as quarterly dividends. Net
investment income is distributed to shareholders of the Opportunity Fund
semi-annually and, if any, to shareholders of the International Fund annually.
Any net capital gains (net profits on the sale of portfolio securities, less any
available capital loss carryovers) realized by the Funds are distributed to
shareholders at least annually. Additional distributions are sometimes necessary
to meet tax requirements. The record and distribution dates for income dividends
and capital gain distributions will be as determined by the Board of Trustees.
Unless you select the Distribution Plan, all income dividends and net realized
capital gain distributions from a Fund will be automatically paid in additional
shares of the Fund at the net asset value for such shares on the date the
distributions are payable. Shareholders will receive a statement confirming each
dividend or distribution.

15
<PAGE> 20

TAXES

The Funds intend to operate as "regulated investment companies" under the
Internal Revenue Code ("Code"). In any fiscal year in which the Funds so qualify
and distribute to shareholders all of their net investment income and net
capital gains, the Funds themselves are relieved of federal income tax. All
dividends and capital gains are taxable to shareholders whether they are paid in
shares or received in cash - except as to shareholders who are exempt from
taxation or entitled to tax deferral. Dividends derived from net investment
income and any distributions of net realized short-term capital gains are
taxable to shareholders as ordinary income. Long-term capital gains
distributions, if any, are taxable as such regardless of how long shares of a
Fund have been held. Each year, shareholders will be notified of the amount and
federal tax status of all dividends and capital gains paid during the prior
year.

Special rules may apply if the International Fund invests in certain foreign
companies, the bulk of the gross income of which is derived from investment
activity, or at least half of the assets of which are investment assets (such
companies are classified under the Code as passive foreign investment companies
("PFICs")). Pursuant to these rules, among other things, (i) the International
Fund may be subject to federal income tax (and an interest charge) on
distributions from, or on the gain from the sale of the stock of, such foreign
companies, even though the International Fund distributes the corresponding
income to shareholders and (ii) gain from the sale of the stock of such foreign
companies may be treated as ordinary income. For a further discussion of these
special rules, including certain tax elections that may be available, see the
Statement of Additional Information of the International Fund under "Taxes."

Shareholders of the International Fund who are U.S. citizens or residents may be
able to claim a foreign tax credit or deduction on their U.S. income tax returns
with respect to foreign taxes paid by that Fund. If, at the end of the fiscal
year of the International Fund, more than 50% of the value of its total assets
is represented by stock or securities of foreign corporations, it may make an
election permitted by the Code to treat certain foreign taxes it paid as having
been paid by its shareholders. In this case, shareholders who are U.S. citizens
or residents, or U.S. corporations may claim a foreign tax credit or deduction
(but not both) on their U.S. income tax returns, subject to certain rules and
limitations. If the International Fund does not make the election, shareholders
may not claim the foreign tax credit or deduction, but the dividends they
receive and report as income will be net of such foreign tax paid by the Fund.
The International Fund has not made this election for previous fiscal years.

The foregoing is only a summary of some important generally applicable federal
income tax provisions in effect as of the date of this Prospectus; see the
Statements of Additional Information for further information. There may be other
federal, state, or local tax considerations applicable to a particular investor.
Each year, shareholders will be notified of the amount and federal tax status of
all distributions paid during the prior year.

NET ASSET VALUE

The net asset value of the shares of the Funds are calculated once daily, as of
the close of regular trading on the New York Stock Exchange (generally 4:00 p.m.
Eastern time) on each day that Exchange is open. The net asset value per share
of the Funds, which is the price at which shares are purchased and redeemed, is
computed by dividing the value of each Fund's net assets (assets minus
liabilities) by the number of shares outstanding. Securities owned by the Funds
are generally valued on the basis of market quotations, including prices
provided by pricing services.

The value of portfolio securities in the International Fund that are traded on
exchanges outside the United States is based upon the price on the exchange as
of the close of business of the exchange immediately preceding the time of
valuation (or as of the closing of trading on the New York Stock Exchange, if
that is earlier). Quotations of foreign securities in foreign currency are
converted to U.S. dollar equivalents using the foreign exchange quotation in
effect

16
<PAGE> 21

at the time net asset value is computed. When market quotations for futures
positions held by the International Fund are readily available, those positions
will be valued based upon such quotations. Securities and other assets for which
market quotations are not readily available are valued at fair value determined
pursuant to procedures approved by the Board of Trustees. It is possible that
the calculation of the net asset value of the International Fund may not take
place contemporaneously with the determination of the prices of portfolio
securities used in such calculation. Events affecting the values of portfolio
securities that occur between the time their prices are determined and 4:00 p.m.
Eastern time, and at other times, may not be reflected in the calculation of net
asset value. If events materially affecting the value of such securities occur
during such period, then these securities will be valued at fair value.

OPTIONAL SHAREHOLDER SERVICES

AUTOMATIC INVESTMENT PLAN

You may arrange for a fixed amount of money to be transferred on a regular
automatic basis from your bank or other depository account to your Fund account.
For additional information, obtain the Gradison Automatic Investment Plan form
from the Funds.

DISTRIBUTION PLAN

You may elect (on the Account Information Form) to automatically receive cash
payments of dividends and/or capital gains distributions. (For this purpose,
short-term capital gains distributions are considered dividends.) You may change
or terminate this election at any time by written notice to a Fund.

AUTOMATIC PAYMENT PLAN

If your account has a value of at least $10,000, you may elect (on the Account
Information Form) to have monthly or quarterly payments of a specified amount
(but not less than $50) mailed to you or anyone specified on the form. You may
change or terminate this election at any time by written notice to a Fund.
Because the Funds cannot guarantee that payments will be made on the exact date
specified, the Plan should not be utilized for time-sensitive payments.
Investors utilizing the Automatic Payment Plan should be aware that each payment
constitutes a redemption for tax purposes.

EXCHANGES

Shares of the Funds may be exchanged, without administrative fees, for shares of
any other Gradison fund and for shares of certain federal/Ohio tax-free money
market funds. You may request exchanges by telephoning or writing the Funds.
Before making an exchange, you should read the prospectus of the fund in which
you are investing which is available upon request. An exchange may not be made
from a Fund to the fund in which you are investing unless the shares of such
fund are registered for sale in the state in which you reside. The terms of the
exchange feature are subject to change and the exchange feature is subject to
termination, both upon 60 days' written notice, except that no notice shall be
required under certain circumstances provided for by rules of the Securities and
Exchange Commission.

17
<PAGE> 22

MANAGEMENT OF THE FUNDS

The Trust's Board of Trustees is responsible for the direction and supervision
of the Funds' operations. Subject to the authority of the Board of Trustees,
McDonald, through Gradison, manages the investment and reinvestment of the
assets of the Funds (except for the International Fund), and provides its
employees to act as the officers of the Trust who are responsible for the
overall management of the Funds. 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, including Gradison's predecessor, has served as an investment adviser
to investment companies since 1976.

Blairlogie, the Portfolio Manager of the International Fund, is a Scottish
investment management firm, organized as a limited partnership. Blairlogie is
the successor investment adviser to Blairlogie Capital Management Ltd., an
indirect subsidiary of Pacific Mutual Life Insurance Company ("PFAMCo").
Blairlogie is organized as a U.K. limited partnership with two general partners
and one limited partner. The general partners are PIMCO Advisors ("PIMCO") which
serves as the supervisory partner, and Blairlogie Holdings Limited, a wholly
owned corporate subsidiary of PIMCO Advisors which serves as the managing
partner. The limited partner is Blairlogie Partners L.P., a limited partnership,
the general partner of which is PFAMCo, and the limited partners of which are
the principal executive officers of Blairlogie Capital Management. Blairlogie
Partners L.P. has agreed that PIMCO will acquire one-fifth of its 25% interest
annually, beginning December 31, 1997. Blairlogie Capital Management Ltd., the
predecessor investment adviser to Blairlogie, commenced operations in 1992.
Accounts managed by Blairlogie had combined assets as of December 31, 1996, in
excess of $600 million. Blairlogie's address is 4th Floor, 125 Princes Street,
Edinburgh EH2 4AD, Scotland. Blairlogie is registered as an investment adviser
with the Securities and Exchange Commission of the United States and the
Investment Management Regulatory Organization of the United Kingdom. PFAMCo and
its affiliates own a substantial interest in PIMCO and indirectly hold a major
interest in PIMCO Partners, G.P., the general partner of PIMCO.

For the year ending March 31, 1997, the Established Fund, the Opportunity Fund,
the Growth & Income Fund and the International Fund, paid McDonald investment
advisory fees, respectively of .53%, .64%, .41% (.65% without consideration of
fee waiver by McDonald), and .80% (1.0% without consideration of fee waiver by
McDonald).

McDonald compensates Blairlogie as Portfolio Manager at the rate of .80% of the
first $25 million of average daily net assets, .70% of the next $25 million,
.60% of the next $50 million, .50% of the next $150 million, and .40% of assets
in excess of $250 million. Under the Portfolio Management Agreement, the
Portfolio Manager has full investment discretion and makes all determinations
respecting the purchase and sale of the International Fund's investments.

McDonald provides services to the Funds pursuant to a Transfer Agency and
Accounting Services Agreement. That Agreement provides for the payment by the
Funds to McDonald of $18.50 per non-zero balance shareholder account per year
($5.00 per closed account per year) plus out-of-pocket costs for acting as
transfer agent and an accounting services fee for the Funds except the
International Fund based on the Fund's average daily net assets at an annual
rate of .03% on the first $100 million, .02% of the next $100 million, and .01%
on any amount in excess of $200 million, with a minimum annual fee of $40,000
per year for each Fund and for payment by the International Fund of an
accounting services fee based on that Fund's average daily net assets at an
annual rate of .045% on the first $100 million, .030% of the next $100 million,
and .015% on any amount in excess of $200 million, with a minimum annual fee of
$60,000 per year.

Registered broker-dealers, third party administrators of tax-qualified
retirement plans, and other entities which establish omnibus accounts with the
Funds 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

18
<PAGE> 23

the participants by the Funds' transfer agent. In such cases, the Funds may pay
the entity a sub-transfer agency or recordkeeping fee. Entities receiving such
fees may also receive 12b-1 fees described in the next paragraph.

Under the terms of a distribution expense/service plan adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940, the Funds make service fee
payments to the Distributor for providing personal services to shareholders of
the Funds, including responding to shareholder inquiries and providing
information to shareholders about their accounts, at an annual rate of up to
.25% of the assets of the Funds. The Funds also annually pay the Distributor a
distribution fee in an additional amount of up to .25% of the Funds' assets. The
distribution fee is paid to the Distributor for general distribution services
and as compensation for selling shares of the Funds. These fees are calculated
on a daily basis and paid to the Distributor monthly. The Distributor may make
payments to financial intermediaries and securities dealers of those amounts.

Gradison may, from time to time, agree to waive the receipt of management fees
from a Fund and/or reimburse a Fund for other expenses in order to limit a
Fund's expenses to a specified percentage of average net assets. Until at least
August 1, 1998, Gradison has agreed to limit the expenses of the Growth & Income
and International Funds to no more than 1.50% and 2.00%, respectively of their
net assets, excluding extraordinary items. If Gradison discontinues a waiver or
reimbursement arrangement, the Fund's expenses will increase and its return will
be reduced. Gradison retains the ability to be repaid by a Fund for fees waived
and expenses reimbursed if expense ratios fall below the specified limit prior
to the end of the fiscal year. Gradison may waive or reimburse fees in a greater
amount than is required by an applicable fee waiver arrangement.

PERFORMANCE CALCULATIONS

From time to time the Funds' "total return" may be presented in advertisements.
The total return figure is an historical figure and is not intended to indicate
future performance. The total return of a Fund may be presented in different
ways. One way will show the average annual compounded rate of return over an
indicated period that would equate an initial amount of money invested in a Fund
at the beginning of a stated period to the ending value of the investment.
Another calculation will show the aggregate total return over an indicated
period by dividing the change in value during the period by the initial amount
of the investment. Advertisements may also include figures (sometimes depicted
in graphs) reflecting the value of a specified amount of money invested in a
Fund over various time periods and comparison of a Fund's performance to the
performance of stock indices such as the S & P 500. All calculations assume the
reinvestment of all dividends and distributions. The Funds may also advertise
performance rankings assigned to them by organizations which evaluate mutual
fund performance such as Lipper Analytical Securities Corp. They may also
advertise "ratings" assigned to them by organizations such as Morningstar, Inc.
The Funds' Annual Reports to Shareholders contain additional performance
information and will be made available without charge upon request by telephone
to the phone number listed on the cover of this Prospectus.

INDIVIDUAL RETIREMENT ACCOUNTS

Shares of the Funds may be purchased in conjunction with an Individual
Retirement Account ("IRA"), which permits exchange privileges with Gradison
mutual funds (see "Exchanges") and which may also be used with a Gradison or
McDonald self-directed brokerage account. Detailed information concerning IRA
accounts is available by calling the phone numbers listed on the cover of this
Prospectus.

19
<PAGE> 24

GENERAL INFORMATION

Each Fund is a diversified series of the Gradison Growth Trust which is an Ohio
business trust organized under the laws of the State of Ohio by a Declaration of
Trust dated May 31, 1983. Each share of each Fund has one vote and represents an
equal pro rata interest in the Fund. Shareholder inquiries should be directed to
the phone numbers or address listed on the cover of this Prospectus.

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

Expense Summary 2

Financial Highlights 3

Investment Objectives, Policies and Risks 6

Purchases and Redemptions 14

Dividends and Distributions 15

Taxes 16

Net Asset Value 16

Optional Shareholder Services 17

Management of the Funds 18

Performance Calculations 19

Individual Retirement Accounts 19

General Information 20

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

[GRAPHIC]

580 Walnut Street, Cincinnati, Ohio 45202
(513) 579-5000 (800) 869-5999
<PAGE> 25

GRADISON GROWTH TRUST

AN OPEN-END INVESTMENT COMPANY

GRADISON ESTABLISHED VALUE FUND
GRADISON OPPORTUNITY VALUE FUND

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

STATEMENT OF ADDITIONAL

INFORMATION

---------------------------------------------------------------------------
For information, call:
579-5700 from Cincinnati, Ohio

Toll free (800) 869-5999 from outside Cincinnati

Information may also be obtained from the Trust 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 Funds of the Trust, dated
August 1, l997, which have been filed with the Securities and Exchange
Commission. The Prospectuses are available upon request without charge from the
Trust at the above address or by calling the phone numbers provided above.

The date of this Statement of Additional Information is August 1, l997.

<PAGE> 26

<TABLE>
<CAPTION>
CONTENTS Page LOCATION IN PROSPECTUSES

<S> <C> <C>
INVESTMENT RESTRICTIONS . . . . . . . . . . . 3 Investment Objectives, Policies and Risks

PURCHASE OF SHARES . . . . . . . . . . . . . 4 Purchases and Redemptions

REDEMPTION OF SHARES . . . . . . . . . . . . 5 Purchases and Redemptions

EXCHANGE PRIVILEGE . . . . . . . . . . . . . 5 Optional Shareholder Services
Telephone Exchanges . . . . . . . . . . 5
Written Exchanges . . . . . . . . . . . 5
General Exchange Information . . . . . . 6

TAXES . . . . . . . . . . . . . . . . . . . . 6 Taxes

NET ASSET VALUE . . . . . . . . . . . . . . . 8 Net Asset Value

PORTFOLIO TRANSACTIONS . . . . . . . . . . . 8

INVESTMENT PERFORMANCE . . . . . . . . . . . 10 Performance Calculations

INVESTMENT ADVISER . . . . . . . . . . . . . 11 Management of the Funds
Advisory Agreement . . . . . . . . . . . 11
Distribution Plan. . . . . . . . . . . . 13
Transfer Agency and Accounting
Services Agreement . . . . . . . . . . 14

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

DESCRIPTION OF THE TRUST . . . . . . . . . . 17 General Information

CUSTODIAN . . . . . . . . . . . . . . . . . . 18

ACCOUNTANTS . . . . . . . . . . . . . . . . . 18

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

SALES BROCHURE INFORMATION . . . . . . . . . 20

FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT PUBLIC ACCOUNTANT . . . .Following Page 43 Financial Highlights
</TABLE>

2
<PAGE> 27

INVESTMENT RESTRICTIONS

In addition to the investment restrictions described in the Prospectus
of each Fund, the Trust has adopted the following investment restrictions and
limitations, which may not be changed with respect to either Fund without the
approval of the holders of a majority of the outstanding shares of that Fund.
(See "Description of the Trust".) Each Fund will not:

(1) Borrow money, except as a temporary measure for extraordinary or
emergency purposes, and then only in amounts not exceeding 5% of the
total assets of a Fund, taken at the lower of acquisition cost or market
value;

(2) Make loans, except (a) through the purchase of publicly distributed
corporate securities, U.S. Government obligations, certificates of
deposit, high-grade commercial paper and other money market instruments,
and (b) loans of portfolio securities to persons unaffiliated with the
Trust not in excess of 20% of the value of a Fund's total assets (taken
at market value) made in accordance with the guidelines of the
Securities and Exchange Commission and with any standards established
from time to time by the Trust's Board of Trustees, including the
maintenance of collateral from the borrower at all times in an amount at
least equal to the current market value of the securities loaned;

(3) Mortgage, pledge or hypothecate securities, except in connection with a
permissible borrowing as set forth in investment restriction (1) above,
and then only in amounts not exceeding 10% of the value of the assets of
a Fund (taken at the lower of acquisition cost or market value);

(4) Make short sales of securities or purchase securities on margin, except
short-term credit necessary for the clearance of transactions;

(5) Purchase or sell real estate, except it is permissible to purchase
securities secured by real estate or real estate interests or issued by
companies that invest in real estate or real estate interests;

(6) Purchase the securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition
of assets, and except by purchase in the open market of securities of
closed-end investment companies involving only customary broker's
commissions, and then only if immediately after such purchase, no more
than 10% of the value of the total assets of a Fund would be invested in
such securities;

(7) Invest in companies for the purpose of exercising control or management;

(8) Purchase securities subject to restrictions on disposition under the
Securities Act of 1933;

(9) Purchase securities for which no readily available market quotation
exists, if at the time of acquisition more than 5% of the total assets
of a Fund would be invested in such securities (repurchase agreements
maturing in more than seven days are included within this restriction);

3
<PAGE> 28

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

(11) Purchase or sell commodities, commodity contracts, or interests in oil,
gas or other mineral exploration or development programs, except it is
permissible to purchase securities issued by companies that hold
interests in oil, gas or other mineral exploration or development
programs;

(12) Participate on a joint, or a joint and several, basis in any securities
trading account;

(13) Write, purchase or sell puts, calls or combinations thereof;

(14) Purchase or retain the securities of any issuer if any Trustee or
officer of the Trust is or becomes a director or officer of such issuer
and owns beneficially more than 1/2 of 1% of the securities of such
issuer, or if those directors, trustees and officers of the Trust and
its investment adviser who are directors or officers of such issuer
together own or acquire more than 5% of the securities of such issuer;

(15) Purchase any securities of companies which have (with their
predecessors) a record of less than three years of continuous operation,
if at the time of acquisition more than 5% of a Fund's total assets
would be invested in such securities; or

(16) Purchase any securities (other than obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities) if immediately
after such purchase, more than 5% of a Fund's total assets would be
invested in securities of any one issuer or more than 10% of the
outstanding securities of any one issuer would be owned by the Trust and
held in that Fund.

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. For purposes of restriction number two above,
repurchase agreements are not considered loans. For purposes of the restriction
prohibiting the Fund from investing more than 25% of its assets in companies in
the same industry ( see "Investment Policies - Established and Opportunity
Funds" in the Prospectus), the Directory of Companies Filing Annual Reports with
the Securities and Exchange Commission (which utilizes the Standard Industrial
Classification Codes promulgated by the Office of Management and Budget of the
Executive Office of the President) is used to determine industry
classifications.

PURCHASE OF SHARES

The Trust reserves the right to impose a charge of $15 for any purchase
check returned to the Trust as uncollectible and to collect such fee by
redeeming shares of the Trust from such shareholder's account.

Unless specifically requested in writing, share certificates will not be
issued. Under no circumstances will certificates be issued for fractional shares
or to investors who elect Automatic Payments. The Trust reserves the right to
limit the amount of any purchase and to reject any purchase order. Shares of
both Funds are offered continuously;

4
<PAGE> 29

however, the offering of shares of one or both Funds may be suspended at any
time and resumed at any time thereafter. The Trust intends to waive the initial
and subsequent purchase minimums for employees of McDonald & Company Securities,
Inc. ("McDonald") which, through its Gradison Division ("Gradison"), acts as the
investment adviser and distributor ("Adviser" and "Distributor").

REDEMPTION OF SHARES

The Trust 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 Trust is restricted, or an emergency exists (determined in
accordance with the rules and regulations of the Securities and Exchange
Commission) so that disposal of the securities held in the Fund or determination
of the net asset value of a Fund is not reasonably practicable, or (c) for such
other periods as the Securities and Exchange Commission by order may permit for
the protection of the Trust's shareholders.

The Fund transmits redemption proceeds only to shareholder names and addresses
on its records (or which it has otherwise verified), provides written
confirmation of all transactions initiated by telephone (either immediately or
by monthly statement, depending on the circumstances), and requires
identification from individuals picking up checks at its offices.

EXCHANGE PRIVILEGE

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

TELEPHONE EXCHANGES

You may request exchanges by telephoning the Trust at 579-5700 from
Cincinnati, or toll free (800) 869-5999 from outside Cincinnati. Such request
should include your name and account number and the number of shares or dollar
amount of the fund to be exchanged. Telephone exchanges may be made only when
the registration of the two accounts will be identical and may not be made by
shareholders who have had share certificates issued for their shares.

WRITTEN EXCHANGES

You may also exchange your shares of either 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 of the Fund to be exchanged. If you have share
certificates for the

5
<PAGE> 30

shares being exchanged, they must accompany or precede the exchange request and
must be properly endorsed with signatures guaranteed by a domestic commercial
bank or trust company or a member firm of a national securities exchange. Unless
otherwise indicated, a new account established by written exchange will have the
same registration and selected options as your present account.

GENERAL EXCHANGE INFORMATION

An exchange involves a redemption of the shares of the fund 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 (except in the case of purchases of mutual funds sold
subject to a sales load) next determined after receipt by the Trust of a proper
exchange request. For Federal income tax purposes, an exchange of shares is
considered to be a sale and, depending upon the circumstances, a short or
long-term gain or loss may be realized.

The Gradison Mutual Funds and Gradison (with respect to any tax-free
money market funds) each reserve the right to reject any exchange request. The
exchange feature may be terminated at any time by the shareholder, the Gradison
Mutual Funds or Gradison. In the case of excessive use of the exchange feature,
the Trust, upon 30 days' written notice, may make reasonable service charges (as
specified in the notice) by redeeming shares from such shareholder's account.

TAXES

Each Fund has qualified, and intends to qualify in the future, as a
regulated investment company under Subchapter M of the Internal Revenue Code
(the "Code"). By so qualifying, the Funds will not be taxed on net investment
income and net realized capital gains distributed to shareholders.

Dividends from net investment income and distributions from net realized
short-term capital gains are taxable to shareholders as ordinary income, whether
paid in cash or in additional shares of a Fund. All or a part of the dividends
distributed to shareholders will qualify for the deduction for dividends
received by corporations. The specific amounts eligible for this deduction
depend upon certain factors set forth in the Code, and the Trust will furnish
shareholders annually with written advice as to the amounts of dividend
distributions eligible for such deduction.

Distributions of any net realized long-term capital gains are taxable to
shareholders as long-term capital gains, whether paid in cash or in additional
shares of a Fund and regardless of the length of time a shareholder has owned
shares of a Fund. These capital gains distributions are not eligible for the
dividends received deduction for corporations. The Trust will furnish
shareholders with written notification as to the amount of any long-term capital
gains concurrently with any distribution that includes long-term capital gains.

6
<PAGE> 31

of his or her investment, would be taxable as described above. Correspondingly,
for Federal income tax purposes, a shareholder's tax basis in his or her shares
continues to be his or her original cost, so that upon redemption of shares,
capital gain or loss will be realized in the amount of the difference between
the redemption price and the shareholder's original cost.

In order to continue to qualify for treatment as a regulated investment
company under the Code, 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 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.

A 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 net
investment income for that year and any net realized capital gains for the
one-year period ending on October 31 of that year, plus certain other amounts.

Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such a month and paid in January of the following
year, will be treated as having been received by shareholders on December 31 of
the year in which the dividend was declared.

Redemption or resale of shares of a Fund will be a taxable transaction
for federal income tax purposes. Redeeming shareholders will recognize a gain or
loss in an amount equal to the difference between their basis in such redeemed
shares of the Fund and the amount received. If such shares are held as a capital
asset, the gain or loss will be a capital gain or loss and will generally be
long-term if such shareholders have held their shares for more than one year.
Any loss realized upon a taxable disposition of shares held for six months or
less will be treated as a long-term capital loss to the extent of any capital
gain dividends received with respect to such shares.

A Fund is required, in certain circumstances, to withhold 31% of
dividends and certain other payments, including redemptions, paid to
shareholders who do not furnish to the Fund their correct taxpayer
identification number or who are otherwise subject to backup withholding.

The federal income tax matters summarized above are subject to change by
legislation, administrative action and judicial decision. In addition,
shareholders may be subject to state and local taxes with respect to their
ownership of shares or distributions from the Trust. Shareholders should consult
their tax adviser as to their personal tax situation.

7
<PAGE> 32

NET ASSET VALUE

The net asset value of each Fund is calculated once daily Monday through
Friday except on the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.

The assets and liabilities of each Fund are determined in accordance
with generally accepted accounting principles and the applicable rules and
regulations of the Securities and Exchange Commission. Assets and liabilities
attributable to a specific Fund are allocated to that Fund. Assets and
liabilities not readily attributable to a Fund are allocated to each Fund in a
manner and on a basis determined in good faith by the Trustees to be fair and
equitable.

When calculating the net asset value of a Fund, a security listed or
traded on an exchange is valued at its last sale price on that exchange, or if
there were no sales that day, the security is valued at the closing bid price.
All other portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest bid price. Portfolio securities and
other assets for which market quotations are not readily available are valued at
their fair value as determined by management of the Fund pursuant to procedures
approved by the Board of Trustees and subject to oversight by the Board of
Trustees. Short-term securities with remaining maturities of less than 60 days
are valued at amortized cost which approximates market value.

PORTFOLIO TRANSACTIONS

The Adviser is responsible for making the Trust's portfolio decisions,
including allocation of the Trust's brokerage business and negotiation of
brokerage commissions, subject to policies established by the Trust's Board of
Trustees. The Trust places orders for transactions with a number of brokers and
dealers. For the fiscal year ended March 31, 1997, the aggregate brokerage
commissions paid by the Established Value Fund were $261,702 and for the
Opportunity Value Fund were $92,853. For the fiscal year ended March 31, 1996,
the aggregate amount of brokerage commissions paid by the Trust was $131,415 for
the Established Value Fund and $72,891 for the Opportunity Value Fund

The portfolio turnover rate for the Trust for the respective fiscal
periods ended March 31, 1997 and l996 for the Established Value Fund was 31.22%
and 18.48%, and for the Opportunity Value Fund was 34.91% and 23.98%.

In purchasing and selling portfolio securities, brokers and dealers are
selected to obtain the most favorable net results, taking into account various
factors, including the price of the security, the commission rate, the size of
the transaction, the difficulty of execution and other services offered by
brokers or dealers which are of benefit to the Trust. The Adviser selects
brokers and dealers to execute transactions on the basis of its judgment of
their professional capability to provide the service at reasonably competitive
rates. The Adviser's determination of what constitutes reasonably competitive
rates is based upon its professional judgment and knowledge as to rates paid and
charged for similar transactions throughout the securities industry. The Adviser
may consider sales by brokers or dealers of shares of the Funds of the Trust
when selecting brokers or dealers to execute portfolio transactions as long as
the most favorable net results are obtained.

8
<PAGE> 33

The Adviser may receive commissions from the Funds for effecting
transactions only in accordance with procedures adopted by the Board of
Trustees. Any procedures adopted by the Trustees will incorporate the standard
contained in Rule 17e-1 under the Investment Company Act of 1940 that the
commissions paid must be "reasonable and fair compared to the commission, fee or
other remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities during a comparable
period of time". The Adviser has assured the Trust that in all transactions
placed with the Adviser, the Funds will be charged a commission that is at least
as favorable as the rate the Adviser charges to its other customers in similar
transactions. No commission charged to the Funds by the Adviser or any broker
affiliated with the Adviser will include compensation for research services
provided by the Adviser or any such affiliated broker. Since inception of the
Funds neither the Adviser nor any broker affiliated with the Adviser received
any commissions from the Funds.

During the year ended March 31, l997, the Funds did not purchase any
securities of any of the Funds' regular dealers. (Item 17).

Brokers who provide supplemental investment research to the Adviser may
receive orders for transactions in portfolio securities of the Trust. Such
supplemental research services ordinarily consist of assessments and analyses of
the business or prospects of a company, industry, or economic sector.
Information so received is in addition to and not in lieu of the services
required to be performed by the Adviser under the Investment Advisory Agreement
with the Trust. If in the judgment of the Adviser the commission is reasonable
in relation to the brokerage and research services provided, the Adviser is
authorized to pay brokerage commissions in excess of commissions another broker
would have received for effecting the same transaction, subject to the review of
the Trust's Board of Trustees. Not all such research services may be used by the
Adviser in connection with managing the Funds. The expenses of the Adviser will
not necessarily be reduced as a result of the receipt of such supplemental
information, and the Adviser may use such information in servicing its other
accounts.

Because of the affiliation of the Adviser with the Trust, the Trust is
prohibited from engaging in certain transactions involving the Adviser except in
compliance with the provisions of the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder. Accordingly, the Trust will
not purchase or sell portfolio securities from or to the Adviser in any
transaction in which the Adviser acts as principal, including transactions in
the over-the-counter market. The Trust may purchase securities from other
members of an underwriting syndicate of which the Adviser is a participant, but
only under the conditions set forth in applicable rules of the Securities and
Exchange Commission.

The Adviser also serves as the investment adviser to other investment
companies and furnishes investment advice to other clients. Investment decisions
for each Fund of the Trust are made independently from those for the other Fund
and for other Gradison mutual funds although other clients advised by the
Adviser may have similar objectives and investment programs as the Funds.
Purchases and sales of particular securities may be effected simultaneously for
such entities and clients. In such instances, the transactions will be allocated
as to price and amount in a manner the Adviser considers equitable to each of
the affected entities or clients, which could have a detrimental effect upon the
price or amount of the securities purchased or sold for a Fund. On the other
hand, in some cases the ability of the Trust to participate in volume
transactions

9
<PAGE> 34

may produce better executions for the Trust. It is the opinion of
the Board of Trustees that the benefits available to the Trust from retaining
the Adviser outweigh any disadvantages that may arise from exposure to
simultaneous transactions.

INVESTMENT PERFORMANCE

<TABLE>
<CAPTION>
Total Return
- ------------
Percentage Change:
- ------------------

Quarter
Since Inception Year Ending December 31 ended 3/30/97
(8/16/83-3/31/97)---------------------------------------------------------------------------------
(Not annualized) 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 (Not annualized)
-------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- --------------

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Established 516.5% 12.4% 15.1% 16.0% (8.1%) 22.2% 10.2% 20.7% .3% 26.4% 19.3% 2.55%
Value Fund

Standard 598.6 % 5.2% 16.4% 31.7% (3.1%) 30.5% 7.6% 10.0% 1.3% 37.6% 23.0% 2.68%
and Poor's 500
Stock Index
________________________________________________________________________________________________________________________
Opportunity 298.9% (5.4%) 23.6% 23.1% (13.1%) 35.9% 14.3% 11.1% (2.2%) 26.8% 19.5% -1.30%
Value Fund

Russell 2000 276.6% (8.8%) 24.9% 16.2% (19.5%) 46.0% 18.4% 18.9% (1.8%) 28.4% 16.5% -5.16%
Index
</TABLE>

The Average Annual Total Return of the Funds has been as follows:

<TABLE>
<CAPTION>
Established Standard Opportunity Russell
Value & Poor's Value 2000
Fund 500 Fund Index
----------- -------- ----------- -----

<S> <C> <C> <C> <C>
For 10 years ending 3/31/97 11.50% 13.36% 10.30% 9.35%
For 5 years ending 3/31/97 15.71% 16.39% 12.23% 12.66%
For 12 months ending 3/31/97 15.14% 19.83% 12.46% 5.18%
</TABLE>

The results of all of the Funds and Indices assume reinvestment of
dividends and other distributions. Dividend income for the Standard & Poor's 500
Stock Index for the period from August 16, 1983 to August 31, 1983 is an
estimate.

During the quarter ended March 31, l997, the approximate cash position
of the Established Value Fund ranged between 26.7% and 30.0% and stood at 28.6%
on March 31, l997. For the Opportunity Value Fund, the range of the approximate
cash position was between 27.5% and 30.2%. On March 31, l997, it stood at 29.4%.

The performance of the Standard & Poor's 500 Composite Stock Price Index
is included to compare the Established Value Fund's results with those of a
group of unmanaged securities widely regarded by investors as representative of
the stock market in general and because it generally represents the universe
from which securities are selected for the Established Value Fund. The
performance of the Russell 2000 Index has been included to compare the results
of the Opportunity Value Fund with those of a universe of securities which is
representative of small company stock performance.

The performance quoted above represents past performance. The investment
return and value of an investment in the Funds will fluctuate so that an
investor's shares may be worth more or less than their cost, when redeemed.

10
<PAGE> 35

INVESTMENT ADVISER

The Adviser manages the investment and reinvestment of the assets of the
Funds of the Trust in accordance with the Trust's investment objective, policies
and restrictions, subject to the general supervision and control of the Trust's
Board of Trustees and pursuant to the terms of the Investment Advisory Agreement
between the Trust and Adviser.

The Adviser provides to the Trust at its own expense the executive
officers who are necessary for the management and operations of the Trust and
also furnishes to the Trust, at cost, personnel to perform shareholder services,
such as responding to inquiries from shareholders and receiving purchase orders
and redemption requests delivered to the Trust.

ADVISORY AGREEMENT

The Investment Advisory Agreement provides that the Adviser will manage
the investments of the Funds, subject to review by the Board of Trustees of the
Trust. 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 Trust and compensates the Trustees who are affiliated with the
Adviser. The Adviser pays a fee (at an annual rate of $20,000) to William Breen,
a professor at Northwestern University, for the right to use the computer
modeling methodology and the related data base employed for the Funds. In
addition, except as borne by the Trust pursuant to an effective plan under Rule
12b-1 under the Investment Company Act of 1940, the Adviser bears the expenses
related to distribution of shares of the Funds, such as costs of preparing,
printing and mailing sales literature and other advertising materials, costs of
furnishing prospectuses, annual and semiannual reports of the Trust and other
materials regarding distributing shares of the Trust to potential investors, and
service fee payments to brokers and dealers.

All expenses not specifically assumed by the Adviser and incurred in the
operation of the Trust are borne by the Trust pursuant to the Investment
Advisory Agreement. Some of these expenses may be paid by the Adviser subject to
reimbursement by the Trust. These expenses include expenses for office space,
facilities and equipment and utilities; cost of preparing, printing and mailing
registration statements, prospectuses, periodic reports and other documents
furnished to shareholders and regulatory authorities; such distribution/service
expenses as may be incurred pursuant to an effective plan under Rule 12b-1 under
the Investment Company Act of 1940; registration, filing and similar fees; legal
expenses (including reimbursement to the Adviser for legal services provided to
the Trust, subject to review by the Trust's outside counsel); auditing and
accounting expenses; taxes and other fees; brokers' commissions and issue or
transfer taxes chargeable to the Trust in connection with securities
transactions; expenses of issue, sale, redemption and repurchase of shares; cost
of share certificates; expenses incurred by the Trust relating to shareholder
services (such as responding to inquiries from shareholders and receiving
purchase orders and redemption requests) provided by the Adviser or others; fees
of Trustees who are not affiliated with the Adviser; charges and expenses of any
transfer and dividend disbursing agent, registrar, custodian or depository
appointed by the Trust; other expenses of the Trust, including expenses of
shareholders' and Trustees' meetings; and fees and other expenses incurred by
the Trust in connection with its membership in any organization. Expenses borne
by the Trust and attributable to a specific Fund are allocated to that Fund;
expenses that are not specifically attributable to a Fund are allocated to each
Fund in a manner and on a basis determined in

11
<PAGE> 36

good faith by the Adviser to be fair and equitable (generally, on the basis of
the respective net assets of the Funds), subject to review by the Trustees.

As compensation for its services under the Investment Advisory
Agreement, the Adviser receives from the Trust a monthly fee based upon the
average value of the daily net assets for the month of each Fund at an annual
rate of .65% on the first $100 million of each Fund, .55% on the next $100
million of each Fund and .45% on any amounts in excess of $200 million of each
Fund. For fiscal periods ended March 31, 1997, March 31, l996, and March 31,
l995, the advisory fees paid by the Trust to the Adviser, respectively, amounted
to $2,093,562, $1,890,225, and $1,951,674 for the Established Value Fund, and
$699,336, $631,571, and $683,260 for the Opportunity Value Fund.

Prior to June 1, l995, the Adviser furnished directly to the Trust, at
cost, personnel to perform shareholder services, such as responding to inquiries
from shareholders and receiving purchase orders and redemption requests
delivered to the Trust. For the periods ended March 31, l995 and April 30, 1994,
the cost to the Trust for such personnel was, respectively, $97,764 and
$117,403, as relates to the Established Value Fund, and $32,231, and $38,810, as
relates to the Opportunity Value Fund.

The Investment Advisory Agreement also provides that the Adviser, as a
registered broker-dealer, will distribute the shares of the Funds in states in
which it may be qualified to do so, upon request of the Trust. The Adviser
accepts orders for the purchase of such shares at net asset value only, and no
sales commission, fee or other charge is incurred by the investor. The Adviser
receives no compensation for acting as the Trust's distributor except as may be
provided pursuant to the Distribution Expense Plan of the Trust.

The Investment Advisory 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 Trust or any of its shareholders for any act or
omission by the Adviser. The Agreement in no way restricts the Adviser from
acting as an investment manager or adviser for others.

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

The Investment Advisory Agreement continues in effect as to each Fund
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
that 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 Investment Advisory Agreement.

The Investment Advisory Agreement may be terminated at any time with
respect to either Fund 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 that

12
<PAGE> 37

Fund or (iii) the Adviser. The Investment Advisory Agreement will terminate
automatically in the event of its assignment by the Adviser. The Investment
Advisory Agreement may be amended at any time by the mutual consent of the
parties thereto, provided that such consent on the part of the Trust shall have
been approved by the vote of the holders of a majority of the outstanding voting
securities of the affected Fund 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 Investment Advisory Agreement.

DISTRIBUTION PLAN

The Trust has in effect a Distribution Plan (the "Plan") under Rule
12b-1 of the Investment Company Act of 1940. Rule 12b-1 permits an investment
company to finance, directly or indirectly, activities primarily intended to
result in the sale of its shares in accordance with the provisions of such Rule.
The purpose of the Plan is to increase sales of shares of the Funds to enable
the Trust to acquire and retain a sufficient level of assets to enable it to
operate at an efficient level. Higher levels of assets tend to result in
operating efficiencies with respect to the Trust's fixed costs and portfolio
management.

The Plan permits the Trust to incur expenses related to the distribution
of the shares of its Funds, but only as specifically contemplated by the Plan.
Under the Plan, the Trust may incur distribution expenses up to an amount that
does not exceed an annual rate of .50% of 1% of its average daily net assets of
that Fund. Distribution expenses may be incurred by the Fund under the Plan
within the limitation described above for any activity primarily intended to
result in the sale of Fund shares. including but not limited to (a) payments to
broker-dealers (including the Adviser) or other persons as compensation for
personal services rendered to shareholders of the Funds including providing
shareholder liaison services such as responding to shareholder inquiries and
providing information to shareholders about their accounts, and (b) expenses
otherwise promoting the sale of the shares of a Fund, such as expenses of
preparation, printing and mailing prospectuses, annual and semiannual reports,
sales literature and other promotional material to potential investors and of
purchasing radio, television, newspaper and other advertising. In the absence of
exemptive relief from certain provisions of the Investment Company Act of 1940,
as amended, the Trust may incur expenses relative to a Fund under the Plan only
when such expenses are directly attributable to that Fund and may not incur
expenses under the Plan on a joint basis with other Fund(s).

The Plan also specifically authorizes the payment of those operational
expenses enumerated as being incurred by the Trust pursuant to the Investment
Advisory Agreement, as described under the caption "Advisory Agreement" above,
to the extent that such payments might be considered to be primarily intended to
result in the sale of shares of the Funds. It further specifically authorizes
the payment of advisory fees pursuant to the Investment Advisory Agreement to
the extent that the Trust might be deemed to be indirectly financing the
Adviser's distribution activities through payment of advisory fees. The Board of
Trustees does not believe that the payment of such operational expenses by the
Trust or payment of the advisory fee constitute the direct or indirect financing
of activities primarily intended to result in the sale of shares of the Funds.
Thus, although such payments are authorized by the Plan as a protective measure,
they are not restricted by the .50% limitation included in the Plan.

13
<PAGE> 38

In approving the Plan, the Board of Trustees concluded that there was a
reasonable likelihood that the Plan will benefit the Trust and its shareholders.
The Plan was approved by the holders of a majority of the outstanding shares of
each Fund on August 24, 1984. The Plan (together with any agreements relating to
implementation of the Plan) continues in effect as to each Fund 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 Trust as to a Fund without the
approval of a majority of the outstanding voting securities of that Fund, and
all material amendments to the Plan must be approved by a majority of the Board
of Trustees and a majority of the Independent Trustees by votes cast in person
at a meeting called for the purpose of voting on such amendment. The Plan may be
terminated as to a Fund 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
that 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
affected Fund, on not more than 60 days' written notice to the other party to
the agreement, and any related agreement will terminate automatically in the
event of its assignment. The Plan requires that the Board of Trustees receive at
least quarterly written reports as to the amounts expended during each quarter
pursuant to the Plan and the purposes for which such amounts were expended.
While the Plan is in effect, the selection and nomination of those Trustees who
are not "interested persons" (as defined in the Investment Company Act of 1940)
of the Trust shall be committed to the discretion of the disinterested Trustees
then in office.

Pursuant to the Plan, the Trust has entered into a distribution
agreement ("Agreement") with the Adviser. This agreement provides that the
Adviser will receive compensation for rendering personal services to
shareholders of the Funds including providing shareholder liaison services such
as responding to shareholder inquiries and providing information to shareholders
about their Fund accounts at an annual rate of .25% of the value of the assets
of each Fund of the Trust and, additionally, a fee for other distribution
services at an annual rate of .25% of the value of the assets of each Fund. The
Agreement may be terminated at any time, without penalty, by a vote of a
majority of the Independent Trustees of the Trust or by a vote of a majority of
the outstanding voting securities of either Fund. The Agreement is contingent on
the continued effectiveness of the Trust's Distribution Expense Plan and
automatically terminates in the event of its assignment.

During the periods ended March 31, 1997, March 31, l996, and March 31,
1995, $1,928,903, $1,460,779, and $558,790, respectively, were paid by the
Established Value Fund, and $544,851, $421,414, and $178,864, were paid by the
Opportunity Value Fund to McDonald for its assistance in distributing shares of
the Funds and for providing personnel services to shareholders. Of these
amounts, one half were paid for assistance in distributing shares of the Funds,
and one half were paid for providing personnel services to shareholders.

TRANSFER AGENT AND ACCOUNTING SERVICES AGREEMENT

Pursuant to the Transfer Agent and Accounting Services Agreement,
Gradison provides transfer agent, dividend disbursing, and accounting services
for the Funds. Gradison

14
<PAGE> 39

responds to inquiries from shareholders, processes purchase and redemption
requests, maintains shareholder account records and provides statements and
confirmations to shareholders and maintains the Fund's books and accounting
records. This Agreement became effective June 1, l995. For the year ending March
31, l997, the fees paid pursuant to the Transfer Agency and Accounting Services
Agreement were $333,673, with respect to the Established Value Fund and
$154,756, with respect to the Opportunity Value Fund. For the period from June
1, l995 through March 31, l996, the fees paid by the Established Value Fund and
the Opportunity Value Fund pursuant to this Agreement were $294,992 and
$140,112, respectively. Prior to that, the services provided pursuant to the
Agreement were provided pursuant to a Data Processing Services Agreement and
cost-reimbursement of the Adviser.

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 Gradison-McDonald Cash Reserves Trust ("GMCR"), Gradison Custodian
Trust ("GCT"), and Gradison-McDonald Municipal Custodian Trust ("GMMCT"),
Gradison, and McDonald, are listed below. All principal occupations have been
held for at least five years unless otherwise indicated. Positions held with
Gradison were formerly held with Gradison & Company Incorporated. Each Trustee
is a Trustee of each of the four Gradison investment companies.

* DONALD E. WESTON, 580 Walnut Street, Cincinnati, Ohio. Trustee and Chairman of
the Board; Chairman of Gradison; Director of McDonald & Company Investments,
Inc. and Cincinnati Milacron Commercial Corp. (financing of capital goods);
Chairman of all of the Gradison investment companies.

DANIEL J. CASTELLINI, 312 Walnut Street, Cincinnati, Ohio. Trustee; Senior Vice
President/Finance and Administration and Chief Financial Officer of the E. W.
Scripps Company (communications).

THEODORE H. EMMERICH, 1201 Edgecliff Place, Cincinnati, Ohio. Trustee. Retired;
Former managing partner (Cincinnati office) Ernst & Young (Public Accountants);
Director of Carillon Fund, Inc., American Financial Group Inc., and Cincinnati
Milacron Commercial Corp.; Trustee of Summit Investment Trust and Carillon
Investment Trust.

JEROME E. SCHNEE, 14 Walt Whitman, Morristown, NJ 07960, Trustee. Senior
Director, Health Economics, Johnson & Johnson (Pharmaceuticals) since August
1996; Professor of Management, College of Business Administration, University of
Cincinnati (currently on leave of absence).

RICHARD A. RANKIN, 434 Scott Street, Covington, Kentucky 41011. Trustee.
Partner, Rankin and Rankin (Public Accountants).

BRADLEY E. TURNER, 580 Walnut Street, Cincinnati, Ohio. President. Senior
Managing Director and Director of McDonald; President of all of the Gradison
investment companies.

- --------
*Interested and affiliated trustee as defined by the Investment Company Act of
l940, because of employment with and stock ownership of the investment adviser.

15
<PAGE> 40

WILLIAM J. LEUGERS, JR., 580 Walnut Street, Cincinnati, Ohio. Executive Vice
President and Portfolio Manager of the Gradison Established and Opportunity
Value Funds. Managing Director of Gradison.

JULIAN BALL, 800 Superior Avenue, Cleveland, Ohio. Executive Vice President.
Portfolio Manager of the Gradison Growth and Income Fund; First Vice President
of McDonald since July l994; prior to that, Vice President of Duff & Phelps
Investment Management Company.

PAUL J. WESTON, 580 Walnut Street, Cincinnati, Ohio. Senior Vice President;
Executive Vice President of GMCR; Senior Vice President of GCT, and GMMCT;
Executive Vice President of Gradison; Director of McDonald. Mr. Weston is the
brother of Donald E. Weston.

DANIEL R. SHICK, 580 Walnut Street, Cincinnati, Ohio. Vice President and
Portfolio Manager of Gradison Established and Opportunity Value Funds; Managing
Director of Gradison.

PATRICIA JAMIESON, 800 Superior Avenue, Cleveland, Ohio 44114. Treasurer; Senior
Managing Director and Chief Financial Officer McDonald; Treasurer of all of the
Gradison investment companies.

RICHARD M. WACHTERMAN, 580 Walnut Street, Cincinnati, Ohio 45202. Secretary;
Senior Vice President and General Counsel of Gradison. Secretary of all of the
Gradison investment companies.

MARK A. FRIETCH, 580 Walnut Street, Cincinnati, Ohio. Assistant Treasurer.
Assistant Treasurer of all of the Gradison investment companies.

GARY H. MILLER, 580 Walnut Street, Cincinnati, Ohio. Vice President (Gradison
Established Value and Opportunity Value Funds); Associate Vice President of
Gradison.

Trustees and officers of the Trust who are affiliated with the Adviser receive
no remuneration from the Trust. Trustees who are not affiliated with the Adviser
receive fees as determined by the Board of Trustees. As of June 30, l997, the
Trustees and officers of the Trust owned an aggregate of less than 1% of the
outstanding shares of the Established Value Fund and the Opportunity Value Fund
and no person was known to own 5% or more of the shares of either Fund.

16
<PAGE> 41

<TABLE>
<CAPTION>
Trustee Compensation Table
- --------------------------

Name of Trustee Aggregate Total Compensation
- --------------- Compensation From Trust and fund
From Trust* complex (3 additional
for fiscal Trusts) paid to
period ended trustees for calendar
3/31/97 year ended 12/31/96

<S> <C> <C>
Donald E. Weston 0 0
Theodore H. Emmerich $7,250 $25,500
Richard A. Rankin $7,250 $25,500
Jerome E. Schnee $7,250 $25,500
Daniel J. Castellini $7,250 $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. As of March 31, l997, $10,367 was payable by the Trust to the
beneficiary of a former trustee who is deceased and as of December 31, 1996,
$42,470 was payable to that beneficiary by the Trust and the Fund Complex.

DESCRIPTION OF THE TRUST

The Trust is a diversified, open-end investment company organized under
the laws of the State of Ohio by a Declaration of Trust dated May 31, 1983,
which was amended on July 27, 1983. The Declaration of Trust provides for an
unlimited number of full and fractional shares of beneficial interest, without
par value, of any series authorized by the Board of Trustees. The Board of
Trustees has authorized the issuance of shares of four series. Any additional
series of shares must be issued in compliance with the Investment Company Act of
1940 and must not constitute a security that is senior to the shares offered
pursuant to the Prospectuses. Each share of each series represents an equal,
proportionate interest in the related Fund with each other share of that series.
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 "How to Redeem Shares."

17
<PAGE> 42

Declaration of Trust or the Investment Company Act of 1940, and when called by
the Trust or shareholders pursuant to the Declaration of Trust. Pursuant to the
Declaration of Trust, shareholders of record of not less than two-thirds of the
outstanding shares of the Trust may remove a Trustee through a declaration in
writing or by vote cast in person or by proxy at a meeting called for that
purpose. The Trustees are required to call a meeting of shareholders for the
purpose of voting upon the question of removal of any Trustee when requested in
writing to do so by shareholders of record of not less than 10 percent of the
Trust's outstanding shares. Whenever the approval of a majority of the
outstanding shares of a Fund of the Trust is required in connection with
shareholder approval of the Investment Advisory Agreement or the Distribution
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 that Fund are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of that Fund, whichever is the lesser.

The assets of the Trust received upon the issuance of the shares of each
Fund and all income, earnings, profits and proceeds thereof, subject only to the
rights of creditors, are especially allocated to each such Fund and constitute
the underlying assets of each such Fund. The underlying assets of each Fund are
segregated on the books of account and are to be charged with the liabilities in
respect to each such Fund and with a share of the general liabilities of the
Trust. In the event of the termination and liquidation of the Trust, the holders
of the shares of any series are entitled to receive, as a class, the underlying
assets of the related Fund available for distribution to shareholders.

The Trust is currently operating, and intends to continue to operate, in
compliance with the Ohio law relating to business trusts. Under Ohio law, the
shareholders of a complying business trust have no liability to third persons
for obligations of the Trust, which are to be satisfied solely from the Trust's
property. The Declaration of Trust provides that no Trustee, officer 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 matters as to which he
did not act in good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the Trust, or (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"), Star Bank Center, Cincinnati, Ohio 45201
acts as the custodian of the portfolio securities and other assets of the Funds.
Star Bank has no part in determining the investment policies of the Trust or the
securities which are to be purchased, held or sold by the Trust. The Trust may
purchase or sell securities from or to Star Bank.

ACCOUNTANTS

Arthur Andersen LLP, 425 Walnut Street, Cincinnati, Ohio 45202, is the
independent public accountant for the Trust.

18
<PAGE> 43

LEGAL COUNSEL

Kirkpatrick & Lockhart LLP acts as legal counsel to the Trust.

The Gradison Established Value Fund was named as one of eighteen mutual funds to
the Forbes Magazine, August 26, 1996 issue, Mutual Fund Honor Roll. Selection
for the Honor Roll is based on performance, preservation of capital, and
continuity of management.

19
<PAGE> 44

[Family of Funds Brochure]

COVER PAGE

YOUR FUTURE STARTS TODAY

Graphic Photo of men, women, children and a dog

Logo

Gradison

Mutual Funds

INSIDE COVER PAGE

YOUR FUTURE STARTS TODAY

Page 1

Whatever your goals or aspirations, whatever your objective. One thing is
certain. An investment made today brings you that much closer to meeting that
objective and reaching the goal. Whether it's starting a family, buying a house,
saving for education, or planning for retirement. Time is critical. Hesitate and
time will pass you by. Start today and the future is yours.

Page 2

THE MUTUAL FUND STORY

The first mutual fund company was established in 1924 as a private investment
firm for its founders and is still in business today. By 1980, there were fewer
than 600 mutual funds open to investors. Today, there are some 400 fund groups
offering more than 6,000 mutual funds with investments totaling more than $3
trillion.

Increasingly, mutual funds are the preferred vehicle for individual investors
who are starting and building an investment program. And today, Gradison is a
preferred name in mutual funds for a growing number of investors.

WHY MUTUAL FUNDS?

PROFESSIONAL MANAGEMENT

20
<PAGE> 45

Mutual funds use investment professionals to manage the assets on a full-time
basis. In addition to their dedicated time and experience, these investment
advisers typically have access to extensive research and other analytical
resources not available to most individual investors.

DIVERSIFICATION

Because a mutual fund has significantly more assets to invest than any
individual participant, it can purchase and effectively manage a more
diversified portfolio than can most individual investors.

FLEXIBILITY

A mutual fund is usually part of a family of funds. Fund families offer an
exchange privilege that allow shareholders to reallocate assets quickly and
easily among the various funds within that family of funds. Shares in any fund
may be purchased or liquidated, often by a phone call, generally on any day that
the New York Stock Exchange is open for business.

Page 3

WHY GRADISON MUTUAL FUNDS?

A RESPECTED NAME FOR SEVEN DECADES

Today, Gradison offers seven mutual funds in a growing family of funds and
manages more than $4 billion in assets in both mutual funds and individually
managed accounts.

EXPERIENCED PORTFOLIO MANAGERS

21
<PAGE> 46

environments, sets us apart from those other fund managers who have yet to
manage assets through a full market cycle.

SERVICE

Low Minimum Investment of $1,000

Convenient Automatic Dividend Reinvestment

Automatic Investment Plan

Automatic Withdrawals and Payment Plans

Access To Funds

Free Exchange Privileges

Check Writing

Wire Transfers

Toll-Free Customer Service

24-Hour Account Information

Account Statements

Year-End summary

Quarterly Newsletter

Shareholder Reports

Internet Access

Page 4

REACHING YOUR INVESTMENT GOALS

FIGHTING INFLATION

Inflation, the increase in the cost of living, has averaged 4%
since 1926. While it has been lower in recent years, it has also been
substantially higher-reaching 14% in the early 1980s. The surest way of beating
inflation is to earn a rate of return on your investments that exceeds the rate
of inflation.

Chart: WHAT INFLATION REALLY MEANS

22
<PAGE> 47

1995 $139,000 Single Family Home
2000 $177,403 Graphic: Picture of a
2010 $288,971 partially built home
2025 $600,750
Automobile 1995 $18,359
Graphic Picture of an 2000 $23,431
automobile 2010 $38,167
2025 $79,347

Four Year Public University Education

1995 $26,972 Graphic Picture of a
graduation cap and
2000 $34,424 a diploma.
2010 $58,073
2025 $116,571

Sources: National Association of Realtors; Department of
Commerce; College Board. Future prices are based on a hypothetical average
annual inflation rate of 5%.

EDUCATION

The cost of four years at a private college, including tuition, fees, books and
other miscellaneous expenses, now averages nearly $95,000. It is projected to
reach $170,000 in a decade. The cost of a public college is expected to nearly
double from an average of $45,000 to more than $80,000 over the next ten years.

Most families realize that no matter when they start saving and investing for
this purpose, it usually is not soon enough.

BUILDING WEALTH

Many investors overlook the potential of investing in their most productive
years when their incomes are high enough to put aside investment assets and the
demands on their

23
<PAGE> 48

income are less than they inevitably will be later. Such assets can be
invaluable not only for retirement but as emergency assets for unforeseen
occurrences in life.

RETIREMENT

Given the national debate on Social Security and Medicare, the need for
investors to assure adequate retirement assets for both their active retirement
years, and the possibility of their inactive care years, should be apparent.
Many people look solely to their company retirement plans for such assurance and
only realize the need for supplemental assets much later.

YOUR FAMILY'S FUTURE

Providing for the education of a child or grandchild may only be a part of an
investor's concern for future generations. They may have achieved a sufficient
level of personal success to be able to consider investing in order to pass
along significant assets to provide these future generations with greater
assurance for their financial well-being in an uncertain world.

GRAPHIC Photo of two women embracing.

Page 5

INTELLIGENT INVESTING

Time is the essential ingredient

Experience has shown that there is no substitute for time in investing.
Historically, the sooner money has been put to work, and the longer it has been
invested, the more likely positive returns have resulted. Conversely, aggressive
investors are more likely to have volatile results for shorter periods. Clearly,
investing for the long-term is considered one of the keys to successfully
creating investment wealth.

THE RULE OF 72:
HELPING YOU IN TAXING TIMES

24
<PAGE> 49

Certain measurements are well known rules in everyone's daily life. Most people
learn early in life, for example, that twelve inches equals a foot and that
three feet make a year. With investments, similar, but not as well known,
measurement rules apply. The Rule of 72 allows potential investors to find out
how long it will take to double their money. All you have to do is divide 72 by
the estimated interest rate of an investment, and the answer is roughly the
number of years needed to double an investment.

Here's the formal equation:

Number of years to double the original investment = 72/ Interest Rate

Using the Rule
Check the table below to see some examples of how the Rule of 72 works.

<TABLE>
<CAPTION>
Rate of Rule of 72 Years to Years to
Return (72/Interest Rate) Double Quadruple

The rates of return shown are for illustrative purposes only and are not
historical results or projections of the returns of any Gradison Mutual Fund.

(Pie Charts)

THE LONGER YOUR TIME FRAME, THE GREATER THE CHANCE OF REWARD

Percent of time stocks had positive results for rolling periods beginning
December 31, 1925, and ended December 31, 1995.

71% 89% 97% 100%

1 year 5 year 10 year 15 Year

holding holding holding holding

periods periods periods periods

25
<PAGE> 50

Stocks will often rise and fall in value over the short term. When investing for
growth, the longer your investment time frame, the greater the chance equity
investments will produce positive results.

Source: Ibbotson Associates, Chicago. Based on the performance of the S & P 500,
an unmanaged index of stocks. This information is historical and is not a
guarantee of future performance of the S & P 500 or any Gradison Mutual Funds.

THE POWER OF COMPOUNDING

The term "compounding" is usually applied to investment income that is
constantly reinvested to generate additional income. However, the concept of
compounding applies equally well to investment profits that are constantly
reinvested. The compounding of income and profits over long periods of time can
have a meaningful impact on overall investment results. Again, time invested is
invaluable.

(CHART) THE POWER OF COMPOUNDING IN A HYPOTHETICAL $10,000 INVESTMENT IN THE
S&P 500

$170,000 $168,820...................
$150,000 In the time frame illustrated here,
$130,000 reinvestment of all income and
$110,000 dividends resulted in $168,820,
$ 90,000 while not reinvesting income
$ 70,000 and dividends results in $59,304.
$ 50,000 $ 59,304...................
$ 30,000
$ 10,000

1/1/69 12/31/95

26
<PAGE> 51

Investors cannot invest in the S&P 500. Past performance cannot guarantee future
results. Source: The American Funds Group

Page 6

DISCIPLINED PERIODIC INVESTMENTS

Dollar cost averaging is a widely used investment concept in the purchase of
mutual funds that allows investors to overcome this difficult decision by
periodically investing(such as weekly, monthly, or quarterly) the same dollar
amount over a long period of time. Gradison Mutual Funds offer a periodic
investment plan to make the process easier and more systematic.

CHART DOLLAR COST AVERAGING CAN REDUCE YOUR AVERAGE COST PER SHARE

Investment Share Shares

Amount Price Purchased

March $ 500 $10.00 50
June $ 500 $12.50 40
September $ 500 $ 5.00 100
December $ 500 $10.00 50
$2,000 $37.50 240

Average Price Per Share

($37.50 divided by 4) $9.38

Average Cost Per Share

($2,000 divided by 240) $8.33

Dollar cost averaging will never result in better performance than picking the
best times to invest, if you were able to do so. But dollar cost averaging
allows you invest the same amount periodically as the Fund's share price
fluctuates. You therefore will purchase more

27
<PAGE> 52

shares of the Fund in those months when the price per share is low and less
shares when the price is high. Most importantly, dollar cost averaging can help
investors make the commitment to invest.

Of course, dollar cost averaging does not assure a profit and does not protect
against loss in declining markets. And since dollar cost averaging involves
continuous, periodic investing, you should consider your ability to continue
purchases over an extended period of time.

(Graphic) Photo of two men, two women, a boy, girl and a dog walking.

<TABLE>
<CAPTION>
CONSIDER GRADISON MUTUAL FUNDS

<S> <C> <C>
Equity Funds Fixed Income Fund Money Market Funds
Established Value Fund Government Income Fund U. S. Government Reserves
Growth & Income Fund Ohio Tax Free Income Fund Municipal Cash Series 2
High Yield Fund 1 Ohio Municipal Cash Trust 2
Opportunity Value Fund Michigan Municipal Cash Trust 2
International Fund
</TABLE>

1. Planned for 1997-1998 and sold by prospectus only.
2. Federated Advisers acts as investment adviser for
these funds and Federated Securities Corp. acts as
distributor.

PAGE 7

GRADISON EQUITY FUNDS

GRADISON ESTABLISHED VALUE FUND

28
<PAGE> 53

The Established Value Fund invests for long-term capital growth using a
disciplined stock selection process to identify investments from the large
established companies that make up the Standard & Poor's 500 Composite Stock
Price Index, and other similar sized companies, which the investment adviser
considers to be undervalued. The stock selection process requires that companies
meet a number of objectively measured criteria of value including the companies'
relative book values, their price to earnings ratios, and other similar factors.

GRADISON GROWTH AND INCOME FUND

The Growth & Income Fund invests for long-term capital growth, as well as
current income and growth of income. The Fund puts particular emphasis on
identifying companies with higher than average growth rates, above average
dividend returns, a history of paying increasing dividends, and which the
investment adviser considers to be undervalued. We believe that stocks meeting
this criteria provide the opportunity for price appreciation and current income
while tending to moderate risk.

GRADISON OPPORTUNITY VALUE FUND

The Opportunity Value Fund uses a disciplined stock selection process to
identify smaller companies, generally with market capitalization of less than
$500 million that meet a number of objectively measured criteria of value
including the companies' growth rates, relative book value, their price to
earnings ratios, and other similar factors and which the investment adviser
considers to be undervalued. The securities of smaller companies generally are
more volatile than those of larger companies.

GRADISON INTERNATIONAL FUND

Blairlogie Capital Management of Edinburgh, Scotland, the subadviser to the
International

29
<PAGE> 54

Fund, employs a "hybrid strategy" that invests in both developed international
markets and in emerging international markets.

Using a disciplined methodology, Blairlogie first identifies the countries that
offer the most favorable investment environment, and then selects the individual
investments in those countries. Generally the amount invested in emerging
markets will not exceed 30% of the Fund's assets.

International investing, particularly in emerging markets, involves greater
risks than U.S. investing, such as political instability and currency
fluctuation.

THE CASE FOR COMMON STOCKS

Stocks, more than most other types of investments, have historically shown the
ability to grow faster than inflation and to create wealth over long investment
periods. An investor who has long-term goals of ten years or more should
strongly consider equities as a significant part of his or her investment
portfolio. Historically, the longer an investor has held a well diversified
portfolio of stocks the better that investor has fared, as evidenced in the pie
chart on page 5.

THE ADVANTAGES OF BONDS

Although bond portfolios have not provided returns as high as stocks over long
periods of time (as illustrated in the graph on page 9), they have provided less
volatility and more reliable income than stocks. Investors with a relatively
short investment horizon, may need to avoid the volatility of stocks. For
example when an investor because near retirement, at a time when assets are
needed; or to add greater stability to a portfolio by combining both stocks and
bonds. Importantly, bond mutual funds provide the ability to reinvest these cash
flows immediately and completely to take full advantage of compounding.

Page 8

GRADISON FIXED INCOME FUNDS

GRADISON GOVERNMENT INCOME FUND

30
<PAGE> 55

Designed to provide current monthly income from a portfolio of intermediate to
long-term U.S. Government securities, the Fund's policy is to invest only in
those Government securities that are guaranteed as to principal and interest by
the full faith and credit of the United States Government and in repurchase
agreements collateralized by such obligations.

The Fund is managed with an emphasis on total return, that is the combined
effect of both income and changes in share value. Although the securities in the
portfolio are guaranteed as to principal and interest by the U.S. Government,
the market value of the Fund's shares will fluctuate with changes in interest
rates and other market conditions. Mortgage backed securities may be subject to
prepayment risk.

Graphic: Photo of two young girls each sitting on an adult's shoulder.

GRADISON OHIO TAX-FREE INCOME FUND

Designed for Ohio investors who can benefit from a portfolio of long-term
municipal bonds that are exempt from both federal and Ohio income taxes, the
Fund provides monthly income by investing in Ohio municipal securities issued to
finance public institutions and public works, and in private activity municipal
bonds.

In order to gain favorable yields, the Fund invests up to 20% of its assets in
securities that may be subject to the alternative minimum tax for some
investors.

Page 9

INDICES OF INVESTMENTS

IN U. S. CAPITAL MARKETS

(Chart) Comparison of Investments in Small Company Stocks, Large Company Stocks,
Long-Term Government Bonds, U. S. Treasury Bills to Inflation for the period
beginning 1925 through 1995, $0 to $10,000. Ending values: Small Company Stocks
$3,822; Large Company Stocks $1,113; Long-Term Government Bonds $34; U. S.
Treasury Bills $13; Inflation $9.
1926-1995

(YEAR-END 1925 = $1.00)

31
<PAGE> 56

This chart is intended to show the growth of one dollar invested in different
types of investments and the Consumer Price Index. It assumes reinvestment of
all dividend and interest payments.

Past performance does not ensure further results.

SMALL COMPANY STOCKS are represented by the fifth capitalization quintile of
stocks on the NYSE for 1926-1981 and thereafter, the performance of the
Dimensional Fund Advisors (DFA) Small Company Fund;

LARGE COMPANY STOCKS are represented by the Standard & Poor's 500 Stock
Composite Index (S&P 500);

LONG-TERM GOVERNMENT BONDS are represented by a one-bond portfolio with a
maturity near twenty years;

U. S. TREASURY BILLS are represented by rolling over each month a one-bill
portfolio containing, at the beginning of each month, the bill having the
shortest maturity not less than one month.

INFLATION is represented by the Consumer Price Index for All Urban Consumers
(CPI-U), not seasonably adjusted.

Source: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1995, updated in Stocks, Bonds, Bills, and Inflation 1996(TM),
Ibbotson Associates, Chicago. All rights reserved.

The indices and securities in the chart above do not reflect the actual
portfolio composition, performance, or fees and expenses associated with
investing in any Gradison Mutual Fund. The chart is not intended to imply future
performance of any of these investments or any Gradison Mutual Fund. Performance
figures of Gradison Mutual Funds are available by request from Gradison. The
returns for stocks include reinvestment of dividends and interest. Government
bonds and Treasury Bills are guaranteed by the U.S. Government and, if held to
maturity, offer a fixed rate of return and fixed principal value.

In existing disclaimer replace "Past performance does not ensure future results"
with: "The performance shown in the above chart is historical and is not
intended to imply

32
<PAGE> 57

future performance of any of these investments or of any Gradison fund.

Page 10

GRADISON MONEY MARKET FUNDS

The money market funds offered by the Gradison Mutual Funds provide a full
complement of services including checkwriting, high quality personalized checks,
and the convenience of automatic sweeping of dividends from the Gradison Funds.
The money market funds provide clear, monthly statements that include the name
of the payees of any checks written against the account, as well as a highly
useful year-end summary of all transactions. Graphic Photo of a man and woman
seated next to one another going through documents.

GRADISON U. S. GOVERNMENT RESERVES

A full service money market fund designed to provide current money market yields
by investing exclusively in securities issued by the U.S. Government, its
agencies or instrumentalities. The fund has tax benefits in that it invests, to
the greatest extent reasonable, only in selected U. S. Government securities
that are not taxable by the states or by local governments.

MUNICIPAL MONEY MARKET FUNDS

Gradison also makes available a general municipal money market fund that
provides income exempt from federal taxation and separate Ohio and Michigan
money market funds that provide income that is not taxable at the federal state
or local levels in those states. A portion of the income of both funds could be
subject to the Alternative Minimum Tax (AMT) for investors who are subject to
AMT.

For more complete information about the Gradison Funds, including sales charges
and expense, please obtain the appropriate prospectuses from your investment
consultant or call 800-869-5999. Please read the prospectuses carefully before
you invest or send money. Investment returns and principal of the funds will
fluctuate so that you may have a gain or a loss when you sell your shares. Money
market funds are neither insured nor guaranteed by the U.S. Government or any
other entity. There can be no assurance that these funds will maintain a
constant net asset value of $1.00 per share.

33
<PAGE> 58

(Graphic) Man and woman sitting at a desk opposite each other.

Page 11

WORKING WITH YOUR PROFESSIONAL INVESTMENT CONSULTANT

We believe that your professional investment consultant is in the best position
to provide you with investment advice. Your consultant has the training and
experience to provide you with guidance in making your investment decisions. We
encourage you to share as much information as possible about your investment
goals and your current personal and financial situation. Above all, we suggest
you ask your investment consultant whatever you feel you need to know to help
you fully understand the investments you are making.

SERVICE YOU CAN COUNT ON

LOW MINIMUN INVESTMENT OF $1,000 Low subsequent investment minimums of $50.

CONVENIENT AUTOMATIC DIVIDEND REINVESTMENT of income dividends and/or capital
gain dividends into any Gradison fund.

AUTOMATIC INVESTMENT PLAN allows authorization of regular, systematic
investments from bank accounts, money market funds and automated payroll into
any Gradison fund.

AUTOMATIC WITHDRAWALS AND PAYMENT PLANS Can be set up to pay you or designated
payees a specified amount monthly or quarterly.

ACCESS Shares can be redeemed at the then-current market value on any business
day.

Page 12

EXCHANGE PRIVILEGES Including convenient telephone exchanges allows investors to
move money from one Gradison Mutual Fund to another at any time.

34
<PAGE> 59

CHECK WRITING For all money market funds includes high quality personalized
checks, check payee names on account statements, and return of canceled checks.
4

WIRE TRANSFERS Specified amounts can be transferred to pre-authorized accounts
at other financial institutions. 5

4. A fee applies to checks under $100.00

5. A fee applies to wires.

TOLL-FREE CUSTOMER SERVICE Knowledgeable shareholder service representatives are
available during business hours at 800-869-5999.

24-HOUR ACCOUNT INFORMATION During non-business hours TeleFund 24 provides
touch-tone access to the most recent prices of Gradison Mutual Funds, current
money market yield, and balances on all Gradison Mutual Funds accounts.

ACCOUNT STATEMENTS Clear, concise and informative.

YEAR-END SUMMARY A highly useful summary of all activity.

QUARTERLY NEWSLETTER Your Future provides Gradison shareholders with timely
information about investing, mutual funds and the Gradison family of funds.

SHAREHOLDER REPORTS Semiannual updates on fund strategy, performance and
portfolio holdings.

INTERNET World Wide Web site www.gradisonfunds.com provides quarterly updates on
Gradison Mutual Funds, as well as other information of interest to mutual fund
investors.

GETTING STARTED

Whatever your goals or aspirations, whatever your objective. One thing is
certain. An investment made today brings you that much closer to meeting that
objective and reaching that goal.

35
<PAGE> 60

The most important thing is to get started. Call your Investment Consultant or
contact Gradison Mutual Funds at 800-869-5999.

START TODAY AND THE FUTURE IS YOURS.

Graphic: Photo of a baby smiling.

Back Cover
Logo
Gradison
Mutual Funds
1997 Gradison Mutual Funds 580 Walnut Street Cincinnati, Ohio 45202
800/869-5999 513/579-5000 htt;:/WWW.gradisonfunds.com

36
<PAGE> 61

OPP Fact Sheet
[Graphic: Logo] Symbol GOGFX
Gradison
Mutual Funds

Opportunity Value Fund

Gradison Opportunity Value Fund seeks long-term capital appreciation by
investing in the common stocks of smaller companies that it considers to be
relatively undervalued. While smaller companies are frequently considered by
investment professionals to be more volatile, they may also more responsive to
profit opportunities than their larger brethren. The Fund generally invests in
companies with capitalizations of less than $500 million at the time of
purchase.

Gradison uses a disciplined stock selection process that requires that the
companies selected for investment meet a number of objectively measured criteria
including rising earnings, earnings growth rates, price-to-earnings ratios, and
other similar factors.

Under normal circumstances, at least 70% of the Fund's assets will be invested
in such common stocks while up to 30% may, at the discretion of the adviser, be
invested in short-term liquid reserves to reduce fluctuations in the Fund's net
asset value.

Ten Largest Stock Positions On March 31, l997

1. Universal Health Services ACUTE CARE HOSPITALS
2. Adaptec COMPUTERS
3. Wynns' International AUTOMOTIVE PARTS & ACCESSORIES
4. Innovex COMPUTER PRODUCTS
5. Healthsouth REHABILITATION
6. PHH COMMERCIAL SERVICES
7. MuellerIndustries METAL FABRICATION
8. Comair COMMUTER AIRLINE
9. Firstar COMMERCIAL BANK
10. American Bankers Insurance MULTI-LINE INSURANCE

These are the top ten positions of 71 issues representing 16.7% of the portfolio
and are subject to change.

Value of $1,000 Since Inception

37
<PAGE> 62

Line chart stating "The value of a $1,000 investment made in the fund at
inception with all dividends and capital gains distributions reinvested" with
these plot points 8/83 - $1,000, 12/83 - $889, 12/84 - $861, 12/85 -$ 1,103,
12/86 - $1,247, 12/87 - $1,180, 12/88 - $1,458, 12/89 - $1,796, 12/90 - $1,561,
12/91 - $2,122, 12/92 - $2,426, 12/93 - $2,694, 12/94 - $2,635, 12/95 - $3,341,
12/96 - $3,991, 3/97 $3,939.

The performance quoted above and on the next page represents past performance.
The investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than the original cost. Total return includes changes in share value and
reinvestment of all distributions. Past performance does not ensure future
results.

Where the Fund is Invested

The chart at the right indicates distribution of the Fund's stock investments on
March 31, l997. On that date, the Fund maintained 29% liquid cash reserves.

[Graphic of Pie Chart showing Financial 30%, Industrial Products/Services 20%,
Technology 20%, Natural Resources 10%, Consumer Durables 9%, Retail Services 7%,
Transportation 3%, Energy Services 1%

March 31, 1997

(Graphic: Photo of Baby)

Portfolio Manager Profiles

William J. Leugers, Jr.[Graphic: Photo of W.J. Leugers]
Executive Vice President/Portfolio Manager
Gradison-McDonald Asset Management

With more than 27 years of investment experience, the last 13 as portfolio
manager of the Gradison Established Value and Opportunity Value Funds, Bill
Leugers has worked closely with academicians at a leading university in the
development of the quantitative models which are used extensively in the
management of these funds. Bill's B.S. degree in Business and his M.B.A. in
Finance are from Xavier University.

Daniel R. Shick [Graphic: Photo of D.R. Shick]
Senior Vice President/Portfolio Manager
Gradison-McDonald Asset Management

38
<PAGE> 63

recent years, Dan has shared portfolio management responsibilities for the
Established Value and Opportunity Value funds with Bill Leugers. Both the B.B.A.
degree in Economics and his M.B.A. in Finance are from the University of
Cincinnati.

Profile of Gradison Mutual Funds

Gradison Mutual Funds is a division of McDonald & Company, a leading regional
investment firm which acquired Gradison in 1991. As a registered investment
advisor since 1974 and mutual fund advisors since 1976, Gradison currently
manages in excess of $4 billion in Gradison Funds and individually managed
accounts.

A prospectus for the Opportunity Value Fund or any other Gradison Mutual Fund
may be obtained by calling 513/579-5700 or 800/869-5999. The prospectus contains
more complete information. Read it carefully before you invest.

McDonald & Company Securities, Inc. - Distributor

(Graphic: Photo of a Man and two Women)

Average Annual
Total Return

Periods Ended 3/31/97

Quarter* -1.30%

1 Year +12.46%

3 Years +14.42%

5 Years +12.23%

10 Years +10.30%

Since Inception +10.58%

*Not annualized

International Fund

Opportunity Value Fund

Growth & Income Fund

Established Value Fund

Ohio Tax-Free Income Fund

39
<PAGE> 64

Government Income Fund

Money Markets Funds

(Graphic: Logo)
Gradison
Mutual Funds

40
<PAGE> 65

(Graphic: Logo Symbol GETGX
Gradison
Mutual Funds

Established Value Fund

Gradison Established Value Fund seeks long-term capital growth by investing
primarily in the common stocks of large, established U.S. companies selected
from among the 500 stocks that make up the Standard & Poor's 500 Composite Stock
Price Index. The Fund may also invest in other large companies with market
capitalizations of $500 million or more.

Gradison uses a disciplined stock selection process that requires that the
companies selected for investment meet several objectively measured criteria
including the companies' relative book values, their price-to-earnings ratios,
and other similar factors.

Under normal circumstances, at least 70% of the Fund's assets will be invested
in common stocks and, at the discretion of the adviser, up to 30% may be
maintained as liquid reserves to reduce fluctuations in the Fund's net asset
value.

Ten Largest Stock Positions On March 31, l997

1. Sun Microsystems COMPUTERS
2. Intel MICROPROCESSORS
3. Compaq Computer COMPUTERS
4. Andrew TELECOMMUNICATIONS
5. Household International FINANCIAL SERVICES
6. Travelers FINANCIAL SERVICES
7. Lockheed Martin AEROSPACE DEFENSE
8. MCI Telecommunications
9. Textron AEROSPACE & COMMERCIAL PRODUCTS
10. U. S. Life LIFE INSURANCE

These are the top ten positions of 51 issues representing 21.9% of the portfolio
and are subject to change.

Value of $1,000 Since Inception

Line chart stating "The value of a $1,000 investment made in the fund at
inception with all dividends and capital gain distributions reinvested" with
these plot points 8/83 - $1,000, 12/83 - $1,074, 12/84 - $1,123, 12/85 - $1,446,
12/86 - $1,769, 12/87 - $1,989,

41
<PAGE> 66

12/88 - $2,289, 12/89 - $2,657, 12/90 - $2,441, 12/91 - $2,737, 12/92 - $3,289,
12/93 - $3,972, 12/94 - $3,985, 12/95 - $5,038, 3/96 - $6,011, 3/97 $6,165.

Where the Fund is Invested

The chart below indicates distribution of the Fund's stock investments on March
31, l997. On that date, the Fund Maintained 29% liquid cash reserves.

[Graphic of Pie Chart showing] Technology 29%, Financial 21%, Industrial
Products Services 17%, Retail Services 11%, Energy Services 9%, Natural
Resources 6%, Transportation 4%, Consumer Durables 3%.

March 31, 1997

(Graphic: Photo of
Man and Woman)

Portfolio Manager Profiles

William J. Leugers, Jr. [graphic - photo of W.J. Leugers]
Executive Vice President/Portfolio Manager
Gradison-McDonald Asset Management

With more than 27 years of investment experience, the last 13 as portfolio
manager of the Gradison-McDonald Established Value and Opportunity Value Funds,
Bill Leugers has worked closely with academicians at a leading university in the
development of the quantitative models which are used extensively in the
management of these funds. Bill's B.S. degree in Business and his M.B.A. in
Finance are from Xavier University.

Daniel R. Shick [graphic - photo of D.R. Shick]
Senior Vice President/Portfolio Manager
Gradison-McDonald Asset Management

Dan Shick's entire 20+ year investment career has been with the Asset Management
Division. For most for those years, he has been responsible for managing the
firm's largest individual and institutional accounts. In recent years, Dan has
shared portfolio management responsibilities for the Established Value and
Opportunity Value funds with Bill Leugers. Both his B.B.A. degree in Economics
and his M.B.A. in Finance are from the University of Cincinnati.

Profile of Gradison Mutual Funds

42
<PAGE> 67

A prospectus for the Established Value Fund or any other Gradison Mutual Fund
may be obtained by calling 513/579-5700 or 800/869-5999. The prospectus contains
more complete information. Read it carefully before you invest.

McDonald & Company Securities, Inc. - Distributor

(Graphic: Photo of a man and two women)
Average Annual Total Return

Chart stating periods ended 3/31/97, Most Recent Quarter (not annualized) 2.55%,
1 year 15.14%, 3 years 15,78%, 5 years 15.71%, 10 years 11.50%, Since inception
(8/16/83) 14.27%.

International Fund
Opportunity Value Fund
Growth & Income Fund
Established Value Fund
Ohio Tax-Free Income Fund
Government Income Fund
Money Market Funds

(Graphic: Logo
Gradison
Mutual Funds)

43
<PAGE> 68

GRADISON ESTABLISHED VALUE FUND

FINANCIAL STATEMENTS

<PAGE> 69

STATEMENT OF NET ASSETS MARCH 31, 1997

SHARES COMMON STOCKS - 71.44% VALUE
------ ---------------------- -----

AEROSPACE/DEFENSE
COMPANIES - 6.40%

99,756 Lockheed Martin Corporation $ 8,379,504
80,000 Northrop Grumman Corporation 6,050,000
126,400 Raytheon Company 5,703,800
70,000 Textron, Inc. 7,350,000
-----------
27,483,304
-----------

CHEMICALS - 2.56%

255,000 Engelhard Corporation 5,355,000
134,000 Hercules, Inc. 5,661,500
-----------
11,016,500
-----------

COMPUTER PRODUCTS - 11.73%
140,000 Compaq Computer
Corporation (1) 10,727,500
300,000 Data General Corporation 5,100,000
90,000 Harris Corporation 6,918,750
80,000 Intel Corporation 11,120,000
400,000 Sun Microsystems, Inc. (1) 11,500,000
100,000 Tektronix, Inc. 5,050,000
-----------
50,416,250
-----------

CONSUMER DURABLES - 5.54%

133,000 Black & Decker Corporation 4,272,625
190,000 Brunswick Corporation 5,106,250
97,000 Goodyear Tire & Rubber
(The) Company 5,068,250
100,000 Pulte Corporation 2,925,000
166,500 Snap-on, Inc. 6,451,875
-----------
23,824,000
-----------

ENERGY - 6.35%

145,000 Coastal Corporation 6,960,000
100,000 Nicor Inc. 3,200,000
152,000 PanEnergy Corporation 6,555,000
32,000 Royal Dutch Petroleum Company 5,600,000
82,000 Western Atlas Inc. (1) 4,971,250
-----------
27,286,250
-----------

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

SHARES COMMON STOCKS (CONTINUED) VALUE
------ ------------------------- -----

FINANCIAL SERVICES - 7.35%

85,000 Beneficial Corporation $ 5,493,125
119,000 Household International, Inc. 10,248,875
70,000 Transamerica Corporation 6,265,000
200,000 Travelers, Inc. 9,575,000
-----------
31,582,000
-----------

INDUSTRIAL PRODUCTS - 8.69%
118,000 Cooper Industries, Inc. 5,118,250
120,000 Foster Wheeler Corporation 4,245,000
180,000 Goodrich (B.F.) Company 6,592,500
110,000 Ingersoll-Rand Company 4,798,750
74,000 Johnson Controls, Inc. 5,957,000
117,300 Parker Hannifin Corporation 5,014,575
105,000 Timken Company 5,617,500
-----------
37,343,575
-----------

INSURANCE - 7.62%

95,000 W. R. Berkley Corporation 4,821,250
42,000 ITT Hartford Group, Inc. 3,029,250
110,000 Providian Corporation 5,885,000
143,000 SAFECO Corporation 5,720,000
93,000 St. Paul Companies, Inc. 6,033,375
155,000 USLIFE Corporation 7,246,250
-----------
32,735,125
-----------

RETAIL TRADE - 5.67%

160,000 American Stores Company 7,120,000
150,000 Dayton-Hudson Corporation 6,262,500
134,000 The Great Atlantic
& Pacific Tea Company, Inc. 3,400,250
99,000 Mercantile Stores, Inc. 4,591,125
100,000 Supervalu, Inc. 2,975,000
-----------
24,348,875
-----------

SERVICES - 2.71%

42,000 ITT Corporation (1) 2,472,750
156,000 Pittson Brink's Group 3,939,000
254,000 Wendy's International, Inc. 5,238,750
-----------
11,650,500
-----------

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

See accompanying notes to financial statements.

<PAGE> 70

STATEMENT OF NET ASSETS MARCH 31, 1997

SHARES COMMON STOCKS (CONTINUED) VALUE
------ ------------------------- -----

TELECOMMUNICATIONS - 4.31%

300,000 Andrew Corporation (1) $ 10,725,000
220,000 MCI Communications
Corporation 7,810,000
-----------
18,535,000
-----------

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

SHARES COMMON STOCKS (CONTINUED) VALUE
------ ------------------------- -----

TRANSPORTATION - 2.51%

50,171 Conrail, Inc. $ 5,656,780
60,000 Norfolk Southern Corporation 5,115,000
-----------
10,771,780
-----------
TOTAL COMMON STOCKS
(Cost $181,279,854) 306,993,159
-----------

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

PRINCIPAL INTEREST
AMOUNT COMMERCIAL PAPER - 20.87% MATURITY RATE (2) VALUE
<S> <C> <C> <C>
$10,000,000 BMW US Capital Corporation 4/30/97 5.32% $ 9,957,144
10,000,000 Campbell Soup 4/09/97 5.25 9,988,333
10,000,000 Du Pont (E.I.) de Nemours & Company 4/23/97 5.26 9,967,856
10,000,000 Knight-Ridder 5/07/97 5.60 9,944,000
10,000,000 Lucent Technology 5/14/97 5.37 9,935,858
10,000,000 Metlife Funding 5/07/97 5.31 9,946,900
10,000,000 Norfolk Southern Corporation 4/23/97 5.60 9,965,778
10,000,000 Philip Morris Company 4/02/97 5.25 9,998,542
10,000,000 Xerox Corporation 4/16/97 5.25 9,978,125
-------------
TOTAL COMMERCIAL PAPER (COST $89,682,536) 89,682,536
-------------

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

REPURCHASE AGREEMENT - 8.24%

35,405,000 First National Bank of Chicago, dated 3/31/97, collateral; U.S. Treasury
Note, 55/8% due 10/31/97 with a market value of $36,119,469;
repurchase proceeds: $35,410,999 (Cost $35,405,000) 4/01/97 6.18 35,405,000
------------
TOTAL INVESTMENTS, AT VALUE (NOTE 1)
(COST $306,367,390) - 100.55% 432,080,695
ACCRUED INVESTMENT ADVISORY FEE (NOTE 2) - (0.05%) (198,152)
OTHER LIABILITIES PAYABLE TO ADVISER (NOTE 2) - (0.05%) (217,535)
OTHER ASSETS AND LIABILITIES, NET - (.45%) (1,939,472)
------------
NET ASSETS - APPLICABLE TO 14,906,900 OUTSTANDING SHARES (NO PAR
VALUE - UNLIMITED NUMBER OF SHARES AUTHORIZED)
(NOTE 4) - 100% $429,725,536
============

NET ASSET VALUE AND REDEMPTION PRICE PER SHARE (NOTE 1) $28.83
============

=======================================================================================================================
<FN>

(1) Non-income producing
(2) For commercial paper, the interest rate is the discount rate at the time of purchase by the Fund. For repurchase
agreements, the rate shown reflects the actual rate of return to the Fund.
</TABLE>

See accompanying notes to financial statements.

STATEMENT OF OPERATIONS

YEAR ENDED
MARCH 31, 1997

INVESTMENT INCOME:
<S> <C>
Interest $ 6,092,265
Dividends 4,641,083
----------
TOTAL INVESTMENT INCOME $10,733,348

EXPENSES:

Investment advisory fee (Note 2) 2,093,562
Distribution (Note 2) 1,928,903
Transfer agency fees (Note 2) 263,816
Accounting services fees (Note 2) 69,857
Registration fees 23,905
Printing 21,263
Custodian fees 16,637
Professional fees 15,002
ICI dues 14,367
Insurance 8,268
Trustees' fees (Note 2) 6,899
Postage and mailing 1,239
Other 12,251
----------
Total expenses 4,475,969
-----------
NET INVESTMENT INCOME 6,257,379
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS:

Net realized gain on investments 37,844,738
Net change in unrealized appreciation of investments 11,774,353
----------

NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 49,619,091
-----------

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $55,876,470
===========
- ---------------------------------------------------------------------------------------------------

</TABLE>

See accompanying notes to financial statements.

6
<PAGE> 72
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED MARCH 31,
--------------------
1997 1996
FROM OPERATIONS:

<S> <C> <C>
Net investment income $ 6,257,379 $ 5,553,462
Net realized gain on investments 37,844,738 13,508,988
Net change in unrealized appreciation of investments 11,774,353 51,890,255
------------ ------------
Net increase in net assets resulting from operations 55,876,470 70,952,705
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:

Net investment income (6,248,864) (5,404,325)
Net realized capital gains (32,341,951) (12,516,066)
------------ ------------
Decrease in net assets from distributions to shareholders (38,590,815) (17,920,391)
------------ ------------
FROM FUND SHARE TRANSACTIONS:

Proceeds from shares sold 150,040,288 204,134,880
Net asset value of shares issued in reinvestment of distributions 37,843,938 17,748,840
Payments for shares redeemed (141,861,173) (185,868,913)
------------ ------------
Net increase in net assets from Fund share transactions 46,023,053 36,014,807
------------ ------------
TOTAL INCREASE IN NET ASSETS 63,308,708 89,047,121
NET ASSETS:

Beginning of year 366,416,828 277,369,707
------------ ------------
End of year (including undistributed net investment income of
$753,874 and $745,359, respectively) (Note 1) $429,725,536 $366,416,828
============ ============
NUMBER OF FUND SHARES:

Sold 5,266,990 7,979,631
Issued in reinvestment of distributions to shareholders 1,334,128 709,780
Redeemed (4,986,154) (7,260,289)
------------ ------------
Net increase in shares outstanding 1,614,964 1,429,122
Outstanding at beginning of year 13,291,936 11,862,814
------------ ------------
Outstanding at end of year 14,906,900 13,291,936
============ ============

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

</TABLE>

See accompanying notes to financial statements.

7
<PAGE> 73

NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997

Note 1 -- Significant Accounting Policies
================================================================================

Gradison Growth Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The Trust
was created under Ohio law on May 31, 1983; it commenced investment operations
and the public offering of its shares on August 16, 1983. The Trust consists of
four series, the Gradison Established Value Fund, the Gradison Opportunity Value
Fund, the Gradison Growth &Income Fund and the Gradison International Fund
(collectively, the "Funds"); each of which, in effect, represents a separate
diversified fund with its own investment policies. This Annual Report to
Shareholders pertains only to the Gradison Established Value Fund (the "Fund").
The Fund's investment objective is to seek long-term capital growth by investing
primarily in common stocks.

The Fund changed its fiscal year end to March 31, effective with the September
30, 1994 Semiannual Report.

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

SECURITIES VALUATION -- Portfolio securities listed or traded on the New York or
American Stock Exchanges are valued at the last sale price on that exchange, or
if there were no sales that day, the securities are valued at the closing bid
price. All other portfolio securities for which over-the-counter market
quotations are readily available are valued at the latest bid price. Commercial
paper and discount notes 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. Portfolio securities for which market quotations are not
readily available are valued at their fair value as determined by management
using procedures approved by the Board of Trustees.

Repurchase agreements, which are collateralized by U.S. Government obligations,
are valued at cost which, together with accrued interest, approximates market.
Collateral for repurchase agreements is held in safekeeping in the customer-only
account of the Fund's custodian. At the time the Fund enters into a repurchase
agreement, the seller agrees that the value of the underlying security,
including accrued interest, will be equal to or exceed the face amount of the
repurchase agreement. In the event of a bankruptcy or other default of the
seller of a repurchase agreement, the Fund could experience both delays in
liquidating the underlying security and losses. These losses would not exceed an
amount equal to the difference between the liquidating value of the underlying
security and the face amount of the repurchase agreement and accrued interest.
To minimize the possibility of loss, the Fund enters into repurchase agreements
only with selected domestic banks and securities dealers which the Fund's
investment adviser believes present minimal credit risk. Refer to the Fund's
Statement of Net Assets for the face amount of repurchase agreements and
repurchase proceeds as of March 31, 1997.

SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on the trade date (the date the order to buy or sell is executed),
and dividend income is recorded on the ex-dividend date. Interest income is
accrued as earned. Gains and losses on sales of investments are calculated on
the identified cost basis for financial reporting and tax purposes.

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

8
<PAGE> 74

NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997

In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends in
each calendar year, at least 98% of its 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 cost as shown on the Statement of
Net Assets. For both financial reporting and tax purposes, gross unrealized
appreciation and gross unrealized depreciation of securities at March 31, 1997
was $127,966,137, and $2,252,832, respectively.

FUND SHARE VALUATION AND DISTRIBUTIONS TO SHAREHOLDERS -- The net asset value
per share is computed by dividing the net asset value of the Fund (total assets
less total liabilities) by the number of shares outstanding. The redemption
price per share is equal to the net asset value per share.

Distributions to shareholders are recorded on the ex-dividend date.

EXPENSES -- Common expenses incurred by the Trust are allocated to the Fund
based on the ratio of the net assets of the Fund to the combined net assets of
the Trust. In all other respects, expenses are charged to the Fund as incurred
on a specific identification basis.

Note 2 -- Transactions with Affiliates
================================================================================

The Trust's investments are managed, subject to the general supervision and
control of the Trust's Board of Trustees, by McDonald & Company Securities, Inc.
("McDonald"), a registered investment adviser and securities dealer, pursuant to
the terms of an Investment Advisory Agreement ("Agreement"). Under the terms of
the Agreement, effective June 1, 1995, the Fund pays McDonald a fee computed and
accrued daily and paid monthly based upon the Fund's daily net assets at the
annual rate of .65% on the first $100 million, .55% on the next $100 million and
.45% on any amounts in excess of $200 million. McDonald is to reimburse the Fund
for the amount by which the Fund's aggregate expenses for a fiscal year,
including the advisory fee but excluding interest, taxes and extraordinary
expenses, exceed limits set by state securities regulations. No such
reimbursement was required for the year ended March 31, 1997. Prior to June 1,
1995, the Fund paid McDonald an investment advisory fee at an annual rate of
.90% on the first $100 million, .80% on the next $100 million and .70% on any
amounts in excess of $200 million.

The Agreement provides that McDonald bears the costs of salaries and related
expenses of executive officers of the Fund who are necessary for the management
and operations of the Fund. In addition, McDonald bears the costs of preparing,
printing and mailing sales literature and other advertising materials and
compensates the Trust's trustees who are affiliated with McDonald. All expenses
not specifically assumed by McDonald are borne by the Fund.

Under the terms of a Transfer Agency, Accounting Services and Administrative
Services Agreement, effective June 1, 1995, McDonald provides transfer agent,
dividend disbursing, accounting services and administrative services to the
Fund. The Fund pays McDonald a monthly fee for transfer agency and
administrative services at an annual rate of $18.25 per shareholder non-zero
balance account, plus out-of-pocket costs for statement paper, statement and
reply envelopes and reply postage. The Fund pays McDonald a monthly fee for
accounting services based on the Fund's average daily net assets at an annual
rate of .03% on the first $100 million, .02% on the next $100 million, and .01%
on any amount in excess of $200 million, with a minimum annual fee of $40,000.

Prior to June 1, 1995, the Fund paid McDonald a monthly fee at an annual rate of
$7.36 per shareholder non-zero balance account for data processing services
provided to the Fund plus the cost of shareholder statement printing. Prior to
June 1, 1995, the Fund also reimbursed McDonald for the cost of furnishing
personnel to perform shareholder and certain other services.

9
<PAGE> 75
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997

In accordance with the terms of a Distribution Plan adopted under Rule 12b-1 of
the Investment Company Act of 1940, the Fund pays McDonald a fee for its
assistance in distribution of shares of the Fund. Effective June 1, 1995, in
connection with a reduction of the investment advisory fee by .25%, the
Distribution Service Plan was amended to increase the total fee by .25% to .50%,
the components of which are set forth in the remainder of this paragraph. The
Fund pays McDonald a service fee for personal services to shareholders,
including shareholder liaison services such as responding to shareholder
inquiries and providing information to shareholders about their Fund accounts.
This fee is computed and paid at an annual rate of .25% of the Fund's average
daily net assets. The Fund also pays McDonald a fee for its assistance in
selling shares of the Fund, including advising shareholders regarding purchase,
sale and retention of Fund shares. This fee is computed and paid at an annual
rate of .25% 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 $5,000 payable in quarterly installments
for service during each fiscal quarter and (b) $500 for each Board of Trustees
or committee meeting attended.

Note 3 -- Summary of Purchases and Sales of Investments
================================================================================

For the year ended March 31, 1997, the cost of purchases and proceeds from the
sale of securities, excluding short-term securities, amounted to $88,893,687 and
$101,027,531, respectively.

Note 4 -- Net Assets
================================================================================

Net assets of the Fund consisted of:
<TABLE>
<CAPTION>

MARCH 31, 1997

<S> <C>
Aggregate paid-in capital $290,212,712
Accumulated undistributed net investment income 753,874
Accumulated undistributed net realized gains 13,045,645
Net unrealized appreciation of investments 125,713,305
------------
Net Assets $429,725,536
============

- -----------------------------------------------------------------------------
</TABLE>

SUPPLEMENTAL INFORMATION (UNAUDITED)
================================================================================

During the year ended March 31, 1997, the Fund made total distributions of $2.80
per share, of which $.45 was treated as ordinary income, 74% qualified for the
dividends-received deduction for corporations, and $2.35 was treated as
long-term capital gain.

The Board of Trustees declared an ordinary income dividend of $0.11 per share
and a long-term capital gain distribution of $0.88 per share payable on May 30,
1997 to shareholders of record on May 29, 1997.

10
<PAGE> 76

ARTHUR ANDERSEN

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Trustees of the
Gradison Established Value Fund
of the Gradison Growth Trust:

We have audited the accompanying statement of net assets of the Gradison
Established Value Fund of the Gradison Growth Trust (an Ohio business trust) as
of March 31, 1997, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for the periods indicated
thereon. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1997, 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 Established Value Fund of the Gradison Growth Trust as of March 31,
1997, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for the periods indicated thereon, in conformity with generally
accepted accounting principles.

Cincinnati, Ohio, /s/ Arthur Andersen LLP
May 7, 1997

11
<PAGE> 77

GRADISON OPPORTUNITY VALUE FUND

FINANCIAL STATEMENTS

<PAGE> 78

STATEMENT OF NET ASSETS MARCH 31, 1997
<TABLE>
<CAPTION>

SHARES COMMON STOCKS - 70.51% VALUE
<S> <C>
AUTOMOTIVES - 3.79%
30,000 Amcast Industries Corporation $ 701,250
----------------
25,000 Borg-Warner Auto, Inc. 1,065,625
15,000 Gleason Corporation 491,250
90,000 Wynn's International, Inc. 2,081,250
----------------
4,339,375
----------------
BANKS - 10.20%
5,000 First Empire State Corporation 1,600,000
62,200 Firstar Corporation 1,710,500
46,350 HUBCO, Inc. 1,042,875
30,750 Mercantile Bankshares Corporation 1,026,281
26,514 Old Kent Financial Corporation 1,249,472
42,000 TCF Financial Corporation 1,664,250
33,000 TR Financial Corporation 1,188,000
24,800 Union Planters Corporation 1,007,500
10,000 Zions Bancorporation 1,187,500
----------------
11,676,378
----------------
BUILDING MATERIALS - 4.33%
43,000 ABT Building Products Company (1) 924,500
39,000 Butler Manufacturing Company 1,384,500
13,000 Hughes Supply Company 424,125
84,150 Republic Group Corporation 1,283,288
34,000 Texas Industries, Inc. 935,000
----------------
4,951,413
----------------
BUSINESS SERVICES - 4.88%
90,000 ABM Industries, Inc. 1,687,500
37,500 Interpool, Inc. 576,563
100,000 Norstan, Inc.(1) 1,475,000
40,000 PHH Corporation 1,845,000
----------------
5,584,063
----------------
CHEMICALS - 1.66%
30,000 Cambrex Corporation 1,005,000
30,000 Ferro Corporation 900,000
----------------
1,905,000
----------------
COMPUTER HARDWARE - 2.64%
60,000 Adaptec, Inc. (1) 2,137,500
56,250 D.H. Technologies, Inc. (1) 878,906
----------------
3,016,406
----------------
COMPUTER SOFTWARE - 1.60%
37,000 Computer Data Systems, Inc. 1,096,125
22,500 Keane, Inc. (1) 739,688
----------------
1,835,813
----------------

CONSUMER DURABLES - 2.23%
55,000 Coachman Industries, Inc. $ 1,038,125
60,000 Coastcast Corporation (1) 787,500
42,000 Culp, Inc. 724,500
----------------
2,550,125
----------------
ELECTRONICS - 6.78%
65,000 Bel Fuse, Inc. (1) 788,125
30,000 Bell Industries, Inc. (1) 540,000
13,500 CTS Corporation 688,500
25,000 ElectroScientific Industries, Inc. 631,250
80,000 Innovex, Inc. 1,960,000
60,000 Input/Output, Inc. (1) 870,000
60,000 Kent Electronics Corporation (1) 1,380,000
76,072 Sterling Electronics Corporation (1) 903,355
----------------
7,761,230
----------------
FINANCIAL SERVICES - 4.32%
75,000 Aames Financial Corporation 1,518,750
33,000 Advanta Corporation 886,875
25,500 Alex. Brown Incorporated 1,083,750
46,000 Raymond James Financial, Inc. 1,454,750
----------------
4,944,125
----------------
HEALTH CARE - 3.68%
100,000 HealthSouth Corporation (1) 1,912,500
70,000 Universal Health Services, Inc. (1) 2,301,250
----------------
4,213,750
----------------
HOUSING - 4.70%
80,000 Cavalier Homes, Inc. 900,000
34,000 Continental Homes Holding Corporation 565,250
50,000 D.R. Horton, Inc. 537,500
43,000 Lennar Corporation 1,053,500
80,000 Oakwood Homes Corporation 1,410,000
50,000 Toll Brothers, Inc. (1) 912,500
----------------
5,378,750
----------------

INDUSTRIAL PRODUCTS - 2.82%
40,000 Core Industries, Inc. 580,000
51,000 Global Industries Technologies, Inc. (1) 879,750
25,000 Raymond Corporation 693,750
22,000 Transtechnology Corporation 470,250
25,000 United Dominion Industries, Inc. 609,375
----------------
3,233,125
----------------
</TABLE>

See accompanying notes to financial statements.

4
<PAGE> 79

STATEMENT OF NET ASSETS MARCH 31, 1997
<TABLE>
<CAPTION>

SHARES COMMON STOCKS - (CONTINUED) VALUE
<S> <C> <C>
INSURANCE COMPANIES - 6.67%
35,000 American Bankers Insurance Group, Inc. $ 1,706,250
26,000 Equitable of Iowa Corporation 1,300,000
56,100 Fremont General Corporation 1,577,812
66,811 GAINSCO, Inc. 601,299
20,000 Orion Capital Corporation 1,235,000
29,000 Protective Life Corporation 1,218,000
---------------
7,638,361
---------------
NATURAL RESOURCES - 4.73%
45,000 Mueller Industries, Inc. (1) 1,760,625
95,000 Patrick Industries, Inc. 1,353,750
37,000 Quanex Corporation 929,625
40,000 Southdown, Inc. 1,370,000
---------------
5,414,000
---------------
RETAIL TRADE & SERVICES - 2.56%
80,000 Comair Holdings, Inc. $ 1,730,000
43,000 Waban, Inc. (1) 1,198,625
---------------
2,928,625
---------------
SEMICONDUCTORS - 2.92%
90,000 Chips & Technology, Inc. (1) 933,750
55,000 Dallas Semiconductor Corporation 1,457,500
60,000 EXAR Corporation (1) 945,000
---------------
3,336,250
---------------

Total Common Stocks
(Cost $48,572,301) 80,706,789
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST
AMOUNT COMMERCIAL PAPER - 19.59% MATURITY RATE (2) VALUE
<S> <C> <C> <C>
$2,500,000 BMW US Capital 4/30/97 5.32% $ 2,489,286
2,500,000 Campbell Soup 4/09/97 5.25 2,497,083
2,500,000 Du Pont (E.I.) de Nemours & Company 4/23/97 5.26 2,491,964
2,500,000 Knight-Ridder 5/07/97 5.60 2,486,000
2,500,000 Lucent Technology 5/14/97 5.37 2,483,965
2,500,000 Metlife Funding 5/07/97 5.31 2,486,725
2,500,000 Norfolk Southern Corp 4/23/97 5.60 2,491,445
2,500,000 Philip Morris Company 4/02/97 5.25 2,499,635
2,500,000 Xerox Corporation 4/16/97 5.25 2,494,531
---------------
TOTAL COMMERCIAL PAPER (COST $22,420,634) 22,420,634
---------------
</TABLE>
<TABLE>
<CAPTION>

REPURCHASE AGREEMENT - 11.28%

<S> <C> <C> <C>
12,890,000 First National Bank of Chicago, dated 3/31/97, collateral; U.S. Treasury Note, 5 5/8% due
10/31/97 with a market value of $13,153,864; repurchase proceeds: $12,892,184
(Cost $12,890,000) 4/01/97 6.18 12,890,000
------------
TOTAL INVESTMENTS, at value (Note 1) (Cost $83,882,935) - 101.36% 116,017,423
Accrued investment advisory fee (Note 2) - (0.05%) (64,861)
Other liabilities payable to adviser (Note 2) - (0.05%) (59,725)
Other assets and liabilities, net - (1.26%) (1,441,980)
------------
Net Assets - applicable to 5,026,263 outstanding shares
(no par value - unlimited number of shares authorized) (Note 4) - 100% $114,450,857
============
Net asset value and redemption price per share (Note 1) $ 22.77
============
</TABLE>

(1) Non-income producing

(2) For commercial paper, the rate is the discount rate at the time of purchase
by the Fund. For repurchase agreements, the rate shown reflects the actual
rate of return to the Fund.

See accompanying notes to financial statements.

5
<PAGE> 80

STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

YEAR ENDED MARCH 31, 1997
<S> <C> <C>
INVESTMENT INCOME:

Interest $1,657,156
Dividends 812,130
----------
TOTAL INVESTMENT INCOME $2,469,286

EXPENSES:

Investment advisory fee (Note 2) 699,336
Distribution (Note 2) 544,851
Transfer agency fees (Note 2) 114,756
Accounting services fees (Note 2) 40,000
Registration fees 26,156
Custodian fees 18,717
Professional fees 15,637
Printing 12,635
Trustees' fees (Note 2) 7,222
ICI dues 4,458
Other 1,148
----------
TOTAL EXPENSES 1,484,916
-----------
NET INVESTMENT INCOME 984,370
-----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS:

Net realized gain on investments 9,839,496

Net change in unrealized appreciation of investments 1,731,084
----------

NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 11,570,580
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $12,554,950
===========
</TABLE>

See accompanying notes to financial statements.

6
<PAGE> 81
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 984,370 $ 873,255
Net realized gain on investments 9,839,496 4,563,431
Net change in unrealized appreciation of investments 1,731,084 17,064,801
------------- -------------
Net increase in net assets resulting from operations 12,554,950 22,501,487
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (780,766) (836,073)
Net realized capital gains (9,624,857) (2,617,212)
------------- -------------
Decrease in net assets from distributions to shareholders (10,405,623) (3,453,285)
------------- -------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 74,520,949 57,418,476
Net asset value of shares issued in reinvestment of distributions 10,317,863 3,398,854
Payments for shares redeemed (75,515,812) (61,625,425)
------------- -------------
Net increase (decrease) in net assets from Fund share transactions 9,323,000 (808,095)
------------- -------------
TOTAL INCREASE IN NET ASSETS 11,472,327 18,240,107
NET ASSETS:
Beginning of year 102,978,530 84,738,423
------------- -------------
End of year (including undistributed net investment income of
$379,986 and $176,382, respectively) (Note 1) $ 114,450,857 $ 102,978,530
============= =============
NUMBER OF FUND SHARES:
Sold 3,262,371 2,817,109
Issued in reinvestment of distributions to shareholders 454,117 180,968
Redeemed (3,315,616) (3,054,423)
------------- -------------
Net increase (decrease) in shares outstanding 400,872 (56,346)
Outstanding at beginning of year 4,625,391 4,681,737
------------- -------------
Outstanding at end of year 5,026,263 4,625,391
============= =============
</TABLE>

See accompanying notes to financial statements.

7
<PAGE> 82

NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES

Gradison Growth Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The Trust
was created under Ohio law on May 31, 1983; it commenced investment operations
and the public offering of its shares on August 16, 1983. The Trust consists of
four series, the Gradison Opportunity Value Fund, the Gradison Established Value
Fund, the Gradison Growth & Income Fund, and the Gradison International Fund
(collectively, the "Funds"); each of which, in effect, represents a separate
diversified fund with its own investment policies. This Annual Report to
Shareholders pertains only to the Gradison Opportunity Value Fund (the "Fund").
The Fund's investment objective is to seek long-term capital growth by investing
primarily in common stocks.

The Fund changed its fiscal year end to March 31, effective with the September
30, 1994 Semiannual Report.

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

8
<PAGE> 83

NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997

Distributions to shareholders are recorded on the ex-dividend date.

NOTE 2 -- TRANSACTIONS WITH AFFILIATES

9
<PAGE> 84
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997

In accordance with the terms of a Distribution Plan adopted under Rule 12b-1 of
the Investment Company Act of 1940, the Fund pays McDonald a fee for its
assistance in distribution of shares of the Fund. Effective June 1, 1995, in
connection with a reduction of the investment advisory fee by .25%, the
Distribution Service Plan was amended to increase the total fee by .25% to .50%,
the components of which are set forth in the remainder of this paragraph. The
Fund pays McDonald a service fee for personal services to shareholders,
including shareholder liaison services such as responding to shareholder
inquiries and providing information to shareholders about their Fund accounts.
This fee is computed and paid at an annual rate of .25% of the Fund's average
daily net assets. The Fund also pays McDonald a fee for its assistance in
selling shares of the Fund including advising shareholders regarding purchase,
sale and retention of Fund shares. This fee is computed and paid at an annual
rate of .25% of the Fund's average daily net assets.

The officers of the Trust are also officers of McDonald.

NOTE 3 -- SUMMARY OF PURCHASES AND SALES OF INVESTMENTS

For the year ended March 31, 1997, the cost of purchases and proceeds from the
sale of securities, excluding short-term securities, amounted to $27,311,968 and
$31,306,273, respectively.

NOTE 4 -- NET ASSETS

<TABLE>
<CAPTION>
Net assets of the Fund consisted of:
MARCH 31, 1997
<S> <C>
Aggregate paid-in capital $ 77,416,037
Accumulated undistributed net investment income 379,986
Accumulated undistributed net realized gains 4,520,346
Net unrealized appreciation of investments 32,134,488
------------
Net Assets $114,450,857
============
- --------------------------------------------------------------
</TABLE>
===============================================================================

SUPPLEMENTAL INFORMATION (UNAUDITED)

During the year ended March 31, 1997, the Fund made total distributions of
$2.205 per share, of which $.165 was treated as ordinary income, 23% qualified
for the dividends-received deduction for corporations, and $2.04 was treated as
long-term capital gain.

The Board of Trustees declared an ordinary income dividend of $0.62 per share
and a long-term capital gain distribution of $0.40 per share payable on May 30,
1997 to shareholders of record on May 29, 1997.

10
<PAGE> 85
[ARTHUR ANDERSEN LOGO]

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Trustees of the
Gradison Opportunity Value Fund
of the Gradison Growth Trust:

We have audited the accompanying statement of net assets of the Gradison
Opportunity Value Fund of the Gradison Growth Trust (an Ohio business trust) as
of March 31, 1997, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for the periods indicated
thereon. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1997, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Gradison Opportunity Value Fund of the Gradison Growth Trust as of March 31,
1997, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for the periods indicated thereon, in conformity with generally
accepted accounting principles.

Arthur Andersen LLP

Cincinnati, Ohio,
May 7, 1997

11
<PAGE> 86

GRADISON GROWTH TRUST

Gradison Growth & Income Fund

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

STATEMENT OF ADDITIONAL

INFORMATION

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

For information, call:
579-5700 from Cincinnati, Ohio

Toll free (800) 869-5999 from outside Cincinnati

Information may also be obtained from the Trust 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 August 1, 1997 which has
been filed with the Securities and Exchange Commission. The Prospectus is
available upon request without charge from the Trust at the above address or by
calling the phone numbers provided above.

The date of this Statement of Additional Information is August 1, 1997.

<PAGE> 87

CONTENTS LOCATION IN PROSPECTUS

___________________________PAGE

INVESTMENT POLICIES Investment objectives,
AND RESTRICTIONS 4 policies and risks.

PURCHASE OF SHARES 5 Purchase and Redemptions

REDEMPTION OF SHARES 6 Purchase and Redemptions

EXCHANGE PRIVILEGE 6 Optional Shareholder Service

Telephone Exchanges 7

Written Exchanges 7

General Exchange
Information 7

TAXES 8 Taxes

NET ASSET VALUE 10 Net Asset Value

PORTFOLIO TRANSACTIONS 10

INVESTMENT ADVISER 12 Management of the Fund

Advisory Agreement 13

Distribution 15

Transfer Agent and
Accounting Services
Agreement 17

TRUSTEES AND OFFICERS
OF THE TRUST 17

DESCRIPTION OF THE TRUST 20 General Information

INVESTMENT PERFORMANCE 22 Performance Calculations

CUSTODIAN 22

ACCOUNTANTS 23

2
<PAGE> 88

LEGAL COUNSEL 23

SALES BROCHURE INFORMATION 24

FINANCIAL STATEMENTS
Following Sales Brochure Information Financial Highlights

3
<PAGE> 89

INVESTMENT POLICIES AND RESTRICTIONS

In addition to the investment restrictions described in the Prospectus, Gradison
Growth & Income Fund (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, as amended, (the "Act"). See
"Description of the Trust." The Fund will not:

(1) Make loans, except that the purchase of debt securities as allowed by the
Fund's investment objective and other investment restrictions, the loaning of
portfolio securities pursuant to guidelines of the Securities and Exchange
Commission, and the entering into of repurchase agreements shall not be
prohibited by this restriction;

(2) Purchase or sell real estate, including real estate partnerships or trusts
owning an equity interest in real estate, unless acquired as a result of
ownership of securities or other instruments. The purchase of securities secured
by real estate or securities of companies engaged in the real estate business
which are otherwise allowed by the Fund's investment objective and other
investment restrictions shall not be prohibited by this restriction;

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

(4) Purchase or sell commodities or commodity contracts or interests in oil, gas
or other mineral exploration or development programs or leases. The purchase or
sale of financial futures contracts or options on financial futures contracts
for the purposes and within the limits set forth in the Prospectus and this
Statement of Additional Information shall not be prohibited by this restriction;

(5) Issue senior securities except as permitted under the Investment Company Act
of 1940.

The following limitations are not fundamental and may be changed without
shareholder approval: (1) With respect to the purchase of securities of other
investment companies, the Fund will not (a) purchase more than 3% of the
outstanding voting shares of an investment company; (b) invest more than 5% of
its assets in securities of any one investment company; or (c) invest more than
10% of its assets in securities of all investment companies. (2)

4
<PAGE> 90

The Fund will not make short sales of securities, or purchase securities on
margin, except for short-term credit as is necessary for the clearance of
transactions. The deposit or payment by the Fund of initial or maintenance
margin in connection with futures contracts or related options transactions is
not considered the purchase of a security on margin. (3) The Fund will not
mortgage, pledge or hypothecate securities in amounts exceeding 15% of the value
of the assets of the Fund (taken at market value). The deposit of underlying
securities and other assets in escrow or other collateral arrangements in
connection with the writing of options or margin for futures contracts or
options on futures contracts are not deemed to be pledges or hypothecations
subject to this restriction. (4) The Fund may not invest more than 15% of its
assets in securities that are not readily marketable.

The cash equivalents which the Fund may invest in are short-term U.S Government
obligations, certificates of deposit of domestic depository institutions, high
grade commercial paper, and bankers acceptances.

At the present time, the Fund does not intend to engage in the loaning of
portfolio securities, the purchase or sale of financial futures contracts or
options on financial futures contracts, the purchase or sale of options, or the
purchase of foreign securities (other than American Deposit Receipts). The Fund
does not intend to purchase warrants, if as a result more than 5% of the Fund's
net assets, valued at lower or cost or market value would be invested in
warrants or more than 2% of its net assets would be invested in warrants, valued
aforesaid, which are not traded on the New York or American Stock Exchanges.

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. For purposes of the restriction prohibiting the Fund
from investing more than 25% of its assets in companies in the same industry
(see "Investment Policies - Growth and Income Fund" in the Prospectus), the
Directory of Companies Filing Annual Reports with the Securities and Exchange
Commission (which utilizes the Standard Industrial Classification Codes
promulgated by the Office of Management and Budget of the Executive Office of
the President) is used to determine industry classifications.

PURCHASE OF SHARES

The Trust reserves the right to impose a charge of $15 for any purchase check
returned to the Trust as uncollectible and to

5
<PAGE> 91

collect such fee by redeeming shares of the Trust from such shareholder's
account.

The Trust reserves the right to limit the amount of any purchase and to reject
any purchase order. Shares of the Fund are offered continuously; however, the
offering of shares of the Fund may be suspended at any time and resumed at any
time thereafter. The Trust intends to waive the initial and subsequent purchase
minimums for employees of McDonald & Company Securities, Inc. ("McDonald")
which, through its Gradison Division ("Gradison"), acts as the investment
adviser and distributor ("Adviser" and "Distributor").

REDEMPTION OF SHARES

The Trust 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 Trust is restricted, or an emergency exists (determined in accordance with
the rules and regulations of the Securities and Exchange Commission) so that
disposal of the securities held in the Fund or determination of the net asset
value of the Fund is not reasonably practicable, or (c) for such other periods
as the Securities and Exchange Commission by order may permit for the protection
of the Trust's shareholders.

EXCHANGE PRIVILEGE

If a new account is established by an exchange, the dollar amount of the
exchange must at least be equal to the minimum initial investment ($1,000 in the
case of Gradison U.S. Government Reserves ("GMU"), Gradison Government Income
Fund ("GIF"), Gradison Ohio Tax-Free Income Fund ("GMO"), Gradison Established
Value Fund ("EST"), Gradison Opportunity Value Fund ("OPP") and the Gradison
International Fund); and $2,500 in the case of any tax free money market funds
for which the Distributor will effect exchanges; if an exchange is made into an
existing account, the $50 minimum additional investment must be met.

6
<PAGE> 92

TELEPHONE EXCHANGE

You may request exchanges by telephoning the Fund at 579-5700 from Cincinnati,
or toll free (800) 869-5999 from outside Cincinnati. Such request should include
your name and account number and the number of shares or dollar amount of the
Fund to be exchanged. Telephone exchanges may be made only when the registration
of the two accounts will be identical and may not be made by shareholders who
have had share certificates issued for their shares.

WRITTEN EXCHANGES

You may also exchange your shares of either 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 of the Fund to be exchanged. Unless otherwise
indicated, a new account established by written exchange will have the same
registration and selected options as your present account.

GENERAL EXCHANGE INFORMATION

An exchange involves a redemption of the shares of the fund 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 (except in the case of purchases of mutual funds sold
subject to a sales load) next determined after receipt by the Trust of a proper
exchange request. For Federal income tax purposes, an exchange of shares is
considered to be a sale and depending upon the circumstances, a short or
long-term gain or loss may be realized.

The Gradison mutual funds, and Gradison (with respect to any tax-free money
market funds) each reserve the right to reject any exchange request. The
exchange feature may be terminated at any time by the shareholder, the Trust,
the Gradison Mutual Funds, or Gradison. In the case of excessive use of the
exchange feature, the Trust, upon 30 days' written notice, may make reasonable
service charges (as specified in the notice) by redeeming shares from such
shareholder's account.

7
<PAGE> 93

TAXES

The Fund has qualified and intends to qualify in the future as a regulated
investment company under Subchapter M of the Internal Revenue Code (the "Code").
By so qualifying, the Fund will not be taxed on net investment income and net
realized capital gains distributed to shareholders.

Dividends from net investment income and distributions from net realized
short-term capital gains are taxable to shareholders as ordinary income, whether
paid in cash or in additional shares of the Fund. All or a part of the dividends
distributed to shareholders will qualify for the deduction for dividends
received by corporations. The specific amounts eligible for this deduction
depend upon certain factors set forth in the Code, and the Trust will furnish
shareholders annually with written advice as to the amounts of dividend
distributions eligible for such deduction.

Distributions of any net realized long-term capital gains are taxable to
shareholders as long-term capital gains, whether paid in cash or in additional
shares of the Fund and regardless of the length of time a shareholder has owned
shares of the Fund. These capital gains distributions are not eligible for the
dividends received deduction for corporations. The Trust will furnish
shareholders with written notification as to the amount of any long-term capital
gains concurrently with any distribution that includes long-term capital gains.

Investors should be aware of the tax implications of purchasing shares shortly
before a record date for a dividend or capital gains distribution. To the extent
that the net asset value of the Fund at the time of purchase reflects
undistributed income or capital gains, or net unrealized appreciation of
securities held by the Fund(1) a subsequent distribution to the shareholder of
such amounts, although in effect constituting a return of his or her investment,
would be taxable as described above. Correspondingly, for federal income tax
purposes, a shareholder's tax basis in his or her shares continues to be his or
her original cost, so that upon redemption of shares, capital gain or loss will
be realized in the amount of the difference between the redemption price and the
shareholder's original cost.

In order to qualify for treatment as a regulated investment company under the
Internal Revenue Code of 1986, as amended, 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

8
<PAGE> 94

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 net
investment income for that year and any net realized capital gains for the
one-year period ending on October 31 of that year, plus certain other amounts.

Although dividends generally will be treated as distributed when paid, dividends
declared in October, November or December, payable to shareholders of record on
a specified date in such a month and paid in January of the following year, will
be treated as having been received by shareholders on December 31 of the year in
which the dividend was declared.

Redemption or resale of shares of the Fund will be a taxable transaction for
federal income tax purposes. Redeeming shareholders will recognize a gain or
loss in an amount equal to the difference between their basis in such redeemed
shares of the Fund and the amount received. If such shares are held as a capital
asset, the gain or loss will be a capital gain or loss and will generally be
long-term if such shareholders have held their shares for more than one year.
Any loss realized upon a taxable disposition of shares held for six months or
less will be treated as a long-term capital loss to the extent of any capital
gain dividends received with respect to such shares.

The Fund is required, in certain circumstances, to withhold 31%, of dividends
and certain other payments, including redemptions, paid to shareholders who do
not furnish to the Fund their correct taxpayer identification number or who are
otherwise subject to backup withholding.

The federal income tax matters summarized above are subject to

9
<PAGE> 95

change by legislation, administrative action and judicial decision. In addition,
shareholders may be subject to state and local taxes with respect to their
ownership of shares or distributions from the Trust. Shareholders should consult
their tax adviser as to their personal tax situation.

NET ASSET VALUE

The net asset value of the Fund is calculated once daily Monday through Friday
except on the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

The assets and liabilities of the Fund are determined in accordance with
generally accepted accounting principles and the applicable rules and
regulations of the Securities and Exchange Commission. Assets and liabilities
attributable to the Fund are allocated to the Fund. Assets and liabilities not
readily attributable to a fund are allocated to each fund in the Trust in a
manner and on a basis determined in good faith by the Trustees to be fair and
equitable.

When calculating the net asset value of the Fund, a security listed or traded on
an exchange is valued at its last sale price on that exchange, or if there were
no sales that day, the security is valued at the closing bid price. All other
portfolio securities for which over-the-counter market quotations are readily
available are valued at the latest bid price. Portfolio securities and other
assets for which market quotations are not readily available are valued at their
fair value as determined by management of the Fund pursuant to procedures
approved by the Board of Trustees and subject to oversight by the Board of
Trustees. Short-term securities with remaining maturities of less than 60 days
are valued at amortized cost which approximates market value.

PORTFOLIO TRANSACTIONS

The Adviser is responsible for making the Fund's portfolio decisions, including
allocation of the Fund's brokerage business and negotiation of brokerage
commissions, subject to policies established by the Trust's Board of Trustees.
In purchasing and selling portfolio securities, brokers and dealers will be
selected to obtain the most favorable net results, taking into account various
factors, including the price of the security, the commission rate, the size of
the transaction, the difficulty of execution and other services offered by
brokers or dealers which are of benefit to the Fund. The Adviser will select
brokers and

10
<PAGE> 96

dealers to execute transactions on the basis of its judgment of their
professional capability to provide the service at reasonably competitive rates.
The Adviser's determination of what constitutes reasonably competitive rates is
based upon its professional judgment and knowledge as to rates paid and charged
for similar transactions throughout the securities industry. The Adviser may
consider sales by brokers or dealers of shares of the Fund when selecting
brokers or dealers to execute portfolio transactions as long as the most
favorable net results are obtained.

The Adviser may receive commissions from the Trust for effecting transactions
only in accordance with procedures adopted by the Board of Trustees. Any
procedures adopted by the Trustees will incorporate the standard contained in
Rule 17e-l under the Act that the commissions paid must be "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable trans-actions involving similar
securities during a comparable period of time. The Adviser has assured the Trust
that in all transactions placed with the Adviser, the Fund will be charged a
commission that is at least as favorable as the rate the Adviser charges to its
other customers in similar transactions. No commission charged to the Trust by
the Adviser or any broker affiliated with the Adviser will include compensation
for research services provided by the Adviser or any such affiliated broker.

Brokers who provide supplemental investment research to the Adviser may receive
orders for transactions in portfolio securities of the Fund. Such supplemental
research services ordinarily consist of assessments and analyses of the business
or prospects of a company, industry, or economic sector. Information so received
is in addition to and not in lieu of the services required to be performed by
the Adviser under the Investment Advisory Agreement with the Trust. If in the
judgment of the Adviser the commission is reasonable in relation to the
brokerage and research services provided, the Adviser is authorized to pay
brokerage commissions in excess of commissions another broker would have
received for effecting the same transaction, subject to the review of the
Trust's Board of Trustees. Not all such research services may be used by the
Adviser in connection with managing the Fund. The expenses of the Adviser will
not necessarily be reduced as a result of the receipt of such supplemental
information, and the Adviser may use such information in servicing its other
accounts.

Because of the affiliation of the Adviser with the Fund, the Fund
is prohibited from engaging in certain transactions involving the Adviser except
in compliance with the provisions of the

11
<PAGE> 97

Investment Company Act of 1940, as amended, and the rules and regulations
thereunder. Accordingly the Fund will not purchase or sell portfolio securities
from or to the Adviser in any transaction in which the Adviser acts as
principal, including transactions in the over-the-counter market. The Fund may
purchase securities from other members of an underwriting syndicate of which the
Adviser is a participant, but only under the conditions set forth in applicable
rules of the Securities and Exchange Commission.

The Adviser also serves as the investment adviser to GMU, GMO, GIF and the
Gradison International Fund ("INT"), for which Blairlogie Capital Management
acts as sub-investment adviser (see "Exchange Privilege") and furnishes
investment advice to other clients. Investment decisions for the Fund are made
independently from those for EST, OPP, GMU, GMO, GIF, and INT although other
clients advised by the Adviser may have similar objectives and investment
programs as the Fund. Purchases and sales of particular securities may be
effected simultaneously for such entities and clients. In such instances, the
transactions will be allocated as to price and amount in a manner the Adviser
considers equitable to each of the affected entities or clients, which could
have a detrimental effect upon the price or amount of the securities purchased
or sold for the Fund. On the other hand, in some cases the ability of the Fund
to participate in volume transactions may produce better executions for the
Fund. It is the opinion of the Board of Trustees that the benefits available to
the Fund from retaining the Adviser outweigh any disadvantages that may arise
from exposure to simultaneous transactions.

For the fiscal year ended March 31, 1996 and March 31,1997, the Fund's portfolio
turnover rate (see page 4 of the prospectus) was respectively 3.1% and 16.0%,
and the aggregate brokerage commissions paid by the Fund were $11,195 and
$17,405.

INVESTMENT ADVISER

The Adviser provides to the Fund at its own expense the executive officers who
are necessary for the management and operations of the Fund.

12
<PAGE> 98

ADVISORY AGREEMENT

The Investment Advisory Agreement provides that the Adviser will manage the
investments of the Fund, subject to review by the Board of Trustees of the
Trust. 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 Trust and compensates the Trustees who are affiliated with the
Adviser. In addition, except as borne by the Trust pursuant to an effective plan
under Rule 12b-l under the Act, the Adviser bears the expenses related to
distribution of shares of the Fund, such as costs of preparing, printing and
mailing sales literature and other advertising materials, costs of furnishing
prospectuses, annual and semiannual reports of the Trust and other materials
regarding distributing shares of the Trust to potential investors.

All expenses not specifically assumed by the Adviser, the Transfer Agent, or
Distributor and incurred in the operation of the Trust are borne by the Trust
pursuant to the Investment Advisory Agreement. Some of these expenses may be
paid by the Adviser subject to reimbursement by the Trust. These expenses
include expenses for the cost of preparing, printing and mailing registration
statements, prospectuses periodic reports and other documents furnished to
shareholders and regulatory authorities; such distribution/service expenses as
may be incurred pursuant to an effective plan under Rule 12b-1 under the
Investment Company Act of 1940; registration, filing and similar fees; legal
expenses; auditing and accounting expenses; taxes and other fees; brokers'
commissions and issue or transfer taxes chargeable to the Trust in connection
with securities transactions; expenses of issue, sale, redemption and repurchase
of shares; fees of Trustees who are not affiliated with the Adviser; charges and
expenses of any transfer and dividend disbursing agent, registrar, custodian or
depository appointed by the Trust; other expenses of the Trust, including
expenses of shareholders' and Trustees' meetings; and fees and other expenses
incurred by the Trust in connection with its membership in any organization.
Expenses borne by the Trust and attributable to a specific fund are allocated to
that fund; expenses that are not specifically attributable to a fund are
allocated to each fund in a manner and on a basis determined in good faith by
the Adviser to be fair and equitable (generally, on the basis of the respective
net assets of the Fund), subject to review by the Trustees. The Fund reimburses
the Adviser for all costs, direct and indirect, which are fairly allocable to
services provided by the Adviser's employees for which the Fund is responsible.

As compensation for its services under the Investment Advisory

13
<PAGE> 99

Agreement, the Adviser receives from the Trust a monthly fee based upon the
average value of the daily net assets for the month of the Fund at an annual
rate of .65% on the first $100 million of the Fund, .55% on the next $100
million of the Fund and .45% on any amounts in excess of $200 million of the
Fund. For the fiscal years ended March 31, 1996 and March 31, 1997, the Adviser
received respectively $0 and $ 72,378 as investment advisory fees and would have
received $42,321 and $ 117,370 as investment advisory fees if not for the waiver
of fees.

The Investment Advisory Agreement also provides that the Adviser, as a
registered broker-dealer, will distribute the shares of the Fund in states in
which it may be qualified to do so, upon request of the Trust. The Adviser
accepts orders for the purchase of such shares at net asset value only, and no
sales commission, fee or other Charge is incurred by the investor other than
charges specified in the Fund's 12b-l plan. The Adviser receives no compensation
for acting as the Trust's distributor except as may be provided pursuant to the
Distribution Plan of the Trust.

The Investment Advisory 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 in no way restricts the Adviser from
acting as an investment manager or adviser for others.

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

The Investment Advisory Agreement continues in effect as to the Fund 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 Investment Advisory Agreement.

14
<PAGE> 100

The Investment Advisory 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 Investment Advisory Agreement will terminate automatically in
the event of its assignment by the Adviser. The Investment Advisory 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 the outstanding voting securities of
the Fund 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 Investment Advisory Agreement.

DISTRIBUTION

The Fund has adopted a Distribution Plan (the "Plan") under Rule 12b-l of the
Investment Company Act of 1940. Rule 12b-l 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 the Fund to acquire and retain a sufficient level of assets to enable it
to operate at an efficient level. Higher levels of assets tend to result in
operating efficiencies with respect to the Fund's fixed costs and portfolio
management.

The Plan permits the Fund to incur expenses related to the distribution of its
shares, but only as specifically contemplated by the Plan. Under the Plan, the
Trust may incur distribution expenses up to an amount that does not exceed an
annual rate of .50 of 1% of its average daily net assets. Distribution expenses
may be incurred by the Trust under the Plan within the limitation described
above for any activity primarily intended to result in the sale of Fund shares
including but not limited to (a) payments to broker-dealers (including the
Adviser) or other persons as compensation for personal services rendered to
shareholders of the Funds including providing shareholder liaison services such
as responding to shareholder inquiries and providing information to shareholders
about their accounts, and (b) expenses otherwise promoting the sale of the
shares of a Fund, such as expenses of preparation, printing and mailing
prospectuses, annual and semiannual reports, sales literature and other
promotional material to potential investors and of purchasing radio, television,
newspaper and other advertising. In the absence of exemptive relief from certain
provisions of the Investment Company Act of 1940, as amended, the Trust may
incur expenses relative to a Fund under the Plan only when such expenses are
directly attributable to that Fund and may not incur expenses

15
<PAGE> 101

under the Plan on a joint basis with other Fund(s).

The Plan also specifically authorizes the payment of those operational expenses
enumerated as being incurred by the Trust pursuant to the investment Advisory
Agreement, as described under the caption "Advisory Agreement" above, to the
extent that such payments might be considered to be primarily intended to result
in the sale of shares of the Fund. It further specifically authorizes the
payment of advisory fees pursuant to the Investment Advisory Agreement to the
extent that the Trust might be deemed to be indirectly financing the Adviser's
distribution activities through payment of advisory fees. The Board of Trustees
does not believe that the payment of such operational expenses by the Trust or
payment of the advisory fee constitute the direct or indirect financing of
activities primarily intended to result in the sale of shares of the Fund. Thus,
although such payments are authorized by the Plan as a protective measure, they
are not restricted by the .50% limitation included in the Plan.

In approving the Plan, the Board of Trustees concluded that there was a
reasonable likelihood that the Plan would benefit the Trust 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
outstanding voting securities of the Fund, and all material amendments to the
Plan must be approved by a majority of the Board of Trustees and a majority of
the Independent Trustees by votes cast in person at a meeting called for the
purpose of voting on such amendment. The Plan may be terminated as to the Fund
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 60
days' written notice to the other party to the agreement, and any related
agreement will terminate automatically in the event of its assignment. The Plan
requires that the Board of Trustees receive at least quarterly written reports
as to the amounts expended during each quarter pursuant to the Plan and the
purposes for which such amounts were expended. While the Plan is in effect, the
selection and nomination of those Trustees who are not "interested persons" (as
defined in the Investment Company Act of 1940) of the Trust shall be committed
to the discretion of

16
<PAGE> 102

the disinterested Trustees then in office.

Pursuant to the Plan, the Trust has entered into a distribution agreement
("Agreement") with McDonald. This agreement provides that the Distributor will
receive Compensation for rendering personal services to shareholders of the Fund
including providing shareholder liaison services such as responding to
shareholder inquiries and providing information to shareholders about their Fund
accounts at an annual rate of .25% of the average daily net assets of the Fund
and .25% of the value of the average daily net assets of the Fund for rendering
other distribution services to the Fund. The Agreement may be terminated at any
time, without penalty, by a vote of a majority of the Independent Trustees of
the Trust or by a vote of a majority of the outstanding voting securities of the
Fund. The Agreement is contingent on the continued effectiveness of the Trust's
Distribution Expense Plan and automatically terminates in the event of its
assignment. For the fiscal year ended March 31, 1996 and March 31, 1997, the
Fund paid $32,555 and $90,284 respectively to McDonald pursuant to the Plan. Of
these amounts, one half was paid for rendering distribution service, and one
half for providing personnel services to shareholders of the Fund.

TRANSFER AGENT AND ACCOUNTING SERVICES AGREEMENT

Pursuant to the Transfer Agent and Accounting Services Agreement, Gradison
provides transfer agent, dividend disbursing, and accounting services for the
Fund. Gradison responds to inquiries from shareholders, processes purchase and
redemption requests, maintains shareholder account records and provides
statements and confirmations to shareholders and maintains the Fund's books and
accounting records. For the fiscal year ended March 31, 1996 and March 31, 1997,
the Fund paid $3,887 and $63,835 respectively to McDonald pursuant to this
Agreement and if not for the waiver of fees, McDonald would have received
$50,901 pursuant to the Agreement for the fiscal year ending March 31, 1996.

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 investment companies, Gradison, and McDonald, are listed
below. All principal occupations have been held for at least five years unless
otherwise indicated. Positions held with Gradison were formerly held with
Gradison & Company Incorporated. Each trustee is a trustee of each of the four
Gradison investment companies.

17
<PAGE> 103

*DONALD E. WESTON, 580 Walnut Street, Cincinnati, Ohio. Trustee and Chairman of
the Board; Chairman of Gradison; Director of McDonald & Company Investments,
Inc. and Cincinnati Milacron Commercial Corp. (financing of capital goods);
Chairman of all of the Gradison investment companies.

DANIEL J. CASTELLINI,00312 Walnut Street, Cincinnati, Ohio. Trustee; Senior Vice
President/Finance and Administration and Chief Financial Officer of the E. W.
Scripps Company (communications).

JEROME E. SCHNEE, 14 Walt Whitman, Morristown, N. J. 07960 Trustee. Senior
Director, Health, Economics, Johnson and Johnson (Pharmaceuticals), since August
1996. Professor of Management, College of Business Administration, University of
Cincinnati (currently on leave of absence).

RICHARD A. RANKIN, 1717 Dixie Highway, Suite 600, Fort Wright, Kentucky 41011.
Trustee. Partner Rankin and Rankin (Public Accountants).

BRADLEY E. TURNER, 580 Walnut Street, Cincinnati, Ohio. President. Senior
Managing Director and Director of McDonald; President of all of the Gradison
investment companies.

WILLIAM J. LEUGERS, JR., 580 Walnut Street, Cincinnati, Ohio. Managing Director
and Portfolio Manager of the Gradison Established and Opportunity Value Funds.

JULIAN BALL, 800 Superior Avenue, Cleveland, Ohio. Executive Vice President.
Portfolio Manager of the Gradison Growth & Income Fund; First Vice President of
McDonald since July 1994; prior to that, Vice President of Duff & Phelps
Investment Management Company.

PAUL J. WESTON, 580 Walnut Street, Cincinnati, Ohio. Senior Vice

- --------
**Interested and affiliated trustee, as defined by the Investment Company Act of
the Trust and the Investment Adviser as a result of being an officer of the
Adviser and owning securities of the Adviser's parent.

18
<PAGE> 104

President; Executive Vice President of Gradison-McDonald Cash Reserves Trust;
Senior Vice President of Gradison Custodian Trust, and Gradison-McDonald
Municipal Custodian Trust; Executive Vice President of Gradison. Mr. Weston is
the brother of Donald E. Weston.

DANIEL R. SHICK, 580 Walnut Street, Cincinnati, Ohio. Vice President; Managing
Director of Gradison.

GARY H. MILLER, 580 Walnut Street, Cincinnati, Ohio. Vice President (Gradison
Established Value and Opportunity Value Funds); Associate Vice President of
Gradison.

PATRICIA JAMIESON, 1800 Superior Avenue, Cleveland, Ohio 44114. Treasurer;
Senior Managing Director and Chief Financial Officer of McDonald; Treasurer of
all of the Gradison investment companies.

RICHARD M. WACHTERMAN, 580 Walnut Street, Cincinnati, Ohio 45202. Secretary.
Senior Vice President and General Counsel of Gradison. Secretary of all of the
Gradison investment companies.

MARK A. FRIETCH, 580 Walnut Street, Cincinnati, Ohio Assistant Treasurer.
Assistant Treasurer of all of the Gradison investment companies.

As of June 30, 1997, the trustees and officers of the Fund owned, of record and
beneficially, an aggregate of less than 1% of the outstanding shares of the Fund
and no person owned 5% or more of the outstanding shares of the Fund.

19
<PAGE> 105

Trustee Compensation Table
--------------------------

<TABLE>
<CAPTION>
Name of Trustee Aggregate Total Compensation
- --------------- Compensation From Trust and fund
From Trust complex (3 additional
for fiscal Trusts) paid to
period ended trustee for calendar
3/31/97 year ended 12/31/96

<S> <C> <C>
Donald E. Weston $ 0 $ 0
Theodore H. Emmerich $7,250 $25,500
Richard A. Rankin $7,250 $25,500
Jerome E. Schnee $7,250 $25,500
Daniel J. Castellini $7,250 $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. As of March 31, 1997, $10,367 was payable by the Trust to the
beneficiary of a former trustee who is deceased, and as of December 31, 1996,
$42,470 was payable to that beneficiary by the Trust and the Fund Complex.

DESCRIPTION OF THE TRUST

The Trust is a diversified, open-end investment company organized under the laws
of the State of Ohio by a Declaration of Trust dated May 31, 1983 which was
amended on July 27, 1983. The Declaration of Trust provides for an unlimited
number of full and fractional shares of beneficial interest, without par value,
of any series authorized by the Board of Trustees. The Board of Trustees has
authorized the issuance of shares of four series, representing the Fund, the
Gradison Established Value Fund, the Gradison Opportunity Value Fund, and the
Gradison International Fund. Any additional series of shares must be issued in
compliance with the Investment Company Act of 1940 and must not constitute a
security that is senior to the shares offered pursuant to the Prospectuses. Each
share of each series represents an equal, proportionate interest in the related
Fund with each other share of that series. 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 non-assessable. Shares have no preemptive, subscription
or conversion rights and

20
<PAGE> 106

are redeemable as set forth under "Redemption of Shares."

Holders of shares of each series are entitled to one vote per share; however,
separate votes are taken by each series on matters specifically affecting the
related Fund. 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. Trustees were initially
elected by the shareholders at the first annual meeting of shareholders. Under
the Declaration of Trust, no further meetings of shareholders are required to be
held for the purpose of electing Trustees, unless less than a majority of
Trustees holding office have been elected by the shareholders. Shareholders'
meetings will be held only when required pursuant to the Declaration of Trust or
the Investment Company Act of 1940, and when called by the Trust or shareholders
pursuant to the Declaration of Trust. Pursuant to the Declaration of Trust,
shareholders of record of not less than two-thirds of the outstanding shares of
the Trust may remove a Trustee through a declaration in writing or by vote cast
in person or by proxy at a meeting called for that purpose. The Trustees are
required to call a meeting of shareholders for the purpose of voting upon the
question of removal of any Trustee when requested in writing to do so by
shareholders of record of not less than 10 percent of the Trust's outstanding
shares. Whenever the approval of a majority of the outstanding shares of the
Fund of the Trust is required in connection with shareholder approval of the
Investment Advisory Agreement or the Distribution Plan, or changes in the
investment objective or the investment restrictions, a "majority" shall mean the
vote of {i) 67% or more of the outstanding shares of the Fund present at a
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present in person or by proxy, or (ii) more than 50% of the outstanding
shares of the Fund, whichever is the lesser.

The assets of the Trust received upon the issuance of the shares of the fund and
all income, earnings, profits and proceeds thereof, subject only to the rights
of creditors, are especially allocated to each such fund and constitute the
underlying assets of each such fund. The underlying assets of the fund are
segregated on the books of account and are to be charged with the liabilities in
respect to each such Fund and with a share of the general liabilities of the
Trust. In the event of the termination and liquidation of the Trust, the holders
of the shares of any series are entitled to receive, as a class, the underlying
assets of the related Fund available for distribution to shareholders.

The Trust is currently operating, and intends to continue to

21
<PAGE> 107

operate, in compliance with the Ohio law relating to business trusts. Under Ohio
law, the shareholders of a complying business trust have no liability to third
persons for obligations of the Trust, which are to be satisfied solely from the
Trust's property. The Declaration of Trust provides that no Trustee, officer 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 matters
as to which he did not act in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the Trust, or (3) in the case
of any criminal proceeding, with respect to any conduct which he had reasonable
cause to believe was unlawful.

INVESTMENT PERFORMANCE

Total Return Percentage Change:
-------------------------------

<TABLE>
<CAPTION>
Since Inception Year Ended
(annualized) March 31, 1997
2/28/95-3/31/97)

<S> <C> <C>
Fund 20.47% 18.33%

Standard & Poor's
Composite Stock 26.29% 19.83%
Index
</TABLE>

The results of the Fund and Index assume reinvestment of dividends and other
distributions. The performance results reflect historical performance and do not
ensure future results.

CUSTODIAN

Star Bank, NA. ("Star Bank"), Star Bank Center, Cincinnati, Ohio 45201, 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 Trust. The Fund may
purchase or sell securities from or to Star Bank. The Gradison Division of
McDonald & Company Securities, Inc., 580 Walnut Street, Cincinnati, Ohio 45202,
acts as the transfer agent and dividend disbursing agent.

22
<PAGE> 108

ACCOUNTANTS

Arthur Andersen LLP, 425 Walnut Street, Cincinnati, Ohio 45202, is the
independent public accountant for the Trust.

LEGAL COUNSEL

Kirkpatrick & Lockhart LLP, acts as legal counsel to the Trust.

23
<PAGE> 109

Fact Sheet GRI
(Graphic: Logo)

Growth
& Income
Fund

Gradison Growth and Income Fund seeks long-term growth, current income and
growth of income by investing in high quality common stocks of large U.S.
corporations that are determined to be relatively undervalued and which
generally have above average dividend returns.

Particular emphasis is placed on the identification of dividend paying common
stocks of companies with higher historic growth rates and returns on shareholder
equity than the average of companies that make up the Standard and Poor's 500
Composite Stock Price Index. Gradison believes that a portfolio of quality
common stocks with above average dividend yield and below average
price-to-earnings ratio provides the opportunity for price appreciation and
current income while generally tending to moderate risk.

It is generally the policy of the Gradison Growth & Income Fund to maintain as
fully invested a position as practical at all times.

Symbol GRINX

Ten Largest Stock Positions on March 31, 1997

1. Exxon INTERNATIONAL OIL
2. J. P. Morgan FINANCIAL SERVICES
3. Pitney-Bowes BUSINESS EQUIPMENT
4. CPC International FOOD PROCESSOR
5. Hewlett Packard COMPUTER PRODUCTS
6. Mobil INTERNATIONAL OIL
7. DuPont CHEMICALS
8. Bristol-Myers Squibb PHARMACEUTICALS
9. Cincinnati Financial INSURANCE
10. Norwest REGIONAL BANKS

These are the top ten positions of 48 issues representing 32.1% of the portfolio
and are subject to change.

24
<PAGE> 110

Value of $1,000 Since Inception

Line chart stating "The value of a $1,000 investment made in the fund at
inception with all dividends and capital gain distributions reinvested" with
these plot points 2/95 - $1,000, 3/95 - $1,013, 6/95 - $1,061, 9/95 - $1,124,
12/95 - $1,200, 3/96 - $1,247, 9/96 $1,333, 12/96 $1,426, 3/97 $1,475.

Where the Fund is Invested

The chart at right indicates distribution of the Fund's stock investments on
March 31, l997. On that date, the Fund maintained 5% liquid cash reserves.

[Graphic of Pie Chart showing Consumer Non-Durables 27%, Financial 18%,
Technology 16%, Energy Services 10%, Utilities 9%, Natural Resources 8%,
Retail/Services 6%, Industrial Products/Services 4%, Consumer Durables 3%,
Transportation 1%.

March 31, 19978
(Graphic: Photo of two
young girls)

Portfolio Manager Profile

Julian C. Ball, CFA, CPA [Graphic: photo of Julian Ball]
First Vice President/Portfolio Manager
Gradison-McDonald Asset Management

Julian Ball joined Gradison-McDonald Asset Management in 1994 to assume
responsibility for its new Growth & Income Fund following fifteen years of
portfolio management experience with Duff & Phelps Investment Management
Company.

Julian holds both a Bachelor of Business Administration degree in

25
<PAGE> 111

Accounting from Kent State University and a Juris Doctorate degree from
Cleveland Marshall College of Law. He is both a Chartered Financial Analyst and
a Certified Public Accountant, and maintains membership in the Cleveland Society
of Security Analysts where he is a past president, the Association of Investment
Management and Research, the Ohio Society of CPAs, and the Cleveland Bar
Association.

Profile of Gradison Mutual Funds

A prospectus for the Growth & Income Fund or any other Gradison Mutual Fund may
be obtained by calling 513/579-5700 or 800/869-5999. the prospectus contains
more complete information. Read it carefully before you invest.

McDonald & Company Securities, Inc. - Distributor

Average Annual Total Return
Chart stating periods ended 3/31/97, Most recent quarter (not annualized) -
3.46%, 1 year - 18.33%, Since inception (2/28/95) - 20.47%

International Fund
Opportunity Value Fund
Growth & Income Fund
Established Value Fund
Ohio Tax-Free Income Fund
Government Income Fund
Money Market Funds

(Graphic: Logo
Gradison/Mutual Funds

26
<PAGE> 112

[Family of Funds Brochure]

COVER PAGE

YOUR FUTURE STARTS TODAY

Graphic Photo of men, women, children and a dog

Logo

Gradison

Mutual Funds

INSIDE COVER PAGE

YOUR FUTURE STARTS TODAY

Page 1

Page 2

THE MUTUAL FUND STORY

27
<PAGE> 113

trillion.

WHY MUTUAL FUNDS?

PROFESSIONAL MANAGEMENT

DIVERSIFICATION

Because a mutual fund has significantly more assets to invest than any
individual participant, it can purchase and effectively manage a more
diversified portfolio than can most individual investors.

FLEXIBILITY

28
<PAGE> 114

purchased or liquidated, often by a phone call, generally on any day that the
New York Stock Exchange is open for business.

Page 3

WHY GRADISON MUTUAL FUNDS?

A RESPECTED NAME FOR SEVEN DECADES

Today, Gradison offers seven mutual funds in a growing family of funds and
manages more than $4 billion in assets in both mutual funds and individually
managed accounts.

EXPERIENCED PORTFOLIO MANAGERS

Gradison portfolio managers average nearly 15 years of experience as
professional portfolio managers and more than 20 years of experience in the
investment field. We believe that this depth of first-hand experience, in both
favorable and unfavorable market environments, sets us apart from those other
fund managers who have yet to manage assets through a full market cycle.

SERVICE

Low Minimum Investment of $1,000

Convenient Automatic Dividend Reinvestment

29
<PAGE> 115

Automatic Investment Plan

Automatic Withdrawals and Payment Plans

Access To Funds

Free Exchange Privileges

Check Writing

Wire Transfers

Toll-Free Customer Service

24-Hour Account Information

Account Statements

Year-End summary

Quarterly Newsletter

Shareholder Reports

Internet Access

Page 4

REACHING YOUR INVESTMENT GOALS

FIGHTING INFLATION

Inflation, the increase in the cost of living, has averaged 4%
since 1926. While it has been lower in recent years, it has also been
substantially higher--reaching 14% in the early 1980s. The surest way of beating
inflation is to earn a rate of return on your investments that exceeds the rate
of inflation.

30
<PAGE> 116

Chart: WHAT INFLATION REALLY MEANS

1995 $139,000 Single Family Home

2000 $177,403 Graphic: Picture of a

2010 $288,971 partially built home
2025 $600,750

Automobile 1995 $18,359

Graphic Picture of an 2000 $23,431

automobile 2010 $38,167

2025 $79,347

Four Year Public University Education
1995 $26,972 Graphic Picture of a

graduation cap and

2000 $34,424 a diploma.

2010 $58,073

2025 $116,571

Sources: National Association of Realtors; Department of
Commerce; College Board. Future prices are based on a hypothetical average
annual inflation rate of 5%.

EDUCATION

The cost of four years at a private college, including tuition, fees, books and
other miscellaneous expenses, now averages nearly $95,000. It is projected to
reach $170,000 in a decade. The cost

31
<PAGE> 117

of a public college is expected to nearly double from an average of $45,000 to
more than $80,000 over the next ten years. Most families realize that no matter
when they start saving and investing for this purpose, it usually is not soon
enough.

BUILDING WEALTH

Many investors overlook the potential of investing in their most productive
years when their incomes are high enough to put aside investment assets and the
demands on their income are less than they inevitably will be later. Such assets
can be invaluable not only for retirement but as emergency assets for unforeseen
occurrences in life.

RETIREMENT

YOUR FAMILY'S FUTURE

32
<PAGE> 118

to provide these future generations with greater assurance for their financial
well-being in an uncertain world.

GRAPHIC Photo of two women embracing.

Page 5

INTELLIGENT INVESTING

Time is the essential ingredient
Experience has shown that there is no substitute for time in investing.
Historically, the sooner money has been put to work, and the longer it has been
invested, the more likely positive returns have resulted. Conversely, aggressive
investors are more likely to have volatile results for shorter periods. Clearly,
investing for the long-term is considered one of the keys to successfully
creating investment wealth.

THE RULE OF 72:
HELPING YOU IN TAXING TIMES

The Rule of 72 allows potential investors to find out how long it

33
<PAGE> 119

will take to double their money. All you have to do is divide 72 by the
estimated interest rate of an investment, and the answer is roughly the number
of years needed to double an investment. Here's the formal equation:

Number of years to double the original investment = 72/ Interest Rate

Using the Rule

Check the table below to see some examples of how the Rule of 72 works.

<TABLE>
<CAPTION>
Rate of Rule of 72 Years to Years to
Return (72/Interest Rate) Double Quadruple
<S> <C> <C> <C>
3% 72/3 24 48
6% 72/6 12 24
9% 72/9 8 16
12% 72/12 6 12
</TABLE>

The rates of return shown are for illustrative purposes only and are not
historical results or projections of the returns of any Gradison Mutual Fund.

(Pie Charts)

THE LONGER YOUR TIME FRAME, THE GREATER THE CHANCE OF REWARD

Percent of time stocks had positive results for rolling periods beginning
December 31, 1925, and ended December 31, 1995.

34
<PAGE> 120

<TABLE>
<CAPTION>
71% 89% 97% 100%
<S> <C> <C> <C>
1 year 5 year 10 year 15 Year
holding holding holding holding
periods periods periods periods
</TABLE>

THE POWER OF COMPOUNDING

(CHART) THE POWER OF COMPOUNDING IN A HYPOTHETICAL $10,000

35
<PAGE> 121

INVESTMENT IN THE S&P 500

1/1/69 12/31/95

This chart is for illustrative purposes only. There is, of course, no
correlation between the total return for the S&P 500 and past or future
performance of any Gradison Mutual Fund. The S&P 500 is an unmanaged index
compiled by Standard & Poor's Corporation. Investors cannot invest in the S&P
500. Past performance cannot guarantee future results. Source: The American
Funds Group

Page 6

DISCIPLINED PERIODIC INVESTMENTS

It is our experience that the most difficult decision for most investors is not
whether to invest, but when to invest. It is

36
<PAGE> 122

this dilemma that causes many investors to stay on the investment sidelines.

CHART DOLLAR COST AVERAGING CAN REDUCE YOUR AVERAGE COST PER SHARE

<TABLE>
<CAPTION>
Investment Share Shares
Amount Price Purchased

<S> <C> <C> <C>
March $ 500 $10.00 50
June $ 500 $12.50 40
September $ 500 $ 5.00 100
December $ 500 $10.00 50
$2,000 $37.50 240

Average Price Per Share
($37.50 divided by 4) $9.38
Average Cost Per Share
($2,000 divided by 240) $8.33
</TABLE>

Dollar cost averaging will never result in better performance than picking the
best times to invest, if you were able to do so. But dollar cost averaging
allows you invest the same amount

37
<PAGE> 123

periodically as the Fund's share price fluctuates. You therefore will purchase
more shares of the Fund in those months when the price per share is low and less
shares when the price is high. Most importantly, dollar cost averaging can help
investors make the commitment to invest.

(Graphic) Photo of two men, two women, a boy, girl and a dog walking.

<TABLE>
<CAPTION>
CONSIDER GRADISON MUTUAL FUNDS

<S> <C> <C>
Equity Funds Fixed Income Fund Money Market Funds
Established Value Fund Government Income Fund U. S. Government Reserves
Growth & Income Fund Ohio Tax Free Income Fund Municipal Cash Series 2
Opportunity Value Fund High Yield Fund 1 Ohio Municipal Cash Trust 2
International Fund Michigan Municipal Cash Trust 2
</TABLE>

38
<PAGE> 124

1. Planned for 1997-1998 and sold by prospectus only.
2. Federated Advisers acts as investment adviser for
these funds and Federated Securities Corp. acts as
distributor.

PAGE 7

GRADISON EQUITY FUNDS

GRADISON ESTABLISHED VALUE FUND

GRADISON GROWTH AND INCOME FUND

The Growth & Income Fund invests for long-term capital growth, as

39
<PAGE> 125

well as current income and growth of income. The Fund puts particular emphasis
on identifying companies with higher than average growth rates, above average
dividend returns, a history of paying increasing dividends, and which the
investment adviser considers to be undervalued.

We believe that stocks meeting this criteria provide the opportunity for price
appreciation and current income while tending to moderate risk.

GRADISON OPPORTUNITY VALUE FUND

GRADISON INTERNATIONAL FUND

40
<PAGE> 126

International investing, particularly in emerging markets, involves greater
risks than U.S. investing, such as political instability and currency
fluctuation.

THE CASE FOR COMMON STOCKS

THE ADVANTAGES OF BONDS

41
<PAGE> 127

when an investor nears retirement, at a time when assets are needed; or to add
greater stability to a portfolio by combining both stocks and bonds.
Importantly, bond mutual funds provide the ability to reinvest these cash flows
immediately and completely to take full advantage of compounding.

Page 8

GRADISON FIXED INCOME FUNDS

GRADISON GOVERNMENT INCOME FUND

The Fund is managed with an emphasis on total return, that is the combined
effect of both income and changes in share value. Although the securities in
the portfolio are guaranteed as to principal and interest by the U.S.
Government, the market value of the Fund's shares will fluctuate with changes
in interest rates and other market conditions. Mortgage backed securities may
be subject to prepayment risk.

Graphic: Photo of two young girls each sitting on an adult's shoulder.

42
<PAGE> 128

GRADISON OHIO TAX-FREE INCOME FUND

In order to gain favorable yields, the Fund invests up to 20% of its assets in
securities that may be subject to the alternative minimum tax for some
investors.

Page 9

INDICES OF INVESTMENTS

IN U. S. CAPITAL MARKETS

1926-1995

(YEAR-END 1925 = $1.00)

This chart is intended to show the growth of one dollar invested in different
types of investments and the Consumer Price Index.

43
<PAGE> 129

It assumes reinvestment of all dividend and interest payments.

Past performance does not ensure further results.

LARGE COMPANY STOCKS are represented by the Standard & Poor's 500 Stock
Composite Index (S&P 500);

LONG-TERM GOVERNMENT BONDS are represented by a one-bond portfolio with a
maturity near twenty years;

U. S. TREASURY BILLS are represented by rolling over each month a one-bill
portfolio containing, at the beginning of each month, the bill having the
shortest maturity not less than one month.

INFLATION is represented by the Consumer Price Index for All Urban Consumers
(CPI-U), not seasonably adjusted.

Source: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks,
Bonds, Bills, and Inflation (SBBI), 1995, updated in Stocks, Bonds, Bills, and
Inflation 1996(TM), Ibbotson Associates, Chicago.
All rights reserved.

44
<PAGE> 130

The returns for stocks include reinvestment of dividends and interest.
Government bonds and Treasury Bills are guaranteed by the U.S. Government and,
if held to maturity, offer a fixed rate of return and fixed principal value.

In existing disclaimer replace "Past performance does not ensure future
results" with: "The performance shown in the above chart is historical and is
not intended to imply future performance of any of these investments or of any
Gradison fund.

Page 10

GRADISON MONEY MARKET FUNDS

GRADISON U. S. GOVERNMENT RESERVES

A full service money market fund designed to provide current money market yields
by investing exclusively in securities issued by the U.S. Government, its
agencies or instrumentalities. The

45
<PAGE> 131

fund has tax benefits in that it invests, to the greatest extent reasonable,
only in selected U. S. Government securities that are not taxable by the states
or by local governments.

MUNICIPAL MONEY MARKET FUNDS

(Graphic) Man and woman sitting at a desk opposite each other.

Page 11

WORKING WITH YOUR PROFESSIONAL INVESTMENT CONSULTANT

46
<PAGE> 132

investment goals and your current personal and financial situation.

Above all, we suggest you ask your investment consultant whatever you feel you
need to know to help you fully understand the investments you are making.

SERVICE YOU CAN COUNT ON

LOW MINIMUM INVESTMENT OF $1,000 Low subsequent investment minimums of $50.

CONVENIENT AUTOMATIC DIVIDEND REINVESTMENT of income dividends and/or capital
gain dividends into any Gradison fund.

AUTOMATIC INVESTMENT PLAN allows authorization of regular, systematic
investments from bank accounts, money market funds and automated payroll into
any Gradison fund.

AUTOMATIC WITHDRAWALS AND PAYMENT PLANS Can be set up to pay you or designated
payees a specified amount monthly or quarterly.

ACCESS Shares can be redeemed at the then-current market value on any business
day.

Page 12

EXCHANGE PRIVILEGES Including convenient telephone exchanges

47
<PAGE> 133

allows investors to move money from one Gradison Mutual Fund to another at any
time.

CHECK WRITING For all money market funds includes high quality
personalized checks, check payee names on account statements, and return of
canceled checks. 4

WIRE TRANSFERS Specified amounts can be transferred to pre-authorized accounts
at other financial institutions. 5

4. A fee applies to checks under $100.00

5. A fee applies to wires.

TOLL-FREE CUSTOMER SERVICE Knowledgeable shareholder service representatives are
available during business hours at 800-869-5999.

ACCOUNT STATEMENTS Clear, concise and informative.

YEAR-END SUMMARY A highly useful summary of all activity.

QUARTERLY NEWSLETTER Your Future provides Gradison shareholders with timely
information about investing, mutual funds and the

48
<PAGE> 134

Gradison family of funds.

SHAREHOLDER REPORTS Semiannual updates on fund strategy, performance and
portfolio holdings.

INTERNET World Wide Web site www.gradisonfunds.com provides quarterly updates on
Gradison Mutual Funds, as well as other information of interest to mutual fund
investors.

GETTING STARTED

Whatever your goals or aspirations, whatever your objective. One thing is
certain. An investment made today brings you that much closer to meeting that
objective and reaching that goal.

The most important thing is to get started. Call your Investment Consultant or
contact Gradison Mutual Funds at 800-869-5999.

START TODAY AND THE FUTURE IS YOURS.

Graphic: Photo of a baby smiling.

Back Cover
Logo
Gradison
Mutual Funds
1997 Gradison Mutual Funds 580 Walnut Street Cincinnati, Ohio 45202
800/869-5999 513/579-5000 htt;:/WWW.gradisonfunds.com

<PAGE> 135
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
<TABLE>
<CAPTION>
SHARES COMMON STOCKS - 94.75% VALUE
<S> <C> <C>
Bank Services - 7.39%
8,000 Huntington Bankshares,
Incorporated $ 210,000
10,000 Morgan (J.P.) & Company
Incorporated 982,500
15,000 Norwest Corporation 693,750
-------------
1,886,250
-------------
CHEMICALS - 6.29%
15,000 Avery-Dennison Corporation 577,500
7,000 Du Pont (E.I.) de Nemours
& Company 742,000
15,000 Schulman, (A.) Inc. 285,000
-------------
1,604,500
-------------
CONSUMER DURABLES - 2.39%
5,000 Cooper Tire & Rubber Company 92,500
10,000 TRW Inc. 517,500
-------------
610,000
-------------
CONSUMER
NON-DURABLES - 17.24%
10,000 Archer Daniels Midland 178,750
10,000 CPC International, Inc. 820,000
15,000 Heinz (H.J.) Company 592,500
10,000 International Flavors
& Fragrances, Inc. 437,500
10,000 Kellogg Company 672,500
20,000 Newell Company 670,000
14,000 Pepsico, Inc. 456,750
5,000 Procter & Gamble Company 575,000
-------------
4,403,000
-------------
ENERGY - 9.47%
8,000 Chevron Corporation $ 557,000
10,000 Exxon Corporation 1,077,500
6,000 Mobil Corporation 783,750
-------------
2,418,250
-------------
FINANCIAL SERVICES - 7.69%
15,000 American General Corporation 611,250
10,000 Cincinnati Financial Corporation 702,500
10,000 St. Paul Companies 648,750
-------------
1,962,500
-------------
HEALTHCARE &
PHARMACEUTICALS - 8.11%
10,000 American Home Products
Corporation 600,000
12,000 Bristol-Myers Squibb Company 708,000
7,000 Merck & Co., Inc. 589,750
2,000 Warner-Lambert Company 173,000
-------------
2,070,750
-------------
INDUSTRIAL PRODUCTS - 5.94%
6,000 General Electric Company 595,500
10,000 Pall Corporation 231,250
10,000 WMX Technologies, Inc. 306,250
20,000 Worthington Industries, Inc. 382,500
-------------
1,515,500
-------------
RETAIL TRADE
& SERVICES - 5.39%
5,000 J.C. Penney Company, Inc. 238,125
10,000 May Department Stores Co. 455,000
10,000 McDonald's Corporation 472,500
5,000 Walgreen Co. 209,375
-------------
1,375,000
-------------
</TABLE>

See accompanying notes to financial statements.

<PAGE> 136

PORTFOLIO OF INVESTMENTS MARCH 31, 1997
<TABLE>
<CAPTION>
SHARES COMMON STOCKS (CONTINUED) VALUE
<S> <C> <C>
TECHNOLOGY - 15.14%

10,000 Automated Data
Processing, Inc. $ 418,750
-------------
10,500 Diebold, Inc. 395,063
15,000 Hewlett Packard Company 798,750
3,000 Intel Corporation 417,000
7,000 Minnesota Mining &
Manufacturing Company 591,500
6,000 Motorola Inc. 362,250
15,000 Pitney-Bowes, Inc. 881,250
-------------
3,864,563
-------------
TELECOMMUNICATIONS - 5.42%
10,000 Ameritech Corporation 615,000
4,000 Bell Atlantic
Corporation 243,500
10,000 SBC Communications, Inc. 526,250
-------------
1,384,750
-------------
TRANSPORTATION - 1.23%
10,000 Illinois Central
Corporation $ 315,000
-------------
UTILITIES - 3.05%
10,000 Central & South West
Corporation 213,750
8,000 Duke Power Company 353,000
10,000 Southern Corporation 211,250
-------------
778,000
-------------
TOTAL COMMON STOCKS
(COST $20,675,399) 24,188,063
-------------
</TABLE>
<TABLE>
<CAPTION>

PRINCIPAL INTEREST
AMOUNT REPURCHASE AGREEMENT - 5.25% MATURITY RATE (1) VALUE
<S> <C> <C> <C>
1,340,000 First National Bank of Chicago, dated 3/31/97, collateral;
U.S. Treasury Note, 55/8% due 10/31/97 with a market value
of $1,369,555; repurchase proceeds: $1,340,227
(COST $1,340,000) 4/01/97 6.18% 1,340,000
-----------
TOTAL INVESTMENTS, AT VALUE (NOTE 1)
(COST $22,015,399) - 100% $25,528,063
===========
<FN>
(1) For repurchase agreements, the interest rate reflects the actual rate of
return to the Fund.
</TABLE>

See accompanying notes to financial statements.

7
<PAGE> 137

STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MARCH 31, 1997
<S> <C>
ASSETS
Investments in securities, at value (Note 1) (Cost $22,015,399) $25,528,063
Receivable for Fund shares sold 191,726
Dividends and interest receivable 55,412
Prepaid expenses and other assets 9,390
Cash 8,488
Organization expenses, net (Note 1) 3,678
-----------
TOTAL ASSETS 25,796,757
===========
LIABILITIES
Accrued investment advisory fee (Note 2) 72,378
Other accrued expenses payable to adviser (Note 2) 15,517
Other accrued expenses and liabilities 5,253
Payable for Fund shares redeemed 1,888
-----------
TOTAL LIABILITIES 95,036
-----------
NET ASSETS $25,701,721
===========
Net assets consist of:
Aggregate paid-in capital $21,896,418
Accumulated undistributed net investment income 63,881
Accumulated undistributed net realized gains 228,758
Net unrealized appreciation of investments 3,512,664
-----------
Net Assets $25,701,721
===========
Shares of capital stock outstanding
(no par value - unlimited number of shares authorized) 1,196,719
===========
Net asset value and redemption price per share (Note 1) $ 21.48
===========
</TABLE>

See accompanying notes to financial statements.

8
<PAGE> 138
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1997
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 462,906
Interest 49,799
---------
TOTAL INVESTMENT INCOME $ 512,705

EXPENSES:
Investment advisory fee (Note 2) 117,370
Distribution (Note 2) 90,284
Accounting services fees (Note 2) 40,000
Transfer agency fees (Note 2) 23,835
Professional fees 17,713
Trustees' fees (Note 2) 9,124
Registration fees 8,655
Printing 5,423
Amortization of organization expense (Note 1) 1,261
Other 1,380
---------
TOTAL EXPENSES 315,045
LESS FEES WAIVED BY THE ADVISER (NOTE 2) (44,992)
---------
NET EXPENSES 270,053
----------
NET INVESTMENT INCOME 242,652
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gain on investments 337,124
Net change in unrealized appreciation of investments 2,325,455
---------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 2,662,579
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,905,231
==========
</TABLE>

See accompanying notes to financial statements.

9
<PAGE> 139

STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1997 1996
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 242,652 $ 90,227
Net realized gain on investments 337,124 19,093
Net change in unrealized appreciation of investments 2,325,455 1,179,997
------------ ------------
Net increase in net assets resulting from operations 2,905,231 1,289,317
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (190,392) (81,010)
Net realized capital gains (112,745) (15,124)
------------ ------------
Decrease in net assets from distributions to shareholders (303,137) (96,134)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 13,724,115 10,777,990
Net asset value of shares issued in reinvestment of distributions 297,051 93,588
Payments for shares redeemed (2,898,897) (1,295,409)
------------ ------------
Net increase in net assets from Fund share transactions 11,122,269 9,576,169
------------ ------------
Total increase in net assets 13,724,363 10,769,352
NET ASSETS:
Beginning of year 11,977,358 1,208,006
------------ ------------
End of year (including undistributed net investment
income of $63,881 and $11,621, respectively) (Note 1) $ 25,701,721 $ 11,977,358
============ ============
NUMBER OF FUND SHARES:
Sold 674,493 640,085
Issued in reinvestment of distributions to shareholders 14,650 5,402
Redeemed (141,301) (76,141)
------------ ------------
Net increase in shares outstanding 547,842 569,346
Outstanding at beginning of year 648,877 79,531
------------ ------------
Outstanding at end of year 1,196,719 648,877
============ ============
</TABLE>

See accompanying notes to financial statements.

10
<PAGE> 140

NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES

Gradison Growth Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The Trust
was created under Ohio law on May 31, 1983; it commenced investment operations
and the public offering of its shares on August 16, 1983. The Trust consists of
four series, the Gradison Growth &Income Fund, the Gradison Established Value
Fund, the Gradison Opportunity Value Fund and the Gradison International Fund
(collectively, the "Funds"); each of which, in effect, represents a separate
diversified fund with its own investment policies. This Annual Report to
Shareholders pertains only to the Gradison Growth & Income Fund (the "Fund"),
the public offering of shares of which commenced on February 28, 1995. The
Fund's investment objective is to seek long-term growth of capital, current
income, and growth of income consistent with reasonable investment risk.

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

Repurchase agreements, which are collateralized by U.S. Government obligations,
are valued at cost which, together with accrued interest, approximates market.
Collateral for repurchase agreements is held in safekeeping in the customer-only
account of the Fund's custodian. At the time the Fund enters into a repurchase
agreement, the seller agrees that the value of the underlying security,
including accrued interest, will be equal to or exceed the face amount of the
repurchase agreement. In the event of a bankruptcy or other default of the
seller of a repurchase agreement, the Fund could experience both delays in
liquidating the underlying security and losses. These losses would not exceed an
amount equal to the difference between the liquidating value of the underlying
security and the face amount of the repurchase agreement and accrued interest.
To minimize the possibility of loss, the Fund enters into repurchase agreements
only with selected domestic banks and securities dealers which the Fund's
investment adviser believes present minimal credit risk. Refer to the Fund's
Portfolio of Investments for the face amount of repurchase agreements and
repurchase proceeds as of March 31, 1997.

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

<PAGE> 141
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997

The tax basis of investments is equal to the cost as shown on the Statement of
Assets and Liabilities. For both financial reporting and tax purposes, gross
unrealized appreciation and gross unrealized depreciation of securities at March
31, 1997 was $3,819,869 and $307,205, respectively.

Distributions to shareholders are recorded on the ex-dividend date.

ORGANIZATION EXPENSES -- Expenses of organization have been capitalized and are
being amortized on a straight-line basis over 60 months commencing upon the
public offering of the Fund's shares.

NOTE 2 -- TRANSACTIONS WITH AFFILIATES

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 Fund. The Fund pays
McDonald a monthly fee for transfer agency and administrative services at an
annual rate of $18.25 per shareholder non-zero balance account, plus
out-of-pocket costs for statement paper, statement and reply envelopes and reply
postage. The Fund pays McDonald a monthly fee for accounting services based on
the Fund's average daily net assets at an annual rate of .03% on the first $100
million, .02% on the next $100 million and .01% on any amount in excess of $200
million, with a minimum annual fee of $40,000.

<PAGE> 142
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997

termination by either party upon written notice subsequent to that date. In
addition, McDonald may, at its discretion, agree to waive fees and/or reimburse
the Fund for other expenses in order to limit the Fund's expenses to a specified
percentage of average net assets lower than 1.50%. For the year ended March 31,
1997, McDonald waived advisory fees of $44,992.

In accordance with the terms of a Distribution Plan adopted under Rule 12b-1 of
the Investment Company Act of 1940, the Fund pays McDonald a service fee for
personal services to shareholders including shareholder liaison services such as
responding to shareholder inquiries and providing information to shareholders
about their Fund accounts. This fee is computed and paid at an annual rate of
.25% of the Fund's average daily net assets. The Fund also pays McDonald a fee
for its assistance in selling shares of the Fund including advising shareholders
regarding purchase, sale and retention of Fund shares. This fee is computed and
paid at an annual rate of .25% 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 $5,000 payable in quarterly installments
and (b) $500 for each Board of Trustees or committee meeting attended.

NOTE 3 -- SUMMARY OF PURCHASES AND SALES OF INVESTMENTS

For the year ended March 31, 1997, the cost of purchases and proceeds from the
sale of securities, excluding short-term securities, amounted to $12,612,282 and
$2,702,873, respectively.

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

SUPPLEMENTAL INFORMATION (UNAUDITED)

During the period ended March 31, 1997, the Fund made total distributions of
$.34 per share, $.33 of which was treated as ordinary income, 100% qualified for
the dividends-received deduction for corporations, and $.01 was treated as
long-term capital gain.

The Board of Trustees declared an ordinary income dividend of $0.15 per share
and a long-term capital gain distribution of $0.09 per share payable on May 30,
1997 to shareholders of record on May 29, 1997.

<PAGE> 143

[ARTHUR ANDERSEN LOGO]

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Trustees of the
Gradison Growth & Income Fund
of the Gradison Growth Trust:

We have audited the accompanying statement of assets and liabilities of the
Gradison Growth & Income Fund of the Gradison Growth Trust (an Ohio business
trust), including the portfolio of investments, as of March 31, 1997, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for the periods indicated thereon. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of March 31, 1997, 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 Growth & Income Fund of the Gradison Growth Trust as of March 31,
1997, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the
financial highlights for the periods indicated thereon, in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Cincinnati, Ohio,
May 7, 1997

14
<PAGE> 144

GRADISON GROWTH TRUST

Gradison International Fund (the "Fund")

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

STATEMENT OF ADDITIONAL

INFORMATION

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

For information, call:
579-5700 from Cincinnati, Ohio

Toll free (800) 869-5999 from outside Cincinnati

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

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

The date of this Statement of Additional Information is August 1, 1997.

<PAGE> 145

CONTENTS

==============================
INTRODUCTION . . . . . . . 3

RISK FACTORS AND INVESTMENT
TECHNIQUES..................3 Investment Objectives, Policies
and Risks; Foreign Securities;
Forward Foreign Currency
Transactions; Risks of Futures and
Forward Currency Transactions; Low
Capitalization Stocks

INVESTMENT RESTRICTIONS....18 Investment Restrictions and
Fundamental Policies

PURCHASE OF SHARES.........20 Purchases and Redemptions

REDEMPTIONS OF SHARES......21 Purchases and Redemptions

EXCHANGES..................21 Optional Shareholder Services

TAXES......................22 Taxes

NET ASSET VALUE............28 Net Asset Value

PORTFOLIO TRANSACTIONS AND
BROKERAGE..................28

INVESTMENT ADVISER.........31 Management of the Fund

TRUSTEES AND OFFICERS
OF THE TRUST...............36

DESCRIPTION OF THE TRUST...38 General Information

INVESTMENT PERFORMANCE.....40 Performance Calculation

CUSTODIAN..................41

ACCOUNTANTS................41

LEGAL COUNSEL..............41

MISCELLANEOUS 41

SALES BROCHURE MATERIAL 42

FINANCIAL STATEMENTS......After Page 65

2
<PAGE> 146

INTRODUCTION

This Statement of Additional Information is designed to elaborate upon the
discussion in the Prospectus. The investment objective and policies of the Fund
are described in the Prospectus. The more detailed information contained herein
is intended for investors who have read the Prospectus and are interested in a
more detailed explanation of certain aspects of the Fund.

RISK FACTORS AND INVESTMENT TECHNIQUES

U. S. GOVERNMENT SECURITIES

The Fund may invest in U.S. Government securities. U.S. Government securities
are obligations of, or guaranteed by, the U.S. Government, its agencies, or
instrumentalities. Treasury bills, notes, and bonds are direct obligations of
the U.S. Treasury, and they differ with respect to certain items such as
coupons, maturities, and dates of issue. Treasury bills have a maturity of one
year or less. Treasury notes have maturities of one to ten years and Treasury
bonds generally have a maturity of greater than ten years. Securities guaranteed
by the U.S. Government include federal agency obligations guaranteed as to
principal and interest by the U.S. Treasury (such as GNMA certificates
(described below) and Federal Housing Administration ("FHA") debentures). With
respect to these securities, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. Such direct obligations or guaranteed
securities are subject to variations in market value due to fluctuations in
interest rates, but, if held to maturity, the U.S. Government is obligated to or
guarantees to pay them in full.

Securities issued by U.S. Government instrumentalities and certain federal
agencies are neither direct obligations of, nor guaranteed by, the U.S.
Treasury. However, they involve federal sponsorship in one way or another: some
are backed by specific types of collateral; some are supported by the issuer's
right to borrow from the U.S. Treasury; some are supported by the discretionary
authority of the U.S. Treasury to purchase certain obligations of the issuer;
and others are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to Federal National Mortgage Association, Federal Home Loan Bank,
Federal Land Banks, Farmers Home Administration, Central Bank for Cooperatives,
Federal Intermediate Credit Banks, Federal Financing Bank, Farm Credit Banks,
and the Tennessee Valley Authority.

CORPORATE DEBT SECURITIES

The Fund may invest in short-term corporate debt securities. The investment
return of corporate debt securities reflects interest

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earnings and changes in the market value of the security. The market value of a
corporate debt obligation may also be expected to rise and fall inversely with
interest rates generally. There also exists the risk that the issuers of the
securities may not be able to meet their obligations on interest or principal
payments at the time called for by an instrument.

PREFERRED STOCKS

The Fund may invest in preferred stocks. Preferred stock is a form of equity
ownership in a publicly held corporation. The dividend on a preferred stock is a
fixed payment. In these securities, the firm is not legally bound to pay the
dividend. Certain classes of preferred stock are convertible, meaning the
preferred stock is convertible into shares of common stock of the issuing
company. By holding convertible preferred stock, the Fund can receive a steady
stream of dividends and still have the option to convert it to common stock.

CONVERTIBLE BONDS

The Fund may invest in convertible bonds. A convertible bond can be exchanged
for a specified amount of common stock in the issuing firm. The amount of common
stock that can be acquired is determined by the conversion ratio of the
convertible bond. Convertible bonds offer the relatively safe income of a bond
as well as the opportunity for capital gains should the price of the stock
increase. The risk associated with convertible bonds is that they tend to be
subordinated debentures, which have a somewhat residual claim on the firm's
income and assets in the case of liquidation.

VARIABLE AND FLOATING RATE SECURITIES

The Fund may invest in variable and floating rate securities. Variable and
floating rate securities provide for a periodic adjustment in the interest paid
on the obligations. The terms of such obligations must provide that interest
rates are adjusted periodically based upon some appropriate interest rate
adjustment index as provided in the respective obligations. The adjustment
intervals may be regular, and range from daily up to annually, or may be event
based, such as based on a change in the prime rate.

COMMERCIAL PAPER

The Fund may invest in commercial paper. Commercial paper represents short-term
unsecured promissory notes issued in bearer form by banks or bank holding
companies, corporations and finance companies. The

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commercial paper purchased by the Fund consists of U.S. dollar-denominated
obligations of domestic issuers, or, foreign currency-denominated obligations of
domestic or foreign issuers which, at the time of investment, are (i) rated
"P-1" or "P-2" by Moody's Investor's Services, Inc. ("Moody's") or "A-1" or
"A-2" or better by Standard & Poor's Corporation ("S&P"), (ii) issued or
guaranteed as to principal and interest by issuers or guarantors having an
existing debt security rating of "A" or better by Moody's or "A" or better by
S&P, or (iii) securities which, if not rated, are, in the opinion of the
Blairlogie Capital Management (the "Portfolio Manager"), of an investment
quality comparable to rated commercial paper in which the Fund may invest. The
rate of return on commercial paper may be linked or indexed to the level of
exchange rates between the U.S. dollar and a foreign currency or currencies.

REPURCHASE AGREEMENTS

If the Fund acquires securities from a bank or broker-dealer, it may
simultaneously enter into a repurchase agreement with the seller wherein the
seller agrees at the time of sale to repurchase the security at a mutually
agreed-upon time and price. The term of such an agreement is generally quite
short, possibly overnight or for a few days, although it may extend over a
number of months (up to one year) from the date of delivery. The resale price is
in excess of the purchase price by an amount which reflects an agreed-upon
market rate of return, effective for the period of time the Fund is invested in
the security. This results in a fixed rate of return protected from market
fluctuations during the period of the agreement. This rate is not tied to the
coupon rate on the security subject to the repurchase agreement.

Under the Investment Company Act of 1940, as amended ("1940 Act"), repurchase
agreements are considered to be loans by the purchaser collateralized by the
underlying securities. The Portfolio Manager to the Fund monitors the value of
the underlying securities at the time the repurchase agreement is entered into
and at all times during the term of the agreement to ensure that its value
always equals or exceeds the agreed-upon repurchase price to be paid to the
Fund. The Portfolio Manager, in accordance with procedures established by the
Board of Trustees, also evaluates the creditworthiness and financial
responsibility of the banks and brokers or dealers with which the Fund enters
into repurchase agreements.

The Fund may not enter into a repurchase agreement having more than seven days
remaining to maturity if, as a result, such agreements, together with any other
securities which are not readily marketable, would exceed 15% of the net assets
of the Fund. If the seller should become bankrupt or default on its obligations
to repurchase the securities, the Fund may experience delay or difficulties in
exercising its rights to the securities held as collateral and might incur a
loss if the value of the securities should decline. The Fund

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also might incur disposition costs in connection with liquidating the
securities.

BORROWING

The Fund may borrow for temporary extraordinary or emergency purposes subject to
the limits described in the Prospectus. This borrowing may be unsecured. The
1940 Act requires the Fund to maintain continuous asset coverage of 300% of the
amount borrowed. If the 300% asset coverage should decline as a result of market
fluctuations or other reasons, the Fund may be required to sell some of its
portfolio holdings within three days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. Borrowing may exaggerate the effect
on net asset value of any increase or decrease in the market value of the Fund.
The Fund may also be required to maintain minimum average balances in connection
with such borrowing or to pay a commitment or other fee to maintain a line of
credit; either of these requirements would increase the cost of borrowing over
the stated interest rate. The Fund may, in connection with permissible
borrowings, transfer as collateral securities owned by the Fund.

FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED SECURITIES

The Fund may enter firm commitment agreements for the purchase of securities at
an agreed-upon price on a specified future date. The Fund may purchase new
issues of securities on a "when-issued" basis. Such transactions may be entered
into, for example, when the Portfolio Manager anticipates a decline in the yield
of securities of a given issuer and is able to obtain a more advantageous yield
by committing currently to purchase securities to be issued or delivered later.

The Fund will not enter into such a transaction for the purpose of investment
leverage. Liability for the purchase price and all the rights and risks of
ownership of the securities accrue to the Fund at the time it becomes obligated
to purchase such securities, although delivery and payment occur at a later
date. Accordingly, if the market price of the security should decline, the
effect of the agreement would be to obligate the Fund to purchase the security
at a price above the current market price on the date of delivery and payment.
During the time the Fund is obligated to purchase such securities it will
maintain in a segregated account U.S. Government securities, high-grade debt
obligations, or cash or cash equivalents of an aggregate current value
sufficient to make payment for the securities.

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ILLIQUID SECURITIES

The Fund may invest in illiquid securities. However, the Fund may not invest in
securities that are illiquid because they are subject to legal or contractual
restrictions on resale, in repurchase agreements maturing in more than seven
days, or other securities which are illiquid if, as a result of such investment,
more than 15% of the net assets of the Fund (taken at market value at the time
of such investment) would be invested in such securities.

With respect to private placements, which are generally subject to legal or
contractual restrictions on resale, if an exemption from registration under the
Securities Act of 1933 is not available, registration may be required to dispose
of the security. Where registration is required, the Fund may be obligated to
pay all or part of the registration expenses and a considerable period may
elapse between the time of the decision to sell and the time the Fund may be
permitted to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop, the Fund might
obtain a less favorable price than prevailed when it decided to sell. Restricted
securities will be priced at fair value as determined in good faith by the
Adviser under the supervision of the Board of Trustees.

These percentage restrictions set forth above do not limit purchases of
restricted securities that are eligible for sale to qualified institutional
purchasers pursuant to Rule 144A under the Securities Act of 1933, provided that
those securities have been determined to be liquid by the Board of Trustees of
the Fund or by the Portfolio Manager under Board-approved guidelines. Those
guidelines take into account the trading activity for such securities and the
availability of reliable pricing information, among other factors. If there is a
lack of trading interest in a particular Rule 144A security, the Fund's holding
of that security may be deemed to be illiquid.

BANK OBLIGATIONS

The Fund may invest in bank obligations including certificates of deposit,
bankers' acceptances, and fixed time deposits. The Fund may also hold funds on
deposit with its custodian or sub-custodian bank in an interest-bearing account
for temporary purposes.

Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate.

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Fixed time deposits may be withdrawn on demand by the investor, but may be
subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. The Fund will not invest in fixed time deposits which are (i) not
subject to prepayment or (ii) which provide for withdrawal penalties upon
prepayment (other than overnight deposits) if, in the aggregate, more than 15%
of its assets would be invested in such deposits, repurchase agreements maturing
in more than seven days and other illiquid assets.

The Fund limits its investments in United States bank obligations to obligations
of United States banks (including foreign branches) which have more than $1
billion in total assets at the time of investment and are members of the Federal
Reserve System or are examined by the Comptroller of the Currency or whose
deposits are insured by the Federal Deposit Insurance Corporation. The Fund may
also invest in certificates of deposit and other obligations of savings and loan
associations (federally or state chartered and federally insured) having total
assets in excess of $1 billion.

The Fund limits its investments in foreign bank obligations to United States
dollar- or additionally, foreign currency-denominated obligations of foreign
banks (including United States branches of foreign banks) which at the time of
investment (i) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) in terms of assets are among the 75 largest
foreign banks in the world; (iii) have branches, or agencies (limited purpose
offices which do not offer all banking services) in the United States; and (iv)
in the opinion of the Portfolio Manager, are of an investment quality comparable
to obligations of U.S. banks in which the Fund may invest. Subject to the Fund's
limitation on concentration of no more than 25% of its assets in the securities
of issuers in a particular industry, there is no limitation on the amount of the
Fund's assets which may be invested in obligations of foreign banks which meet
the conditions set forth herein.

Obligations of foreign banks involve somewhat different investment risks than
those affecting obligations of U.S. banks, including the possibilities that
their liquidity could be impaired because of future political and economic
developments; that their obligations may be less marketable than comparable
obligations of U.S. banks; that a foreign jurisdiction might impose withholding
taxes on interest income payable on those obligations; that foreign deposits may
be seized or nationalized; that foreign governmental restrictions, such as
exchange controls, may be adopted which might adversely affect the payment of
principal and interest on those obligations; and that the selection of those
obligations may be more difficult because there may be less publicly available
information concerning foreign banks or the accounting, auditing and financial
reporting standards, practices and

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requirements applicable to foreign banks may differ from those applicable to
U.S. banks. Foreign banks are not generally subject to examination by any U.S.
Government agency or instrumentality.

FUTURES AND CURRENCY STRATEGIES

GENERAL

The Fund is permitted by its investment restrictions to purchase and sell
interest rate futures contracts, stock index futures contracts, other financial
futures contracts, and options thereon, and forward currency contracts. The Fund
is also permitted by its investment restrictions to purchase and sell options on
securities, indices and currencies. However, the Fund has no present intention
of purchasing or selling any of these instruments other than stock index futures
contracts, forward currency contracts, and options on foreign currency. The Fund
will supplement its Prospectus or this Statement of Additional Information if
the Fund intends to purchase or sell any of these other instruments.

SPECIAL RISKS OF FUTURES AND CURRENCY STRATEGIES

The use of futures contracts and forward currency contracts involves special
considerations and risks, as described below. Risks pertaining to particular
instruments are described in the sections that follow.

(1) Successful use of most of these instruments depends upon the Portfolio
Manager's ability to predict movements of the overall securities and currency
markets, which requires different skills than predicting changes in the prices
of individual securities. While the Portfolio Manager is experienced in the use
of these instruments, there can be no assurance that any particular strategy
adopted will succeed.

(2) There might be imperfect correlation, or even no correlation, between price
movements of an instrument and price movements of the investments being hedged.
For example, if the value of an instrument used in a short hedge increased by
less than the decline in value of the hedged investment, the hedge would not be
fully successful. Such a lack of correlation might occur due to factors
unrelated to the value of the investments being hedged, such as speculative or
other pressures on the markets in which the hedging instrument is traded. The
effectiveness of hedges using hedging instruments on indices will depend on the
degree of correlation between price movements in the index and price movements
in the investments being hedged.

(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price

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movements in the investments being hedged. However, hedging strategies can also
reduce opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if the Fund entered into a
short hedge because the Portfolio Manager projected a decline in the price of a
security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the hedging instrument. Moreover, if the price of the
hedging instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss. In either such case, the Fund would have
been in a better position had it not hedged at all.

(4) As described below, the Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in futures and forward contracts. If the Fund were unable to close out
its positions in such instruments, it might be required to continue to maintain
such assets or accounts or make such payments until the position expired or
matured. The requirements might impair the Fund's ability to sell a portfolio
security or make an investment at a time when it would otherwise be favorable to
do so, or require that the Fund sell a portfolio security at a disadvantageous
time. The Fund's ability to close out a position in an instrument prior to
expiration or maturity depends on the existence of a liquid secondary market or,
in the absence of such a market, the ability and willingness of the other party
to the transaction ("contra party") to enter into a transaction closing out the
position. Therefore, there is no assurance that any position can be closed out
at a time and price that is favorable to the Fund.

(5) Stock index futures contracts may be traded on foreign exchanges. Such
transactions may not be regulated as effectively as similar transactions in the
United States; may not involve a clearing mechanism and related guarantees; and
are subject to the risk of governmental actions affecting trading in, or the
prices of, foreign securities. The value of such positions also could be
adversely affected by (a) other complex foreign political, legal and economic
factors, (b) lesser availability than in the United States of data on which to
make trading decisions, (c) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (d) the imposition of different exercise and settlement terms and
procedures on margin requirements than in the United States and (e) lesser
trading volume.

STOCK INDEX FUTURES CONTRACTS

The Fund may purchase and sell stock index futures contracts (1) in order to
attempt to reduce the overall investment risk in its portfolio or (2) to enhance
yield. For example, the Fund may purchase stock index futures contracts, in lieu
of investing in individual stocks, in order to maintain liquidity, because the
Portfolio Manager has not yet

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selected the individual securities in which to invest, or because the stock
index futures contract presents a more favorable investment than investment in
individual securities. The Fund only will enter into futures contracts that are
standardized and traded on a U.S. or foreign exchange, board of trade or similar
entity.

An index futures contract provides for the delivery, at a designated date, time
and place, of an amount of cash equal to a specified dollar amount times the
difference between the index value at the close of trading on the contract and
the price at which the futures contract is originally struck; no physical
delivery of the securities comprising the index is made. Brokerage fees are
incurred when a futures contract is bought or sold, and margin deposits must be
maintained at all times the futures contract is outstanding.

Futures contracts usually are closed out before the delivery date. Closing out
an open futures contract sale or purchase is effected by entering into an
offsetting futures contract purchase or sale, respectively, for the same
aggregate amount of the identical financial instrument or currency and the same
delivery date. If the offsetting purchase price is less than the original sale
price, the Fund realizes a gain; if it is more, the Fund realizes a loss.
Conversely, if the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less the Fund realizes a loss. The
transaction costs also must be included in these calculations. There can be no
assurance, however, that the Fund will be able to enter into an offsetting
transaction with respect to a particular futures contract at a particular time.
If the Fund is not able to enter into an offsetting transaction, the Fund will
continue to be required to maintain the margin deposits on the futures contract.

"Margin" is the amount of funds that must be deposited by the Fund in order to
initiate futures trading and to maintain the Fund's open positions in futures
contracts. A margin deposit made when the futures contract is entered into
("initial margin") is intended to assure the Fund's performance under the
futures contract. The margin required for a particular futures contract is set
by the exchange on which the futures contract is traded, and may be modified
significantly from time to time by the exchange during the term of the futures
contract.

Subsequent payments, called "variation margin," to and from the futures
commission merchant through which the Fund entered into the futures contract
will be made on a periodic basis as the price of the underlying index fluctuates
making the futures contract more or less valuable, a process known as
marking-to-market.

The prices of futures contracts are volatile and are influenced by, among other
things, actual, and anticipated changes in individual security prices, which in
turn are affected by fiscal and monetary policies and national and international
political and economic events.

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Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. Thus, a purchase or sale of a futures contract
may result in losses in excess of the amount invested in the futures contract.

Most U.S. futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of futures contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and, therefore, does
not limit potential losses because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices occasionally have moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting some traders
to substantial losses.

If the Fund were unable to liquidate a futures position due to the absence of a
liquid secondary market or the imposition of price limits, it could incur
substantial losses. The Fund would continue to be subject to market risk with
respect to the position. In addition, the Fund would continue to be required to
make daily variation margin payments and might be required to maintain the
position being hedged by the futures contract or to maintain cash or securities
in a segregated account.

Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts might not correlate perfectly with
movements in the prices of the investments being hedged. For example, all
participants in the futures markets are subject to daily variation margin calls
and might be compelled to liquidate futures positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the futures and the investments being hedged. Also, because
initial margin deposit requirements in the futures market are less onerous than
margin requirements in the securities markets, there might be increased
participation by speculators in the futures markets. This participation also
might cause temporary price distortions. In addition, activities of large
traders in both the futures and securities markets involving arbitrage, "program
trading" and other investment strategies might result in temporary price
distortions.

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FORWARD CURRENCY CONTRACTS

A forward contract is an obligation, generally arranged with a commercial bank
or other currency dealer, to purchase or sell a currency against another
currency at a future date and price as agreed upon by the parties. The Fund
either may accept or make delivery of the currency at the maturity of the
forward contract. The Fund may also, if its contra party agrees, prior to
maturity, enter into a closing transaction involving the purchase or sale of an
offsetting contract.

The Fund may engage in forward currency transactions in anticipation of or to
protect itself against fluctuations in exchange rates. The Fund might sell a
particular foreign currency forward, for example, when it holds securities
denominated in a foreign currency but anticipates, and seeks to be protected
against, a decline in the currency against the U.S. dollar. Similarly, the Fund
might sell the U.S. dollar forward when it holds securities denominated in U.S.
dollars but anticipates, and seeks to be protected against, a decline in the
U.S. dollar relative to other currencies. Further, the Fund might purchase or
sell a currency forward to "lock in" the price of the currency to be used or
received in connection with securities denominated in that currency that it
anticipates purchasing or selling.

Forward contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A forward
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades.

The Fund will enter into such forward contracts with major U.S. or foreign banks
and securities or currency dealers in accordance with guidelines approved by the
Trust's Board of Trustees.

The Fund may enter into forward contracts either with respect to specific
transactions or with respect to the Fund's portfolio positions. The precise
matching of the forward contract amounts and the value of specific securities
generally will not be possible because the future value of such securities in
foreign currencies will change as a consequence of market movements in the value
of those securities between the date the forward contract is entered into and
the date it matures. Accordingly, it may be necessary for the Fund to purchase
additional foreign currency on the spot (i.e., cash) market (and bear the
expense of such purchase) if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver and if a decision is
made to sell the security and make delivery of the foreign currency. Conversely,
it may be necessary to sell on the spot market some of the foreign currency the
Fund is obligated to deliver. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. Forward contracts involve the risk that
anticipated currency movements will not be

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predicted accurately, causing the Fund to sustain losses on these contracts and
transaction costs.

At or before the maturity of a forward contract requiring the Fund to sell a
currency, the Fund either may sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the maturity date, the same amount of
the currency that it is obligated to deliver. Similarly, the Fund may close out
a forward contract requiring it to purchase a specified currency by, if its
contra party agrees, entering into a second contract entitling it to sell the
same amount of the same currency on the maturity date of the first contract. The
Fund would realize a gain or loss as a result of entering into such an
offsetting forward contract under either circumstance to the extent the exchange
rate or rates between the currencies involved moved between the execution dates
of the first contract and the offsetting contract.

The cost to the Fund of engaging in forward contracts varies with factors such
as the currencies involved, the length of the contract period and the market
conditions then prevailing. Because forward contracts usually are entered into
on a principal basis, no fees or commissions are involved. The use of forward
contracts does not eliminate fluctuations in the prices of the underlying
securities the Fund owns or intends to acquire, but it does establish a rate of
exchange in advance. In addition, while forward contracts limit the risk of loss
due to a decline in the value of the hedged currencies, they also limit any
potential gain that might result should the value of the currencies increase.

The Fund may use forward contracts to hedge against movements in the values of
the foreign currencies in which the Fund's securities are denominated. Such
currency hedges can protect against price movements in a security that the Fund
owns or intends to acquire that are attributable to changes in the value of the
currency in which it is denominated. Such hedges do not, however, protect
against price movements in the securities that are attributable to other causes.

The Fund might seek to hedge against changes in the value of a particular
currency when no forward contract involving that currency is available or one of
such contracts is more expensive than certain other contracts. In such cases,
the Fund may hedge against price movements in that currency by entering into a
contract on another currency or basket of currencies, the values of which the
Portfolio Manager believes will have a positive correlation to the value of the
currency being hedged. The risk that movements in the price of the contract will
not correlate perfectly with movements in the price of the currency being hedged
is magnified when this strategy is used.

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<PAGE> 158

The value of forward contracts depends on the value of the underlying currency
relative to the U.S. dollar. Because foreign currency transactions occurring in
the interbank market might involve substantially larger amounts than those
involved in the use of forward contracts, the Fund could be disadvantaged by
dealing in the odd lot market (generally consisting of transactions of less than
$1 million) for the underlying foreign currencies at prices that are less
favorable than for round lots.

There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirements that quotations available through dealers or
other market sources be firm or revised on a timely basis. Quotation information
generally is representative of very large transactions in the interbank market
and thus might not reflect odd-lot transactions where rates might be less
favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. markets are closed while the
markets for the underlying currencies remain open, significant price and rate
movements might take place in the underlying markets that cannot be reflected in
the U.S. markets until they reopen.

Settlement of forward contracts might be required to take place within the
country issuing the underlying currency. Thus, the Fund might be required to
accept or make delivery of the underlying foreign currency in accordance with
any U.S. or foreign regulations regarding the maintenance of foreign banking
arrangements by U.S. residents and might be required to pay any fees, taxes and
charges associated with such delivery assessed in the issuing country.

COVER

Transactions using forward contracts and futures contracts expose the Fund to an
obligation to another party. The Fund will not enter into any such transactions
unless it owns either (1) an offsetting ("covered") position in securities,
currencies, or other forward contracts or futures contracts, or (2) cash, or
other liquid assets with a value sufficient at all times to cover its potential
obligations to the extent not covered as provided in (1) above. The Fund will
comply with Securities and Exchange Commission guidelines regarding cover for
these instruments and, if the guidelines so require, set aside cash or other
liquid assets, in a segregated account with its custodian in the prescribed
amount.

Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding forward contract or futures contract is open,
unless they are replaced with other appropriate assets. If a large portion of
the Fund's assets are used for cover or segregated accounts, it could affect
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.

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ADDITIONAL INFORMATION ABOUT FOREIGN SECURITIES

There is generally less publicly available information about foreign companies
comparable to reports and ratings that are published about companies in the
United States. Foreign companies are also generally not subject to uniform
accounting, auditing and financial reporting standards, practices, and
requirements comparable to those applicable to U.S. companies.

It is contemplated that most foreign securities will be purchased in
over-the-counter markets or on stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. The Fund will not invest in
securities sold in foreign over-the-counter markets unless the dealers effecting
such transactions have a minimum net worth of $20 million or more. Stock markets
in many foreign countries are not as developed or efficient as those in the
United States. While growing in volume, they usually have substantially less
volume than the New York Stock Exchange, and securities of some foreign
companies are less liquid and more volatile than securities of comparable U.S.
companies. Similarly, volume and liquidity in most foreign bond markets is less
than in the United States and at times, volatility of price can be greater than
in the United States. Fixed commissions on foreign stock exchanges are generally
higher than negotiated commissions on U.S. exchanges, although the Fund will
endeavor to achieve the most favorable net results on its portfolio
transactions. There is generally less government supervision and regulation of
stock exchanges, brokers, and listed companies than in the United States.

With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, nationalization,
expropriation, or confiscatory taxation, limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency, and balance
of payments position.

The investment by the Fund in emerging market countries presents risks in
addition to those presented by investment in foreign issuers in general. A
number of emerging market countries restrict, to varying degrees, foreign
investment in stocks. Repatriation of investment income, capital, and the
proceeds of sales by foreign investors may require governmental registration
and/or approval in some emerging market countries. A number of the currencies of
developing countries have experienced significant declines against the U.S.
dollar in recent years and devaluation may occur subsequent to investments in
these

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<PAGE> 160

currencies by the Fund. Many emerging market countries have experienced
substantial, and in some periods, extremely high rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain emerging market countries.

The income and gains from certain foreign portfolio securities may be subject to
foreign withholding taxes, thus reducing the net amount available for
distribution.

The U.S. Government has, from time to time in the past, imposed restrictions,
through taxation and otherwise, on foreign investments by U.S. investors such as
the Fund. If such restrictions should be reinstituted, it might become necessary
for the Fund to invest all, or substantially all, of its assets in U.S.
short-term securities. In such event, the Fund would review its investment
objective and investment policies to determine whether changes are appropriate.

WARRANTS

The Fund may invest in warrants; however, the Fund's investment in warrants
(other than warrants acquired by the Fund as part of a unit or attached to
securities at the time of purchase), valued to the lower of cost or market, may
not exceed 5% of the value of the Fund's net assets, of which not more than 2%
of the Fund's net assets may be invested in warrants not listed on a recognized
U.S. or foreign stock exchange. Warrants may be considered speculative in that
they have no voting rights, pay no dividends, and have no rights with respect to
the assets of the corporation issuing them. Warrants basically are options to
purchase equity securities at a specific price valid for a specific period of
time. They do not represent ownership of the securities, but only the right to
buy them. Warrants differ from call options in that warrants are issued by the
issuer of the security and may be purchased on their exercise, whereas, call
options may be written or issued by anyone. The prices of warrants do not
necessarily move parallel to the prices of the underlying securities.

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<PAGE> 161

INVESTMENT RESTRICTIONS

The Fund's investment objective as set forth under "Investment Objectives,
Policies and Risks" in the Prospectus together with the investment restrictions
set forth below, unless otherwise indicated, are fundamental policies of the
Fund and may not be changed with respect to the Fund without the approval of a
majority of the outstanding voting shares of the Fund. Under these restrictions,
the Fund may not:

(i) invest in a security if, as a result of such investment, more than 25% of
its total assets (taken at market value at the time of such investment) would be
invested in the securities of issuers in any particular industry, except that
this restriction does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities (or repurchase agreements with
respect thereto);

(ii) invest in a security if, with respect to 75% of its total assets, more than
5% of its total assets (taken at market value at the time of such investment)
would be invested in the securities of any one issuer, except that this
restriction does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities;

(iii) invest in a security if, with respect to 75% of its total assets, the Fund
would own more than 10% (taken at the time of such investment) of the
outstanding voting securities of any one issuer, except that this restriction
does not apply to securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities;

(iv) purchase or sell real estate, except that the Fund may purchase securities
secured by real estate or interests therein, or securities issued by companies
in the real estate industry or which invest in real estate or interests therein;

(v) purchase or sell commodities or commodities contracts, (which, for the
purpose of this restriction, shall not include foreign currency or forward
foreign currency contracts), except that the Fund may purchase and sell interest
rate futures contracts, stock index futures contracts, futures contracts based
on other financial instruments or one or more groups of instruments, and on
options on such futures contracts, and options on securities indices and
currencies;

(vi) borrow money, or pledge, mortgage or hypothecate its assets, except that
the Fund may (a) as a temporary measure for extraordinary or emergency purposes
borrow from banks or enter into reverse repurchase agreements, but only if
immediately after each borrowing and continuing thereafter there is asset
coverage of 300% (while any borrowing of greater than 5% of its assets occurs,
the Fund will not purchase additional securities); (b) make deposits of initial
and variation margin and pledge its assets in connection with its purchases

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<PAGE> 162

and sales of options, futures, options on futures contracts and forward foreign
currency contracts and (c) purchase securities on a when-issued or delayed
delivery basis and pledge its assets in connection therewith;

(vii) issue senior securities, except as permitted under the Investment Company
Act of 1940;

(viii) lend funds or other assets, except that the Fund may, consistent with its
investment objective and policies: (a) invest in debt obligations, including
bonds, debentures, or other debt securities, bankers' acceptances and commercial
paper, (b) enter into repurchase agreements and reverse repurchase agreements;
and (c) lend its portfolio securities in an amount not to exceed 1/3 of the
value of its total assets;

(ix) act as an underwriter of securities of other issuers, except to the extent
that in connection with the disposition of portfolio securities, it may be
deemed to be an underwriter under the federal securities laws;

(x) invest in oil, gas or other mineral exploration or development programs
(including oil, gas, or other mineral leases), except that the Fund may invest
in the securities of companies that invest in or sponsor those programs.

The Fund is also subject to the following restrictions and policies that are not
fundamental and may, therefore, be changed by the Board of Trustees (without
shareholder approval) relating to the investment of its assets and activities.
Unless otherwise indicated, the Fund may not:

(i) invest for the purpose of exercising control or management;

(ii) sell securities or property short, except short sales against the box;

(iii) purchase securities on margin, except for use of short-term credit
necessary for clearance or purchases and sales of Fund securities, and except
that the Fund may make certain deposits in connection with transactions in
options, futures and options on futures, and except that effecting short sales
will be deemed not to constitute a margin purchase for purposes of this
restriction;

(iv) invest in securities that are illiquid including repurchase agreements
maturing in more than seven days, if, as a result of such investment, more than
15% of the net assets of the Fund would be invested in such securities;

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<PAGE> 163

(v) invest in warrants (other than warrants acquired by the Fund as part of a
unit or attached to securities at the time of purchase) if, as a result, the
investment in warrants (valued to the lower of cost or market) would exceed 5%
of the value of the Fund's net assets, of which not more than 2% of the Fund's
net assets may be invested in warrants not listed on a recognized U.S. or
foreign stock exchange;

(vi) invest in puts, calls, straddles, spreads, and any combination thereof, if
by reason thereof the premium cost of its aggregate investment in such options
will exceed 5% of its total assets.

Unless otherwise indicated, as in the restriction for borrowing or hypothecating
assets of the Fund, for example, all percentage limitations listed above apply
to the Fund only at the time into which a transaction is entered. Accordingly,
if a percentage restriction is adhered to at the time of investment, a later
increase or decrease in the percentage which results from a relative change in
values or from a change in the Fund's net assets will not be considered a
violation. For purposes of the restriction prohibiting the Fund from investing
more than 25% of its assets in companies in the same industry, the Directory of
Companies Filing Annual Reports with the Securities and Exchange Commission
(which utilizes the Standard Industrial Classification Codes promulgated by the
Office of Management and Budget of the Executive Office of the President) is
used to determine industry classifications.

The Fund does not presently intend to engage in options transactions, options on
futures transactions, securities lending activities, or reverse repurchase
agreements.

PURCHASE OF SHARES

The Fund reserves the right to impose a charge of $15 for any purchase check
returned to the Trust as uncollectible and to collect such fee by redeeming
shares of the Fund from such shareholder's account.

The Fund reserves the right to limit the amount of any purchase and to reject
any purchase order. Shares of the Fund are offered continuously; however, the
offering of shares of the Fund may be suspended at any time and resumed at any
time thereafter. The Trust intends to waive the initial and subsequent purchase
minimums for employees of McDonald & Company Securities, Inc. ("McDonald")
which, through its Gradison Division ("Gradison"), acts as the investment
adviser and distributor ("Adviser" and "Distributor").

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<PAGE> 164

REDEMPTION OF SHARES

The Trust 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 Trust is restricted, or an emergency exists (determined in accordance with
the rules and regulations of the Securities and Exchange Commission) so that
disposal of the securities held in the Fund or determination of the net asset
value of the Fund is not reasonably practicable, or (c) for such other periods
as the Securities and Exchange Commission by order may permit for the protection
of the Trust's shareholders.

EXCHANGES

TELEPHONE EXCHANGES

WRITTEN EXCHANGES

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

Gradison Mutual Funds
580 Walnut Street
Cincinnati, Ohio 45202

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<PAGE> 165

GENERAL EXCHANGE INFORMATION

An exchange involves a redemption of the shares of the Fund 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 (except in the case of purchases of mutual funds sold
subject to a sales load) 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 and, depending upon the circumstances, a short or
long-term gain or loss may be realized.

The Fund reserves the right to reject any exchange request. The exchange feature
may be terminated at any time upon 60 days' written notice. In the case of
excessive use of the exchange feature, the Fund, upon 30 days' written notice,
may make reasonable service charges (as specified in the notice) by redeeming
shares from such shareholder's account.

TAXES

The Fund has qualified and intends to qualify in the future, as a regulated
investment company ("RIC") under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). By so qualifying, the Fund will not be taxed on
that part of its investment company taxable income (consisting generally of net
investment income, net short-term capital gain and net gains from certain
foreign currency transactions) and net capital gain (the excess of net long-term
capital gain over net short-term capital loss) that is distributed to its
shareholders. In order to qualify for treatment as a RIC under the Code, the
Fund must distribute to its shareholders for each taxable year at least 90% of
its investment company taxable income ("Distribution Requirement"), and must
meet several additional requirements. These requirements include the following:
(1) the Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currencies, other
income (including gains from options, futures or forward contracts) derived with
respect to its business of investing in stock, securities or those currencies
("Income Requirement"); (2) the Fund must derive less than 30% of its gross
income each taxable year from the sale or other disposition of certain assets
held for less than three months, namely (i) securities, (ii) options, futures,
or forward contracts (other than those on foreign currencies), and (iii) foreign
currencies (or options, futures and forward contracts on foreign currencies)
that are not directly related to the Fund's principal business of investing in
securities (or options and futures with respect to stocks or securities)
("Short-Short Limitation"); (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

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<PAGE> 166

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 that does not represent
more than 10% of the issuer's outstanding voting securities; 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.

Distributions of any net capital gain are taxable to shareholders as long-term
capital gains, whether paid in cash or in additional shares of the Fund and
regardless of the length of time a shareholder has owned shares of the Fund.
These capital gain distributions are not eligible for the dividends-received
deduction for corporations.

Investors should be aware of the tax implications of purchasing shares shortly
before a record date for a dividend or capital gain distribution. To the extent
that the net asset value of the Fund at the time of purchase reflects
undistributed income or capital gains, or net unrealized appreciation of
securities held by the Fund, a subsequent distribution to the shareholder of
such amounts, although in effect constituting a return of his or her investment,
would be taxable as described above. Correspondingly, for federal income tax
purposes, a shareholder's tax basis in his or her shares continues to be his or
her original cost, so that upon redemption of shares, capital gain or loss will
be realized in the amount of the difference between the redemption price and the
shareholder's original cost.

The Treasury Department is authorized to issue regulations to provide that
foreign currency gains that are not directly related to a RIC's principal
business of investing in stock or securities (or options and futures with
respect to stock or securities) may be excluded from the income which qualifies
for purposes of the Income Requirement. To date, however, no regulations have
been issued.

The Fund will be subject to a nondeductible 4% excise tax ("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 net realized capital gains for the
one-year period ending on October 31 of that year, plus certain other amounts.

Although dividends generally will be treated as distributed when paid, dividends
declared in October, November or December, payable to shareholders of record on
a specified date in such a month and paid in January of the following year, will
be treated as having been received by shareholders on December 31 of the year in
which the dividend was declared.

Redemption of shares of the Fund will be a taxable transaction for federal
income tax purposes. Redeeming shareholders will recognize a gain or loss in an
amount equal to the difference between their basis

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<PAGE> 167

in such redeemed shares and the amount received. If such shares are held as a
capital asset, the gain or loss will be a capital gain or loss and will
generally be long-term if such shareholders have held their shares for more than
one year. Any loss realized upon a taxable disposition of shares held for six
months or less will be treated as a long-term capital loss to the extent of any
capital gain distributions received with respect to such shares. An exchange of
Fund shares for shares of any Gradison fund or certain other funds (see
"Optional Shareholder Services - Exchanges") generally will have similar tax
consequences. In addition, if a shareholder purchases Fund shares within 30 days
after redeeming other Fund shares at a loss, all or part of that loss will not
be deductible and instead will increase the basis of the newly purchased shares.

The Fund is required to withhold 31% of dividends, capital gain distributions
and redemption proceeds, with respect to dividends and distributions, paid to
individuals and certain other non-corporate shareholders who do not furnish to
the Fund their correct taxpayer identification number or who are otherwise
subject to backup withholding.

HEDGING TRANSACTIONS

Income from foreign currencies, and income from transactions in options, futures
and forward contracts derived by the Fund with respect to its business of
investing in stock, securities or foreign currencies, will qualify as
permissible income under the Income Requirement. However, income from the
disposition of options and futures contracts (other than those on foreign
currencies) will be subject to the Short-Short Limitation if they are held for
less than three months. Income from the disposition of foreign currencies, and
options, futures and forward contracts thereon, that are not directly related to
the Fund's principal business of investing in stock or securities (or options
and futures with respect thereto) also will be subject to the Short-Short
Limitation if they are held for less than three months. Many of the futures
contracts and forward contracts used by the Fund are "section 1256 contracts."
Gains or losses on section 1256 contracts (other than section 1256 contracts
that are part of a "mixed straddle" with respect to which the Fund has made an
election not to have the following rules apply) are generally considered 60%
long-term and 40% short-term capital gains or losses ("60/40"). Also, section
1256 contracts held by the Fund at the end of each taxable year (and, for
purposes of the Excise Tax, on certain other dates prescribed by the Code) are
"marked to market", with the result that unrealized gains or losses are treated
as though they were realized, and the resulting gain or loss is treated as
60/40.

Generally, the hedging transactions undertaken by the Fund may result in
"straddles" for federal income tax purposes. Because only a few regulations
implementing the straddle rules have been promulgated, the

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<PAGE> 168

tax consequences to the Fund of transactions in options, futures and forward
contracts are not entirely clear. The straddle rules may affect the character of
gains (or losses) realized by the Fund. In addition, losses realized by the Fund
on positions that are part of a straddle may be deferred under the straddle
rules, rather than being taken into account in calculating the taxable income
for the taxable year in which such losses are realized. The transactions may
increase the amount of short-term capital gain realized by the Fund, which is
taxed as ordinary income when distributed to shareholders.

The Fund may make one or more of the elections available under the Code which
are applicable to straddles. If the Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
elections made. The rules applicable under certain of the elections operate to
accelerate the recognition of gains or losses from the affected straddle
positions.

Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to the Fund that did not engage in such hedging transactions.

OTHER TAX INFORMATION

Gains or losses attributable to fluctuations in exchange rates which occur
between the time the Fund accrues income or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities generally are
treated as ordinary gain or loss. Similarly, on disposition of foreign
currencies and debt securities denominated in a foreign currency, and on
disposition of certain futures contracts, forward contracts and options, gains
or losses attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains and losses,
referred to under the Code as "Section 988" gains or losses, may increase,
decrease, or eliminate the Fund's investment company taxable income to be
distributed to its shareholders. If "Section 988" losses exceed other investment
company taxable income during a taxable year, the Fund would not be able to make
any ordinary dividend distributions for that year or distributions during that
year made before the losses were realized would be characterized in whole or in
part as a return of capital or as a capital gain to shareholders, rather than as
an ordinary dividend.

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<PAGE> 169

The Fund may invest in the stock of foreign corporations which may be classified
as passive foreign investment companies ("PFICs"). In general, a foreign
corporation is classified as a PFIC for a taxable year if at least one-half of
its assets constitute investment-type assets or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to tax
on a portion of the excess distribution, whether or not the corresponding income
is distributed by the Fund to shareholders. In general, under the PFIC rules, an
excess distribution is treated as having been realized ratably over the period
during which the Fund held the PFIC stock. The Fund itself will be subject to
tax on the portion, if any, of an excess distribution that is so allocated to
prior Fund taxable years and an interest factor will be added to the tax, as if
the tax had been payable in such prior taxable years. Certain distributions from
a PFIC as well as gain from the sale of PFIC stock are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain excess distributions might
have been classified as capital gain.

The Fund may be eligible to elect alternative tax treatment with respect to PFIC
stock. Under an election that currently is available in some circumstances, the
Fund generally would be required to include in its gross income its share of the
earnings and net capital gains of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions would not apply.

In addition, under proposed regulations another election would be available that
would involve marking-to-market the Fund's PFIC stock at the end of each taxable
year (and as otherwise prescribed in the Code), with the result that unrealized
gains in the PFIC stock would be treated as though they were realized. If this
election were made, tax at the Fund level under the PFIC rules would generally
be eliminated, but the Fund could, in limited circumstances, incur nondeductible
interest charges. The Fund's intention to qualify annually as a RIC may limit
its elections with respect to PFIC stock. Because the application of the PFIC
rules may affect, among other things, the character of gains, the amount of gain
or loss and the timing of the recognition of income with respect to PFIC stock,
as well as subject the Fund itself to tax on certain income from PFIC stock, the
amount that must be distributed to shareholders, and which will be taxed to
shareholders as ordinary income or long-term capital gain, may be increased or
decreased substantially as compared to a mutual fund that did not invest in PFIC
stock.

Income received by the Fund from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries. Tax conventions
between certain countries and the United States may

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<PAGE> 170

reduce or eliminate such taxes. In addition, the Adviser may manage the Fund
with the intention of minimizing foreign taxation in cases where it is deemed
prudent to do so. If more than 50% of the value of the Fund's total assets at
the close of its taxable year consists of securities of foreign corporations,
the Fund will be eligible to, and may, elect to "pass-through" to its
shareholders the amount of foreign income and similar taxes paid by the Fund. If
this election is made, a shareholder will be required to include in gross income
(in addition to taxable dividends actually received) his or her pro rata share
of the foreign taxes paid by the Fund and will be entitled either to deduct (as
an itemized deduction) his or her pro rata share of the foreign taxes in
computing his or her taxable income or to use it (subject to limitations) as a
foreign tax credit against his or her federal income tax liability. No deduction
for foreign taxes may be claimed by a shareholder who does not itemize
deductions, and foreign taxes generally are not deductible in computing
alternative minimum taxable income. Each shareholder will be notified within 60
days after the close of the Fund's taxable year whether the foreign taxes paid
by the Fund will "pass-through" for that year.

Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the shareholder's U.S. tax attributable to his or her total foreign
source taxable income. For this purpose, if the pass-through election is made,
the source of the Fund's income will flow through to its shareholders. With
respect to the Fund, gains from the sale of securities will be treated as
derived from U.S. sources and certain currency fluctuation gains, including
fluctuation gains from foreign-currency-denominated debt securities, receivables
and payables will be treated as ordinary income derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign source
passive income (as defined for purposes of the foreign tax credit) and to
certain other types of income. Shareholders may be unable to claim a credit for
the full amount of their proportionate share of the foreign taxes paid by the
Fund. The foreign tax credit can be used to offset only 90% of the revised
alternative minimum tax imposed on corporations and individuals. The foregoing
is only a general description of the foreign tax credit. Because application of
the credit depends on the particular circumstances of each shareholder,
shareholders are advised to consult their own tax advisers.

The Federal income tax matters summarized above are subject to change by
legislation, administrative action and judicial decision. In addition,
shareholders may be subject to state and local taxes with respect to their
ownership of shares or distributions from the Trust. Foreign shareholders may be
subject to U.S. tax rules that differ significantly from those described above.
Shareholders should consult their tax adviser as to their personal tax
situation.

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<PAGE> 171

NET ASSET VALUE

The assets and liabilities of the Fund are determined in accordance with
generally accepted accounting principles and the applicable rules and
regulations of the Securities and Exchange Commission. Assets and liabilities
attributable to the Fund are allocated to the Fund. Assets and liabilities not
readily attributable to the Fund are allocated to the Fund in the Trust in a
manner and on a basis determined in good faith by the Trustees to be fair and
equitable.

When calculating the net asset value of the Fund, a security listed or traded on
an exchange is valued at its last sale price on that exchange, or if there were
no sales that day, the security is valued at the closing bid price. All other
portfolio securities for which over-the-counter market quotations are readily
available are valued at the latest bid price. When price quotations of futures
held by the Fund are readily available, those positions will be valued based
upon such quotations. Portfolio securities and other assets for which market
quotations are not readily available are valued at their fair value as
determined by management of the Fund pursuant to procedures approved by by the
Board of Trustees and subject to oversight by the Board of Trustees. Short-term
securities with remaining maturities of less than 60 days are valued at
amortized cost which approximates market value.

PORTFOLIO TRANSACTIONS AND BROKERAGE

INVESTMENT DECISIONS

Investment decisions for the Fund and for the other investment advisory clients
of the Adviser and Portfolio Manager are made with a view to achieving their
respective investment objectives. Investment decisions are the product of many
factors in addition to basic suitability for the particular client involved
(including the Fund). Thus, a particular security may be bought or sold for
certain clients even though it could have been bought or sold for other clients
at the same time. Likewise, a particular security may be bought for one or more
clients when one or more clients are selling the security. In some instances,
one client may sell a particular security to another client. It also sometimes
happens that two or more clients simultaneously purchase or sell the same
security, in which event transactions that are close in time in such security
are, insofar as possible, averaged as to price and allocated between such
clients in a manner which in the Adviser's or Portfolio Manager's opinion is
equitable to each and in accordance with the amount being purchased or sold by
each. The various allocation methods used by the Adviser and Portfolio Manager,

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<PAGE> 172

and the results of such allocations, are subject to periodic review by the
Fund's Adviser and Board of Trustees. There may be circumstances when purchases
or sales of portfolio securities for one or more clients will have an adverse
effect on other clients.

BROKERAGE AND RESEARCH SERVICES

There is generally no stated commission in the case of fixed-income markets, but
the price paid by the Fund usually includes an undisclosed dealer commission or
markup. In underwritten offerings, the price paid by the Fund includes a
disclosed, fixed commission or discount retained by the underwriter or dealer.
Transactions on U.S. stock exchanges and other agency transactions involve the
payment by the Fund of negotiated brokerage commissions. Such commissions vary
among different brokers. Also, a particular brokerage firm may charge different
commissions according to such factors as the difficulty and size of the
transaction. Transactions in foreign securities generally involve the payment of
fixed brokerage commissions, which are generally higher than those in the United
States.

For the period from May 31, 1995 through March 31, 1996 and for the year ended
March 31, 1997, the total commissions paid by the Fund were, respectively,
$84,498 and $166,179.

The Portfolio Manager for the Fund places all orders for the purchase and sale
of portfolio securities, options and futures contracts for the Fund and buys and
sells such securities, options and futures for the Fund through a number of
brokers and dealers and futures commission merchants ("FCMs"). In so doing, the
Portfolio Manager uses its best efforts to obtain for the Fund the best
execution available, except to the extent it may be permitted to pay higher
brokerage commissions as described below. In seeking the best execution, the
Adviser or Portfolio Manager, having in mind the Fund's best interests,
considers all factors it deems relevant, including, by way of illustration,
price (including the applicable brokerage commission or dollar spread), the size
of the transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the broker,
dealer, or FCM involved and the quality of service rendered by the broker,
dealer, or FCM in other transactions.

It has for many years been a common practice in the investment advisory business
for advisers of investment companies and other institutional investors to
receive research services from brokers or dealers which execute portfolio
transactions for the clients of such advisers. Consistent with this practice,
the Portfolio Manager may receive research services from brokers or dealers with
which the Adviser or Portfolio Manager places the Fund's transactions. These
services,

29
<PAGE> 173

which in some cases may also be purchased for cash, include such matters as
general economic and security market reviews, industry and company reviews,
evaluations of securities and recommendations as to the purchase and sale of
securities. Some of these services are of value to the Portfolio Manager in
advising various of its clients (including the Fund), although not all of these
services are necessarily useful and of value in managing the Fund. The
management fee paid by the Fund is not reduced because the Adviser or Portfolio
Manager and its affiliates receive such services.

As permitted by Section 28(e) of the Securities Exchange Act of 1934 (the "1934
Act"), the Adviser or the Portfolio Manager may cause the Fund to pay a broker
or dealer which provides "brokerage and research services" (as defined in the
1934 Act) to the Adviser or Portfolio Manager an amount of disclosed commission
for effecting a securities transaction for the Fund in excess of the commission
which another broker or dealer would have charged for effecting that
transaction.

PORTFOLIO TURNOVER

The Adviser or the Portfolio Manager may manage the Fund without regard
generally to restrictions on portfolio turnover, except those imposed on its
ability to engage in short-term trading by provisions of the Federal tax laws
(see "Taxation"). Trading in fixed-income securities does not generally involve
the payment of brokerage commissions, but does involve indirect transaction
costs. The higher the rate of portfolio turnover of the Fund, the higher these
transaction costs borne by the Fund generally will be.

The portfolio turnover rate of the Fund is calculated by dividing the value of
the lesser of purchases or sales of portfolio securities for the fiscal year by
the monthly average of the value of portfolio securities owned by the Fund
during the fiscal year. In determining such portfolio turnover, long-term U.S.
Government securities are included. Short-term U.S. Government securities and
all other securities whose maturities at the time of acquisition were one year
or less are excluded. A 100% portfolio turnover rate would occur, for example,
if all of the securities in the portfolio (other than short-term securities)
were replaced once during the fiscal year. The portfolio turnover rate for the
Fund will vary from year to year, depending on market conditions. For the period
from May 31, l995 through March 31, l996, the Fund's unannualized portfolio
turnover rate was 71.8%. For the period from April 1, 1996 through March 31,
1997 the Fund's portfolio turnover rate was 92.4%. It is anticipated that the
annual rate of portfolio turnover will not exceed 150%.

30
<PAGE> 174

INVESTMENT ADVISER

The Adviser will manage the investment and reinvestment of the assets of the
Fund in accordance with the Fund's investment objective, policies and
restrictions, subject to the general supervision and control of the Fund's Board
of Trustees and pursuant to the terms of the Investment Advisory Agreement
between the Trust and Adviser. The Adviser may, and has, delegated this function
to the Portfolio Manager. In addition, the Adviser provides to the Fund, at its
own expense, the executive officers who are necessary for the management and
operations of the Fund.

ADVISORY AGREEMENT

The Investment Advisory Agreement dated February 28,1995, effective as to the
Fund on June 1, 1995, provides that the Adviser will manage the investments of
the Fund, subject to review by the Board of Trustees of the Trust. 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 Trust and
compensates the Trustees who are affiliated with the Adviser. In addition,
except as borne by the Trust pursuant to an effective plan under Rule 12b-1
under the 1940 Act, the Adviser bears the expenses related to distribution of
shares of the Fund, such as costs of preparing, printing and mailing sales
literature and other advertising materials, costs of furnishing prospectuses,
annual and semiannual reports of the Fund and other materials regarding
distributing shares of the Trust to potential investors.

All expenses not specifically assumed by the Adviser, the Transfer Agent, or the
Distributor and incurred in the operation of the Fund are borne by the Fund
pursuant to the Investment Advisory Agreement. Some of these expenses may be
paid by the Adviser subject to reimbursement by the Trust. These expenses
include expenses for the cost of preparing and printing registration statements,
prospectuses, periodic reports and other documents furnished to shareholders and
regulatory authorities; such distribution/service expenses as may be incurred
pursuant to an effective plan under Rule 12b-1 under the Investment Company Act
of 1940; registration, filing and similar fees; legal expenses; auditing and
accounting expenses; taxes and other fees; brokers' commissions and issue or
transfer taxes chargeable to the Trust in connection with securities
transactions; expenses of issue, sale, redemption and repurchase of shares; the
cost of share certificates, if any; fees of Trustees who are not affiliated with
the Adviser; charges and expenses of any transfer and dividend disbursing agent,
registrar, custodian or depository appointed by the Fund; other expenses of the
Fund, including expenses of shareholders' and Trustees' meetings; and fees and
other expenses incurred by the Fund in connection with its membership in any
organization. Expenses borne by the Trust and attributable to a specific fund
are allocated to that

31
<PAGE> 175

fund; expenses that are not specifically attributable to the Fund are allocated
to the Fund in a manner and on a basis determined in good faith by the Adviser
to be fair and equitable (generally, on the basis of the respective net assets
of the Fund), subject to review by the Trustees. The Fund reimburses the Adviser
for all costs, direct and indirect, which are fairly allocable to services
provided by the Adviser's employees for which the Fund is responsible.

As compensation for its services under the Investment Advisory Agreement, the
Adviser receives from the Fund a monthly fee based upon the average value of the
daily net assets for the month of the Fund at an annual rate of 1.00% on the
first $100 million of assets, of .90% on the next $150 million of assets and
.80% on the next $250 million and .75% on any amounts in excess of $500 million
of assets. From the inception of the Fund, May 31, l995, through March 31, l996,
the Fund paid the Adviser $49,838 as investment advisory fees and would have
paid $74,223 if not for the Adviser's waiver of advisory fees. During that time
period, McDonald paid Blairlogie $49,838 as investment subadviser fees. For the
fiscal year ending March 31, 1997 the Fund paid the Adviser $166,508 as
investment advisory fees and would have paid it $208,135 if not for the
Adviser's waiver of expenses. The Adviser paid Blairlogie $166,508 as investment
adviser fees during the fiscal year ended March 31, 1997.

The Investment Advisory Agreement also provides that the Adviser, as a
registered broker-dealer, will distribute the shares of the Fund in states in
which it may be qualified to do so, upon request of the Trust. The Adviser
accepts orders for the purchase of such shares at net asset value only, and no
sales commission, fee or other charge is incurred by the investor other than
charges specified in the Fund's 12b-1 plan. The Adviser receives no compensation
for acting as the Trust's distributor except as may be provided pursuant to the
Distribution Plan of the Trust.

The Investment Advisory 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 in no way restricts the Adviser from
acting as an investment manager or adviser for others.

The Investment Advisory Agreement grants to the Trust the right to use the name
"Gradison" and "McDonald" as a part of its name, without charge, subject to
withdrawal of such right by the Adviser upon not less than 30 days' written
notice to the Trust and subject to the automatic termination of such right
within 30 days after the termination of the Investment Advisory Agreement for
any reason. The Investment Advisory Agreement does not impair the right of the
Adviser to use the name Gradison or McDonald in the name of or in connection

32
<PAGE> 176

with any other business enterprise with which it is or may become associated.

The Investment Advisory Agreement continues in effect as to the Fund, 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 Investment Advisory Agreement.

INVESTMENT SUB-ADVISORY AGREEMENT

Pursuant to an agreement dated June 1, 1995, between the Adviser and Blairlogie,
Blairlogie will make investment decisions on behalf of the Fund and place all
orders for the purchase and sale of portfolio securities and all other
investments related to those investment decisions. Blairlogie will furnish all
necessary investment and management facilities required for it to execute its
duties as well as administrative facilities, including bookkeeping, clerical
personnel and equipment necessary for performance of its duties including
verification and oversight of he pricing of the Fund's portfolio. The agreement
provides that it: automatically terminates in the event of its assignment or in
the event that the Advisory Agreement between the Fund and the Adviser
terminates; and continues in effect for a period more than two years from the
date of its execution only so long as such continuance is approved at least
annually by the Board of Trustees or by vote of a majority of the outstanding
voting securities of the Fund, and may be terminated without penalty by the
Board of Trustees, the Investment Adviser, or by a vote of a majority of the
outstanding voting securities of the Fund on sixty days written notice to
Blairlogie.

33
<PAGE> 177

DISTRIBUTION

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

34
<PAGE> 178

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
outstanding voting securities of the Fund, and all material amendments to the
Plan must be approved by a majority of the Board of Trustees and a majority of
the Independent Trustees by votes cast in person at a meeting called for the
purpose of voting on such amendment. The Plan may be terminated as to the Fund
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 60
days' written notice to the other party to the agreement, and any related
agreement will terminate automatically in the event of its assignment. The Plan
requires that the Board of Trustees receive at least quarterly written reports
as to the amounts expended during each quarter pursuant to the Plan and the
purposes for which such amounts were expended. While the Plan is in effect, the
selection and nomination of those Trustees who are not "interested persons" (as
defined in the Investment Company Act of 1940) of the Trust shall be committed
to the discretion of the disinterested Trustees then in office.

Pursuant to the Plan, the Trust has entered into a distribution agreement
("Agreement") with McDonald. This agreement provides that the Distributor will
receive Compensation for rendering personal services to shareholders of the Fund
including providing shareholder liaison services such as responding to
shareholder inquiries and providing information to shareholders about their Fund
accounts at an annual rate of .25% of the average daily net assets of the Fund
and .25% of 1% of the value of the average daily net assets of the Fund for
rendering other distribution services to the Fund. The Agreement may be
terminated at any time, without penalty, by a vote of a majority of the
Independent Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the Fund. The Agreement is contingent on the continued
effectiveness of the Trust's Distribution Expense Plan and automatically
terminates in the event of its assignment. From the inception of the Fund
through March 31, 1996, the Fund paid McDonald $0 as distribution fees and would
have paid $37,112 if not for McDonald's waiver of fees. For the fiscal year
ending March 31, 1997 the Fund paid McDonald $0 as a distribution fees and would
have paid $104,067 if not for McDonald's waiver of fees. Of these amounts, one
half was paid for rendering distribution services and one half for providing
personnel services to shareholders of the Fund.

35
<PAGE> 179

TRANSFER AGENT AND ACCOUNTING SERVICES AGREEMENT

Pursuant to the Transfer Agent and Accounting Services Agreement, Gradison
provides transfer agent, dividend disbursing, and accounting services for the
Fund. Gradison responds to inquiries from shareholders, processes purchase and
redemption requests, maintains shareholder account records and provides
statements and confirmations to shareholders and maintains the Fund's books and
accounting records. From the inception of the Fund through March 31, l996 the
Fund paid McDonald $0 as transfer agent and accounting service fees and would
have paid $61,601 if not for McDonald's waiver of fees. For the fiscal year
ending March 31, 1997, the Fund paid McDonald $73,963 as transfer agent and
accounting services fees and would have paid $91,507 if not for McDonald's
waiver of fees.

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 Gradison-McDonald Cash Reserves Trust ("GMCR"), Gradison Custodian Trust
("GCT"), and Gradison-McDonald Municipal Custodian Trust ("GMMCT"), Gradison,
and McDonald, are listed below. All principal occupations have been held for at
least five years unless otherwise indicated. Positions held with Gradison were
formerly held with Gradison & Company Incorporated. Each trustee is a trustee of
each of the four Gradison-McDonald investment companies.

* DONALD E. WESTON, 580 Walnut Street, Cincinnati, Ohio. Trustee and Chairman of
the Board; Chairman of Gradison and Director of McDonald & Company Investments,
Inc. Director of Cincinnati Milacron Commercial Corp. (financing arm of capital
goods manufacturer) (since January 1993); Chairman of the Board of GMCR, GCT,
and GMMCT.

DANIEL J. CASTELLINI, 312 Walnut Street, Cincinnati, Ohio. Trustee; Senior Vice
President/Finance and Administration and Chief Financial Officer of the E.W.
Scripps Company (communications).

THEODORE H. EMMERICH, 1201 Edgecliff Place, Cincinnati, Ohio 45206. Trustee.
Retired; Until 1986, managing partner (Cincinnati office) Ernst & Young (Public
Accountants); Director of Carillon Fund, Inc.(investment company), American
Financial Group, Inc.(insurance), Cincinnati Milacron Commercial Corp.; Trustee
of Carillon Investment Trust and Summit Investment Trust (investment companies).

- ----------------
* Trustee who is interested and affiliated person, as defined by the Investment
Company Act of 1940, of the Trust and the Adviser by virtue of stock ownership
of the parent of the Adviser and employment by the Adviser.

36
<PAGE> 180

RICHARD A. RANKIN, 1717 Dixie Highway, Suite 600, Fort Wright, Kentucky 41011.
Trustee. Partner, Rankin and Rankin (Public Accountants).

JEROME E. SCHNEE, 14 Walt Whitman, Morristown, NJ 07960, Trustee; Senior
Director, Health Economics, Johnson & Johnson (Pharmaceuticals) since August
1996; Professor of Management, College of Business Administration, University of
Cincinnati (currently on leave of absence).

BRADLEY E. TURNER, 580 Walnut Street, Cincinnati, Ohio 45202. President. Senior
Managing Director and Director of McDonald; President of GMCR, GCT, and GMMCT.

WILLIAM J. LEUGERS, JR., 580 Walnut Street, Cincinnati, Ohio. Managing Director.
Portfolio Manager of the Gradison Established and Opportunity Value Funds.

PAUL J. WESTON, 580 Walnut Street, Cincinnati, Ohio. Senior Vice President.
Executive Vice President of GMCR; Senior Vice President of GCT, and GMMCT;
Executive Vice President of Gradison. Mr. Weston is the brother of Donald E.
Weston.

DANIEL R. SHICK, 580 Walnut Street, Cincinnati, Ohio. Vice President (Gradison
Established Value and Opportunity Value Funds); Managing Director of Gradison.

GARY H. MILLER, 580 Walnut Street, Cincinnati, Ohio. Vice President (Gradison
Established Value and Opportunity Value Funds); Associate Vice President of
Gradison.

PATRICIA J. JAMIESON, 800 Superior Avenue, Cleveland, Ohio 44114. Treasurer.
Senior Managing Director and Chief Financial Officer of McDonald; Treasurer of
GMCR, GCT, and GMMCT.

MARK A. FRIETCH, 580 Walnut Street, Cincinnati, Ohio. Assistant Treasurer.
Assistant Treasurer of GMCR, GCT, and GMMCT.

RICHARD M. WACHTERMAN, 580 Walnut Street, Cincinnati, Ohio 45202. Secretary.
Senior Vice President and General Counsel of Gradison.; Secretary of GMCR, GCT,
and GMMCT.

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 compensation as determined by the Board of Trustees. As of June 30,
1997, the Trustees and Officers of the Trust owned an aggregate of less than 1%
of the outstanding shares

37
<PAGE> 181

of the Fund. As of that date, Werner Kummerle and Sue Kummerle, 6890 Marblehead
Drive, Cincinnati, Ohio 45243, owned 5.60% of the outstanding shares of the
Fund.

Trustee Compensation Table
- --------------------------

<TABLE>
<CAPTION>
Name of Trustee Aggregate Compensation Total Compensation
- --------------- From Trust for fiscal period From Trust and fund
ending 3/31/97 complex (3 Trusts)
-------------- paid to trustee for
calendar year
ending 12/31/96
---------------

<S> <C> <C>
Donald E. Weston 0 0

Theodore H. Emmerich $7,250 $ 25,500

Richard A. Rankin $7,250 $ 25,000

Jerome E. Schnee $7,250 $ 25,500

Daniel J. Castellini $7,250 $ 25,500
</TABLE>

The Trust's deferred compensation plans allow trustees to defer receipt of
trustees fees otherwise payable to them until a future date. Deferred amounts
are credited with interest at a rate of 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 March 31, l997, the amount of $10,367 was
payable by the Trust to the beneficiary of a former trustee who is deceased and,
as of March 31, l997, the amount of $42,470 was payable to that beneficiary by
the Trust and the fund complex.

DESCRIPTION OF THE TRUST

The Trust is a diversified, open-end investment company organized under the laws
of the State of Ohio by a Declaration of Trust dated May 31, 1983 which was
amended on July 27, 1983. The Declaration of Trust provides for an unlimited
number of full and fractional shares of beneficial interest, without par value,
of any series authorized by the Board of Trustees. The Board of Trustees has
authorized the issuance of shares of four series, representing the Fund, the
Gradison Established Value Fund, the Gradison Opportunity Value Fund, and the
Gradison Growth and Income Fund. Any additional series of shares must be issued
in compliance with the Investment Company Act of 1940 and must not constitute a
security that is senior to the shares offered

38
<PAGE> 182

pursuant to the Prospectuses. Each share of each series represents an equal,
proportionate interest in the related Fund with each other share of that series.
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 each series are entitled to one vote per share; however,
separate votes are taken by each series on matters specifically affecting the
related fund. 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. Trustees were initially
elected by the shareholders at the first annual meeting of shareholders and at a
subsequent meeting of shareholders. Under the Declaration of Trust, no further
meetings of shareholders are required to be held for the purpose of electing
Trustees, unless less than a majority of Trustees holding office have been
elected by the shareholders. Shareholders' meetings will be held only when
required pursuant to the Declaration of Trust or the Investment Company Act of
1940, and when called by the Trust or shareholders pursuant to the Declaration
of Trust. Pursuant to the Declaration of Trust, shareholders of record of not
less than two-thirds of the outstanding shares of the Trust may remove a Trustee
through a declaration in writing or by vote cast in person or by proxy at a
meeting called for that purpose. The Trustees are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
Trustee when requested in writing to do so by shareholders of record of not less
than 10 percent of the Trust's outstanding shares. Whenever the approval of a
majority of the outstanding shares of the Fund is required in connection with
shareholder approval of the Investment Advisory Agreement or the Distribution
Plan, or changes in the investment objective or the investment restrictions, a
"majority" shall mean the vote of (i) 67% or more of the outstanding shares of
the Fund present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of the Fund, whichever is the lesser.

The assets of the Trust received upon the issuance of the shares of a fund and
all income, earnings, profits and proceeds thereof, subject only to the rights
of creditors, are especially allocated to each such fund and constitute the
underlying assets of each such fund. The underlying assets of the fund are
segregated on the books of account and are to be charged with the liabilities in
respect to each such fund and with a share of the general liabilities of the
Trust. In the event of the termination and liquidation of the Trust, the holders
of the shares of any series are entitled to receive, as a class, the

39
<PAGE> 183

underlying assets of the related fund available for distribution to
shareholders.

The Trust is currently operating, and intends to continue to operate, in
compliance with the Ohio law relating to business trusts. Under Ohio law, the
shareholders of a complying business trust have no liability to third persons
for obligations of the Trust, which are to be satisfied solely from the Trust's
property. The Declaration of Trust provides that no Trustee, officer or agent of
the Trust shall be personally liable to any person for any action or failure to
act except (1) for his or her own bad faith, willful misfeasance, gross
negligence, or reckless disregard of his duties, (2) with respect to any matters
as to which he or she did not act in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Trust, or (3) in
the case of any criminal proceeding, with respect to any conduct which he or she
had reasonable cause to believe was unlawful.

INVESTMENT PERFORMANCE

Total Return

Percentage Change

<TABLE>
<CAPTION>
Since Inception Year Ending 3/31/97
(annualized)
(5/31/95 - 3/31/97)

<S> <C> <C>
Fund 4.65% 2.78%
Morgan Stanley 1.75%
EAFE Index 6.25% 2.36%
Hybrid Index * 5.78%
</TABLE>

The results of the Fund assume reinvestment of dividends and other
distributions. The performance results reflect historical performance and do not
ensure future results. During the time period, the Fund's investment adviser
waived the receipt of certain fees from the Fund and paid certain other expenses
otherwise payable by the Fund. If not for the investment adviser's waiver of
these fees and payment of these Fund expenses, the Fund's annualized total
return for the period from inception to March 31, l997, would have been 3.80%,
and for the one year period ending March 31, l997 would have been 1.79%%.

* The Hybrid Index is composed of a 70% hypothetical investment in the developed
markets represented in the Morgan Stanley Capital International EAFE Index and
30% in the emerging markets of the MSCI Emerging Markets Free Index.

40
<PAGE> 184

CUSTODIAN

Chase Manhattan Bank N.A. ("Chase") serves as Custodian for assets of the Fund.
Pursuant to rules or other exemptions under the 1940 Act, the Trust may maintain
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. There is a risk of possible losses through holding
securities in custodians and securities depositories in foreign countries.
Chase, together with certain of its foreign branches and agencies and foreign
banks and securities depositories acting as subcustodian to Chase will maintain
custody of the securities and other assets of foreign issuers. Under these
agreements, Chase has agreed to use reasonable care in the safekeeping of these
securities and to indemnify and hold harmless the Trust from and against any
loss which shall occur as a result of the failure of a foreign bank or
securities depository holding such securities to exercise reasonable care in the
safekeeping of such securities to the same extent as if the securities were held
in New York. Pursuant to requirements of the Securities and Exchange Commission,
Chase is required to use reasonable care in the selection of foreign
subcustodians, and to consider the financial strength of the foreign
subcustodian, its general reputation and standing in the country in which it is
located, its ability to provide efficiently the custodial services required, and
the relative costs for the services to be rendered by it. Each of the contracts
with foreign subcustodians to be used for the Fund has been approved by the
Board of Trustees, and the Board of Trustees will review annually the
continuance of foreign custodial arrangements. No assurance can be given that
expropriation, nationalization, freezes, or confiscation of assets that would
impact assets of the Trust will not occur, and shareholders bear the risk of
losses arising from these or other events.

ACCOUNTANTS

Arthur Andersen LLP, 425 Walnut Street, Cincinnati, Ohio 45202, is the
independent public accountant for the Trust.

LEGAL COUNSEL

Kirkpatrick & Lockhart LLP acts as legal counsel to the Trust.

MISCELLANEOUS

Blairlogie currently manages in excess of $600 million of international assets.

41
<PAGE> 185

[Fact Sheet]
(GRAPHIC: Gradison Logo)
GRADISON
MUTUAL FUNDS

International Fund

Gradison International Fund seeks growth by investing in common stocks of
companies based outside of the United States. The Fund generally invests at
least 70% of its assets in developed markets and a maximum of 30% in emerging
markets. Gradison believes that this hybrid strategy offers risk/reward
trade-offs favorable to investors. Of course, international investing,
particularly in emerging markets, involves greater risks as compared to U.S.
investing, such as political instability and currency fluctuation.

Gradison has chosen Blairlogie Capital Management located in Edinburgh,
Scotland, as subadviser to the Fund. Based on its research, Blairlogie has
determined that the most important factor in international investing is the
country decision. Blairlogie, therefore, follows a highly disciplined
methodology that first identifies the countries that it believes offer the most
favorable investment potential and then selects the individual investments in
those countries.

It is generally the policy of Gradison International Fund to maintain as fully
invested a position as practicable at all times.

Symbol: INTFX

[Graphic of world map with the countries invested by the Fund highlighted.
The following text reads over the map:
DEVELOPED MARKETS 70.0%, Japan 19.9%, Germany 9.3%, Great Britain 9.2%,
Switzerland 6.89%, Malaysia 6.6%, Netherlands 4.6%, France 4.0%, Hong Kong 2.3%,
Italy 2.2%, Finland 2.1%, Spain 2.0%, Ireland 1.0% EMERGING MARKETS 30.0%,
Brazil 5.2%, Israel 3.5%, Philippines 3.4%, Argentina 3.12%, Turkey 3.0%,
Portugal 2.9%, Chile 2.2%, Mexico 1.9%, Hungary 1.5%, South Korea 1.1%, Peru
1.0%, Poland 0.6%, Indonesia 0.5%, Columbia 0.1%

The table above, showing the percentage of assets of the Fund invested in
securities of each country indicated as of March 31, 1997, is subject to change.

Value of $1,000 Since Inception

42
<PAGE> 186

Line chart stating "The value of a $1,000 investment made in the fund at
inception with all dividends and capital gain distributions reinvested" with
these plot points 6/95 - $1,003, 9/95 - $999, 12/95 - $1,015, 3/96 - $1,057,
6/96 - $1,090.00, 9/96 - $1,064.00, 12/96 - $1,074.00, 3/97 - $1,087.00.

March 31, 1997
Graphic: Photo of Two People Embracing

PORTFOLIO MANAGER PROFILES

(graphic: Photo Gavin Dobson)

Gavin Dobson
Chief Executive Officer
Blairlogie Capital Management

A Scottish lawyer by training, Gavin Dobson has twenty years of international
investment experience that includes international corporate finance with
Kleinwert Benson in London and President and Chief Operating Officer of Murray
Johnstone International in Chicago. In 1992, Mr. Dobson was approached by
Pacific Financial Asset Management to form an advisory firm dedicated
exclusively to international investments. An author of numerous articles and
three books on international investing, Gavin has degrees in Economics from
Dundee University and Law from Edinburgh University.

(graphic: Photo James Smith)

James Smith
Chief Investment Officer
Blairlogie Capital Management

James Smith became a founding officer of Blairlogie Capital Management in 1992
following five years with Murray Johnstone International in Glasgow, Scotland,
where he was Senior Portfolio Manager with responsibility for international
asset allocation for North American clients as Vice Chairman of the company's
Emerging Markets Group. Prior to that, Mr. Smith was an equity portfolio manager
with Schroders in London. James has an Economics BSc. degree from London
University and an MBA degree from Edinburgh University, and is an Associate of
the Institute of Investment Research.

Profile of Gradison Mutual Funds

43
<PAGE> 187

A prospectus for the International Fund 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

Average Annual Total Return
Chart stating periods ended 3/31/97, Quarter* - +1.18%,
1 Year +2.78%, Since Inception (5/31/95) - +4.65%

From the inception of the Fund (5/31/95) the investment adviser has paid certain
Fund expenses which has had the effect of increasing the Fund's return. Without
consideration of such payments by the adviser, the cumulative return on initial
investments from for most recent quarter, for 1 year and from inception would
have been approximately +1.06%, +1.79% and +3.80%, respectively. Expense
reimbursement arrangements may be terminated at any time which would result in
lower returns.

*Not annualized

International Fund
Opportunity Value Fund
Growth & Income Fund
Established Value Fund
Ohio Tax-Free Income Fund
Government Income Fund
Money Market Funds
Family of Funds Brochure
(graphic: Logo
Gradison Mutual Funds)

44
<PAGE> 188

COVER PAGE

YOUR FUTURE STARTS TODAY

Graphic Photo of men, women, children and a dog

Logo

Gradison

Mutual Funds

[Family of Funds brochure]

INSIDE COVER PAGE

YOUR FUTURE STARTS TODAY

Page 1

Page 2

THE MUTUAL FUND STORY

Increasingly, mutual funds are the preferred vehicle for individual
investors who are starting and building an investment program. And today,

45
<PAGE> 189

Gradison is a preferred name in mutual funds for a growing number of investors.

WHY MUTUAL FUNDS?

PROFESSIONAL MANAGEMENT

DIVERSIFICATION

Because a mutual fund has significantly more assets to invest than any
individual participant, it can purchase and effectively manage a more
diversified portfolio than can most individual investors.

FLEXIBILITY

Page 3

WHY GRADISON MUTUAL FUNDS?

A RESPECTED NAME FOR SEVEN DECADES

46
<PAGE> 190

A respected name for seven decades Gradison has been a recognized name in
investment brokerage since 1925. The firm became a registered investment adviser
in 1974 and established its first mutual fund in 1976. Today, Gradison offers
seven mutual funds in a growing family of funds and manages more than $4 billion
in assets in both mutual funds and individually managed accounts.

EXPERIENCED PORTFOLIO MANAGERS

SERVICE

Low Minimum Investment of $1,000

Convenient Automatic Dividend Reinvestment

Automatic Investment Plan

Automatic Withdrawals and Payment Plans

Access To Funds

Free Exchange Privileges

Check Writing

Wire Transfers

Toll-Free Customer Service

47
<PAGE> 191

24-Hour Account Information

Account Statements

Year-End summary

Quarterly Newsletter

Shareholder Reports

Internet Access

Page 4

REACHING YOUR INVESTMENT GOALS

FIGHTING INFLATION

Chart: WHAT INFLATION REALLY MEANS

1995 $139,000 Single Family Home

2000 $177,403 Graphic: Picture of a

2010 $288,971 partially built home
2025 $600,750

Automobile 1995 $18,359

Graphic Picture of an 2000 $23,431

automobile 2010 $38,167

48
<PAGE> 192

2025 $79,347

Four Year Public University Education

1995 $26,972 Graphic Picture of a

graduation cap and

2000 $34,424 a diploma.

2010 $58,073

2025 $116,571

Sources: National Association of Realtors; Department of Commerce;
College Board. Future prices are based on a hypothetical average annual
inflation rate of 5%.

EDUCATION

BUILDING WEALTH

49
<PAGE> 193

Such assets can be invaluable not only for retirement but as emergency assets
for unforeseen occurrences in life.

RETIREMENT

YOUR FAMILY'S FUTURE

GRAPHIC Photo of two women embracing.

Page 5

INTELLIGENT INVESTING

Time is the essential ingredient

Experience has shown that there is no substitute for time in investing.
Historically, the sooner money has been put to work, and the longer it has

50
<PAGE> 194

been invested, the more likely positive returns have resulted. Conversely,
aggressive investors are more likely to have volatile results for shorter
periods. Clearly, investing for the long-term is considered one of the keys to
successfully creating investment wealth.

THE RULE OF 72:

HELPING YOU IN TAXING TIMES

The Rule of 72 allows potential investors to find out how long it will take to
double their money. All you have to do is divide 72 by the estimated interest
rate of an investment, and the answer is roughly the number of years needed to
double an investment. Here's the formal equation:

Number of years to double the original investment = 72/ Interest Rate

Using the Rule

Check the table below to see some examples of how the Rule of 72 works.

<TABLE>
<CAPTION>
Rate of Rule of 72 Years to Years to
Return (72/Interest Rate) Double Quadruple

51
<PAGE> 195

The rates of return shown are for illustrative purposes only and are not
historical results or projections of the returns of any Gradison Mutual Fund.

(Pie Charts)

THE LONGER YOUR TIME FRAME, THE GREATER THE CHANCE OF REWARD

Percent of time stocks had positive results for rolling periods beginning
December 31, 1925, and ended December 31, 1995.

71% 89% 97% 100%

1 year 5 year 10 year 15 Year

holding holding holding holding

periods periods periods periods

THE POWER OF COMPOUNDING

52
<PAGE> 196

constantly reinvested. The compounding of income and profits over long periods
of time can have a meaningful impact on overall investment results. Again, time
invested is invaluable.

(CHART) THE POWER OF COMPOUNDING IN A HYPOTHETICAL $10,000 INVESTMENT IN THE S&P
500

1/1/69 12/31/95

53
<PAGE> 197

Page 6

DISCIPLINED PERIODIC INVESTMENTS

It is our experience that the most difficult decision for most investors is not
whether to invest, but when to invest. It is this dilemma that causes many
investors to stay on the investment sidelines. Dollar cost averaging is a widely
used investment concept in the purchase of mutual funds that allows investors to
overcome this difficult decision by periodically investing(such as weekly,
monthly, or quarterly) the same dollar amount over a long period of time.
Gradison Mutual Funds offer a periodic investment plan to make the process
easier and more systematic.

CHART DOLLAR COST AVERAGING CAN REDUCE YOUR AVERAGE COST PER SHARE

<TABLE>
<CAPTION>
Investment Share Shares
Amount Price Purchased

<S> <C> <C> <C>
March $ 500 $10.00 50
June $ 500 $12.50 40
September $ 500 $ 5.00 100
December $ 500 $10.00 50
$2,000 $37.50 240

Average Price Per Share
($37.50 divided by 4) $9.38
Average Cost Per Share
($2,000 divided by 240) $8.33
</TABLE>

54
<PAGE> 198

share price fluctuates. You therefore will purchase more shares of the Fund in
those months when the price per share is low and less shares when the price is
high. Most importantly, dollar cost averaging can help investors make the
commitment to invest.

(Graphic) Photo of two men, two women, a boy, girl and a dog walking.

<TABLE>
<CAPTION>
CONSIDER GRADISON MUTUAL FUNDS

<S> <C> <C>
Equity Funds Fixed Income Fund Money Market Funds
Established Value Fund Government Income Fund U. S. Government Reserves
Growth & Income Fund Ohio Tax Free Income Fund Municipal Cash Series 2
Opportunity Value Fund High Yield Fund 1 Ohio Municipal Cash Trust 2
International Fund Michigan Municipal Cash Trust 2
</TABLE>

55
<PAGE> 199

1. Planned for 1997-1998 and sold by prospectus only.
2. Federated Advisers acts as investment adviser for
these funds and Federated Securities Corp. acts as
distributor.

PAGE 7

GRADISON EQUITY FUNDS

GRADISON ESTABLISHED VALUE FUND

GRADISON GROWTH AND INCOME FUND

56
<PAGE> 200

We believe that stocks meeting this criteria provide the opportunity for price
appreciation and current income while tending to moderate risk.

GRADISON OPPORTUNITY VALUE FUND

GRADISON INTERNATIONAL FUND

Blairlogie Capital Management of Edinburgh, Scotland, the subadviser to the
International Fund, employs a "hybrid strategy" that invests in both developed
international markets and in emerging international markets. Using a disciplined
methodology, Blairlogie first identifies the countries that offer the most
favorable investment environment, and then selects the individual investments in
those countries. Generally the amount invested in emerging markets will not
exceed 30% of the Fund's assets. International investing, particularly in
emerging markets, involves greater risks than U.S. investing, such as political
instability and currency fluctuation.

THE CASE FOR COMMON STOCKS

57
<PAGE> 201

THE ADVANTAGES OF BONDS

Page 8

GRADISON FIXED INCOME FUNDS

GRADISON GOVERNMENT INCOME FUND

58
<PAGE> 202

in repurchase agreements collateralized by such obligations. The Fund is managed
with an emphasis on total return, that is the combined effect of both income and
changes in share value. Although the securities in the portfolio are guaranteed
as to principal and interest by the U.S. Government, the market value of the
Fund's shares will fluctuate with changes in interest rates and other market
conditions. Mortgage backed securities may be subject to prepayment risk.

Graphic: Photo of two young girls each sitting on an adult's shoulder.

GRADISON OHIO TAX-FREE INCOME FUND

In order to gain favorable yields, the Fund invests up to 20% of its assets in
securities that may be subject to the alternative minimum tax for some
investors.

Page 9

INDICES OF INVESTMENTS

IN U. S. CAPITAL MARKETS

59
<PAGE> 203

Company Stocks $3,822; Large Company Stocks $1,113; Long-Term Government Bonds
$34; U. S. Treasury Bills $13; Inflation $9.

1926-1995

(YEAR-END 1925 = $1.00)

This chart is intended to show the growth of one dollar invested in different
types of investments and the Consumer Price Index. It assumes reinvestment of
all dividend and interest payments.

Past performance does not ensure further results.

LARGE COMPANY STOCKS are represented by the Standard & Poor's 500 Stock
Composite Index (S&P 500);

LONG-TERM GOVERNMENT BONDS are represented by a one-bond portfolio with a
maturity near twenty years;

U. S. TREASURY BILLS are represented by rolling over each month a one-bill
portfolio containing, at the beginning of each month, the bill having the
shortest maturity not less than one month.

INFLATION is represented by the Consumer Price Index for All Urban Consumers
(CPI-U), not seasonably adjusted. Source: Ibbotson, Roger G., and Rex A.
Sinquefield, Stocks, Bonds, Bills, and Inflation (SBBI), 1995, updated in
Stocks, Bonds, Bills, and Inflation 1996o, Ibbotson Associates, Chicago. All
rights reserved.

The indices and securities in the chart above do not reflect the actual
portfolio composition, performance, or fees and expenses associated with

60
<PAGE> 204

investing in any Gradison Mutual Fund. The chart is not intended to imply future
performance of any of these investments or any Gradison Mutual Fund. Performance
figures of Gradison Mutual Funds are available by request from Gradison. The
returns for stocks include reinvestment of dividends and interest. Government
bonds and Treasury Bills are guaranteed by the U.S. Government and, if held to
maturity, offer a fixed rate of return and fixed principal value.

In existing disclaimer replace "Past performance does not ensure future results"
with: "The performance shown in the above chart is historical and is not
intended to imply future performance of any of these investments or of any
Gradison fund.

Page 10

GRADISON MONEY MARKET FUNDS

GRADISON U. S. GOVERNMENT RESERVES

A full service money market fund designed to provide current money market

61
<PAGE> 205

yields by investing exclusively in securities issued by the U.S. Government, its
agencies or instrumentalities. The fund has tax benefits in that it invests, to
the greatest extent reasonable, only in selected U. S. Government securities
that are not taxable by the states or by local governments.

MUNICIPAL MONEY MARKET FUNDS

(Graphic) Man and woman sitting at a desk opposite each other.

Page 11

WORKING WITH YOUR PROFESSIONAL INVESTMENT CONSULTANT

62
<PAGE> 206

much information as possible about your investment goals and your current
personal and financial situation.

Above all, we suggest you ask your investment consultant whatever you feel you
need to know to help you fully understand the investments you are making.

SERVICE YOU CAN COUNT ON

LOW MINIMUN INVESTMENT OF $1,000 Low subsequent investment minimums of $50.

CONVENIENT AUTOMATIC DIVIDEND REINVESTMENT of income dividends and/or capital
gain dividends into any Gradison fund.

AUTOMATIC INVESTMENT PLAN allows authorization of regular, systematic
investments from bank accounts, money market funds and automated payroll into
any Gradison fund.

AUTOMATIC WITHDRAWALS AND PAYMENT PLANS Can be set up to pay you or designated
payees a specified amount monthly or quarterly.

ACCESS Shares can be redeemed at the then-current market value on any business
day.

Page 12

63
<PAGE> 207

EXCHANGE PRIVILEGES Including convenient telephone exchanges allows investors to
move money from one Gradison Mutual Fund to another at any time.

CHECK WRITING For all money market funds includes high quality personalized
checks, check payee names on account statements, and return of canceled checks.
4

WIRE TRANSFERS Specified amounts can be transferred to pre-authorized accounts
at other financial institutions. 5

4. A fee applies to checks under $100.00
5. A fee applies to wires.

TOLL-FREE CUSTOMER SERVICE Knowledgeable shareholder service representatives are
available during business hours at 800-869-5999.

ACCOUNT STATEMENTS Clear, concise and informative. YEAR-END SUMMARY A highly
useful summary of all activity.

QUARTERLY NEWSLETTER Your Future provides Gradison shareholders with timely
information about investing, mutual funds and the Gradison family of funds.

64
<PAGE> 208

SHAREHOLDER REPORTS Semiannual updates on fund strategy, performance and
portfolio holdings.

INTERNET World Wide Web site www.gradisonfunds.com provides quarterly updates on
Gradison Mutual Funds, as well as other information of interest to mutual fund
investors.

GETTING STARTED

Whatever your goals or aspirations, whatever your objective. One thing is
certain. An investment made today brings you that much closer to meeting that
objective and reaching that goal.

The most important thing is to get started. Call your Investment Consultant or
contact Gradison Mutual Funds at 800-869-5999.

START TODAY AND THE FUTURE IS YOURS.

Graphic: Photo of a baby smiling.

Back Cover
Logo
Gradison
Mutual Funds
1997 Gradison Mutual Funds 580 Walnut Street Cincinnati, Ohio 45202
800/869-5999 513/579-5000 htt;:/WWW.gradisonfunds.com

<PAGE> 209

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

PORTFOLIO OF INVESTMENTS MARCH 31, 1997
<TABLE>
<CAPTION>

- -------------------------------------------------------------------------------
SHARES PREFERRED STOCKS - 3.86% VALUE
- -------------------------------------------------------------------------------

BRAZIL - 3.14%

<S> <C> <C>
11,000 Aracruz Celulose $ 20,023
9,195,000 Banco Bradesco SA 75,101
114,000 Banco Itau SA 59,672
98,000 Brasmotor SA 28,560
100,000 Cia Cervejaria Brahma 65,076
1,210,000 Cia Energetica Minas Gerais 50,041
85,000 Cia Tecidos Norte De Minas 34,512
4,214 Cia Vale Do Rio Doce 95,782
360,000 Eletrobras Centrais Eletricas 154,486
302,000 Petrol Brasileiros 60,098
39,760,000 Usiminas Siderugicas Minas Gerais 44,999
---------
688,350
---------
GERMANY - 0.72%

700 Man AG Vorzugsaktien 157,756
---------
TOTAL PREFERRED STOCKS
(COST $688,931) 846,106
---------
</TABLE>
<TABLE>
<CAPTION>

- -------------------------------------------------------------------------------
SHARES COMMON STOCKS - 96.14% VALUE
- -------------------------------------------------------------------------------
ARGENTINA - 3.09%

<S> <C> <C>
7,500 Astra Cia Argentina de Petroleum 12,151
6,900 Banco de Galicia Bue 'B' 42,440
1,800 Banco Frances Rio Plata 17,912
2,700 Ciadea SA 12,827
250 IRSA (Inversiones y
Representaciones SA) 144A ADR 9,313
3,700 Molinos Rio Plata 'B' 13,618
10,150 Perez Companc SA ADR 157,343
18,650 Siderca SA 39,636
5,250 Telefonica de Argentina ADR 154,219
8,250 YPF SA ADR 218,625
---------
678,084
---------

BRAZIL - 2.04%

161,000 Cia Paulista de Forca e Luz 22,321
650,000 Cia Siderurgica Nacional 22,866
4,500 Souza Cruz SA 37,560
800,000 Telecomunicacoes Brasileiras SA 80,129
2,500 Telebras SA ADR 255,938
18,000,000 White Martins SA Co. 29,030
---------
447,844
---------

CHILE - 2.24%

3,000 Banco Santander Chile ADR 50,250
1,750 Chilgener SA ADR 45,062
1,200 Cia Cerveceria Unidas ADR 23,700
4,150 Cia Telecommunications Chile ADR 119,313
3,800 Empresa Nacional de
Electridad SA ADS 72,200
3,200 Enersis SA ADR 101,600
1,000 Madeco SA ADR 26,750
1,500 Maderas y Sinteticos ADR 22,812
500 Quimica y Minera SA ADR 28,813
---------
490,500
---------
COLUMBIA - 0.07%

5,520 Carulla 144A SA ADR 15,180
---------

FINLAND - 2.12%

950 Hartwall Oy 49,870
1,140 Kemira Oy 12,337
3,860 Metsa Serla Oy B Ord 28,057
1,240 Neste Oy 32,297
2,085 Nokia AB Oy 125,660
540 Stockmann AB Oy 30,201
1,980 Upm-Kymmene Oy 43,775
2,130 Valmet Oy 38,275
550 Viking Line AB 18,656
2,300 Werner Soderstrom 70,354
1,200 Yit Yhtyma 15,749
---------
465,231
---------

FRANCE - 3.97%

648 Alcatel Alst 78,057
916 AXA 60,589
314 Bic 47,698
1,550 Banque Nationale de Paris 68,874
108 Carrefour 66,985
568 Cie De St Gobain 85,980
400 Danone 63,392
952 Elf Aquitaine 97,593
600 Havas 44,559
850 Lafarge 58,866
1,680 Rhone Poulenc SA 56,801
752 Schneider SA 43,021
450 Societe Generale 52,607
660 Valeo 44,348
---------
869,370
---------
</TABLE>

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

See accompanying notes to financial statements.

66
<PAGE> 210
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
<TABLE>
<CAPTION>

- -------------------------------------------------------------------------------
SHARES COMMON STOCKS (CONTINUED) VALUE
- -------------------------------------------------------------------------------

GERMANY - 8.64%

<S> <C> <C>
90 Allianz AG Holdings $ 185,838
6,090 Bayer AG 253,325
2,400 Commerzbank AG 69,049
1,250 Daimler-Benz AG (1) 99,946
396 Degussa AG 168,996
6,000 Deutsche Telekom AG 137,737
3,100 Dresdner Bank AG 110,184
462 Mannesmann AG 176,671
3,220 Siemens AG 173,507
5,042 Veba AG 285,434
418 Volkswagen AG 230,998
---------
1,891,685
---------

HONG KONG - 2.27%

38,000 Amoy Properties 40,211
10,000 Cheung Kong Holdings 88,075
7,000 Citic Pacific 34,688
3,400 HSBC Holdings 78,977
10,000 Hutchison Whampoa Ltd. 75,171
12,000 New World Development Co. 64,731
7,000 Sun Hung Kai Properties Ltd. 74,074
11,000 Wharf Holdings 42,089
---------
498,016
---------

HUNGARY - 1.54%

1,000 Borsodchem Rt. 37,112
400 Egis Gyogyszergyar Rt. 24,806
650 Graboplast Textiles Rt. 29,210
5,800 Magyar Olaj Es Gazipari Rt. 101,022
2,900 OTP Bank Rt. 63,716
1,250 Richter Gedeon Rt. 80,755
---------
336,621
---------

INDONESIA - 0.45%

24,116 Bank Internasional Indonesia 18,309
2,143 Bank Internasional Indonesia
Warrants 758
8,000 H.M. Sampoerna 37,440
1,400 Telekomunikasi Indonesia ADR 42,175
---------
98,682
---------

IRELAND - 0.95%

8,000 Allied Irish Banks Ord 52,737
3,800 Bank of Ireland Ord 36,579
4,000 CRH Ord 38,377
4,800 Irish Life Ord 24,246
2,000 Kerry Group A Ord 19,453
15,000 Smurfit Jefferson Ord 37,647
---------
209,039
---------

ISRAEL - 3.49%

40,000 Bank Hapoalim Ltd. $ 78,851
21,600 Bezeq Israel Telecommunications 56,815
6,500 Blue Square Chain Stores (1) 62,496
207,000 Clal Israel 58,646
5,200 Eci Telecommunications ADR 96,200
1,740 Elite Industries 43,537
2,000 Formula Systems 26,787
63,000 ICI-Israel Chemical 67,450
37,000 Industrial Building 52,523
720 Koor Industries Ltd. 66,240
6,000 Osem Investments Ltd. 33,389
2,170 Teva Pharmaceutical Industries Ltd. 121,987
---------
764,921
---------

ITALY - 2.25%

3,500 Alleanza Assicuraz 23,481
17,325 Credito Italiano SpA 24,595
5,500 Danieli & Co. 39,238
13,500 Eni SpA 68,533
23,000 Fiat SpA 73,018
29,000 Istituto Nazionale delle Assicurazioni 38,911
8,600 Istituto Mobiliare Italiano 74,669
18,300 Pirelli SpA 39,791
15,390 Sasib Di Risp SpA 28,578
12,000 STET-Sicieta Finanziaria Telefonica 42,553
16,000 Telecom Italia SpA 39,965
---------
493,332
---------

JAPAN - 19.88%

11,000 Aoyama Trading Co. 257,624
1,300 Autobacs Seven Co. 77,691
30,000 Dainippon Screen Manufacturing Co. 221,686
16,000 Daiwa Securities Co. Ltd. 115,261
7,000 Fanuc 214,822
29,000 Fujisawa Pharmaceutical Co. 229,520
40,000 Hitachi Ltd. 355,344
8,000 Komori Corp. 159,582
65,000 Marubeni Corp. 251,971
19,000 Matsushita Electric Works 173,392
51,000 Mitsubishi Chemicals Corp. 154,453
65,000 Mitsui O.S.K. Lines Ltd. (1) 118,636
11,000 Murata Manufacturing Co. 394,432
51,000 Nippon Oil Co. 205,938
29 Nippon Telgraph & Telephone Co. 203,992
119,000 NKK Corp. 249,871
16,000 Sumitomo Bank 189,947
41,000 Sumitomo Metal Mining 247,344
21,000 Sumitomo Trust & Banking 167,900
3,300 Tokyo Electric 109,268
10,200 Tokyo Steel Manufacturing 100,498
33,000 Tokyu Corp. 155,108
---------
4,354,280
---------
</TABLE>

See accompanying notes to financial statements.

67
<PAGE> 211
<TABLE>
<CAPTION>

PORTFOLIO OF INVESTMENTS MARCH 31, 1997

MALAYSIA - 6.56%

<S> <C> <C>
1,000 Edaran Otomobil Nasional Berhard $ 10,083
27,499 Gamuda Berhad 104,260
18,000 IOI Properties Berhard 59,533
23,000 Jaya Tiasa Holdings Berhard 128,020
27,000 Land & General Berhard 50,095
11,000 Malayan Banking Berhard 125,338
40,000 Metacorp Berhad 115,355
19,000 Perusahaan Otomobil Berhard 120,316
40,000 Public Bank Berhad 78,732
16,000 Road Builder Berhard 92,930
42,000 Sungei Way Holdings Berhad 115,194
32,000 Tan Chong Motor Holdings Berhard 61,953
13,000 Tanjong Berhard 51,648
23,000 Telekom Malaysia Berhard 179,043
23,000 UMW Holdings Berhard 127,092
2,000 United Engineers Berhard 17,424
---------
1,437,016
---------

MEXICO - 1.93%

4,600 Alfa SA de CV Ser A 25,752
2,500 Apasco SA Co. 16,896
13,500 Cemex SA 49,363
19,528 Cifra SA de CV Ser B 27,278
12,500 Controlodora Comerical
Mexicana SA de CV 8,984
1,800 Desc SA de CV Ser B 12,029
87 Desc SA de CV Ser C (1) 576
720 Empresas ICA Sociedad Controladora 11,475
1,900 Empresas La Modern A 9,487
7,000 Fomento Economico
Mexico SA de CV 30,979
4,200 Grupo Carso SA de CV Ser A1 24,625
9,254 Grupo Financiero Banamex
Accival SA de CV 18,809
2,393 Grupo Industrial Bimbo SA (1) 14,769
3,300 Grupo Mexico SA 11,026
3,600 Grupo Modelo SA de CV 21,697
700 Grupo Televisa GDS 17,412
1,800 Industrias Penoles SA 8,829
7,000 Kimberly Clark de Mexico SA 28,199
1,870 Telefonos de Mexico ADR 71,995
700 Tubos de Acero de Mexico SA 12,030
---------
422,210
---------

NETHERLANDS - 4.59%

766 ABN-AMRO Holdings NV $ 52,679
753 Ahold (Koninklijke) NV 52,468
350 Akzo Nobel NV 50,268
450 DSM NV 45,437
6,420 Elsevier NV 104,389
1,200 Ing Groep NV 47,277
1,800 Koninklijke PTT Nederland Nv 66,693
1,300 Philips Electronic 60,642
1,570 Royal Dutch Petroleum 285,079
610 Unilever NV 119,154
1,500 Vendex International NV 71,011
2,480 VNU(Verenigde Nederlandse
Uitgevbedri Verigd Bezit) 51,034
---------
1,006,131
---------

PERU - 0.96%

2,000 Banco Wiese ADR 12,500
4,000 Cementos Lima 6,851
8,993 Cervecerias Peruanan
Backus & Johnston SA 8,482
47,600 Cia Peruana Telefonica B Shs 105,955
760 Credicorp Ltd. ADR 17,765
5,500 Ferreyros(Enrique) SA 4,711
16,000 Luz Del Sur SA 19,800
1,414 Minas Buenaventura A 12,435
353 Minas Buenaventura B 3,370
1,892 Minsur SA 7,388
2,700 Southern Peru Copper Corp. 11,215
---------
210,472
---------

PHILIPPINES - 3.41%

103,450 Ayala Corp. 105,941
2,800 Equitable Banking Corp. 12,033
5,600 Metropolitan Bank & Trust Co. 145,496
184,300 Petron Corp. 75,146
2,600 Phillippine Long Distance
Telephone Co. ADR 155,675
43,530 San Miguel Corp. Class B 151,071
351,000 SM Prime Holdings 102,511
---------
747,873
---------

POLAND - 0.57%

2,054 Bank Rozwoju Eksportu SA 61,462
395 Bank Slaski SA 37,257
2,870 Elektrim Spolka Akcyjna SA 25,204
---------
123,923
---------

</TABLE>

See accompanying notes to financial statements.

68
<PAGE> 212
<TABLE>
<CAPTION>

PORTFOLIO OF INVESTMENTS MARCH 31, 1997

PORTUGAL - 2.86%

<S> <C> <C>
3,500 Banco Espirito Santo $ 67,566
2,460 Cimpor (Cimentos de Portugal) 51,462
4,900 Colep 68,629
1,095 Inparsa-indus E Participacoe 9,789
1,750 Investec Consultadoria
Internacional (1) 63,623
1,578 Jeronimo Martins & Filho 87,465
4,000 Mundial Confianca 48,634
4,430 Portugal Telecom SA 164,886
1,890 Sonae Investimentos Socieda de
Gestora de Participacoes Sociais SA 63,813
-----------
625,867
-----------

SOUTH KOREA - 1.11%

4,790 Cho Hung Bank 24,590
1,090 Daewoo Securities 10,571
3,250 Korea Electric Power 94,302
6,300 Korea Fund Inc.
(closed-end mutual fund) 90,562
330 Samsung Electronics 22,060
-----------
242,085
-----------

SPAIN - 2.05%

1,020 Banco Bilbao Vizcaya SA 61,725
850 Banco Santander SA 58,452
1,086 Empresa Nacional de Electricid SA 69,932
5,564 Iberdrola SA 61,219
1,475 Repsol SA 61,379
1,000 Tabacalera SA 50,076
3,590 Telefonica de Espana 86,468
-----------
449,251
-----------

SWITZERLAND - 6.90%

72 ABB Ag 86,463
53 Alusuisse Lonza Holdings AG 44,736
238 Ciba Specialty Chemical Nw (1) 19,660
125 Clariant AG 61,519
1,164 Credit Suisse Group 139,579
99 Holderbank Finance Glaris AG 75,867
30 Kuoni Reisen Holdings 84,547
138 Nestle SA 161,409
238 Novartis Ag 295,059
32 Roche Holdings AG 276,436
200 Schweiz Bankgesellschaft 179,645
650 Tag Heuer 85,840
-----------
1,510,760
-----------

TURKEY - 3.04%

721,000 Adana Cimento Sanayii $ 70,568
477,850 Akal Tekstil Sanayii 59,865
242,000 Akbank 36,002
418,000 Arcelik AS 55,640
169,000 Bagfas Bandirma Gubre AS 41,683
522,000 Demirbank 23,297
883,000 Eczacibasi Yapi Gere (1) 35,261
284,000 Erciyas Biracilik 26,129
366,000 Eregli Demir Celik 49,435
69,000 Goodyear Lastikleri Tas 42,681
3,745,000 Izmar Demir Celik Sanayi 65,978
23,800 Migros Turk TAS 24,692
193,000 Netas Telekomunik AS 55,158
373,000 T Sise Cam 53,301
120,000 Tansas 25,369
-----------
665,059
-----------

UNITED KINGDOM - 9.16%
12,440 Abbey National PLC 152,177
6,900 Boots Co. PLC 76,476
12,700 British Telecom PLC 93,006
4,500 Burmah Castrol PLC 75,368
30,500 Burton Group PLC 78,126
5,600 Commercial Union PLC 61,332
13,700 Glynwed International PLC 63,212
6,500 Granada Group PLC 98,085
14,200 IMI PLC 91,400
18,759 Lloyds TSB Group PLC 153,703
10,800 Marks & Spencer PLC 86,540
9,500 Prudential PLC 88,602
17,179 Scot Power 99,856
10,000 Scottish & Newcastle PLC 111,328
5,550 Shell Transport & Trading PLC 98,877
5,100 Smith Kline Beecham 75,703
4,350 Thorn EMI PLC 79,427
2,900 Unilever PLC 76,856
13,530 Wolseley PLC 109,304
8,190 Zeneca Group PLC 237,088
-----------
2,006,466
-----------
TOTAL COMMON STOCKS
(COST $20,366,527) $21,059,898
-----------

TOTAL INVESTMENTS, AT VALUE (NOTE 1)
(COST $21,055,458) - 100% $21,906,004
===========

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

<FN>

(1) Non-income producing.

The following abbreviations are used in this portfolio.
ADR - American Depository Receipts; ADS - American Depository Shares;
GDR - Global Depository Receipts; GDS - Global Depository Shares
144A - These securities are exempt from registration under rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to qualified
institutional buyers, in transactions exempt from registration. See Note 1 of
the Notes to Financial Statements for valuation policy. Rule 144A securities
amounted to $24,493 as of March 31, 1997.
</TABLE>

See accompanying notes to financial statements.

STATEMENT OF ASSETS AND LIABILITIES

ASSETS
MARCH 31, 1997
<S> <C>
Investments in securities, at value (Note 1) (Cost $21,055,458) $21,906,004
Cash 3,211,493
Receivable for securities sold 490,550
Foreign currency, at value (Note 1) (Cost $147,470) 147,157
Dividends and interest receivable 57,795
Receivable for Fund shares sold 42,315
Prepaid expenses and other assets 19,332
-----------
TOTAL ASSETS 25,874,646
-----------
LIABILITIES

Payable for investments purchased 984,099
Other accrued expenses and liabilities 27,808
Accrued investment advisory fee (Note 2) 15,491
Payable for Fund shares redeemed 13,790
Payable for foreign currency purchased 11,714
Other accrued expenses payable to adviser (Note 2) 5,672
-----------
TOTAL LIABILITIES 1,058,574
-----------

NET ASSETS $24,816,072
===========
Net assets consist of:
Aggregate paid-in capital $23,754,644
Accumulated undistributed net realized gains from investments
and foreign currency transactions 212,492
Net unrealized appreciation of investments 850,546
Net unrealized depreciation on translation of assets and liabilities in foreign currency (1,610)
-----------
NET ASSETS $24,816,072
===========
Shares of capital stock outstanding
(no par value - unlimited number of shares authorized) 1,529,221
===========
Net asset value and redemption price per share (Note 1) $16.23
===========

- -------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to financial statements.

70
<PAGE> 214

STATEMENT OF OPERATIONS

YEAR ENDED
MARCH 31, 1997
---------------------------
INVESTMENT INCOME:

<S> <C>
Dividends, net of foreign withholding taxes of $44,035 $311,953
Interest 77,212
--------
Total investment income $389,165

EXPENSES:

Investment advisory fees (Note 2) 208,135
Custodian fees 104,955
Distribution (Note 2) 104,067
Accounting services fees (Note 2) 60,000
Professional fees 34,907
Transfer agency fees (Note 2) 31,507
Registration fees 14,877
Trustees' fees (Note 2) 7,329
Printing 7,137
Amortization of organization expenses (Note 1) 4,816
Other 1,777
--------
TOTAL EXPENSES 579,507
LESS FEES WAIVED BY THE ADVISER (NOTE 2) (163,238)
--------
NET EXPENSES 416,269
--------
NET INVESTMENT LOSS (27,104)

NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:

Net realized gain on investments 690,706
Net realized loss on foreign currency transactions (403,339)
Net change in unrealized appreciation of investments 289,521
Net change in unrealized depreciation of foreign currency transactions (31,683)
--------

NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS AND FOREIGN CURRENCY 545,205
--------

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $518,101
========
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to financial statements.

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE PERIOD
ENDED MAY 31, 1995*
MARCH 31, 1997 TO MARCH 31, 1996
-------------- -----------------

FROM OPERATIONS:

<S> <C> <C>
Net investment income (loss) $ (27,104) $ 52,075
Net realized gain on investments 690,706 60,985
Net realized loss on foreign currency transactions (403,339) (88,754)
Net change in unrealized appreciation of investments 289,521 561,025
Net change in unrealized appreciation (depreciation) on translation
of assets and liabilities in foreign currencies (31,683) 30,073
----------- -----------
Net increase in net assets resulting from operations 518,101 615,404
----------- -----------

FROM DISTRIBUTIONS TO SHAREHOLDERS:

Net investment income - (30,287)
Net realized capital gains (41,790) -
----------- -----------
Decrease in net assets from distributions to shareholders (41,790) (30,287)
----------- -----------
FROM FUND SHARE TRANSACTIONS:

Proceeds from shares sold 12,548,017 17,657,397
Net asset value of shares issued in reinvestment of distributions 38,087 30,169
Payments for Fund shares redeemed (3,551,439) (2,967,587)
----------- -----------
Net increase in net assets from Fund share transactions 9,034,665 14,719,979
----------- -----------
TOTAL INCREASE IN NET ASSETS 9,510,976 15,305,096

NET ASSETS:

Beginning of period 15,305,096 -
----------- -----------
End of period (including undistributed net investment income
of ($0 and $21,788, respectively) (Note 1) $24,816,072 $15,305,096
=========== ===========
NUMBER OF FUND SHARES:

Sold 780,856 1,162,052
Issued in reinvestment of distributions to shareholders 2,370 1,987
Redeemed (221,365) (196,679)
----------- -----------
Net increase in shares outstanding 561,861 967,360
Outstanding at beginning of period 967,360 -
----------- -----------
Outstanding at end of period 1,529,221 967,360
=========== ===========

- ---------------------------------------------------------------------------------------------------------------------------
<FN>

*Date of public offering
</TABLE>

See accompanying notes to financial statements.

72
<PAGE> 216
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
================================================================================

Gradison Growth Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The
Trust was created under Ohio law on May 31, 1983; it commenced investment
operations and the public offering of its shares on August 16, 1983. The Trust
consists of four series, the Gradison International Fund, the Gradison
Established Value Fund, the Gradison Opportunity Value Fund and the Gradison
Growth &Income Fund (collectively, the "Funds"); each of which, in effect,
represents a separate diversified fund with its own investment policies. This
Annual Report to Shareholders pertains only to the Gradison International Fund
(the "Fund"), the public offering of shares of which commenced on May 31, 1995.
The Fund's investment objective is to seek long-term growth of capital.

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

SECURITIES VALUATION -- Listed equity securities are valued at the last sale
price reported on national securities exchanges, or if there were no sales that
day, the security is valued at the closing bid price. Unlisted securities, 144A
securities and short-term obligations (and private placement securities) are
generally valued at the prices provided by an independent pricing service.
Portfolio securities and other assets for which market quotations are not
readily available are valued at their fair value as determined by management
using procedures approved by the Board of Trustees. Short-term securities with
remaining maturities of sixty days or less are valued at amortized cost, which
approximates value.

FOREIGN CURRENCY TRANSLATION -- The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in foreign
currencies ("FC") are translated into U.S. dollars based on the rate of
exchange of such currencies against U.S. dollars on the date of valuation.
Purchases and sales of securities, income and expenses are translated at the
rate of exchange quoted on the respective date that such transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are adjusted when reported by the custodian bank. The Fund does not
isolate that portion of the results of operations resulting from changes in
foreign exchange rates on investments from the fluctuations arising from
changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.

Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of FCs, currency gains or losses
realized between the trade and settlement dates on securities transactions, the
difference between the amounts of dividends, interest, and foreign withholding
taxes recorded on the Fund's books, and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized foreign exchange gains and
losses arise from changes in the value of assets and liabilities, other than
investments in securities, resulting from changes in the exchange rate.

Distributions to shareholders are recorded on the ex-dividend date. During the
year ended March 31, 1997, the Fund made distributions of $0.030 per share
which is treated as ordinary income.

73
<PAGE> 217
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997

Forward Foreign Currency Contracts -- During the year ended March 31, 1997, the
Fund entered into forward foreign currency contracts under which it was
obligated to exchange currencies at specified future dates. The Fund's currency
transactions were transaction hedges and portfolio hedges involving either
specific transactions or portfolio positions.

The contractual amounts of forward foreign exchange contracts do not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered. Risks arise from the
possible inability of counterparties to meet the terms of their contracts and
from movements in currency values. The Fund had no outstanding contracts at
March 31, 1997.

FUTURES CONTRACTS -- Initial margin deposits made upon entering into futures
contracts are recognized as assets due from the broker (the Fund's agent in
acquiring the futures position). During the period the futures contract is
open, changes in the value of the contract are recognized as unrealized gains
or losses by "marking to market" on a daily basis to reflect the market value
of the contract at the end of each day's trading.

Variation margin payments are received or made, depending upon whether
unrealized gains or losses are incurred. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the opening and
closing value of the contract.

The Fund had no futures contracts as of March 31, 1997.

SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on the trade date (the date the order to buy or sell is
executed), and dividend income is recorded on the ex-dividend date. Interest
income is accrued as earned. Gains and losses on sales of investments are
calculated on the identified cost basis for financial reporting and tax
purposes.

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

The tax basis of investments is approximately equal to the cost as shown on the
Statement of Assets and Liabilities. For both financial reporting and tax
purposes, gross unrealized appreciation and gross unrealized depreciation of
securities at March 31, 1997 was $2,361,290 and $1,510,744, respectively.

ORGANIZATION EXPENSES -- Expenses of organization have been capitalized and are
being amortized on a straight-line basis over 60 months commencing upon the
public offering of the Fund's shares.

<PAGE> 218
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997

NOTE 2 -- TRANSACTIONS WITH AFFILIATES
================================================================================

The Trust's investments are managed, subject to the general supervision and
control of the Trust's Board of Trustees, by McDonald & Company Securities,
Inc. ("McDonald"), a registered investment adviser and securities dealer,
pursuant to the terms of an Investment Advisory Agreement ("Agreement"). Under
the terms of the Agreement, the Fund pays McDonald a fee computed and accrued
daily and paid monthly based upon the Fund's daily net assets at the annual
rate of 1.00% of the first $100 million of the Fund's average daily net assets,
.90% of the next $150 million, .80% of the next $250 million and .75% of net
assets in excess of $500 million for acting as its investment adviser. McDonald
has engaged Blairlogie Capital Management ("Blairlogie") as Portfolio Manager
for the Fund pursuant to a Portfolio Management Agreement, and McDonald
compensates Blairlogie from its advisory fee at the rate of .80% of the first
$25 million of average daily net assets, .70% of the next $25 million, .60% of
the next $50 million, .50% of the next $150 million, and .40% of assets in
excess of $250 million. McDonald is to reimburse the Fund for the amount by
which the Fund's aggregate expenses for a fiscal year, including the advisory
fee but excluding interest, taxes and extraordinary expenses, exceed limits set
by state securities regulations.

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 Fund. The Fund pays
McDonald a monthly fee for transfer agency and administrative services at an
annual rate of $19.25 per shareholder non-zero balance account, plus
out-of-pocket costs for statement paper, statement and reply envelopes and
reply postage. The Fund pays McDonald a monthly fee for accounting services
based on the Fund's average daily net assets at an annual rate of .045% on the
first $100 million, .03% on the next $100 million and .015% on any amount in
excess of $200 million, with a minimum annual fee of $60,000.

Under the terms of an Expense Reimbursement Agreement, McDonald has agreed to
forego fees owed to it under the Advisory Agreement or any other agreement with
the Trust and to reimburse the Fund if, and to the extent that, expenses
(excluding brokerage commissions, taxes, interest and extraordinary items)
borne by the Fund in any fiscal year exceed 2.00% of the average net assets of
the Fund. This agreement is in effect until July 31, 1997 and is subject to
termination by either party upon written notice subsequent to that date. In
addition, McDonald may, at its discretion, agree to waive fees and/or reimburse
the Fund for other expenses in order to limit the Fund's expenses to a
specified percentage of average net assets lower than 2.00%. For the year ended
March 31, 1997, McDonald waived advisory fees of $41,627, distribution expenses
of $104,067, and accounting services fees of $17,544.

In accordance with the terms of a Distribution Plan adopted under Rule 12b-1 of
the Investment Company Act of 1940, the Fund pays McDonald a service fee for
personal services to shareholders including shareholder liaison services such
as responding to shareholder inquiries and providing information to
shareholders about their Fund accounts. This fee is computed and paid at an
annual rate of .25% of the Fund's average daily net assets. The Fund also pays
McDonald a fee for its assistance in selling shares of the Fund including
advising shareholders regarding purchase, sale and retention of Fund shares.
This fee is computed and paid at an annual rate of .25% 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 $5,000 payable in quarterly
installments and (b) $500 for each Board of Trustees or committee meeting
attended.

<PAGE> 219

NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997

NOTE 3 -- SUMMARY OF PURCHASES AND SALES OF INVESTMENTS
================================================================================

For the year ended March 31, 1997, cost of purchases, and proceeds from the
sale of securities, excluding short-term securities, amounted to $24,804,753
and $17,075,057, respectively.

NOTE 4 -- PORTFOLIO COMPOSITION
===============================================================================

The Fund invests primarily in equity securities of non-U.S. issuers. Although
the Fund maintains a diversified investment portfolio, the political or
economic developments within a particular country or region may have an adverse
effect on the ability of domiciled issuers to meet their obligations.
Additionally, political or economic developments may have an effect on the
liquidity and volatility of portfolio securities and currency holdings.

At March 31, 1997 the Portfolio was diversified within the following
industries:

MARKET
VALUE

<S> <C>
Automotive 4.44%
Banking 11.95
Beverages and Tobacco 2.72
Building Materials 2.42
Broadcasting and Publishing 2.20
Business Services 0.19
Chemicals 5.47
Construction and Housing 2.51
Diversified Companies 4.69
Electronics 7.83
Energy 6.73
Financial Services 2.40
Food and Household Products 2.68
Forest Products and Paper 1.59
Health and Personal Care 4.92

- ---------------------------------------------
<CAPTION>

MARKET
VALUE

<S> <C>
Household Appliances and Durables 0.57%
Insurance 2.43
Machinery and Engineering 2.12
Materials and Commodities 1.16
Merchandising 5.67
Metals and Mining 3.10
Real Estate 2.00
Steel 2.37
Telecommunications 10.59
Textiles and Apparel 0.41
Tourism 0.83
Transportation 1.33
Utilities 4.68
-------
100.00%
=======
</TABLE>

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

76
<PAGE> 220

ARTHUR ANDERSEN

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Trustees of the
Gradison International Fund
of the Gradison Growth Trust:

We have audited the accompanying statement of assets and liabilities of the
Gradison International Fund of the Gradison Growth Trust (an Ohio business
trust), including the portfolio of investments, as of March 31, 1997, and the
related statement of operations for the year then ended, and the statements of
changes in net assets and the financial highlights for the periods indicated
thereon. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of March 31, 1997, by correspondence with the custodian and brokers or
alternate procedures. 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 International Fund of the Gradison Growth Trust as of March 31, 1997,
the results of its operations for the year then ended, and the changes in its
net assets and the financial highlights for the periods indicated thereon, in
conformity with generally accepted accounting principles.

Cincinnati, Ohio, /s/ Arthur Andersen LLP
May 7, 1997

77
<PAGE> 221

PART C

OTHER INFORMATION

Item 24. FINANCIAL STATEMENTS AND EXHIBITS

(a)(1) Financial Highlights of the Funds for the year ending March 31, l997
are included in the prospectus.

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

Statement of Net Assets at March 31, l997, for the Gradison
Established Value Fund and the Gradison Opportunity Value Fund
Portfolio of Investments at March 31, l997 for the Gradison Growth &
Income Fund and the Gradison International Fund
Statement of Assets and Liabilities at March 31, l997 for the for the
Gradison Growth & Income Fund and the Gradison International
Fund
Statement of Operations for the fiscal year ended March 31, l997.
Statement of Changes in Net Assets for the fiscal year ended
March 31, l997.
Notes to Financial Statements

C-1
<PAGE> 222

(b)Exhibits

( 1)(a) First Amended Declaration of Trust.*
( 1)(b) Amendment dated October 4, 1991 to Registrant's Declaration
of Trust (Amending Paragraph 2.6).+
( 1)(c) Amendments dated May 25, l995, to First Amended Declaration
of Trust.++
( 2)(a) Registrant's By-Laws.**
( 2)(b) Amendment to Registrant's By-Laws dated July 16, 1991
(Amending Section 3.1).+
( 3) None.
( 4)(a) Form of certificate of share of beneficial interest of
GM-E/O.*
( 5)(a) Investment Advisory Agreement (GM-E/O) dated October 4,
1991. +
( 5)(b) Amendments to Investment Advisory Agreements of GM-E/O dated
June 1, l995.++
( 5)(c) Investment Advisory Agreement of GM-E/O dated May 25, l995.++
( 5)(d) Investment Advisory Agreement of GM-INT dated June 1, l995.++
( 5)(e) Sub-Advisory Agreement of GM-INT dated May 25, l995.++
( 6) None.
( 7) None.
( 8) Custodian Agreement (GM-E/O).*
( 8)(a) Custodian Agreement of GM-GI.++
( 8)(b) Custodian Agreement of GM-INT with Chase Manhattan Bank.++
( 8)(c) Account Agreement with Star Bank (GM-INT).++
( 9)(a) Transfer Agency Accounting Services Agreement (GM-E/O) dated
June 1, l995.++
( 9)(b) Transfer Agency Accounting Services Agreement (GM-GI) dated
February 28, l995.++
( 9)(c) Transfer Agency Accounting Services Agreement (GM-INT) dated
June 1, l995.++
(10) Opinion of Counsel is filed yearly with Registrant's Rule 24f-2
Notice and was most recently filed on May 23, l997.
(11) Consent of Independent Accountants (included herein).
(12) None.
(14) Documents used in establishment of individual retirement
accounts in conjunction with shares of Registrant.****
(15)(a) Distribution Plan of GM-E/O, as amended October 31, l994.***
(15)(b) Distribution Agreements dated June 1, l995 of GM-E/O.++
(15)(c) Distribution Agreement of GM-GI dated February 28, l995.++
(15)(d) Distribution Agreement of GM-INT dated June 1, l995.++
(16)(a) Schedule of Total Return Computations.+
(18) Powers of Attorney of Bradley E. Turner, Daniel Castellini, and
Donald E. Weston.***
(18)(a) Powers of Attorney of Patricia Jamieson, Theodore Emmerich,
Jerome Schnee, Richard Rankin, and Julian Ball.++

C-2
<PAGE> 223

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

* Incorporated by reference to Exhibits 1,4, and 8 to Registrant's Form N-1
Registration Statement No. 2-84169 previously filed with the Securities and
Exchange Commission on August 9, l983.

+ Incorporated by reference to Exhibits 1(b),2(b) 5, 15(b) and 16(a)to
Registrant's Form N-1A Registration Statement No. 2-84169 previously filed with
the Securities and Exchange Commission on June l, l992.

** Incorporated by reference to Exhibit 2(b) to Registrant's Form N-1
Registration Statement No. 2-84169 previously filed with the Securities and
Exchange Commission on June 2, l983

****Incorporated by reference to Exhibit 14 to Registrant's Form N-1A
Registration Statement No. 2-84169 previously filed with the Securities and
Exchange Commission on June 20, l986.

*** Incorporated by reference to Exhibits 15(a) and 18 to Registrant's Form N-1A
Registration Statement No. 2-84169 previously filed with the Securities and
Exchange Commission on November 23, l994.

++ Incorporated by reference to Exhibits 1(c), 5(b), 5(c), 5(d), 5(e),8(a),
8(b), 8(c), 9(a), 9(b). 9(c), 15(b), 15(c), 15(d), and 18(a) to Registrant's
Form N-1A Registration Statement No. 2-84169 previously filed with the
Securities and Exchange Commission on July 27, l995.

C-3
<PAGE> 224

Item 26. NUMBER OF HOLDERS OF SECURITIES

<TABLE>
<CAPTION>
Number of
Record Holders
as of
Title of Class June 30, l997

Shares of beneficial interest, without par value of:

<S> <C>
Gradison Established Value Fund 15,399
Gradison Opportunity Value Fund 6,436
Gradison Growth and Income Fund 2,064
Gradison International Fund 1,995
</TABLE>

Item 28. I- BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

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

II- BUSINESS AND OTHER CONNECTIONS OF INVESTMENT SUB-ADVISER OF
GRADISON-MCDONALD INTERNATIONAL FUND

The address of Blairlogie Capital Management, Limited is 4th Floor, 125 Princes
Street, Edinburgh EH2 4AD, Scotland.

Name Position with Other Affiliations
Investment Sub-Adviser

Gavin R. Dobson Chief Executive Officer Director, Blairlogie
Holdings Limited
(U.K.)

James G.S. Smith Chief Investment Director, Blairlogie
Officer Holdings Limited
(U.K.)

John R.W. Stevens Chief Financial Director, Blairlogie
Officer Holdings Limited
(U.K.)

Item 29. PRINCIPAL UNDERWRITERS

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

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

C-4
<PAGE> 225

<TABLE>
<CAPTION>
Positions Business Positions
Name With Underwriter Address With
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, Managing 260 East Brown Street None
III 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 Della Ratta, Jr. Director, Senior 800 Superior Avenue None
Managing Director Cleveland, OH 44114

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

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

Patricia A. Jamieson Director, Senior 800 Superior Avenue Treasurer
Managing Director Cleveland, OH 44114
Chief Financial
Officer

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

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

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

Lawrence T. Oakar Director and 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, Managing 800 Superior Avenue None
</TABLE>

C-5
<PAGE> 226

<TABLE>
<S> <C> <C> <C>
Director Cleveland, OH 44114

Bradley E. Turner Director, Senior 580 Walnut Street President
Managing Director. Cincinnati, OH.45202
</TABLE>

Item 30. LOCATION OF ACCOUNTS AND RECORDS

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

<TABLE>
<CAPTION>
Rule In Possession of:
---- -----------------

<S> <C>
31a-1(b)(1), 31a-1(b)(2)(i)(a)-(f), Star Bank, N.A., Star Bank Center
31a-1(b)(2)(ii), 31a-1(b)(5) and Cincinnati, Ohio 45202 for GM-E/O
31a-1(b)(8) and the Fund and Chase Manhattan
Bank, N.A. Chase Metro Tech
Center, Brooklyn New York, 11245,
for the Gradison-McDonald
International Fund.
</TABLE>

Item 31. MANAGEMENT SERVICES

Not applicable.

Item 32. UNDERTAKINGS

The Registrant hereby undertakes to file a post-effective amendment
with respect to the Gradison-McDonald International Fund series, using
reasonable current financial statements, which need not be audited, within four
to six months from the effective dated of this Amendment.

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

Insofar as indemnification for liability arising under the Securities
Act of l933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate

C-6
<PAGE> 227

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-7
<PAGE> 228

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 28th day of
July l997.

GRADISON GROWTH TRUST

(Registrant)

By /S/ BRADLEY E. TURNER.*
------------------------------
Bradley E. Turner President

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

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>
*/S/ DONALD E. WESTON Chairman of the Board July 28, l997
(Principal Executive Officer)

*/S/ BRADLEY E. TURNER President "

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

*/S/ THEODORE EMMERICH Trustee "

*/S/ JEROME SCHNEE Trustee "

*/S/ DANIEL J. CASTELLINI Trustee "

*/S/ RICHARD RANKIN Trustee "

<FN>
*By: |S| Richard M. Wachterman
-------------------------
Richard M. Wachterman, Attorney-in-fact
</TABLE>

S-1

<PAGE> 1

Exhibit 11

Consent of Independent Public Accountants

As independent public accountants, we hereby consent to references to the use of
our reports dated May 7, l997, and to all references to our Firm included in or
made a part of this registration statement, post-effective amendment no. 19.

/s/ Arthur Andersen LLP

Cincinnati, Ohio
July 28, l997

S-2

<ARTICLE> 6
<CIK> 0000720492
<NAME> GRADISON GROWTH TRUST
<SERIES>
<NUMBER> 1
<NAME> ESTABLISHED VALUE FUND
<CURRENCY> U.S. DOLLAR

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 306,367,390
<INVESTMENTS-AT-VALUE> 432,080,695
<RECEIVABLES> 744,775
<ASSETS-OTHER> 184,533
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 433,010,003
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,284,467
<TOTAL-LIABILITIES> 3,284,467
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 290,212,712
<SHARES-COMMON-STOCK> 14,906,900
<SHARES-COMMON-PRIOR> 13,291,936
<ACCUMULATED-NII-CURRENT> 753,874
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,045,645
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 125,713,305
<NET-ASSETS> 429,725,536
<DIVIDEND-INCOME> 4,641,083
<INTEREST-INCOME> 6,092,265
<OTHER-INCOME> 0
<EXPENSES-NET> 4,475,969
<NET-INVESTMENT-INCOME> 6,257,379
<REALIZED-GAINS-CURRENT> 37,844,738
<APPREC-INCREASE-CURRENT> 11,774,353
<NET-CHANGE-FROM-OPS> 55,876,470
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,248,864
<DISTRIBUTIONS-OF-GAINS> 32,341,951
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,266,990
<NUMBER-OF-SHARES-REDEEMED> 4,986,154
<SHARES-REINVESTED> 1,334,128
<NET-CHANGE-IN-ASSETS> 63,308,708
<ACCUMULATED-NII-PRIOR> 745,359
<ACCUMULATED-GAINS-PRIOR> 7,542,858
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,093,562
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,475,969
<AVERAGE-NET-ASSETS> 398,569,411
<PER-SHARE-NAV-BEGIN> 27.567
<PER-SHARE-NII> .445
<PER-SHARE-GAIN-APPREC> 3.615
<PER-SHARE-DIVIDEND> .450
<PER-SHARE-DISTRIBUTIONS> 2.350
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 28.827
<EXPENSE-RATIO> 1.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0000720492
<NAME> GRADISON GROWTH TRUST
<SERIES>
<NUMBER> 2
<NAME> OPPORTUNITY VALUE FUND
<CURRENCY> U.S. DOLLAR

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 83,882,935
<INVESTMENTS-AT-VALUE> 116,017,423
<RECEIVABLES> 106,163
<ASSETS-OTHER> 45,234
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 116,168,820
<PAYABLE-FOR-SECURITIES> 1,139,490
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 578,473
<TOTAL-LIABILITIES> 1,717,963
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 77,416,037
<SHARES-COMMON-STOCK> 5,026,263
<SHARES-COMMON-PRIOR> 4,625,391
<ACCUMULATED-NII-CURRENT> 379,986
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,520,346
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 32,134,488
<NET-ASSETS> 114,450,857
<DIVIDEND-INCOME> 812,130
<INTEREST-INCOME> 1,657,156
<OTHER-INCOME> 0
<EXPENSES-NET> 1,484,916
<NET-INVESTMENT-INCOME> 984,370
<REALIZED-GAINS-CURRENT> 9,839,496
<APPREC-INCREASE-CURRENT> 1,731,084
<NET-CHANGE-FROM-OPS> 12,554,950
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 780,766
<DISTRIBUTIONS-OF-GAINS> 9,624,857
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,262,371
<NUMBER-OF-SHARES-REDEEMED> 3,315,616
<SHARES-REINVESTED> 454,117
<NET-CHANGE-IN-ASSETS> 11,472,327
<ACCUMULATED-NII-PRIOR> 176,382
<ACCUMULATED-GAINS-PRIOR> 4,305,707
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 699,366
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,484,916
<AVERAGE-NET-ASSETS> 108,970,115
<PER-SHARE-NAV-BEGIN> 22.264
<PER-SHARE-NII> .203
<PER-SHARE-GAIN-APPREC> 2.509
<PER-SHARE-DIVIDEND> .165
<PER-SHARE-DISTRIBUTIONS> 2.040
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 22.771
<EXPENSE-RATIO> 1.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0000720492
<NAME> GRADISON GROWTH TRUST
<SERIES>
<NUMBER> 3
<NAME> GROWTH & INCOME FUND
<CURRENCY> U.S. DOLLAR

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 22,015,399
<INVESTMENTS-AT-VALUE> 25,528,063
<RECEIVABLES> 247,138
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 21,566
<TOTAL-ASSETS> 25,796,757
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 95,036
<TOTAL-LIABILITIES> 95,036
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,896,418
<SHARES-COMMON-STOCK> 1,196,719
<SHARES-COMMON-PRIOR> 648,877
<ACCUMULATED-NII-CURRENT> 63,881
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 228,758
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,512,664
<NET-ASSETS> 25,701,721
<DIVIDEND-INCOME> 462,906
<INTEREST-INCOME> 49,799
<OTHER-INCOME> 0
<EXPENSES-NET> 270,053
<NET-INVESTMENT-INCOME> 242,652
<REALIZED-GAINS-CURRENT> 337,124
<APPREC-INCREASE-CURRENT> 2,325,455
<NET-CHANGE-FROM-OPS> 2,905,231
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 190,392
<DISTRIBUTIONS-OF-GAINS> 112,745
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 674,493
<NUMBER-OF-SHARES-REDEEMED> 141,301
<SHARES-REINVESTED> 14,650
<NET-CHANGE-IN-ASSETS> 13,724,363
<ACCUMULATED-NII-PRIOR> 11,621
<ACCUMULATED-GAINS-PRIOR> 4,379
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 117,370
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 315,045
<AVERAGE-NET-ASSETS> 18,056,858
<PER-SHARE-NAV-BEGIN> 18,459
<PER-SHARE-NII> .246
<PER-SHARE-GAIN-APPREC> 3.112
<PER-SHARE-DIVIDEND> .210
<PER-SHARE-DISTRIBUTIONS> .130
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.477
<EXPENSE-RATIO> 7.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0000720492
<NAME> GRADISON GROWTH TRUST
<SERIES>
<NUMBER> 4
<NAME> INTERNATIONAL
<CURRENCY> U.S. DOLLAR

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-9-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 21,055,458
<INVESTMENTS-AT-VALUE> 21,906,004
<RECEIVABLES> 590,660
<ASSETS-OTHER> 3,377,982
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25,874,646
<PAYABLE-FOR-SECURITIES> 984,099
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 74,475
<TOTAL-LIABILITIES> 1,058,574
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,754,644
<SHARES-COMMON-STOCK> 1,529,221
<SHARES-COMMON-PRIOR> 967,360
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 212,492
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 848,936
<NET-ASSETS> 24,816,072
<DIVIDEND-INCOME> 311,953
<INTEREST-INCOME> 77,212
<OTHER-INCOME> 0
<EXPENSES-NET> 416,269
<NET-INVESTMENT-INCOME> (27,104)
<REALIZED-GAINS-CURRENT> 287,367
<APPREC-INCREASE-CURRENT> 257,838
<NET-CHANGE-FROM-OPS> 518,101
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 41,790
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 780,856
<NUMBER-OF-SHARES-REDEEMED> 221,365
<SHARES-REINVESTED> 2,370
<NET-CHANGE-IN-ASSETS> 9,510,976
<ACCUMULATED-NII-PRIOR> 21,788
<ACCUMULATED-GAINS-PRIOR> (27,769)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 208,135
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 579,507
<AVERAGE-NET-ASSETS> 20,813,453
<PER-SHARE-NAV-BEGIN> 15.822
<PER-SHARE-NII> (.023)
<PER-SHARE-GAIN-APPREC> .457
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .030
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.226
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>