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INVESTMENT ADVISER AND MANAGER
Cardinal Management Corp.
155 East Broad Street
Columbus, Ohio 43215
DISTRIBUTOR
The Ohio Company
155 East Broad Street
Columbus, Ohio 43215
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Cardinal Management Corp.
215 East Capital Street
Columbus, Ohio 43215
CUSTODIAN
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
LEGAL COUNSEL
Baker & Hostetler
65 East State Street
Columbus, Ohio 43215
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
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This report has been prepared for the information of shareholders of Cardinal
Government Securities Trust and is not authorized for distribution to
prospective investors unless preceded or accompanied by an effective Prospectus.
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CARDINAL
GOVERNMENT
SECURITIES
TRUST
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ANNUAL REPORT
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SEPTEMBER 30, 1995
(LOGO)*()
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DEAR CARDINAL SHAREHOLDER:
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Thank you for your confidence and investment in the Cardinal Family of Funds. We
appreciate your support and extend a special welcome to all new shareholders. We
are pleased to provide you with our Annual Report for the fiscal year ended
September 30, 1995.
Over the past decade, the mutual fund industry has experienced an unprecedented
level of growth. Between 1984 and 1995, the number of mutual fund shareholders
has increased from approximately 20 million to over 75 million. At The Ohio
Company, we believe that this phenomenal growth rate is attributable to the
special benefits that mutual funds provide, in particular professional
management. A team of professional managers gives every investor access to
full-time experts who evaluate economic trends, monitor the markets and select
individual securities.
What distinguishes our professional portfolio management team? Talent and
experience. The investment professionals responsible for managing the Cardinal
Family of Funds possess, on average, more than seventeen years of investment
experience. Collectively, our team of portfolio managers have guided assets
through bull markets, bear markets and uncertain markets. While each has a
specialized role, our team works together toward one primary goal: To attain
superior investment results according to each fund's investment objective.
We remain committed to providing you with outstanding investment performance and
top quality shareholder services. We look forward to meeting your investment
needs in the years to come and welcome your comments and suggestions.
Sincerely,
<TABLE>
<S> <C>
H. Keith Allen Frank W. Siegel, CFA
Chairman President
</TABLE>
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We are pleased to present our September 30, 1995 Annual Report which includes
audited financial statements as well as the portfolio of investments.
Capital markets during the past 12 months have performed in a much better
fashion than in 1994. You will remember that the Federal Reserve was very
concerned in 1994 about the inflationary trends inherent in an expanding
economy, so they boosted short-term rates on five different occasions.
Apparently this action was effective. The economy slowed and the Consumer Price
Index (CPI) as of September, 1995 was up only 2.5% for the preceding twelve
months. The Fed lowered the federal funds target rate a quarter of 1% in July,
and it is thought, by many, that we will see additional decreases before year
end. We tend to believe the Fed will again shift its focus to inflation
concerns. The economic data we have seen since July, i.e., industrial
production, new and existing home sales, gross domestic product, etc., has been
surprising on the upside and, in truth, this performance may be much stronger on
the surface than underneath. But we think the Fed will wait to make sure.
Those looking for Fed easing also believe that enactment of deficit reduction by
the Congress will favorably impress the Fed governors. The proposed budget plan,
however, defers 70% of the approximately $900 billion spending cuts until after
the turn of the century. We're reminded of the Gramm-Rudman deals of the 1980s
which failed completely to deliver promises in the future. We find it difficult
to believe the Fed would lower current interest rates as a vote of confidence
for what may or may not happen in the future.
For the year ending September 30, the yield on your trust was 4.98% up from
2.84% the previous year, and the assets grew by 21% from $367 million to $445
million.
The portfolio is composed of roughly 35% U.S. Treasury bills and 65% Repurchase
Agreements fully collaterized by U.S. Treasury and United States government
agency securities. The average maturity of the portfolio remains in the 25-30
day range due to a relatively flat yield curve with little reward for extending
maturities.
You are part of a shareholder group that now numbers over 40,000. We value your
confidence and support and will continue to work hard to meet the Fund's
objectives.
H. Keith Allen
Chairman
As portfolio manager for Cardinal Government Securities Trust, Hannibal L.
Godwin is primarily responsible for the day-to-day management of the Trust's
portfolio. Mr. Godwin has 28 years of investment management experience and has
been the portfolio manager for Cardinal Government Securities Trust since its
inception in 1980.
Frank W. Siegel Hannibal L. Godwin
President Vice President
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CARDINAL GOVERNMENT SECURITIES TRUST
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STATEMENT OF INVESTMENTS (AMOUNTS IN THOUSANDS)
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SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
SECURITIES DATE AMOUNT (NOTE 1)
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<S> <C> <C> <C>
DIRECT U.S. GOVERNMENT OBLIGATIONS 34.50%
U.S. Treasury Bills.................................................... 10/19/95 $ 40,000 $ 39,894
U.S. Treasury Bills.................................................... 11/02/95 20,000 19,904
U.S. Treasury Bills.................................................... 11/16/95 20,000 19,864
U.S. Treasury Bills.................................................... 12/07/95 35,000 34,660
U.S. Treasury Bills.................................................... 01/18/96 20,000 19,687
U.S. Treasury Bills.................................................... 02/08/96 20,000 19,625
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TOTAL DIRECT U.S. GOVERNMENT OBLIGATIONS......................... 155,000 153,634
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REPURCHASE AGREEMENTS, FULLY COLLATERALIZED BY U.S. GOVERNMENT AND
FEDERAL AGENCY OBLIGATIONS 65.90%
Smith Barney Shearson, 5.80%, dated 9/25/95............................ 10/02/95 80,000 80,000
Paine Webber Inc., 5.80%, dated 9/25/95................................ 10/02/95 93,000 93,000
Merrill Lynch Securities, 6.35%, dated 9/29/95......................... 10/02/95 39,000 39,000
Fifth Third Bank, 6.25%, dated 9/29/95................................. 10/02/95 6,500 6,500
Fifth Third Bank, 5.75%, dated 9/26/95................................. 10/03/95 75,000 75,000
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TOTAL REPURCHASE AGREEMENTS...................................... 293,500 293,500
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TOTAL INVESTMENTS AT AMORTIZED COST 100.40%...................... $ 448,500 $ 447,134
======== ========
</TABLE>
Cost also represents cost for Federal income tax purposes.
See accompanying notes to financial statements.
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CARDINAL GOVERNMENT SECURITIES TRUST
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STATEMENT OF ASSETS & LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
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SEPTEMBER 30, 1995
<TABLE>
<S> <C>
ASSETS
Investments in securities at amortized cost...................................... $ 447,134
Cash............................................................................. 401
Interest receivable.............................................................. 291
Other assets..................................................................... 314
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Total assets......................................................... 448,140
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LIABILITIES
Payable for Trust shares redeemed................................................ 2,360
Payable for shareholder distributions............................................ 26
Accrued investment management, accounting and transfer agent fees (note 2)....... 274
Other accrued expenses........................................................... 106
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Total liabilities.................................................... 2,766
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COMMITMENTS AND CONTINGENCIES (NOTE 3)
NET ASSETS -- applicable to 445,373,567 outstanding $.01 par value shares of
beneficial interest (unlimited number of shares authorized).................... $ 445,374
=========
NET ASSET VALUE PER SHARE........................................................ $1.00
=========
</TABLE>
See accompanying notes to financial statements.
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CARDINAL GOVERNMENT SECURITIES TRUST
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STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
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YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest............................................................. $ 23,311
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EXPENSES:
Investment management fees (note 2).................................. 2,032
Transfer agent fees and expenses (note 2)............................ 842
Accounting fees (note 2)............................................. 53
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Total affiliated expenses.................................. 2,927
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Custodian fees....................................................... 34
Professional fees.................................................... 90
Reports to shareholders.............................................. 65
Trustees' fees....................................................... 25
Registration fees.................................................... 9
Other expenses....................................................... 151
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Total non-affiliated expenses.............................. 374
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Total expenses............................................. 3,301
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Net increase in net assets from operations................. $ 20,010
========
</TABLE>
See accompanying notes to financial statements.
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CARDINAL GOVERNMENT SECURITIES TRUST
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STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
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YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
FROM OPERATIONS:
Net investment income........................................... $ 20,010 $ 11,615
Net realized loss from security transactions.................... 0 (1,463)
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Net increase in net assets from operations................. 20,010 10,152
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FROM DISTRIBUTIONS TO SHAREHOLDERS:
Total distributions to shareholders............................. (20,010) (11,303)
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FROM CAPITAL SHARE TRANSACTIONS (NOTE 4):
Proceeds from sale of shares.................................... 1,052,266 987,709
Reinvestment of distributions to shareholders................... 19,567 11,027
Cost of shares redeemed......................................... (993,975) (1,033,978)
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Increase (decrease) in net assets derived from capital
share transactions....................................... 77,858 (35,242)
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FROM CAPITAL CONTRIBUTIONS (NOTE 2):
Capital contributed by Cardinal Management Corp................. 0 1,151
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Net increase (decrease) in net assets...................... 77,858 (35,242)
NET ASSETS -- beginning of period............................... 367,516 402,758
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NET ASSETS -- end of period..................................... $ 445,374 $ 367,516
========== ============
</TABLE>
See accompanying notes to financial statements.
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CARDINAL GOVERNMENT SECURITIES TRUST
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NOTES TO FINANCIAL STATEMENTS
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SEPTEMBER 30, 1995
(1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cardinal Government Securities Trust (the Trust) is a diversified, open-end
investment company created under the laws of Pennsylvania by a Declaration of
Trust dated March 21, 1980 and is registered under the Investment Company Act of
1940. According to the terms of the Declaration of Trust, Trust investments must
be obligations (or collateralized by obligations) of the U.S. Government or
agencies thereof. The following is a summary of significant accounting policies
followed by the Trust in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
Security Valuation -- Securities are valued at amortized cost which approximates
fair value (premiums and discounts are amortized on a straight-line basis). The
use of this method requires the Trust to maintain a dollar-weighted average
portfolio maturity of 90 days or less and purchase only securities having a
remaining maturity of thirteen months or less.
Security Transactions and Investment Income -- Security transactions are
recorded on the trade date. Interest income is recorded on the accrual basis. It
is the Trust's policy for its Custodian or a third-party bank to take possession
of all securities pledged as collateral for repurchase agreements and monitor
the market value of the collateral to ensure that it remains sufficient to cover
the repurchase agreements.
Federal Income Taxes -- No provision has been made for Federal taxes on the
Trust's income, since it is the policy of the Trust to comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies and to make sufficient distributions of taxable income and capital
gains within the required time to relieve it from all, or substantially all,
Federal income taxes.
Dividends to Shareholders -- Dividends are declared and accrued daily and (for
those shareholders not electing cash distribution of dividends) automatically
reinvested monthly in additional shares from the sum of net investment income
and net realized short-term gains.
(2) -- TRANSACTIONS WITH AFFILIATES
As investment manager for the Trust, Cardinal Management Corp. (CMC), an
affiliated company, is allowed an annual fee of 0.5% of the average daily net
assets of the Trust. CMC has agreed that if the aggregate expenses of the Trust,
as defined, for any fiscal year exceed the expense limitation of any state
having jurisdiction over the Trust, CMC will refund to the Trust, or otherwise
bear, such excess. This limitation did not affect the calculation of the
management fee during the year ended September 30, 1995.
CMC also serves the Trust as transfer agent and fund accountant. Transfer agent
service fees are based on a monthly charge per shareholder account plus
out-of-pocket expenses. Accounting service fees are based on the monthly average
net assets of the Trust. For the year ended September 30, 1995 the Trust paid or
accrued $842,187 and $53,283 for transfer agent and fund accounting services,
respectively.
To offset capital losses incurred by the Trust, CMC contributed $1,151,186 to
the Trust during the year ended September 30, 1994. The amount contributed was
equal to the investment management, transfer agent service and the fund
accounting fees for the period from May 1, 1994 through September 30, 1994.
(continued)
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CARDINAL GOVERNMENT SECURITIES TRUST
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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SEPTEMBER 30, 1995
The Ohio Company, sole shareholder of CMC, serves as the Trust's distributor
and, in connection therewith receives purchase orders and redemption requests
relating to Trust shares. During the year ended September 30, 1995 the Trust
incurred no expenses related to the distribution of its shares.
(3) -- COMMITMENTS AND CONTINGENCIES
The Trust has an available $6,000,000 line of credit with its custodian, Fifth
Third Bank, which was unused at September 30, 1995. When used, borrowings under
this arrangement are secured by portfolio securities and can be used only for
short term needs of the Trust. No compensating balances are required and the
arrangement bears an interest rate of 106% of the custodian's prime lending
rate.
Fidelity Bond and Errors and Omissions insurance coverage for the Trust and its
officers and trustees has been obtained through ICI Mutual Insurance Company
(ICI Mutual), an industry-sponsored mutual insurance company. Included in other
assets of the Trust is a deposit of $87,459 for the initial capital of ICI
Mutual. The Trust is also committed to provide $262,377 should ICI Mutual
experience the need for additional capital contributions.
Included in other assets is a $175,000 certificate of deposit which
collateralizes a standby letter of credit in connection with the Trust's
participation in ICI Mutual. This amount is not available for investment.
(4) -- CAPITAL STOCK
At September 30, 1995, there were an unlimited number of $.01 par value shares
of capital stock and the capital amounts were as follows:
<TABLE>
<S> <C>
Paid in capital.................................................................. $446,524,753
Accumulated net realized loss on investments..................................... (1,463,438)
Undistributed net investment income.............................................. 312,252
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Net assets....................................................................... $445,373,567
=============
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------------------
1995 1994
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<S> <C> <C>
Shares sold..................................................... 1,052,265,662 987,708,658
Shares issued in connection with reinvestment of distributions
to shareholders............................................... 19,567,048 11,026,622
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1,071,832,710 998,735,280
Shares repurchased.............................................. (993,975,623) (1,033,976,922)
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Net increase (decrease)......................................... 77,857,087 (35,241,642)
Shares outstanding:
Beginning of period............................................. 367,516,480 402,758,122
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End of period................................................... 445,373,567 367,516,480
============= ==============
</TABLE>
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(5) -- SUBSEQUENT EVENT
On November 13, 1995 the Board of Trustees approved an Agreement and Plan of
Reorganization and Liquidation between the Trust and The Cardinal Group ("TCG").
The plan calls for the transfer of all assets and liabilities of the Trust to a
series of TCG with the same basic investment objectives and restrictions. The
Trustees have determined that this action is in the best interests of the
shareholders of the Trust and TCG. Shareholder approval will be sought and is
needed to ratify the transaction.
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FINANCIAL HIGHLIGHTS
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Selected data for each share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
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1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income................................ 0.05 0.03 0.02 0.04 0.06
Less distributions:
Dividends............................................ (0.05) (0.03) (0.02) (0.04) (0.06)
--------- --------- --------- --------- ---------
Net Asset Value, ending................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Total return*.......................................... 4.98% 2.84% 2.41% 3.58% 6.20%
======== ======== ======== ======== ========
Net assets, ending (000)............................... $ 445,374 $ 367,516 $ 402,758 $ 472,521 $ 567,841
======== ======== ======== ======== ========
Ratio of expenses to average net assets................ 0.81% 0.85% 0.79% 0.76% 0.72%
======== ======== ======== ======== ========
Ratio of net investment income to average net assets... 4.92% 2.94% 2.38% 3.52% 6.03%
======== ======== ======== ======== ========
</TABLE>
* Without the capital contribution discussed in note 2, the 1994 total return
would have been 2.55%.
See accompanying notes to financial statements.
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INDEPENDENT AUDITORS' REPORT
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The Shareholders and Board of Trustees
Cardinal Government Securities Trust:
We have audited the accompanying statement of assets and liabilities of Cardinal
Government Securities Trust (the Trust), including the statement of investments,
as of September 30, 1995, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the years in the
two-year period then ended and the financial highlights for each of the years in
the five-year period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
September 30, 1995, by confirmation with the custodian and other appropriate
audit 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
Cardinal Government Securities Trust as of September 30, 1995, the results of
its operations for the year then ended, the changes in its net assets for each
of the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
November 17, 1995
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THE CARDINAL FUND INC.
CARDINAL GOVERNMENT SECURITIES TRUST
CARDINAL TAX EXEMPT MONEY TRUST
CARDINAL GOVERNMENT OBLIGATIONS FUND
CARDINAL BALANCED FUND
CARDINAL AGGRESSIVE GROWTH FUND
155 E. Broad St. Columbus, Ohio 43215
<TABLE>
<S> <C>
New Accounts and Toll-free Lines
General Information: In Ohio 800-282-9446
(614) 464-5511 Outside Ohio 800-848-7734
</TABLE>
