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<PAGE> PAGE 2
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<PAGE> PAGE 3
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<PAGE> PAGE 4
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<PAGE> PAGE 5
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<PAGE> PAGE 7
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<PAGE> PAGE 10
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SIGNATURE RICHARD M. WACHTERMAN
TITLE SECRETARY
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000888850
<NAME> GRADISON-MCDONALD MUNICIPAL CUSTODIAN TRUST
<SERIES>
<NUMBER> 1
<NAME> GRADISON-MCDONALD OHIO TAX-FREE INCOME FUND
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GRY599 MS060DAB
Sub-item 77B
To the Board of Trustees of the
Gradison-McDonald Municipal Custodian Trust:
In planning and performing our audit of the financial statements
of the Gradison-McDonald Municipal Custodian Trust for the year
ended June 30, 1996, we considered its internal control
structure, including procedures for safeguarding securities, in
order to determine our auditing procedures for the purpose of
expressing our opinion on the financial statements and to comply
with the requirements of Form N-SAR, and not to provide assurance
on the internal control structure.
The management of the Gradison-McDonald Municipal Custodian Trust
is responsible for establishing and maintaining an internal
control structure. In fulfilling this responsibility, estimates
and judgments by management are required to assess the expected
benefits and related costs of internal control structure policies
and procedures. Two of the objectives of an internal control
structure are to provide management with reasonable, but not
absolute, assurance that assets are safeguarded against loss from
unauthorized use or disposition and that transactions are
executed in accordance with management's authorization and
recorded properly to permit preparation of financial statements
in conformity with generally accepted accounting principles.
Because of inherent limitations in any internal control
structure, errors or irregularities may occur and not be
detected. Also, projection of any evaluation of the structure to
future periods is subject to the risk that it may become
inadequate because of changes in conditions or that the
effectiveness of the design and operation may deteriorate.
Our consideration of the internal control structure would not
necessarily disclose all matters in the internal control
structure that might be material weaknesses under standards
established by the American Institute of Certified Public
Accountants. A material weakness is a condition in which the
design or operation of the specific internal control structure
elements does not reduce to a relatively low level the risk that
errors or irregularities in amounts that would be material in
relation to the financial statements being audited may occur and
not be detected within a timely period by employees in the normal
course of performing their assigned functions. However, we noted
no matters involving the internal control structure, including
procedures for safeguarding securities, that we consider to be
material weaknesses as defined above as of June 30, 1996.
This report is intended solely for the information and use of
management and the Securities and Exchange Commission.
/s/Arthur Andersen LLP
Cincinnati, Ohio,
August 2, 1996
